<PAGE>
As filed with the Securities and Exchange Commission on December 14, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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MATRIXONE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7372 02-0372301
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) Number)
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Two Executive Drive
Chelmsford, MA 01824
(978) 322-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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MARK F. O'CONNELL
President and Chief Executive Officer
MatrixOne, Inc.
Two Executive Drive
Chelmsford, MA 01824
(978) 322-2000
(Name, address including zip code, and telephone
number, including area code, of agent for service)
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Copies to:
GORDON H. HAYES, JR., ESQ. MARK G. BORDEN, ESQ.
BARBARA M. JOHNSON, ESQ. SUSAN W. MURLEY, ESQ.
Testa, Hurwitz & Thibeault, LLP Hale and Dorr LLP
125 High Street 60 State Street
Boston, Massachusetts 02110 Boston, Massachusetts 02109
Telephone: (617) 248-7000 Telephone: (617) 526-6000
Telecopy: (617) 248-7100 Telecopy: (617) 526-5000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $.01 par value.... $75,000,000 $19,800
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this 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 preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated December 14, 1999.
Shares
MatrixOne, Inc.
[LOGO]
Common Stock
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This is an initial public offering of shares of common stock of MatrixOne,
Inc. All of the shares of common stock are being sold by MatrixOne.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . Application has been made for quotation of the common
stock on the Nasdaq National Market under the symbol "MONE".
See "Risk Factors" beginning on page 6 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to MatrixOne......................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common stock,
the underwriters have the option to purchase up to an additional shares from
MatrixOne at the initial price to public less the underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Dain Rauscher Wessels
SoundView Technology Group
U.S. Bancorp Piper Jaffray
-----------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially "Risk Factors" beginning on page 6.
Our Business
We are a leading provider of Internet business collaboration software. Our
eMatrix suite of products serves as an Internet platform facilitating
collaboration among different departments and geographic locations of global
organizations. Our software is also designed to serve as a backbone for an
enterprise to collaborate through the Internet with its customers, suppliers
and other business partners. Our eMatrix line of products integrates different
business processes and facilitates the exchange of information and ideas on
activities such as conceptual planning and design of new products, design for
manufacturability, plant resource utilization, new product introduction and
customer service and support. Additionally, we provide a full line of services,
including implementation, training, maintenance and customer support, designed
to ensure that our customers successfully utilize our eMatrix products.
The emergence of a global economy over the last several decades and the
rapid growth of the Internet are requiring organizations to rapidly respond to
a constantly changing business environment. Today, companies understand the
need for greater and tighter integration and collaboration among all
departments, including engineering, manufacturing, sales and marketing and
customer support, to efficiently bring feature-rich products and services to
market at competitive prices. Organizations may be hindered in their abilities
to interact and exchange information internally and with their customers,
suppliers and other business partners due to disparate business processes,
differing information technology systems, language barriers, the lack of a
reliable and secure environment, network constraints and the prospect of long
implementation times for new software solutions. Our eMatrix suite of software
products is designed to address these issues.
Our products provide companies with an Internet platform for collaboration
within their organizations and with their customers, suppliers and other
business partners and allow companies the flexibility and agility to rapidly
respond to changing business conditions. Our product features enable our
customers to dynamically model, continuously re-evaluate, change and optimize
their business processes and content with minimal programming. Customers are
also able to define business processes in multiple languages or dialects,
thereby facilitating collaboration around the world, while minimizing the
problems of misinterpretation or misunderstanding. In addition, we offer our
customers off-the-shelf integrations to a wide variety of software products,
which allows our customers to leverage their corporate knowledge and existing
technology infrastructures and continue to use other best-of-breed applications
and point solutions.
Our open-standards Internet architecture that includes extensible markup
language technology, or XML, enables our customers to exchange large volumes of
different types of data, information, ideas and knowledge regardless of their
information technology infrastructures, systems or software. Our eMatrix
products provide dynamic access control and high-integrity encryption to
protect the confidentiality and integrity of the data, information and ideas
being exchanged. Although implementation times for our products vary with the
scope of the project, our customers are able to implement specific applications
in as little as two weeks, which allows our customers to rapidly realize the
benefits of our software.
1
<PAGE>
Our installed customer base represents a wide variety of industries,
including aerospace/ defense, automotive, communications, high technology,
machinery and medical equipment. Over 300 companies in more than 40 countries
worldwide use our eMatrix product suite, including Celestica, Honda, Honeywell,
John Deere, Scania, Siemens and 3Com. For the three months ended October 2,
1999, we achieved revenues of $13.9 million and reported an operating loss of
$1.2 million and for the year ended July 3, 1999, we had revenues of $41.3
million and an operating loss of $7.2 million.
Our Strategy
We seek to be the world's leading provider of Internet business
collaboration software. To accomplish this goal, we intend to:
. extend our technology leadership by accelerating research and development
investments;
. expand our business-to-business collaboration capabilities by continuing
to enhance the scope of the features and functionality of our eMatrix
product line;
. develop business process and industry-focused applications which capture
and automate particular business processes;
. broaden our business alliances with systems integrators and distributors
and with enterprise, Internet and application software companies;
. leverage our customer base to sell additional products and services, to
access our customers' suppliers, customers and other business partners,
and to further penetrate our customers' industries; and
. expand our global presence to increase our ability to provide our
customers with high-quality service in any of their locations.
Our History
We incorporated in Delaware under the name Adra Systems, Inc. in July 1983.
We commercially shipped the first version of our business collaboration
software in November 1993 and released our first Internet business
collaboration software product in March 1997. In October 1997, we changed our
name to MatrixOne, Inc., and in May 1998, we sold our legacy design and
manufacturing software business, Adra Systems, to focus on our Internet suite
of products. We released the current version of our business collaboration
suite of products, eMatrix, in June 1999. Our principal executive offices are
located at Two Executive Drive, Chelmsford, Massachusetts 01824, and our
telephone number is (978) 322-2000. Our Internet address is www.matrixone.com.
The information contained on our website is not incorporated by reference in
this prospectus.
MatrixOne, eMatrix, eMatrix Advantage, Adaplet, eMatrix Integrations,
Matrix Global Advantage, Matrix Systems Administrator, Matrix Business
Administrator, MatrixWeb User, Matrix Application Development Kit ADK, CSM and
Customer Success Model are trademarks of MatrixOne. All other trademarks or
trade names referenced in this prospectus are the property of their respective
owners.
2
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The Offering
<TABLE>
<C> <S>
Shares offered by MatrixOne.................. shares
Shares to be outstanding after the offering.. shares
Proposed Nasdaq National Market symbol....... MONE
Use of proceeds.............................. For general corporate
purposes, including working
capital and possible
acquisitions.
</TABLE>
The shares of common stock to be outstanding after the offering exclude:
. 4,261,179 shares issuable upon the exercise of outstanding stock options
as of October 2, 1999 at a weighted average exercise price of $1.69; and
. 56,250 shares issuable upon the exercise of an outstanding warrant as of
October 2, 1999 at an exercise price of $1.33 per share.
Unless otherwise specifically stated, information throughout this
prospectus assumes:
. no exercise of the underwriters' over-allotment option;
. the conversion of all outstanding shares of our convertible preferred
stock into an aggregate of 8,920,927 shares of common stock immediately
prior to the closing of the offering;
. the effectiveness of a -for- stock split of the common stock
immediately prior to the date of this prospectus; and
. the effectiveness of our Second Amended and Restated Certificate of
Incorporation to increase our authorized common stock to 100,000,000
shares and to authorize 5,000,000 shares of undesignated preferred stock
and the adoption of our Amended and Restated By-laws as of the closing of
the offering.
3
<PAGE>
Summary Consolidated Financial Data
The following table summarizes our consolidated statements of operations
data. In May 1998, we sold our legacy design and manufacturing software
business, Adra Systems, to focus on our Internet-enabled suite of software
products. The financial results of this divested business are reflected in our
consolidated financial statements as discontinued operations.
Shares used in computing pro forma basic and diluted net income (loss) per
share give effect to the conversion of all outstanding shares of our
convertible preferred stock into shares of common stock, as if the conversion
had occurred on the original date of issuance.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
---------------------------------------------- ---------------------
July 1, June 29, June 28, June 27, July 3, October 3, October 2,
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- ------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Total revenues.......... $ 1,885 $ 6,130 $12,275 $ 21,179 $41,346 $ 8,200 $13,881
Gross profit............ 521 3,608 8,469 13,351 23,556 4,760 7,849
Total operating
expenses............... 4,692 10,243 12,873 26,203 31,035 6,812 9,142
Net loss from continuing
operations............. (4,171) (6,635) (3,669) (10,876) (7,235) (1,947) (1,195)
Net income (loss) from
discontinued
operations............. 3,816 (319) 1,777 8,684 -- -- --
Net loss................ $ (355) $(6,954) $(1,892) $ (2,192) $(7,235) $(1,947) $(1,195)
Basic and diluted net
income (loss) per
share:
Continuing operations... $ (3.56) $ (5.52) $ (2.95) $ (8.64) $ (4.90) $ (1.53) $ (0.69)
Discontinued
operations............. 3.26 (0.27) 1.43 6.90 -- -- --
------- ------- ------- -------- ------- ------- -------
Net loss................ $ (0.30) $ (5.79) $ (1.52) $ (1.74) $ (4.90) $ (1.53) $ (0.69)
======= ======= ======= ======== ======= ======= =======
Shares used in
computation............ 1,172 1,202 1,243 1,259 1,476 1,276 1,734
======= ======= ======= ======== ======= ======= =======
Pro forma basic and
diluted net income
(loss) per share:
Continuing operations... $ (0.67) $ (1.05) $ (0.58) $ (1.30) $ (0.78) $ (0.21) $ (0.11)
Discontinued
operations............. 0.61 (0.05) 0.28 1.04 -- -- --
------- ------- ------- -------- ------- ------- -------
Net loss................ $ (0.06) $ (1.10) $ (0.30) $ (0.26) $ (0.78) $ (0.21) $ (0.11)
======= ======= ======= ======== ======= ======= =======
Shares used in
computation............ 6,262 6,291 6,333 8,350 9,323 9,072 10,655
======= ======= ======= ======== ======= ======= =======
</TABLE>
4
<PAGE>
The following table presents a summary of our balance sheet as of October
2, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of our
outstanding convertible preferred stock into 8,920,927 shares of common
stock immediately prior to the closing of the offering and the filing of
our Second Amended and Restated Certificate of Incorporation as of the
closing of the offering authorizing 100,000,000 shares of common stock
and 5,000,000 shares of undesignated preferred stock; and
. on a pro forma as adjusted basis to reflect the sale of shares of
common stock at an assumed initial public offering price of $ per share,
after deducting the estimated underwriters' discounts and commissions and
estimated offering expenses.
<TABLE>
<CAPTION>
As of October 2, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and equivalents............................. $ 7,594 $ 7,594 $
Working capital.................................. 7,047 7,047
Total assets of continuing operations............ 27,140 27,140
Redeemable convertible preferred stock........... 17,015 --
Total stockholders' equity (deficit)............. (6,710) 10,305
</TABLE>
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below before purchasing our common stock. If any of the
following risks were to occur, our business, financial condition or results of
operations would likely suffer. In that event, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
Our Future Success Is Uncertain Because We Have Significantly Changed Our
Business
We commercially shipped the first version of our business collaboration
software in November 1993, released our first Internet business collaboration
software product in March 1997 and released the current version of our eMatrix
product line in June 1999. In May 1998, we sold our legacy design and
manufacturing software business, Adra Systems, to focus on our eMatrix suite of
products. To date, our customers have used our eMatrix suite of products
primarily for linking geographically dispersed departments and divisions within
their organizations. Our strategy is to add new customers and have our current
customers expand their use of our eMatrix product line. Our new business focus
and strategy may not be successful. In addition, because we have only recently
begun to focus our business on the development, sale and marketing of our
eMatrix line of products, we may have limited insight into trends that may
emerge and affect our business. We face the many challenges, risks and
difficulties frequently encountered by companies transitioning to a new product
line and using a new business strategy in a rapidly evolving market. If we are
unable to successfully implement our business strategy, our operating results
will suffer.
We May Not Achieve Anticipated Revenues if Market Acceptance of Our eMatrix
Line of Software Products Is Not Forthcoming
We believe that revenues from licenses of our eMatrix suite of products,
together with revenues from related professional services and training,
maintenance and customer support services, will account for substantially all
of our revenues for the foreseeable future. Our future financial performance
will depend on market acceptance of our eMatrix line of products, including our
integration products, and any upgrades or enhancements that we may make to our
products in the future. As a result, if our eMatrix line of products does not
achieve widespread market acceptance, we may not achieve anticipated revenues.
In addition, if our competitors release new products that are superior to our
eMatrix line of products, demand for our products may not accelerate and could
decline. If we are unable to increase the number and scope of our integration
products or ship or implement any upgrades or enhancements to our products when
planned, or if the introduction of upgrades or enhancements causes customers to
defer orders for our existing products, we also may not achieve anticipated
revenues.
The Market for Our eMatrix Software Products Is Newly Emerging and Demand for
Business Collaboration Software May Not Evolve and Could Decline
The market for Internet business collaboration software is newly emerging.
We cannot be certain that this market will continue to develop and grow or that
companies will choose to use our eMatrix products rather than attempting to
develop alternative platforms and applications internally or through other
sources. If we fail to establish a significant base of customer references, our
ability to market and license our eMatrix product suite successfully may be
reduced. Companies that have already invested substantial resources in other
methods of sharing information during the design, manufacturing and supply
process may be reluctant to adopt new technology or infrastructures that may
replace, limit or compete with their existing systems or methods. We expect
that we will continue to need to pursue intensive marketing and selling efforts
to educate prospective customers about the uses and benefits of our eMatrix
product line. Therefore, demand for and market acceptance of our software
products is subject to a high level of uncertainty.
6
<PAGE>
We Have a History of Losses, Expect to Incur Substantial Losses in the Future
and May Not Achieve or Maintain Profitability
We have incurred substantial net losses from continuing operations in each
of the past five fiscal years and for the three months ended October 2, 1999.
We incurred net losses from continuing operations of approximately $1.2 million
for the three months ended October 2, 1999, $7.2 million for fiscal 1999, $10.9
million for fiscal 1998 and $3.7 million for fiscal 1997. As of October 2,
1999, we had an accumulated deficit of approximately $33.1 million. We expect
to substantially increase our selling and marketing and research and
development expenses, and as a result, we anticipate incurring significant net
losses for the foreseeable future. We will need to generate significant
increases in revenues to achieve and maintain profitability, and we may not be
able to do so. If our revenues grow more slowly than we anticipate or if our
operating expenses increase more than we expect or cannot be reduced in the
event of lower revenues, our business will be significantly and adversely
affected. Even if we achieve profitability in the future on a quarterly or
annual basis, we may not be able to sustain or increase profitability. Failure
to become profitable within the time frame expected by investors or to sustain
profitability may adversely affect the market price of our common stock.
Our Quarterly Revenues and Operating Results Are Likely to Fluctuate and if We
Fail to Meet the Expectations of Securities Analysts or Investors, Our Stock
Price Could Decline
Our quarterly revenues and operating results are difficult to predict, have
varied significantly in the past and are likely to fluctuate significantly in
the future. We typically realize a significant percentage of our revenues for a
fiscal quarter in the second half of the third month of the quarter.
Accordingly, our quarterly results may be difficult or impossible to predict
prior to the end of the quarter. Any inability to obtain sufficient orders or
to fulfill shipments in the period immediately preceding the end of any
particular quarter may cause the results for that quarter to fall short of our
revenues targets. In addition, we base our current and future expense levels in
part on our estimates of future revenues. Our expenses are largely fixed in the
short term. We may not be able to adjust our spending quickly if our revenues
fall short of our expectations. Accordingly, a revenues shortfall in a
particular quarter would have an adverse effect on our operating results for
that quarter.
In addition, our quarterly operating results may fluctuate for many
reasons, including, without limitation:
. changes in demand for our eMatrix products and services, including
seasonal differences;
. changes in the mix of our software licensing and services;
. variability in the mix of professional services performed by us and
systems integrators;
. the amount of training we provide to systems integrators and other
business partners related to our eMatrix product line and its
implementation;
. the level of royalty payments on licensed, third-party software and our
integration products and applications; and
7
<PAGE>
. our ability to accurately estimate costs associated with fixed-price
professional services projects.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. It is likely that in
some future quarter or quarters our operating results will be below the
expectations of securities analysts or investors. If a shortfall in revenues
occurs, the market price of our common stock may decline significantly.
Our Lengthy and Variable Sales Cycle Makes it Difficult for Us to Predict When
or if Sales Will Occur and Therefore We May Experience an Unplanned Shortfall
in Revenues
Our products have a lengthy and unpredictable sales cycle that contributes
to the uncertainty of our operating results. Customers view the purchase of our
eMatrix line of Internet business collaboration software as a significant and
strategic decision. As a result, customers generally evaluate our software
products and determine their impact on existing infrastructure over a lengthy
period of time. Our sales cycle has historically ranged from approximately one
to nine months based on the customer's need to rapidly implement a solution and
whether the customer is new or is extending an existing implementation. The
license of our software products may be subject to delays if the customer has
lengthy internal budgeting, approval and evaluation processes. We may incur
significant selling and marketing expenses during a customer's evaluation
period, including the costs of developing a full proposal and completing a
rapid proof of concept or custom demonstration, before the customer places an
order with us. Customers may also initially purchase a limited number of server
and user licenses before expanding their implementations. Larger customers may
purchase our software products as part of multiple simultaneous purchasing
decisions, which may result in additional unplanned administrative processing
and other delays in the recognition of our license revenues. If revenues
forecasted from a specific customer for a particular quarter are not realized
or are delayed to another quarter, we may experience an unplanned shortfall in
revenues, which could significantly and adversely affect our operating results.
We May Not Achieve Our Anticipated Revenues if Large Software and Service
Orders Expected in a Quarter Are Not Placed or Are Delayed
Although we license our eMatrix software products to numerous customers in
any quarter, a single customer often represents more than 10% of our quarterly
revenues. Two customers accounted for approximately 24% and 10%, respectively,
of our revenues for the three months ended October 2, 1999. We expect that
revenues from large orders will continue to account for a large percentage of
our total revenues in future quarters. A customer may determine to increase its
number of licenses and expand its implementation of our eMatrix product suite
throughout its organization and to its customers, suppliers and other business
partners only after a successful initial implementation. Therefore, the timing
of these large orders is often unpredictable. If any large order anticipated
for a particular quarter is not realized or is delayed to another quarter, we
may experience an unplanned shortfall in revenues, which could significantly
and adversely affect our operating results.
8
<PAGE>
We Will Not Succeed Unless We Can Compete in Our Markets
The markets in which we offer our eMatrix line of software products and
services are intensely competitive and rapidly changing. Furthermore, we expect
competition to intensify given the newly emerging nature of the market for
Internet business collaboration software and consolidation in the software
industry in general. We will not succeed if we cannot compete effectively in
these markets. Competitors vary in size and in the scope and breadth of the
products and services they offer. Many of our actual or potential competitors
have significant advantages over us, including, without limitation:
. larger and more established selling and marketing capabilities;
. significantly greater financial and engineering personnel and other
resources;
. greater name recognition and a larger installed base of customers; and
. well-established relationships with our existing and potential
customers, systems integrators, complementary technology vendors and
other business partners.
As a result, our competitors may be in a stronger position to respond quickly
to new or emerging technologies and changes in customer requirements. Our
competitors may also be able to devote greater resources to the development,
promotion and sale of their products and services than we can. Accordingly, we
may not be able to maintain or expand our revenues if competition increases and
we are unable to respond effectively.
As competition in the business collaboration software market intensifies,
new solutions will come to market. Our competitors may bundle their products in
a manner that may discourage users from purchasing our eMatrix products. Also,
current and potential competitors may establish cooperative relationships among
themselves or with third parties. Increased competition could result in
reductions in price and revenues, lower profit margins, loss of customers and
loss of market share. Any one of these factors could materially and adversely
affect our business and operating results.
If We Are Not Successful in Developing New Products and Services that Keep Pace
with Technology, Our Operating Results Will Suffer
The market for our eMatrix product line is new and emerging, and is
characterized by rapid technological advances, changing customer needs and
evolving industry standards. Accordingly, to realize our expectations regarding
our operating results, we depend on our ability to:
. develop, in a timely manner, new software products and services that
keep pace with developments in technology;
. meet evolving customer requirements; and
. enhance our current product and service offerings and deliver those
products and services through appropriate distribution channels.
We may not be successful in developing and marketing, on a timely and cost-
effective basis, either enhancements to our eMatrix line of software products
or new products which respond to technological advances and satisfy
increasingly sophisticated customer needs. If we fail to introduce new
products, our operating results will suffer. In addition, if new industry
standards emerge that we do not anticipate or adapt to, our software products
could be rendered obsolete and our business could be materially harmed.
9
<PAGE>
If Our Existing Customers Do Not License Additional Software Products From Us,
We May Not Achieve Growth in Our Revenues
Our customers' initial implementations of our eMatrix line of software
products often include a limited number of server and user licenses. Customers
may subsequently add server and user licenses as they expand the
implementations of our products throughout their enterprises or add software
applications designed for specific functions. Therefore, it is important that
our customers are satisfied with their initial product implementations. If we
do not increase licenses to existing customers, we may not be able to achieve
anticipated growth in our revenues.
Our Revenues Could Decline if We Do Not Develop and Maintain Successful
Relationships with Systems Integrators and Complementary Technology Vendors
We pursue business alliances with systems integrators and complementary
technology vendors to endorse our eMatrix line of software products, implement
our software, provide customer support services, promote and resell products
that integrate with our products and develop industry-specific software
products. These alliances provide an opportunity to license our eMatrix
products to our partners' installed customer bases. In many cases, these
parties have established relationships with our existing and potential
customers and can influence the decisions of these customers. We rely upon
these companies for recommendations of our eMatrix line of products during the
evaluation stage of the purchasing process, as well as for implementation and
customer support services. A number of our competitors have stronger
relationships with these systems integrators and complementary technology
vendors who, as a result, may be more likely to recommend our competitors'
products and services. In addition, some of our competitors have relationships
with a greater number of these systems integrators and complementary technology
vendors and, therefore, have access to a broader base of enterprise customers.
If we are unable to establish, maintain and strengthen these relationships, we
will have to devote substantially more resources to the selling and marketing,
implementation and support of our products. Our efforts may not be as effective
as these systems integrators and complementary technology vendors, which could
significantly harm our operating results.
Our International Operations and Planned Expansion Expose Us to Business Risks
Which Could Cause Our Operating Results to Suffer
We generated approximately 26.1% of our revenues in fiscal 1999 and 51.2%
in the three months ended October 2, 1999 from operations outside North
America. We face a number of risks associated with conducting business
internationally, which could negatively impact our operating results,
including, without limitation:
. difficulties relating to the management and administration of a
globally-dispersed business;
. longer sales cycles associated with educating foreign customers on the
benefits of our products and services;
. difficulties in providing customer support for our products in multiple
time zones;
. currency fluctuations and exchange rates;
. limitations on repatriation of earnings of our foreign operations;
. the burdens of complying with a wide variety of foreign laws;
. reductions in business activity during the summer months in Europe and
certain other parts of the world;
. multiple and possibly overlapping tax structures;
10
<PAGE>
. changes in import/export duties, quotas and controls; and
. economic or political instability in some international markets.
We believe that expansion of our international operations will be necessary
for our future success. Therefore, a key aspect of our strategy is to continue
to expand our presence in foreign markets. We may not succeed in our efforts to
enter new international markets and expand our international operations. If we
fail to do so, we may not be able to achieve anticipated growth in our
revenues. This international expansion may be more difficult or time-consuming
than we anticipate. It is also costly to establish international facilities and
operations and promote our eMatrix products internationally. Thus, if revenues
from international activities do not offset the expenses of establishing and
maintaining foreign operations, our operating results will suffer.
We Depend on Licensed Third-Party Technology, the Loss of Which Could Result in
Increased Costs of or Delays in Licenses of Our Products
We license technology from several companies on a non-exclusive basis that
is integrated into our eMatrix product suite, including database technology
from Oracle, Common Object Request Broker Architecture technology, or CORBA,
from IONA Technologies, and security and encryption technology software from
RSA Security. We also license from third parties our eMatrix integration
products and applications. We anticipate that we will continue to license
technology from third parties in the future. This software may not continue to
be available on commercially reasonable terms, or at all. Some of the software
we license from third parties would be difficult and time-consuming to replace.
The loss of any of these technology licenses could result in delays in the
licensing of our eMatrix software products until equivalent technology, if
available, is identified, licensed and integrated. In addition, the effective
implementation of our products may depend upon the successful operation of
third-party licensed products in conjunction with our products, and therefore
any undetected errors in these licensed products may prevent the implementation
or impair the functionality of our products, delay new product introductions
and/or injure our reputation.
If Systems Integrators Are Not Available or Fail to Perform Adequately, Our
Customers May Suffer Implementation Delays and a Lower Quality of Customer
Service, and We May Incur Increased Expenses
Systems integrators often are retained by our customers to implement our
eMatrix line of software products. If experienced systems integrators are not
available to implement our eMatrix products, we will be required to provide
these services internally, and we may not have sufficient resources to meet our
customers' implementation needs on a timely basis. Use of our professional
services personnel to implement our eMatrix product line would also increase
our expenses. In addition, we cannot control the level and quality of service
provided by our current and future implementation partners. If these systems
integrators do not perform to the satisfaction of our customers, our customers
could become dissatisfied with our products, which could adversely affect our
business and operating results.
We May Not Be Able to Increase Revenues if We Do Not Expand Our Sales and
Distribution Channels
We will need to significantly expand our direct and indirect global sales
operations in order to increase market awareness and acceptance of our eMatrix
line of products and generate increased revenues. We market and license our
products directly through our sales organization and indirectly through our
global partner and distributor network. Our ability to increase our global
direct sales organization will depend on our ability to recruit, train and
retain sales personnel with advanced sales
11
<PAGE>
skills and technical knowledge. Competition for qualified sales personnel is
intense in our industry. In addition, it may take up to nine months for a new
sales person to become fully productive. If we are unable to hire or retain
qualified sales personnel, or if newly hired sales personnel fail to develop
the necessary skills or reach productivity more slowly than anticipated, we may
have difficulty licensing our eMatrix software products, and we may experience
a shortfall in anticipated revenues.
In addition, we believe that our future success is dependent upon expansion
of our indirect global distribution channel, which consists of our
relationships with a variety of systems integrators, complementary technology
vendors and distributors. We cannot be certain that we will be able to maintain
our current relationships or establish relationships with additional
distribution partners on a timely basis, or at all. Our distribution partners
may not devote adequate resources to promoting or selling our eMatrix line of
products and may not be successful. In addition, we may also face potential
conflicts between our direct sales force and third-party reselling efforts. Any
failure to expand our indirect global distribution channel or increase the
productivity of this distribution channel could result in lower than
anticipated revenues.
We Currently Perform Many Implementations of Our Software Products on a Fixed-
Price Basis, Which Could Cause a Decline in Our Gross Margins
We currently perform many implementations of our eMatrix software products
on a fixed-price basis. Prior to performing professional services, we estimate
the amount of work involved for a particular implementation project. We may
from time to time underestimate the amount of time or resources required to
implement our products. If we do not correctly estimate the amount of time or
resources required for implementations, our gross margins could decline.
Our Rapid Growth Is Placing a Significant Strain on Our Resources, and Our
Business Will Suffer if We Fail to Manage Our Growth Properly
We have rapidly expanded our revenues and operations over the past five
years, which has placed a significant strain on our resources. We have
substantially increased, and plan to further increase, both the number of our
employees and the geographic scope of our operations. In addition, we have
hired several of our key executives in the last two years. Our management team
has had limited experience managing a rapidly growing company. We expect our
anticipated growth will further strain our management, operational and
financial resources. Moreover, our ability to successfully offer our eMatrix
line of software products and services and implement our business strategy in a
new and rapidly evolving market requires effective planning and management. To
accommodate our growth, we must:
. improve existing and implement new management, information, operational
and financial systems, procedures and controls;
. hire, train, manage, retain and motivate qualified personnel; and
. effectively manage relationships with our customers, suppliers and other
business partners.
We may not be able to install and implement additional management,
information, operational and financial systems, procedures and controls in an
efficient and timely manner to support our future operations. The difficulties
associated with installing and implementing these new systems, procedures and
controls may place a significant burden on our management and our internal
resources. In addition, if we continue to grow internationally, we will have to
expand our worldwide operations and enhance our communications infrastructure.
Any delay in the implementation of, or any disruption in the transition to, new
or enhanced systems, procedures or controls could adversely affect our ability
to accurately forecast sales demand, manage our partner relationships, and
record
12
<PAGE>
and report financial and management information on a timely and accurate basis.
If we cannot manage our expanding operations, we may not be able to continue to
grow or we may grow at a slower pace. Furthermore, our operating costs may
escalate faster than planned, which would negatively impact our operating
results.
We Depend on Our Key Personnel to Manage Our Business Effectively, and if We
Are Unable to Retain Key Personnel, Our Ability to Compete Could Be Harmed
Our ability to implement our business strategy and our future success
depends largely on the continued services of our executive officers and other
key engineering, sales, marketing and support personnel who have critical
industry or customer experience and relationships. None of our key personnel,
other than Johannes T.J. Ruigrok, our Vice President of Sales, Europe, Middle
East and Africa, is bound by an employment agreement. We do not have key-man
life insurance on any of our employees. The loss of the technical knowledge and
management and industry expertise of any of these key personnel could result in
delays in product development, loss of customers and sales and diversion of
management resources, which could materially and adversely affect our operating
results. In addition, our future performance depends upon our ability to
attract and retain highly qualified sales, engineering, marketing, services and
managerial personnel, and there is intense competition for such personnel. If
we do not succeed in retaining our personnel or in attracting new employees,
our business could suffer significantly.
Future Acquisitions May Negatively Affect Us
We may expand our operations or market presence by acquiring or investing
in businesses, products or technologies that complement our business, increase
our market coverage, enhance our technical capabilities and otherwise offer
opportunities for growth. These transactions create risks such as:
. difficulty assimilating the operations, technology, products and
personnel we acquire;
. disruption of our ongoing business;
. diversion of management's attention from other business concerns;
. one-time charges and expenses associated with amortization of goodwill
and other purchased intangible assets; and
. potential dilution to our stockholders.
Our inability to address these risks could negatively impact our operating
results. Moreover, any future acquisitions, even if successfully completed, may
not generate any additional revenues or provide any benefit to our business.
Our Products May Contain Defects that Could Harm Our Reputation, Be Costly to
Correct, Delay Revenues and Expose Us to Litigation
Despite testing by us, our partners and our customers, errors may be found
in our products after commencement of commercial shipments. We and our
customers have from time to time discovered errors in our software products. In
the future, there may be additional errors and defects in our software. If
errors are discovered, we may not be able to successfully correct them in a
timely manner or at all. Errors and failures in our products could result in
loss of or delay in market acceptance of our products and damage to our
reputation and our ability to convince commercial users of the benefits of our
products. In addition, we may need to make significant expenditures of capital
resources in order to eliminate errors and failures. Since our products are
used by customers
13
<PAGE>
for mission-critical applications, errors, defects or other performance
problems could also result in financial or other damages to our customers, who
could assert warranty and other claims for substantial damages against us.
Although our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims, it is
possible that such provisions may not be effective or enforceable under the
laws of certain jurisdictions. In addition, our insurance policies may not
adequately limit our exposure with respect to such claims. A product liability
claim, even if unsuccessful, would be costly and time-consuming to defend and
could harm our business.
Risks Related to Legal Uncertainty
Failure to Protect Our Intellectual Property Could Harm Our Name Recognition
Efforts and Ability to Compete Effectively
To protect our intellectual property rights, we rely on a combination of
patents, trademarks, copyrights and common law safeguards, including trade
secret protection. We also rely on restrictions on use, confidentiality and
nondisclosure agreements and other contractual arrangements with our employees,
affiliates, customers, alliance partners and others. The protective steps we
have taken may be inadequate to deter misappropriation of our intellectual
property and proprietary information. A third party could obtain our
proprietary information or develop products or technology competitive with
ours. We may be unable to detect the unauthorized use of, or take appropriate
steps to enforce, our intellectual property rights. We have registered some of
our trademarks in the United States and have other trademark and patent
applications pending. Effective patent, trademark, copyright and trade secret
protection may not be available in every country in which we offer or intend to
offer our products and services to the same extent as in the United States.
Failure to adequately protect our intellectual property could harm or even
destroy our brands and impair our ability to compete effectively. Further,
enforcing our intellectual property rights could result in the expenditure of
significant financial and managerial resources and may not prove successful.
We Could Incur Substantial Costs Defending Our Intellectual Property from
Claims of Infringement
The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. We may be subject to
future litigation based on claims that our products infringe the intellectual
property rights of others or that our own intellectual property rights are
invalid. We expect that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products overlaps. Claims of
infringement could require us to reengineer or rename our products or seek to
obtain licenses from third parties in order to continue offering our products.
Licensing or royalty agreements, if required, may not be available on terms
acceptable to us or at all. Even if successfullly defended, claims of
infringement could also result in significant expense to us and the diversion
of our management and technical resources.
We May Be Adversely Impacted by the Year 2000 Problem
We believe that all versions of our eMatrix line of products after Version
6.0.3, including the versions of our products that we currently ship, when
configured and used in accordance with the related documentation, are Year 2000
compliant, as discussed in Management's Discussion and Analyses of Financial
Condition and Results of Operations - Year 2000 Readiness Disclosure Statement,
but that prior versions of our software are not Year 2000 compliant. We have
notified our customers that versions of our software prior to Version 6.0.4 are
not Year 2000 compliant and
14
<PAGE>
encouraged them to upgrade to the latest version. There is, however, still a
small number of our customers using a non-Year 2000 compliant version of our
software products. While we believe that third-party software incorporated in
the current versions of our products is Year 2000 compliant, we have not been
able to obtain assurances from all our vendors. Despite testing by us, our
products may contain undetected errors or defects associated with Year 2000
date compliance. Errors or defects in our products caused by Year 2000 issues
could result in delays or loss of revenues, diversion of development resources,
damage to our reputation, increased service and warranty costs, or liability to
our customers, any of which could significantly and negatively impact our
operating results. We have conducted a review of and are testing our internal
information technology and other systems and software to identify functions
that need correction to be Year 2000 compliant. We are taking corrective
actions as we believe necessary in an effort to ensure that systems and
software used in our business will continue to function properly in the year
2000. However, if our testing is incomplete or faulty, or our corrective
actions are unsuccessful or not completed in time, we may encounter material
unanticipated Year 2000 problems with our business operations. Any material
interruption in our business caused by Year 2000 problems could materially and
adversely affect our operating results. Additionally, the Year 2000 problem may
affect us by causing disruptions in the business operations of, or delaying
technology purchases by, companies with whom we do business, such as customers
and suppliers.
Risks Related to This Offering
Management May Use the Proceeds of the Offering in Ways that Do Not Increase
Our Profits or Our Market Value
The primary purposes of the offering are to obtain additional capital,
create a public market for our common stock and facilitate future access to
public markets. We expect to use the net proceeds from the offering for general
corporate purposes, including working capital. We may also use a portion of the
net proceeds to acquire or invest in complementary businesses, products or
technologies. We have not designated the proceeds for any particular purpose.
Accordingly, our management will have broad discretion as to the application of
the net proceeds. Our management may spend these proceeds in ways with which
our stockholders may not agree. Moreover, our net proceeds may be used for
corporate purposes that do not increase our profitability or our market value.
Our Stock Price Could be Volatile which May Lead to Losses by Investors
Before the offering, there was no public market for our common stock. An
active public market for our common stock may not develop or be sustained after
the offering. The underwriters and we will determine the initial public
offering price of our common stock based on negotiations concerning the
valuation of our common stock. The public market may not agree with or accept
this valuation. After the offering, therefore, you may not be able to resell
your shares at or above the initial public offering price. The trading price of
our common stock is likely to be volatile. The stock market in general, and the
market for technology companies in particular, has experienced extreme
volatility. This volatility has often been unrelated to the operating
performance of particular companies. Volatility in the market price of our
common stock may prevent investors from being able to sell their common stock
at or above the initial public offering price.
We Are at Risk of Securities Class Action Litigation Due to Our Expected Stock
Price Volatility
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Securities litigation could result in substantial costs and divert
management's attention and resources from our business. Due to the potential
volatility of our stock price, we may be the target of securities litigation in
the future.
15
<PAGE>
Our Executive Officers and Directors and Their Affiliates Will Retain
Significant Control over Us after the Offering, Which May Lead to Conflicts
with Other Stockholders over Corporate Governance Matters
After the offering, executive officers and directors and their affiliates
will, in the aggregate, own approximately % of our outstanding common stock.
These stockholders would be able to significantly influence all matters
requiring approval by our stockholders, including the election of directors and
the approval of significant corporate transactions. This concentration of
ownership may also delay, deter or prevent a change in our control and may make
some transactions more difficult or impossible to complete without the support
of these stockholders.
Future Sales by Existing Stockholders Could Depress the Market Price of our
Common Stock
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their common stock for the first
time. Sales of a substantial number of shares of common stock in the public
market after the offering, or the threat that substantial sales might occur,
could cause the market price of our common stock to decrease. These factors
could also make it difficult for us to raise capital by selling additional
equity services.
Anti-Takeover Provisions in our Organizational Documents and Delaware Law Could
Prevent or Delay a Change in Control of Our Company
Provisions of our certificate of incorporation and by-laws may discourage,
delay or prevent a merger or acquisition that stockholders may consider
favorable. These provisions may also prevent changes in our management. These
provisions include, without limitation:
. authorizing the issuance of undesignated preferred stock;
. providing for a classified board of directors with staggered, three-year
terms;
. requiring super-majority voting to effect certain amendments to our
certificate of incorporation and by-laws;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Some provisions of Delaware law may also discourage, delay or prevent
someone from acquiring or merging with us. See "Description of Capital Stock--
Delaware Law and Certain Charter and By-law Provisions and Anti-Takeover
Effects".
You Will Experience Immediate and Substantial Dilution of Your Investment
Purchasers of common stock in the offering will pay a price per share which
substantially exceeds the per share value of our assets after subtracting our
liabilities. In addition, purchasers of common stock in the offering will have
contributed approximately % of the aggregate price paid by all purchasers of
our stock but will own only approximately % of our common stock outstanding
after the offering.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties. All statements, other than statements of
historical facts included or incorporated in this prospectus, regarding our
strategy, future operations, financial position, estimated revenues, projected
costs, prospects, plans and objectives of management are forward-looking
statements. When used in this prospectus, the words "will", "believe",
"anticipate", "intend", "estimate", "project", "could", "expect", "plan", "may"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words.
All forward-looking statements speak only as of the date of this prospectus.
You should not place undue reliance on these forward-looking statements.
Although we believe that our plans, intentions and expectations reflected in or
suggested by the forward-looking statements we make in this prospectus are
reasonable, we can give no assurance that these plans, intentions or
expectations will be achieved. We disclose important factors that could cause
our actual results to differ materially from our expectations under "Risk
Factors" and elsewhere in this prospectus. These cautionary statements qualify
all forward-looking statements attributable to us or persons acting on our
behalf.
USE OF PROCEEDS
We estimate that the net proceeds we will receive from our sale of
shares of common stock in the offering will be approximately $ based on an
assumed initial public offering price of $ per share and after deducting the
estimated underwriters' discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, we estimate that the net proceeds will be $ .
We expect to use the net proceeds from the offering for general corporate
purposes, including working capital. We may also use a portion of the net
proceeds to acquire or invest in complementary businesses, products or
technologies. Currently, we have no specific understandings, commitments or
agreements with respect to any such acquisition or investment. Pending these
uses, the net proceeds of the offering will be invested in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion
and growth of our business and do not expect to pay any cash dividends in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion. Our credit facility currently prohibits the
payment of cash dividends on our capital stock.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of October 2, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of our
outstanding convertible preferred stock into 8,920,927 shares of common
stock immediately prior to the closing of the offering and filing of our
Second Amended and Restated Certificate of Incorporation as of the
closing of the offering authorizing 100,000,000 shares of common stock
and 5,000,000 shares of undesignated preferred stock; and.
. on a pro forma as adjusted basis to reflect the sale of shares of
common stock at an assumed initial public offering price of $ per
share, after deducting the estimated underwriters' discounts and
commissions and estimated offering expenses.
The shares of common stock to be outstanding after the offering exclude
4,261,179 shares issuable upon the exercise of outstanding stock options as of
October 2, 1999 and 56,250 shares issuable upon the exercise of an outstanding
warrant as of October 2, 1999.
<TABLE>
<CAPTION>
As of October 2, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Redeemable convertible preferred stock.......... $17,015 $ -- $
Stockholders' equity (deficit):
Convertible preferred stock, $1.00 par value,
3,552 shares authorized, 3,547 issued and
3,393 shares outstanding (actual); $.01 par
value, 5,000 shares authorized and no shares
issued or outstanding (pro forma and pro
forma as adjusted)........................... 3,393 --
Common stock, $.01 par value, 40,000 shares
authorized, 1,908 shares issued and
outstanding (actual); 100,000 shares
authorized and 10,829 shares issued and
outstanding (pro forma); 100,000 shares
authorized, and shares issued and
outstanding (pro forma as adjusted).......... 19 108
Additional paid-in capital.................... 31,867 52,186
Notes receivable from stockholders............ (362) (362)
Deferred stock-based compensation............. (8,400) (8,400)
Accumulated deficit........................... (33,099) (33,099)
Accumulated other comprehensive loss.......... (128) (128)
------- ------- ----
Total stockholders' equity (deficit).......... (6,710) 10,305
------- ------- ----
Total capitalization........................ $10,305 $10,305 $
======= ======= ====
</TABLE>
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of October 2, 1999 was
approximately $10.3 million, or $0.95 per share. Our pro forma net tangible
book value per share as of October 2, 1999 represents the amount of our total
tangible assets less our total liabilities, divided by the total number of
shares of common stock outstanding. Dilution per share represents the
difference between the amount per share paid by investors of shares of common
stock in the offering and the pro forma net tangible book value per share of
common stock immediately after the completion of the offering. After giving
effect to the sale of the common stock offered by us in the offering at an
assumed initial public offering price of $ per share, and after deducting the
estimated underwriters' discounts and commissions and estimated offering
expenses payable by us, our pro forma as adjusted net tangible book value as of
October 2, 1999 would have been approximately $ million or $ per share of
common stock. This represents an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution of $ per
share to new investors of common stock. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $
----
Pro forma net tangible book value per share as of October 2,
1999............................................................ $0.95
Increase per share attributable to new investors.................
-----
Pro forma as adjusted net tangible book value per share after the
offering..........................................................
----
Dilution per share to new investors................................ $
====
</TABLE>
The following table summarizes, on a pro forma as adjusted basis after
giving effect to the offering, as of October 2, 1999, the differences between
the existing stockholders and new investors with respect to the number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid at an assumed initial public offering
price of $ per share, and before deducting the estimated underwriters'
discounts and commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------
Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 10,829,370 % $43,333,137 % $4.01
New investors..............
---------- ----- ----------- ----- -----
Total.................... 100.0% $ 100.0% $
========== ===== =========== ===== =====
</TABLE>
In the preceding tables, the shares of common stock outstanding exclude:
. 6,000,000 shares of common stock reserved for issuance under our stock
plans, of which 4,261,179 shares at a weighted average exercise price of
$1.69 were subject to outstanding options as of October 2, 1999; and
. 56,250 shares of common stock issuable upon exercise of an outstanding
warrant at an exercise price of $1.33 per share as of October 2, 1999.
To the extent outstanding options or warrants are exercised, there will be
further dilution to new investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus. The selected consolidated financial data set forth below for
the fiscal years ended June 28, 1997, June 27, 1998 and July 3, 1999 and the
consolidated balance sheet data as of June 27, 1998 and July 3, 1999 are
derived from our consolidated financial statements, which have been audited by
Arthur Andersen LLP, independent public accountants, and are included elsewhere
in this prospectus. The selected consolidated financial data for the fiscal
years ended July 1, 1995 and June 29, 1996 and the consolidated balance sheet
data as of July 1, 1995, June 29, 1996 and June 28, 1997 are derived from our
audited consolidated financial statements that are not included in this
prospectus. In May 1998, we sold our legacy design and manufacturing software
business, Adra Systems, to focus on our Internet-enabled suite of software
products. The financial results of this divested business are reflected in our
consolidated financial statements as discontinued operations. The selected
consolidated financial data for the three-month periods ended October 3, 1998
and October 2, 1999 and the consolidated balance sheet data as of October 2,
1999 are derived from our unaudited consolidated financial statements and the
related notes included elsewhere in this prospectus. The unaudited consolidated
financial statements have been prepared on substantially the same basis as the
audited financial statements and include, in the opinion of our management, all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The selected
consolidated financial data for the three months ended October 2, 1999 are not
necessarily indicative of the results that may be expected for the year ended
July 1, 2000 or any other future period.
Shares used in computing pro forma basic and diluted net income (loss) per
share give effect to the conversion of all outstanding shares of our
convertible preferred stock into shares of common stock, as if the conversion
had occurred on the original date of issuance.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
---------------------------------------------- ---------------------
July 1, June 29, June 28, June 27, July 3, October 3, October 2,
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- ------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
Software license....... $1,485 $ 4,420 $ 8,450 $11,836 $21,851 $ 4,528 $ 7,460
Service................ 400 1,710 3,825 9,343 19,495 3,672 6,421
------ ------- ------- ------- ------- ------- -------
Total revenues....... 1,885 6,130 12,275 21,179 41,346 8,200 13,881
------ ------- ------- ------- ------- ------- -------
Cost of revenues:
Software license....... 654 359 725 1,237 3,323 778 1,005
Service................ 710 2,163 3,081 6,591 14,467 2,662 5,027
------ ------- ------- ------- ------- ------- -------
Total cost of
revenues............ 1,364 2,522 3,806 7,828 17,790 3,440 6,032
------ ------- ------- ------- ------- ------- -------
Gross profit........... 521 3,608 8,469 13,351 23,556 4,760 7,849
------ ------- ------- ------- ------- ------- -------
Operating expenses:
Selling and
marketing............. 3,818 4,944 6,883 15,369 20,611 4,287 6,171
Research and
development........... 738 4,953 4,267 7,242 5,792 1,556 1,480
General and
administrative........ 136 346 1,723 3,592 4,479 969 1,082
Stock-based
compensation.......... -- -- -- -- 153 -- 409
------ ------- ------- ------- ------- ------- -------
Total operating
expenses............ 4,692 10,243 12,873 26,203 31,035 6,812 9,142
------ ------- ------- ------- ------- ------- -------
Loss from operations.... (4,171) (6,635) (4,404) (12,852) (7,479) (2,052) (1,293)
Other income (expense),
net.................... -- -- (140) 48 244 105 98
Benefit from income
taxes.................. -- -- 875 1,928 -- -- --
------ ------- ------- ------- ------- ------- -------
Net loss from continuing
operations............. (4,171) (6,635) (3,669) (10,876) (7,235) (1,947) (1,195)
Net income (loss) from
discontinued
operations............. 3,816 (319) 1,777 8,684 -- -- --
------ ------- ------- ------- ------- ------- -------
Net loss................ $ (355) $(6,954) $(1,892) $(2,192) $(7,235) $(1,947) $(1,195)
====== ======= ======= ======= ======= ======= =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
------------------------------------------- ---------------------
July 1, June 29, June 28, June 27, July 3, October 3, October 2,
1995 1996 1997 1998 1999 1998 1999
------- -------- -------- -------- ------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Basic and diluted net
income (loss) per
share:
Continuing operations.. $(3.56) $(5.52) $(2.95) $(8.64) $(4.90) $(1.53) $(0.69)
Discontinued
operations............ 3.26 (0.27) 1.43 6.90 -- -- --
------ ------ ------ ------ ------ ------ ------
Net loss............... $(0.30) $(5.79) $(1.52) $(1.74) $(4.90) $(1.53) $(0.69)
====== ====== ====== ====== ====== ====== ======
Shares used in
computation........... 1,172 1,202 1,243 1,259 1,476 1,276 1,734
====== ====== ====== ====== ====== ====== ======
Pro forma basic and
diluted net income
(loss) per share:
Continuing operations.. $(0.67) $(1.05) $(0.58) $(1.30) $(0.78) $(0.21) $(0.11)
Discontinued
operations............ 0.61 (0.05) 0.28 1.04 -- -- --
------ ------ ------ ------ ------ ------ ------
Net loss............... $(0.06) $(1.10) $(0.30) $(0.26) $(0.78) $(0.21) $(0.11)
====== ====== ====== ====== ====== ====== ======
Shares used in
computation........... 6,262 6,291 6,333 8,350 9,323 9,072 10,655
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
As of
------------------------------------------------------
July 1, June 29, June 28, June 27, July 3, October 2,
1995 1996 1997 1998 1999 1999
------- -------- -------- -------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and equivalents.... $1,822 $1,089 $ 897 $8,123 $11,036 $7,594
Working capital (defi-
cit)................... 1,520 210 (848) 8,826 7,892 7,047
Total assets of
continuing operations.. 9,659 6,329 8,478 22,912 29,887 27,140
Long-term debt, net of
current portion........ -- 302 248 -- -- --
Redeemable convertible
preferred stock........ -- -- -- 11,015 17,015 17,015
Total stockholders'
equity (deficit)....... 12,062 4,998 3,072 843 (6,042) (6,710)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
consolidated financial statements and related notes to those statements and
other financial information appearing elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in such forward-looking statements due to various factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this prospectus.
Overview
We are a leading provider of Internet business collaboration software. Our
eMatrix suite of products serves as an Internet platform facilitating
collaboration among different departments and geographic locations of global
organizations. Our eMatrix software products also serve as a backbone for an
enterprise to collaborate through the Internet with its customers, suppliers
and other business partners. Enterprises use our eMatrix product line to
integrate different business processes and facilitate the exchange of
information, ideas and knowledge among parties collaborating on business
activities, such as conceptual planning for new products, product design,
design for manufacturability, plant resource utilization, new product
introduction and customer service and support. This collaboration allows our
customers to quickly and cost-effectively bring the right products and services
to market.
Our installed base of customers represents a wide variety of industries,
including aerospace/defense, automotive, communications, high technology,
machinery and medical equipment. Over 300 companies located in over 40
countries worldwide use our eMatrix Internet business collaboration software,
including Celestica, Honda, Honeywell, John Deere, Scania, Siemens and 3Com. We
provide professional services and training, maintenance and customer support
services to our customers directly through our offices in the United States,
Austria, Canada, England, France, Germany, Italy, Japan and The Netherlands and
indirectly through our partner network throughout Europe and Asia/Pacific.
We generate revenues from licensing our eMatrix software products and
providing professional services and training, maintenance and customer support
services. We derive our software license revenues principally from the
licensing of our eMatrix suite of products, including software applications and
integration products developed jointly with third parties, and, to a lesser
extent, from providing Oracle database licenses. Typically, our customers
initially acquire a limited number of server and user licenses, and
subsequently add licenses as they expand the implementation of our eMatrix
products throughout their organizations and to their customers, suppliers and
other business partners. We license software through our direct sales force and
through a network of domestic and international distributors and systems
integrators. Although we license our eMatrix software products to numerous
customers in any quarter, a single customer often represents more than 10% of
our quarterly revenues. Two customers accounted for approximately 24% and 10%,
respectively, of our revenues for the three months ended October 2, 1999.
However, no single customer has accounted for more than 10% of our annual
revenues in any of the last five fiscal years. We recognize revenues from
software licensing upon shipment or distribution over the Internet to a
customer.
We also provide services to our customers and systems integrators,
consisting of professional services and training, maintenance and customer
support services. Our professional services, which include implementation and
consulting services, are provided on a time and materials or on a fixed-price
basis. Our larger implementation projects are generally provided on a fixed-
price basis. We recognize professional service revenues as the services are
performed, on a percentage-of-completion basis, or upon customer acceptance.
Our professional service revenues have increased
22
<PAGE>
each quarter due to the growth in our customer base, expansion of our
professional services organization and improvements in the utilization of our
professional services personnel. We also offer training services to our
customers, distributors and systems integrators either in our offices
throughout the world or at customer locations. We recognize revenues from
training services upon completion of the training. Customers that license our
products generally purchase annually renewable maintenance contracts, which
provide customers with the right to receive unspecified software upgrades and
technical support over the term of the contract without additional charge.
Revenues from maintenance contracts are recognized over the term of the
contract on a straight-line basis.
Our cost of software licenses consists of royalties paid to Oracle for
Oracle database licenses and to other third parties for integration products
and applications licensed to our customers. Cost of software licenses also
includes the cost of manuals and product documentation, production media used
to deliver our products, shipping costs and related labor. Our cost of software
licenses fluctuates from period to period due to changes in the mix of software
licenses and the extent to which we pay royalties to third parties on
integration products and applications. In order to accelerate the market
acceptance of our eMatrix product suite, we have increased the number of
integration products we offer from nine to 28 in the last 18 months.
Our cost of services includes salaries and related expenses for services
personnel and costs of contracting with third parties to provide implementation
services. Typically, our customers reimburse us for the majority of our out-of-
pocket expenses incurred during the course of a project, which are recorded as
a reduction in cost of services. Cost of services fluctuates based on the mix
of internal professional services personnel and more expensive systems
integrators used for implementation projects. Recently, we have increased both
the use of systems integrators to provide implementation services for our
customers and the amount of training we provide these systems integrators in an
effort to increase the number of systems integrators with relevant eMatrix
implementation expertise. We generally offer professional services on a fixed-
price basis, and our gross margin may fluctuate based on the actual costs
incurred to provide services under these contracts.
In connection with certain stock option grants during fiscal 1999 and the
three months ended October 2, 1999, we recorded deferred stock-based
compensation totaling approximately $9.0 million. We have recorded additional
deferred stock-based compensation related to stock options granted subsequent
to October 2, 1999 of approximately $0.8 million. Deferred stock-based
compensation represents the difference between the option exercise price and
the deemed fair value of our common stock on the date of the option grant.
Deferred stock-based compensation is reported as a component of stockholders'
equity (deficit) and is amortized through charges to operations over the
vesting period of the options, which is generally four years. Stock-based
compensation was $0.4 million for the three months ended October 2, 1999 and
$0.2 million for the year ended July 3, 1999. We expect to record stock-based
compensation of $2.1 million, $2.3 million, $2.3 million, $2.1 million and $0.2
million in fiscal 2000, 2001, 2002, 2003 and 2004, respectively.
We have incurred significant costs to develop our technology and products,
recruit, hire and train personnel for our engineering, selling and marketing
and services departments, and establish a corporate infrastructure. These costs
have exceeded total revenues. As a result, we have incurred net losses from
continuing operations in each of the past five fiscal years and for the three
months ended October 2, 1999. As of October 2, 1999, we had an accumulated
deficit of approximately $33.1 million. We anticipate that our operating
expenses will substantially increase in future periods and will exceed
projected increases in revenues. We expect to expand our selling and marketing
and services organizations, develop new distribution channels for our products
and services, fund greater levels of research and development, and improve our
operational and financial systems. Accordingly, we anticipate incurring
significant net losses for the foreseeable future.
23
<PAGE>
MatrixOne was incorporated in July 1983 as Adra Systems, Inc. We
commercially shipped the first version of our business collaboration software
in November 1993, released our first Internet business collaboration software
product in March 1997 and released the current version of our eMatrix product
line in June 1999. In October 1997, we changed our name to MatrixOne, Inc. and
in May 1998, we sold our legacy design and manufacturing software business,
Adra Systems, to focus on our Internet suite of products. The financial results
of this divested business are reflected in our consolidated financial
statements as discontinued operations.
Results of Operations
The following table sets forth consolidated statement of operations data
expressed as a percentage of total revenues for each period indicated. The
historical results are not necessarily indicative of results to be expected for
any future period.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
--------------------------- ---------------------
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license......... 68.8 % 55.9 % 52.8 % 55.2 % 53.7 %
Service.................. 31.2 44.1 47.2 44.8 46.3
----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Software license......... 5.9 5.8 8.0 9.5 7.3
Service.................. 25.1 31.1 35.0 32.5 36.2
----- ----- ----- ----- -----
Total cost of
revenues.............. 31.0 36.9 43.0 42.0 43.5
----- ----- ----- ----- -----
Gross profit............... 69.0 63.1 57.0 58.0 56.5
----- ----- ----- ----- -----
Operating expenses:
Selling and marketing.... 56.1 72.6 49.9 52.3 44.4
Research and
development............. 34.8 34.2 14.0 18.9 10.7
General and
administrative.......... 14.0 17.0 10.8 11.8 7.8
Stock-based
compensation............ -- -- 0.4 -- 2.9
----- ----- ----- ----- -----
Total operating
expenses.............. 104.9 123.8 75.1 83.0 65.8
----- ----- ----- ----- -----
Loss from operations....... (35.9) (60.7) (18.1) (25.0) (9.3)
Other income (expense),
net....................... (1.1) 0.2 0.6 1.3 0.7
Benefit from income taxes.. 7.1 9.1 -- -- --
----- ----- ----- ----- -----
Net loss from continuing
operations................ (29.9) (51.4) (17.5) (23.7) (8.6)
Net income from discontin-
ued operations............ 14.5 41.1 -- -- --
----- ----- ----- ----- -----
Net loss................... (15.4)% (10.3)% (17.5)% (23.7)% (8.6)%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended October 2, 1999 and October 3, 1998
Software license revenues. Software license revenues increased 64.8% to
$7.5 million for the three months ended October 2, 1999 from $4.5 million for
the three months ended October 3, 1998. The increase in software license
revenues was due to software licenses to new customers as a result of increased
acceptance of our products in domestic and international markets and additional
software licenses to our existing customers.
Service revenues. Service revenues increased 74.9% to $6.4 million for the
three months ended October 2, 1999 from $3.7 million for the three months ended
October 3, 1998. The increase in service revenues was primarily due to
increased professional services and maintenance revenues from the growth in our
software licenses.
24
<PAGE>
Cost of software licenses. Cost of software licenses increased 29.2% to
$1.0 million for the three months ended October 2, 1999 from $0.8 million for
the three months ended October 3, 1998. The increase in cost of software
licenses was primarily due to higher aggregate royalties resulting from
increased licensing of third-party software.
Cost of services. Cost of services increased 88.8% to $5.0 million for the
three months ended October 2, 1999 from $2.7 million for the three months ended
October 3, 1998 primarily due to increased personnel costs to support the
growth in our services organization. We also increased both the use of systems
integrators to provide implementation services for our customers and the amount
of training we provided these systems integrators in an effort to increase the
number of systems integrators with relevant eMatrix implementation expertise.
Gross profit. Gross profit increased 64.9% to $7.8 million for the three
months ended October 2, 1999 from $4.8 million for the three months ended
October 3, 1998. Gross profit as a percentage of total revenues, or gross
margin, decreased to 56.5% for the three months ended October 2, 1999 from
58.0% for the three months ended October 3, 1998. Gross margin fluctuates from
period to period due to changes in the mix of software license and service
revenues, royalties for licensed third-party software, costs associated with
the expansion of our worldwide services organization, and the use of systems
integrators, which are generally more expensive than our own professional
services personnel, to provide implementation services. Gross margin on
software licenses increased to 86.5% for the three months ended October 2, 1999
from 82.8% for the three months ended October 3, 1998 due to a decrease in the
relative proportion of software we licensed from third parties. Gross margin
from services decreased to 21.7% for the three months ended October 2, 1999
from 27.5% for the three months ended October 3, 1998 due to the increased use
in the 1999 period of systems integrators to provide implementation services
and costs associated with training both new personnel in our services
organization and systems integrators.
Selling and marketing. Selling and marketing expenses include marketing
costs, such as public relations and advertising, trade shows, marketing
materials and customer user group meetings, and selling costs such as sales
training events and commissions. Selling and marketing costs may fluctuate
based on the timing of trade shows and user group events and the amount of
sales commissions, which vary based on revenues. Selling and marketing expenses
increased 43.9% to $6.2 million for the three months ended October 2, 1999 from
$4.3 million for the three months ended October 3, 1998 due to higher
commission expense related to the growth in our revenues and increased
personnel costs related to the expansion of our worldwide sales organization.
Selling and marketing expenses as a percentage of total revenues decreased to
44.4% for the three months ended October 2, 1999 from 52.3% for the three
months ended October 3, 1998 primarily due to increased productivity of our
sales organization and a larger revenues base.
Research and development. Research and development expenses include costs
incurred to develop our intellectual property and are expensed as incurred. To
date, software development costs have been expensed as incurred, because the
costs incurred from the attainment of technological feasibility to general
product release have not been significant. Research and development costs may
fluctuate based on the utilization of domestic and foreign third-party
contractors, which are generally more expensive than our internal engineering
personnel, and the use of third parties to develop specific software
applications and integration products. Research and development expenses
decreased 4.9% to $1.5 million for the three months ended October 2, 1999 from
$1.6 million for the three months ended October 3, 1998 due to a decrease in
the use of third-party contractors to assist in the development of our
software. Research and development expenses as a percentage of total revenues
decreased to 10.7% for the three months ended October 2, 1999 from 18.9% for
the three months ended October 3, 1998 for the reasons set forth above and due
to a larger revenues base.
25
<PAGE>
General and administrative. General and administrative expenses consist
primarily of compensation of executive, finance, human resource and
administrative personnel, legal and accounting services and allocation of
related facility expenses. General and administrative expenses increased 11.7%
to $1.1 million for the three months ended October 2, 1999 from $1.0 million
for the three months ended October 3, 1998 due to an increase in personnel
costs to support the growth in our business. General and administrative
expenses as a percentage of total revenues decreased to 7.8% for the three
months ended October 2, 1999 from 11.8% for the three months ended October 3,
1998 primarily due to a larger revenues base.
Stock-based compensation. Stock-based compensation relates to the issuance
of stock options with exercise prices below the deemed fair value of our common
stock on the date of grant. Stock-based compensation was $0.4 million for the
three months ended October 2, 1999.
Other income (expense), net. Other income (expense), net fluctuates based
on the amount of cash balances available for investment, borrowings under our
line of credit, interest expense related to our term loan and realized and
unrealized gains and losses on foreign currency transactions. Other income, net
remained relatively constant at $0.1 million for the three months ended October
2, 1999 and the three months ended October 3, 1998.
Income taxes. No provision for income taxes has been recorded for either
the three months ended October 2, 1999 or the three months ended October 3,
1998 due to accumulated net losses. We did not record any tax benefits relating
to these losses or other tax benefits due to the uncertainty surrounding the
timing of the realization of these future tax benefits.
Year Ended July 3, 1999, June 27, 1998 and June 28, 1997
Software license revenues. Software license revenues increased 84.6% to
$21.9 million for fiscal 1999 from $11.8 million for fiscal 1998. Software
license revenues increased 40.1% in fiscal 1998 from $8.5 million in fiscal
1997. The increase in software license revenues in each year was due to
software licenses to new customers as a result of increased acceptance of our
products in domestic and international markets and additional software licenses
to our existing customers.
Service revenues. Service revenues increased 108.7% to $19.5 million in
fiscal 1999 from $9.3 million in fiscal 1998. Service revenues increased 144.3%
in fiscal 1998 from $3.8 million in fiscal 1997. The increase in service
revenues in each year was primarily due to increased professional services and
maintenance revenues from the growth in our software licenses.
Cost of software licenses. Cost of software licenses increased 168.6% to
$3.3 million in fiscal 1999 from $1.2 million in fiscal 1998. Cost of software
licenses increased 70.6% in fiscal 1998 from $0.7 million in fiscal 1997. The
increase in cost of software licenses in each year was primarily due to higher
aggregate royalties from increased licensing of third-party software. We began
licensing a significant amount of Oracle and third-party integration software
during fiscal 1998.
Cost of services. Cost of services increased 119.5% to $14.5 million in
fiscal 1999 from $6.6 million in fiscal 1998. Cost of services increased 113.9%
in fiscal 1998 from $3.1 million in fiscal 1997. The increase in cost of
services in each year was primarily due to increased personnel costs to support
the growth in our services organization. We also increased in each year both
the use of systems integrators to provide implementation services for our
customers and the amount of training we provide these systems integrators in an
effort to increase the number of systems integrators with relevant eMatrix
implementation expertise.
Gross profit. Gross profit increased 76.4% to $23.6 million in fiscal 1999
from $13.4 million in fiscal 1998. Gross profit increased 57.6% in fiscal 1998
from $8.5 million in fiscal 1997. Gross margin
26
<PAGE>
was 57.0%, 63.1% and 69.0% in fiscal 1999, 1998 and 1997, respectively. The
decrease in gross margin in each year was attributable to lower margin service
revenues growing faster than software license revenues during these periods.
Gross margin on software licenses was 84.8%, 89.5% and 91.4% in fiscal 1999,
1998 and 1997, respectively. The decrease in gross margin on software licenses
in each year was due to an increase in the relative proportion of software
licensed from third parties. Gross margin on services decreased to 25.8% in
fiscal 1999 from 29.5% in fiscal 1998 due to our increased use of systems
integrators to provide implementation services to our customers. Gross margin
on services increased in fiscal 1998 from 19.5% in fiscal 1997 due to higher
margin maintenance revenues as licenses for our software products increased.
Selling and marketing. Selling and marketing expenses increased 34.1% to
$20.6 million in fiscal 1999 from $15.4 million in fiscal 1998 and increased
123.3% in fiscal 1998 from $6.9 million in fiscal 1997. The increase in
selling and marketing expenses in each year was primarily due to increased
personnel costs relating to the growth in our worldwide sales organization and
higher commission expense related to the growth in our revenues. Selling and
marketing expenses as a percentage of total revenues decreased to 49.9% in
fiscal 1999 from 72.6% in fiscal 1998 due primarily to a larger revenues base.
Selling and marketing expenses as a percentage of total revenues increased in
fiscal 1998 from 56.1% in fiscal 1997 primarily for the reasons that caused
selling and marketing expenses to increase.
Research and development. Research and development expenses decreased
20.0% to $5.8 million in fiscal 1999 from $7.2 million in fiscal 1998 and
increased 69.7% in fiscal 1998 from $4.3 million in fiscal 1997. Research and
development expenses as a percentage of total revenues decreased to 14.0% in
fiscal 1999 from 34.2% in fiscal 1998, and from 34.8% in fiscal 1997,
primarily due to our replacement of outside domestic contractors with our
internal engineering organization, the increased use of partners to more
efficiently develop applications and integration products and the replacement
of some third-party contractors with a contract research and development group
in India in fiscal 1999 and 1998.
General and administrative. General and administrative expenses increased
24.7% to $4.5 million in fiscal 1999 from $3.6 million in fiscal 1998 and
increased 108.5% in fiscal 1998 from $1.7 million in fiscal 1997. The increase
in general and administrative expenses in each year was primarily due to
increases in personnel costs to support the growth in our business and
additional provisions for accounts receivable. General and administrative
expenses as a percentage of total revenues decreased to 10.8% in fiscal 1999
from 17.0% in fiscal 1998 due primarily to a larger revenues base. General and
administrative expenses as a percentage of total revenues increased in fiscal
1998 from 14.0% in fiscal 1997 primarily for the reasons that caused general
and administrative expenses to increase.
Stock-based compensation. Stock-based compensation was $0.2 million for
fiscal 1999.
Other income (expense), net. Other income, net increased to $0.2 million
in fiscal 1999 from $48,000 in fiscal 1998 due to higher cash balances
available for investment and related interest income. Other income, net
increased in fiscal 1998 from an expense of $0.1 million in fiscal 1997 due to
higher interest income and lower interest expense due to lower borrowings
under our line of credit.
Discontinued operations. During fiscal 1998, we decided to focus our
business on our eMatrix suite of software products and services. On May 7,
1998, we sold substantially all of the net assets of our legacy design and
manufacturing software business, Adra Systems, to SofTech, Inc. The purchase
price consisted of $7.0 million of cash, a $4.4 million promissory note which
was paid in full in July 1998, and contingent payments of up to $2.2 million
based on SofTech's revenues after the acquisition. SofTech has notified us
that no contingent payments were due. We recorded a $6.7
27
<PAGE>
million gain on the sale of the net assets of Adra Systems, comprised of the
cash and promissory note proceeds of $11.4 million less estimated transaction
costs of $2.3 million, income taxes of $1.5 million and net assets sold of $0.9
million. The transaction costs consisted principally of investment banking,
legal and accounting fees, and bonus and severance arrangements with some
employees. Revenues from Adra Systems were approximately $12.4 million for the
period through May 7, 1998 and $15.9 million for fiscal 1997. At October 2,
1999, July 3, 1999 and June 27, 1998, accrued transaction costs relating to the
sale of the net assets of Adra Systems, included in accrued expenses, were $0.7
million, $1.0 million and $2.0, respectively.
Income taxes. No provision for income taxes was recorded in fiscal 1999,
1998 or 1997 due to accumulated net losses. We did not record any tax benefits
relating to these losses or other tax benefits due to the uncertainty
surrounding the timing of the realization of these future tax benefits, which
were $9.9 million in the aggregate at July 3, 1999.
28
<PAGE>
Quarterly Results of Operations
The following table sets forth selected consolidated statement of
operations data for each of the nine quarters through October 2, 1999, as well
as that data expressed as a percentage of our total revenues. This information
has been derived from our unaudited consolidated financial statements. We have
prepared this unaudited quarterly consolidated statement of operations data on
substantially the same basis as our audited consolidated financial statements
and it includes, in the opinion of our management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. You should read this information in conjunction
with our audited consolidated financial statements and related notes included
elsewhere in this prospectus. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Sept. 27, Jan. 3, Mar. 28, June 27, Oct. 3, Jan. 2, April 3, July 3, Oct. 2,
1997 1998 1998 1998 1998 1999 1999 1999 1999
--------- ------- -------- -------- ------- ------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license....... $ 2,544 $ 2,316 $ 3,490 $ 3,486 $ 4,528 $ 5,274 $ 4,862 $ 7,187 $ 7,460
Service................ 1,572 2,019 2,165 3,587 3,672 4,257 5,606 5,960 6,421
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 4,116 4,335 5,655 7,073 8,200 9,531 10,468 13,147 13,881
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Software license....... 444 208 368 217 778 746 703 1,096 1,005
Service................ 1,095 1,766 1,679 2,051 2,662 3,412 4,277 4,116 5,027
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 1,539 1,974 2,047 2,268 3,440 4,158 4,980 5,212 6,032
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 2,577 2,361 3,608 4,805 4,760 5,373 5,488 7,935 7,849
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing.. 3,088 3,734 4,065 4,482 4,287 4,900 5,351 6,073 6,171
Research and
development........... 1,309 1,767 2,090 2,076 1,556 1,422 1,346 1,468 1,480
General and
administrative........ 677 753 837 1,325 969 1,121 1,249 1,140 1,082
Stock-based
compensation.......... -- -- -- -- -- 8 55 90 409
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 5,074 6,254 6,992 7,883 6,812 7,451 8,001 8,771 9,142
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (2,497) (3,893) (3,384) (3,078) (2,052) (2,078) (2,513) (836) (1,293)
Other income (expense),
net.................... (85) 52 15 66 105 95 34 10 98
Benefit from income
taxes.................. 389 578 507 454 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss from continuing
operations............. (2,193) (3,263) (2,862) (2,558) (1,947) (1,983) (2,479) (826) (1,195)
Net income from
discontinued
operations............. 1,250 453 563 6,418 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (943) $(2,810) $(2,299) $ 3,860 $(1,947) $(1,983) $(2,479) $ (826) $(1,195)
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Sept. 27, Jan. 3, Mar. 28, June 27, Oct. 3, Jan. 2, April 3, July 3, Oct. 2,
1997 1998 1998 1998 1998 1999 1999 1999 1999
--------- ------- -------- -------- ------- ------- -------- ------- -------
(as a percentage of total revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license....... 61.8% 53.4% 61.7% 49.3% 55.2% 55.3% 46.4% 54.7% 53.7%
Service................ 38.2 46.6 38.3 50.7 44.8 44.7 53.6 45.3 46.3
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Software license....... 10.8 4.8 6.5 3.1 9.5 7.8 6.7 8.3 7.3
Service................ 26.6 40.7 29.7 29.0 32.5 35.8 40.9 31.3 36.2
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 37.4 45.5 36.2 32.1 42.0 43.6 47.6 39.6 43.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 62.6 54.5 63.8 67.9 58.0 56.4 52.4 60.4 56.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing.. 75.1 86.1 71.9 63.4 52.3 51.4 51.1 46.2 44.4
Research and
development........... 31.8 40.8 36.9 29.3 18.9 14.9 12.9 11.2 10.7
General and
administrative........ 16.4 17.4 14.8 18.7 11.8 11.8 11.9 8.7 7.8
Stock-based
compensation.......... -- -- -- -- -- 0.1 0.5 0.7 2.9
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 123.3 144.3 123.6 111.4 83.0 78.2 76.4 66.8 65.8
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (60.7) (89.8) (59.8) (43.5) (25.0) (21.8) (24.0) (6.4) (9.3)
Other income (expense),
net.................... (2.1) 1.2 0.2 0.9 1.3 1.0 0.3 0.1 0.7
Benefit from income
taxes.................. 9.5 13.4 8.9 6.4 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss from continuing
operations............. (53.3) (75.2) (50.7) (36.2) (23.7) (20.8) (23.7) (6.3) (8.6)
Net income from
discontinued
operations............. 30.4 10.4 10.0 90.8 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... (22.9)% (64.8)% (40.7)% 54.6% (23.7)% (20.8)% (23.7)% (6.3)% (8.6)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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Our quarterly operating results have varied in the past and may vary in the
future depending on many factors including, among others, those listed under
the caption "Risk Factors--Our Quarterly Revenues and Operating Results Are
Likely to Fluctuate and if We Fail to Meet the Expectations of Securities
Analysts or Investors, Our Stock Price Could Decline." We believe that, while
the quarterly period-to-period comparisons furnish important information about
our revenues and expenses, these comparisons are not necessarily meaningful and
should not be relied upon as indicators of future performance.
Liquidity and Capital Resources
We have primarily financed our operations through the sale of convertible
preferred stock, borrowings under our line of credit, cash generated from our
legacy design and manufacturing business, Adra Systems, and the cash proceeds
from the sale of Adra Systems in fiscal 1998.
As of October 2, 1999, we had cash and equivalents of $7.6 million, a
decrease of $3.4 million from July 3, 1999, resulting primarily from a $3.1
million repayment of our line of credit. Our working capital was $7.0 million
and $7.9 million as of October 2, 1999 and as of July 3, 1999, respectively.
The decrease in working capital was primarily attributable to cash used to fund
capital expenditures and the net loss incurred from the expansion of our
operations.
We have a $7.0 million line of credit that bears interest at the bank's
prime rate plus 0.5%, which was 8.75% as of October 2, 1999. We are currently
in the process of renewing our line of credit, which expires in December 1999.
Borrowings under our line of credit are limited to 80% of eligible accounts
receivable, less 10% of the U.S. dollar value of each forward contract up to a
total of $0.5 million, and are collateralized by all of our assets. As of
October 2, 1999, we had no borrowings outstanding under the line of credit and
$4.9 million available. The line of credit has financial and other covenants,
which we were in compliance with as of October 2, 1999.
Net cash provided by continuing operations for the three months ended
October 2, 1999 was $0.6 million resulting from an increase in deferred
revenues, offset by our net loss from continuing operations and decreases in
accounts payable and accrued expenses. Net cash used by continuing operations
was $8.3 million in fiscal 1999 due to the net loss incurred from the expansion
of our operations and the increase in our accounts receivable.
Net cash used by discontinued operations was $0.3 million and $1.1 million
for the three months ended October 2, 1999 and fiscal 1999, respectively, and
reflects payments of the severance and legal and accounting fees incurred in
connection with the sale of our legacy design and manufacturing business.
Net cash used in investing activities was $0.5 million for the three months
ended October 2, 1999 and reflects our investments in computer hardware and
software, leasehold improvements and other office equipment to support our
growth. Net cash provided by investing activities was $3.1 million in fiscal
1999 and included the $4.4 million payment of the promissory note from the sale
of assets of Adra Systems, offset in part by capital expenditures. We expect
that capital expenditures for the next 12 months will be approximately $2.0
million, primarily for the acquisition of data networking equipment and other
computer hardware and software.
Net cash used in financing activities was $3.0 million for the three months
ended October 2, 1999 and included the repayment of our line of credit. Net
cash provided by financing activities was $9.2 million in fiscal 1999 and
consisted of the sale of $6.0 million of redeemable convertible preferred stock
and $3.1 million of net borrowings under our line of credit.
We currently anticipate that the net proceeds from the offering, together
with our current cash and equivalents and available borrowings under our line
of credit, will be sufficient to fund our
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anticipated cash requirements for working capital and capital expenditures for
at least the next 12 months. We may need to raise additional funds, however, in
order to fund more rapid expansion of our business, develop new and enhance
existing eMatrix products and services, or acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of our
stockholders may be reduced, our stockholders may experience additional
dilution, and such securities may have rights, preferences or privileges senior
to those of our stockholders. Additional financing may not be available on
terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our expansion, take
advantage of unanticipated opportunities or develop or enhance our services or
products would be significantly limited.
Income Taxes
As of July 3, 1999, we had net operating loss carryforwards of $21.1
million and research and development tax credit carryforwards of $0.7 million.
The net operating loss and tax credit carryforwards will begin to expire at
various dates beginning in fiscal 2000, if not utilized. The Tax Reform Act of
1986 imposes substantial restrictions on the utilization of net operating loss
and tax credit carryforwards in the event of an ownership change of a
corporation. Our ability to utilize net operating loss and tax credit
carryforwards on an annual basis could be limited as a result of an ownership
change as defined by Section 382 of the Internal Revenue Code. We have
completed several financings and believe that we have incurred ownership
changes, which we do not believe will have a material impact on our ability to
utilize our net operating loss and tax credit carryforwards.
Year 2000 Readiness Disclosure Statement
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
and computer systems with date-sensitive functions that are not Year 2000
compliant may not be able to distinguish whether "00" means 1900 or 2000, which
may result in failures or the creation of erroneous results.
We have defined "Year 2000 compliant" as the ability to:
. correctly handle date information needed for date changes after December
31, 1999;
. function according to the product documentation provided for this date
change, without changes in operation, assuming correct configuration;
. where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner;
. store and provide output of date information in ways that are
unambiguous as to the century if the date elements in interfaces and
data storage specify the century; and
. recognize the year 2000 as a leap year.
The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, the information and non-
information technology systems we use nevertheless could be substantially
impaired or cease to operate due to Year 2000 problems. Additionally, we rely
on information technology supplied by third parties, and the distributors and
systems integrators of our eMatrix line of products are heavily dependent on
information technology systems and on their own and third-party vendor systems.
We have conducted a Year 2000 readiness review for all versions of our
products after Version 6.0.3. This review included assessment, validation,
testing and, where necessary, remediation, upgrading and replacement of product
versions, as well as contingency planning. We continue to respond to customer
questions about prior versions of our products on a case-by-case basis.
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Based on our review, we believe the versions of our products that we
currently ship are Year 2000 compliant, when configured and used in accordance
with the related documentation, so long as the underlying operating system of
the host machine and any other software used with or in the host machine or
with our products are also Year 2000 compliant. We are currently shipping
Version 7.0.1 of our eMatrix software product. We do not believe that versions
of our products prior to Version 6.0.4 are Year 2000 compliant, and we have
notified our customers of this fact and encouraged users of these versions to
upgrade to the latest version. We do not provide software patches or remedial
software programs for versions of our products prior to Version 6.0.4. Our
customers who have maintenance agreements with us each have the right to
receive the latest version of our products without additional charge. Our
customers who do not have maintenance agreements with us may purchase the
latest version of our products from us.
We have not separately tested software obtained from third parties that is
incorporated into our eMatrix suite of products. We have tested this third-
party software as incorporated in our products as part of our product review.
While we believe that the third-party software incorporated in the current
versions of our products is Year 2000 compliant, we have not been able to
obtain assurances from all vendors.
Despite testing by us and by current and potential customers, and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000
date functions. Errors or defects in our products could result in delay or loss
of revenues, diversion of development resources, damage to our reputation,
increased service and warranty costs, or liability to our customers, any of
which could materially and negatively affect our business and operating
results. Some commentators have predicted significant litigation regarding Year
2000 compliance issues. Because of the unprecedented nature of such litigation,
it is uncertain whether or to what extent we may be affected by it.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware. These systems include our accounting system, customer
service and support system and phone system. We have also initiated an
assessment of our non-information technology systems. We expect to complete
testing and modification of our information and non-information technology
systems in December 1999. To the extent that we are not able to test the
technology provided by third-party vendors, we are seeking assurances from
these vendors that their systems are Year 2000 compliant. We are not currently
aware of any material operational issues associated with preparing our internal
information technology and non-information technology systems for the Year
2000. However, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential customers could have for
purchases of our software and services, or delay those purchases.
Our costs related to the Year 2000 issue have been immaterial to date and
we expect total future costs to remain below $0.5 million. We have funded our
Year 2000 remediation plan from operating cash flows and have not separately
accounted for these costs in the past.
While we have almost completed the process, we have not yet fully developed
a contingency plan to address all situations that may result if we are unable
to achieve Year 2000 readiness of our critical operations. We expect to
complete this contingency plan by December 31, 1999. Finally, we
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are also subject to external forces that might generally affect industry and
commerce. If any of our operations experience Year 2000 problems and we either
do not have a contingency plan or our contingency plan is inadequate to address
the problems, then our results of operations could suffer.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133, as
amended by SFAS No. 137, will be effective for our financial reporting
beginning in the first quarter of fiscal 2001. SFAS No. 133 will require us to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for gains and losses from changes in the fair value of a particular derivative
will depend on the intended use of the derivative. We do not expect the
adoption of SFAS No. 133 to have a material impact on our results of operations
or financial position.
Qualitative and Quantitative Disclosures About Market Risk
We have international offices in Austria, Canada, England, France, Germany,
Italy, Japan and The Netherlands. At October 2, 1999, approximately 16.6% of
our total assets were located at our international subsidiaries and
approximately 51.2% and 26.1% of our revenues and 24.0% and 20.5% of our
expenses for the three months ended October 2, 1999 and for the year ended July
3, 1999, respectively, were from our international operations. These
subsidiaries transact business in local currency or the Euro. Therefore, we are
exposed to foreign currency exchange risks. We currently use forward contracts
to reduce our exposure to changes in foreign currency exchange rates associated
with revenues denominated in a foreign currency and anticipated costs to be
incurred in a foreign currency. We plan to use foreign exchange forward
contracts and other instruments in the future to reduce our exposure to
exchange rate fluctuations, and we may not be able to do this successfully.
Accordingly, we may experience economic loss and a negative impact on earnings
and equity as a result of foreign currency exchange rate fluctuations. Also, as
we continue to expand our operations outside of the United States, our exposure
to fluctuations in currency exchange rates could increase.
Our interest income is sensitive to changes in the general level of United
States interest rates, and to a lesser extent, interest rates in Europe and
Japan, particularly since the majority of our investments are in short-term
instruments. We deposit our cash in highly rated financial institutions in
North America, Europe and Japan and invest in diversified U.S. money market
investments with remaining maturities of less than 90 days. Due to the short-
term nature of our investments, we believe that we have minimal market risk.
Conversion to the Euro
We have arranged for the necessary modifications of our internal
information technology and other systems to accommodate Euro-denominated
transactions. Our European subsidiaries currently process Euro-denominated
transactions. In addition, our products support the Euro currency symbol. We
are also assessing the business implications of the conversion to the Euro,
including long-term competitive implications and the effect of market risk with
respect to financial instruments. Based on the foregoing, we do not believe the
Euro will have a significant effect on our business, financial position, cash
flows or results of operations. We will continue to assess the impact of Euro
conversion issues as the applicable accounting, tax, legal and regulatory
guidance evolves.
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<PAGE>
BUSINESS
We are a leading provider of Internet business collaboration software. Our
eMatrix suite of products serves as an Internet platform facilitating
collaboration among different departments and geographic locations of global
organizations. Our eMatrix software products also serve as a backbone for an
enterprise to collaborate through the Internet with its customers, suppliers
and other business partners. Enterprises use our eMatrix product line to
integrate different business processes and facilitate the exchange of
information, ideas and knowledge among parties collaborating on business
activities, such as conceptual planning for new products, product design,
design for manufacturability, plant resource utilization, new product
introduction and customer service and support. This collaboration allows our
customers to quickly and cost-effectively bring the right products and services
to market.
Our eMatrix line of software products is based on an Internet architecture
utilizing open-standards and XML technology. This architecture allows our
platform to be highly scalable and to integrate with existing information
systems and software applications, thereby enabling our customers to continue
to use and build upon their information technology infrastructure investments.
Our eMatrix line of products contains dynamic access control and other security
features, can be rapidly implemented and facilitates the use of other best-of-
breed software applications. In addition, the dynamic business modeling
capabilities of our eMatrix product suite provide our customers the flexibility
to constantly adapt to a changing business environment by reconfiguring their
systems with minimal programming.
We offer a variety of services that complement our eMatrix product suite.
Our professional services personnel provide rapid and cost-effective
implementation of our software products and other consulting services. These
personnel capture and model the specific business processes that reflect our
customers' planning, design, manufacturing, sales and service practices. We
also provide training, maintenance and customer support services to
continuously enhance the value of our eMatrix products to our customers. In
addition, we have an extensive global network of systems integrators who are
experienced in providing implementation and integration services to our
customers.
Our installed base of customers represents a wide variety of industries,
including aerospace/defense, automotive, communications, high technology,
machinery and medical equipment. Over 300 companies located in over 40
countries worldwide use our eMatrix Internet business collaboration software,
including Celestica, Honda, Honeywell, John Deere, Scania, Siemens and 3Com. We
provide professional services and training, maintenance and customer support
services to our customers directly through our offices in the United States,
Austria, Canada, England, France, Germany, Italy, Japan and The Netherlands and
indirectly through our partner network throughout Europe and Asia/Pacific.
Industry Background
A global economy has emerged over the last several decades due in part to
global deregulation and the reduction in international trade barriers. As a
result, businesses are facing accelerating competition from domestic, foreign
and multinational corporations. The rapid growth of the Internet as a global
medium through which businesses can communicate, share information and conduct
business internally and directly with their customers, suppliers and other
business partners worldwide has further hastened this era of escalating global
competition. To compete effectively, businesses are transforming the ways they
plan, develop, manufacture, market, sell and support their product and service
offerings.
Companies must increasingly find ways for all of their employees,
regardless of department or geographic location, to exchange information, ideas
and knowledge. Organizations understand the
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<PAGE>
need to efficiently use all of their resources to bring feature-rich products
and services to market quickly and at competitive prices. This understanding
has caused companies to adapt their operations to an environment requiring
greater and tighter integration and collaboration among all departments,
including engineering, manufacturing, sales and marketing and customer support.
In addition, interaction and information exchange throughout an enterprise are
more difficult following acquisitions because of the often incompatible
business processes and information technology systems of the merged or acquired
business. Many companies have invested large amounts of time and money
automating their internal business processes through the purchase and
implementation of enterprise resource planning or other enterprise software
systems. However, these systems often are incapable of handling large amounts
of different types of unstructured data, such as voice, drawings, graphics and
images, or lack the flexibility to rapidly and cost-effectively adapt to
changing business environments or customer requirements.
Intense global competition is requiring businesses not only to collaborate
and exchange information within their enterprises, but also to seek the
additional benefits of real-time, online interactions with their customers,
suppliers and other business partners. Many companies need to manage large and
often complex supply chains as well as numerous, diverse relationships with
customers and business partners all over the world. In addition, manufacturing
companies are increasingly outsourcing their design and manufacturing to
external parties. The Internet has provided the opportunity for multiple
parties to connect to each other in real time through open standards. However,
to take advantage of this opportunity, companies are increasingly seeking a
common platform that integrates with existing information technology systems
and enables collaboration and information exchange in an inexpensive, secure
and scalable environment.
Customers seeking to realize the benefits of real-time business
collaboration require a software solution that addresses the following
concerns:
Constantly changing business environment. Driven by advances in
technology, increasing customer expectations and mergers and acquisitions,
companies need to anticipate and quickly respond to changing customer
needs, market shifts and the evolving business environment. To respond
quickly to these changes, a company needs an information technology
platform that provides the flexibility to continuously re-evaluate and
quickly change business processes and information based on real-time input
from its employees, customers, suppliers and other business partners.
Increasing business complexity. To effectively collaborate
electronically, an organization's employees, customers, suppliers and
other business partners need real-time access to large volumes of often
unstructured data and information. These parties may speak different
languages and be located in numerous geographic sites. Increasingly,
companies require information technology platforms that are easy to use,
that are in the user's local language, and that reduce the administrative
and technical complexities inherent in global collaboration across
businesses and international boundaries.
Use of existing information technology infrastructure. Companies and
their customers, suppliers and other business partners may have each
invested many years and significant financial resources implementing
information technology systems and software applications. These multiple
systems and software applications may have incompatible business processes
and use different storage technologies. However, to electronically
communicate and exchange information rapidly and effectively, the
disparate systems of these companies need to be integrated and work within
existing network capabilities.
Need for secure business collaboration technology. Companies require a
common platform that allows the exchange of ideas, information and
knowledge among businesses in a
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<PAGE>
highly reliable and secure environment. Access to electronically shared
ideas and information needs to be controlled both within an enterprise and
among businesses to prevent the misappropriation and misuse of this shared
information by competitors or other third parties and to protect the
integrity of such information.
Complexity and time of implementation. Due to accelerating global
competition, many companies need information systems that enable them to
increase the speed with which they bring new products and services to
market. It is necessary for these systems to be rapidly and cost-
effectively implemented and easily maintained.
The MatrixOne Solution
Our eMatrix product line is designed to enable interactive collaboration
over the Internet among geographically dispersed departments and divisions
within an enterprise and among the enterprise's customers, suppliers and other
business partners. Enterprises use our eMatrix products to integrate
incompatible business processes and information sources and electronically
exchange information, ideas, and knowledge among parties collaborating on
business activities, such as conceptual planning for new products, product
design, design for manufacturability, plant resource utilization, new product
introduction, and customer service and support. This collaboration allows our
customers to quickly and cost-effectively bring the right products and services
to market.
Our eMatrix suite of software products provides the following benefits to
our customers:
Allows rapid response to change. Our eMatrix product line is designed
to provide customers the flexibility and agility to rapidly respond to
changing business conditions or requirements. Our products enable our
customers to dynamically model, continuously re-evaluate, change and
optimize their business processes and content with minimal programming. In
addition, we offer numerous pre-configured software applications which
provide for broad functionality and simplify everyday business activities.
Manages business complexities. Our eMatrix products simplify many of
the complexities inherent in global organizations and business
relationships. Our customers have numerous options to distribute and
replicate large amounts of unstructured data so that people in different
geographic locations have access to the same knowledge and information,
which is necessary to interact in real time. Also, using our eMatrix
products, our customers can define business processes in multiple
languages or dialects, thereby enabling collaboration around the world,
while minimizing the problems of translation, misinterpretation or
misunderstanding. In addition, our customers can share these processes
with their customers, suppliers and other business partners across
international boundaries in a secure environment. Our eMatrix products are
also user-friendly, which we believe will quickly facilitate their
widespread acceptance.
Leverages information technology investments. Our platform is designed
to both integrate existing information systems and software applications
and work within the capacity of existing networks. We offer off-the-shelf
integrations to a wide variety of software products, ranging from desktop
tools to back-office systems. We also provide our customers and partners
the tools and interface technologies needed to build additional
connections. The ability of our eMatrix products to integrate existing
information systems and software applications enables our customers to
preserve and build upon their corporate knowledge and information
technology investments, while still deploying best-of-breed applications
and point solutions. This also facilitates the integration of an acquired
company's operations following a merger or acquisition.
Provides technology enabling business-to-business collaboration. Our
eMatrix line of software products provides a platform for an enterprise to
collaborate in real time over the Internet with its customers, suppliers
and other business partners. Our products facilitate the
36
<PAGE>
ability of businesses to develop, manage and enhance products and offer
services throughout their life cycles. Our open-standards Internet
architecture that includes XML technology enables our customers to
exchange large volumes of different types of data, information, ideas and
knowledge with their employees, customers, suppliers and other business
partners regardless of differing information technology infrastructures,
systems or software. Our eMatrix product suite provides dynamic access
control to allow our customers to continuously delegate and manage varying
levels of access to information, processes and content. In addition, the
high-integrity encryption security features of our eMatrix products are
designed to protect the confidentiality and integrity of the data,
information and ideas being exchanged.
Provides for rapid implementation. Our eMatrix products are designed
to be rapidly implemented, thereby enabling our customers to realize the
benefits of our products in a short period of time. Although
implementation times vary with the scope of applications, the number of
users and the geographic locations involved, our customers are able to
implement specific applications in as little as two weeks. Our customers
can choose to implement our eMatrix line of products by themselves or
through our professional services personnel or systems integrators. In
addition, we provide for the transfer of the skills and knowledge
necessary to allow customers to assume responsibility for ongoing support
and extensions of their implementations of our software.
Strategy
Our objective is to be the leading provider of Internet business
collaboration software. Key elements of our strategy include:
Extend our technology leadership. To extend our technology leadership,
we have assembled a team of leading developers and engineers with
expertise in Internet communication protocols, messaging technologies,
integration capabilities and enterprise software and intend to accelerate
our investment in research and development. In addition to our internal
development efforts, we may also acquire companies or technologies that
could enhance our technology leadership. We further plan to extend our
technology leadership by accessing and using the application expertise,
domain experience and resources of our business partners. By continuing to
be a technology leader, we intend to further broaden the acceptance of our
eMatrix product suite.
Expand business-to-business collaboration. We plan to continue to
enhance the scope of the features and functionality of our eMatrix product
line and develop additional applications which are designed to facilitate
and extend business-to-business collaboration over the Internet. Since our
eMatrix products are implemented throughout our customers' organizations,
the customers, suppliers and other business partners of our customers are
exposed to the many benefits of our software products. We believe this
exposure will enable us to access and license our eMatrix product suite to
these new potential customers more easily and quickly. Through enhanced
sales and marketing efforts, we are seeking to increase the number of
users of our eMatrix products both within our existing customer base as
well as with new customers.
Develop business process and industry-focused software. We intend to
continue to jointly develop with our customers and business partners
additional software applications that are used with our eMatrix products
to capture and automate business processes used across enterprises and in
specific industries. By accessing and using the business process and
industry expertise of both systems integrators and our customers, we plan
to rapidly build these focused solutions without significantly increasing
our internal development costs. We believe that the availability of these
business applications will allow us to quickly expand our customer base to
new industries.
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Broaden our business alliances. To extend our geographic reach and
address new industry market segments, we intend to expand and leverage our
strong relationships with leading systems integrators and other business
partners. We plan to continue to use our systems integrators to provide
additional marketing and distribution channels for our eMatrix line of
products. We intend to establish and expand relationships with
distributors to further broaden the distribution channel for our products
and with enterprise, Internet and application software companies to
provide complementary functionality to our eMatrix product line.
Leverage our customer base. We are actively seeking to enhance our
strong and referenceable global customer base of market leaders by
expanding our selling and marketing organization. We intend to increase
our customers' loyalty and satisfaction by working with them to anticipate
their product and technology needs. We also intend to leverage our
existing customer base to sell additional products and services to our
customers and use our strong customer relationships to further penetrate
our customers' industries.
Expand our global presence. We intend to continue to expand our global
presence to both enhance our competitive position worldwide and increase
our ability to better serve and support our customers. In particular, we
intend to expand our direct and indirect selling and marketing and
services presence both in countries where we currently do business and in
additional locations.
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Products
Our eMatrix product line consists of a Web server, which we call eMatrix
Advantage, and a suite of applications and integration products for business
collaboration. Our customers typically acquire one or more server licenses
depending on the number of users and their geographic locations. Our customers
separately purchase applications and integration products that simplify
everyday business activities and connect their existing applications to the
eMatrix server. We charge our customers on a concurrent user basis for our Web
server, on a per server basis for applications, and on a per server or per user
basis for integration products.
[CHART APPEARS HERE]
[The graphic depicts through the use of ovals the three elements of the eMatrix
product line and their relationship to each other. The center oval, labeled
"eMatrix Enterprise Platform" is surrounded by three other ovals, each
depicting an element of the eMatrix product line, and labeled "Advantage Web
Server", "Applications" and "Integration", respectively. Above the oval labeled
"Integration" are five other smaller ovals depicting specific applications
integrated by the eMatrix Integration products. Below the oval labeled
"Applications" are four other ovals depicting users of eMatrix Applications.]
eMatrix Advantage
Our Web server, eMatrix Advantage, enables customers to define, store,
secure, change, find and replicate content and processes. eMatrix Advantage
combines three elements: a Web front-end, a business modeler and a global
administrator.
The Web front-end enables users to view and use an organization's content
and processes with a minimal amount of training using Microsoft Internet
Explorer, Netscape Communicator or other commercially available Web browsers.
The business modeler allows business managers to create models of their
business processes using a point-and-click visual interface. These models
provide a representation of the customer's business information and associated
business rules. The business modeler is dynamic, which permits real-time
changes to the model without impacting day-to-day user activities or incurring
costly system interruptions. The global administrator, which speeds
implementation and minimizes maintenance time, provides for the administration
of global storage and database resources. It provides a point-and-click visual
interface for managing database and file servers and their replication when
necessary.
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eMatrix Applications
We provide a broad set of applications that automate common business
activities. They are focused on collaborative interactions with customers,
suppliers and employees of the enterprise. The applications plug directly into
eMatrix Advantage and can be easily tailored, thereby allowing our customers to
accelerate implementation times and minimize development costs.
The following table contains a list of the customer-facing, enterprise-wide
and supplier-facing applications that we offer:
<TABLE>
<CAPTION>
Customer-Facing Enterprise-Wide Supplier-Facing
Applications Applications Applications
- ---------------------------------------------------------------------------------
<S> <C> <C>
Product Configurator Requirements Planning Component Management
Order Management Configuration Management Change Management
Digital Mock-up Product Option Management Bid Packaging
Maintenance and Repair Cost Management Technical Documents
Technical Support Software Development New Product Testing
Process Planning
</TABLE>
Our eMatrix Application Development Kit provides the tools and
documentation for our customers and systems integrators to create their own
collaborative Internet applications. For an annual per server fee, we also
offer an eMatrix Application Library which is a collection of widely used
eMatrix application components developed by our services organization. This
library currently contains over 50 application components, and we continuously
add new components. We distribute this library quarterly to provide eMatrix
customers and systems integrators the benefit of our latest implemented
solutions.
eMatrix Integration Products
Our eMatrix integration products facilitate the exchange of information
between our eMatrix products and other software applications and allow our
customers to use their existing information technology infrastructures to
access, control and reuse information stored in enterprise applications. In
order to accelerate the market acceptance of our platform, we jointly developed
with third parties that had particular application or domain expertise the
majority of our integration products. Following the development of these
integration products, our partners generally assume responsibility for their
maintenance and support in exchange for a royalty.
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MatrixOne and our business partners have developed and market standard
interfaces to commonly used software applications, including:
<TABLE>
<CAPTION>
Enterprise Application Type Software Application
- ------------------------------------------------------------------------------
<C> <S>
Enterprise resource planning Baan--BaanERP
J.D. Edwards--World and OneWorld
Oracle--Oracle Manufacturing
SAP--R/3
- ------------------------------------------------------------------------------
Electronic computer-aided design ViewLogic--DX Databook and DXDataManager
- ------------------------------------------------------------------------------
Mechanical computer-aided design AutoDesk--AutoCAD and Mechanical Designer
CoCreate--Solid Designer, ME10 and ME30
Dassault--Catia
Parametric Technology--Pro/Engineer
SolidWorks--SolidWorks
Structural Dynamics Research--Master Series
Unigraphics--SolidEdge and Unigraphics
- ------------------------------------------------------------------------------
Viewing and visualization Cimmetry Systems--Autovue
CTS-GRAL/Allegra--ForReview
Engineering Animation--VisView
Information Graphics--Myrad
Spatial--Intravision
Spicer--Imagenation
- ------------------------------------------------------------------------------
Data management Parametric Technology--Pro/Intralink
Sherpa--PIMs
Structural Dynamics Research--Metaphase
- ------------------------------------------------------------------------------
Project management Oracle--Oracle Projects
- ------------------------------------------------------------------------------
Manufacturing resource planning MAPICS--MAPICS
</TABLE>
In addition to our integration products, we provide tools for our customers
and business partners to create their own integrations to access information
contained in their proprietary or commercial off-the-shelf software
applications. For example, the eMatrix Adaplet Development Kit provides the
tools and documentation for the creation of object adaptors used for enterprise
application integration. Our integration products allow our customers to extend
the value of their existing information technology infrastructures and
applications and are designed to easily link with future applications.
Product Technology and Architecture
Our eMatrix product suite is based on an Internet architecture utilizing
open-standards and XML technology and is enhanced by our patent-pending
technology for information integration and accelerated content delivery. The
result is a scalable, flexible system that virtually eliminates the
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need for complex custom software through lengthy in-house development, thereby
resulting in a low cost of ownership. The software consists of an Internet
platform, tailorable business process applications, reusable business process
components, integrations to third-party software and development tools.
At the center of our architecture is the eMatrix Web Server, which runs on
Microsoft NT or UNIX operating systems. The server is the intermediary between
the eMatrix Web front-end and the database and provides the necessary security,
access control and application services to enable collaboration among multiple
businesses. The server is compliant with both hyper-text transport protocol,
also known as HTTP, and CORBA, providing the business model and XML
representations to both HTML and Java applications. We use licensed encryption
technology to maintain data and file security while information is transported
over the Internet.
[CHART APPEARS HERE]
[The graphic depicts the three tiers of the eMatrix Internet architecture. The
first tier is labeled "Web Browser" and depicts protocols compliant with the
Web Browser. The second tier is labeled "eMatrix Web Server" and depicts four
components of the Web server: dynamic modeling, application services, caching
technology and integration technologies. The third tier depicts storage layers.
Each tier is accompanied by a brief description, which appears to the right of
the respective tier in the graphic.]
The Web front-ends are Java- and HTML-based applications that can run on
Microsoft Internet Explorer, Netscape Communicator and other commercially
available Web browsers. There are also Windows and UNIX clients for users who
prefer a native client, rather than a Web browser interface. We support
numerous operating systems, including Windows 95, Windows 98, Windows NT,
Digital UNIX, Hewlett Packard HP-UX, IBM AIX, SGI Irix and Sun Solaris. We
follow the Microsoft standards for Windows 95 and 98 and the Internet standards
for Java running with Microsoft Internet Explorer and Netscape Communicator.
The storage layer includes support for multiple Oracle database servers and
multiple file servers using standard file transfer protocols. We also provide
an enterprise application integration server that can exchange data with
virtually any Web, legacy or incumbent application. We connect with Oracle's
database through open database connectivity, or ODBC, and Oracle's proprietary
database interface, known as Oracle Connectivity Interface, or OCI.
Our eMatrix product line offers the ability to automatically replicate a
customer's database in order to provide continuous access and enhanced
performance. Replication is the process of locating
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the same part of a database on different servers, each of which may be located
anywhere in the world. We offer three types of replication:
. synchronous replication where updates are made simultaneously to each
copy of data;
. scheduled asynchronous replication where copies of the data on different
servers are updated separately at scheduled intervals; and
. on-demand asynchronous replication where copies of the data are sent at
the time data is needed.
Our eMatrix product suite is enabled for single-byte, double-byte and
multi-byte localization. We also provide simultaneous support for multiple
languages within the business model, which means that users of our eMatrix
products can work in different languages at the same time. We typically
distribute our products in a single global release. Our products support
Chinese, English, French, German, Italian, Japanese, Korean, Spanish and
Swedish, and we intend to provide localization for additional languages as
required.
We have entered into various platform alliances to ensure our products are
based on open industry standards and to enable us to take advantage of current
and emerging technologies. We are marketing partners with Oracle and Compaq,
Hewlett-Packard, IBM Silicon Graphics and Sun Microsystems. To promote the
development, definition, adoption, implementation and growth of open standards,
we work with several industry standards organizations, such as the World Wide
Web Consortium, also known as W3C, Object Management Group, also known as OMG,
and the National Institute of Standards and Technology, also known as NIST, and
a variety of industry-specific standards organizations.
Services
We offer professional services, training, maintenance and customer support
directly through our own services organization and indirectly through our
third-party network. Our services organization is committed to ensuring that
our customers successfully utilize our eMatrix products. We believe we have a
high customer satisfaction level as a result of a combination of our unique
software implementation methodology, our large, global partner network, and our
professional services, training, maintenance and customer support programs.
These programs are available globally and are designed to enable the rapid
implementation of our eMatrix line of products so our customers receive the
benefits from their investment quickly. Our services are also designed to make
our software easy to use and maintain, thus lowering ongoing costs to our
customers. In the last 12 months, we increased our services organization from
59 to 92 employees, and we provide our various services in over 30 locations
worldwide.
Professional Services
Customers may choose to implement our eMatrix suite of products with
support from our professional services personnel or systems integrators or by
themselves. Although implementation times vary with the scope of applications,
the number of users and the number of geographic locations involved, specific
applications can be implemented in as little as two weeks.
We offer implementation of our eMatrix products through our services
organization on either a time and materials or a fixed-price basis. Fixed-price
implementations are done using the MatrixOne Customer Success Methodology,
referred to as MatrixOne CSM, a comprehensive, systematic process based on a
team approach which incorporates strong project management and rapid
development processes. A MatrixOne CSM implementation, whether done by us or a
systems
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integrator, provides a customer with a set completion date for pre-defined
functionality. We provide for the transfer of the skills and knowledge
necessary to allow our customers to assume responsibility for ongoing support
and extensions of their implementations of our software products.
We also offer a wide range of other professional services, including the
development of customized user interfaces for our customers, and their
suppliers, customers and other business partners. Our services organization
consists of experienced professionals, many of whom have come from our
customers' industries, which helps us to provide strong domain experience. We
also have personnel with strong backgrounds and skills in business process re-
engineering, data conversion, application integration, system architecture and
project management.
Training
We offer product training and education services to our customers and
partners at three different training centers in North America, at our offices
throughout Europe and at our customers' sites around the globe. These services
include business modeling, system administration, eMatrix customization, end-
user training and customized computer-based training.
Maintenance and Customer Support
We offer maintenance and support services to our customers, partners and
systems integrators over the Internet or by telephone. Customers who purchase
maintenance agreements can access technical support seven days a week, 24 hours
a day, around the world. Our toll-free telephone support is provided in
multiple languages and is staffed by senior technical support personnel.
Customers receiving support over the Internet have access to a full range of
customer support services, including online problem solving, technical tips,
answers to frequently asked questions, and information about recently released
and upcoming versions of our software. We provide our customers with
personalized Web pages where they can access specific status reports, exchange
information, register online for training and access an advanced knowledge
base. Customers can also download new versions of our software over the
Internet.
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Customers and Case Studies
Customers
We target large- to medium-size companies throughout the world in growth
industries. As of October 2, 1999, we had over 300 customers located in over 40
countries using our eMatrix line of business collaboration software products.
Our installed base of customers represents numerous industries, including
aerospace/defense, automotive, communications, high technology, machinery and
medical equipment. The following table shows a representative list of our
customers that have licensed over $250,000 of our Internet business
collaboration software within the past 18 months:
<TABLE>
<CAPTION>
Aerospace/Defense Automotive
----------------------------------------------------
<S> <C>
Boeing Autoliv
CAE Electronics Eaton
Fokker Aerostructures Honda
Honeywell Honeywell
Litton Industries, Guidance Goodyear Tire & Rubber
&
Control System Division
Sandia National Laborato-
ries Scania
Technicatome Siemens
Western Star Trucks
----------------------------------------------------
<CAPTION>
Communications High Technology
----------------------------------------------------
<S> <C>
Alcatel Celestica
Pace Microtechnology E-Tek Dynamics
Honeywell
3Com
----------------------------------------------------
<CAPTION>
Machinery Medical Equipment
----------------------------------------------------
<S> <C>
Honeywell Inhale Therapeutic Systems
John Deere Medtronic Physio-Control
Krauss Maffei Smith & Nephew
</TABLE>
Two customers accounted for approximately 24% and 10%, respectively, of our
revenues for the three months ended October 2, 1999. No one customer accounted
for more than 10% of our revenues for fiscal 1999.
Case Studies
We believe companies have chosen our eMatrix line of products because of
its scalable and flexible Internet architecture and low cost of ownership and
because it can be rapidly implemented. Many of our customers use our eMatrix
products as a platform to facilitate collaboration within their enterprise,
integrate disparate business processes and enterprise applications and
implement best practices, with a goal of optimizing their efficiency and global
resource utilization. Customers also use our eMatrix products to provide fast
access to complex information over the Internet for collaboration with their
customers, suppliers and other business partners.
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Autoliv
Autoliv is the leading supplier of vehicle occupant restraint systems
worldwide, supplying airbags, seat belts, seat subsystems and other safety
components to every major car manufacturer in the world. Headquartered in
Stockholm, Autoliv has over 20,000 employees in 60 facilities located in 28
countries.
Following a merger in 1997, Autoliv needed assistance globalizing and
integrating its combined engineering and manufacturing operations. Driven by
the need to rapidly introduce new products to the market, it was necessary for
Autoliv to eliminate redundant efforts, maximize its global resources, provide
easy access to documentation, streamline workflow between global teams, improve
the communication of changes to manufacturing and its suppliers, and promote
product and process re-use.
With the eMatrix products, Autoliv has successfully implemented a
collaborative environment across its global facilities, including its
development centers, factories and suppliers. Using the replication and
distribution technology of the eMatrix products, design work is reviewed around
the globe for continuous evaluation and enhancement with all relevant
information available in the local language. Designers have worldwide, real-
time access to product designs approved anywhere within the Autoliv group's
various companies around the globe, test engineers track the progress of
testing, factories collaborate with engineering on design changes for
manufacturability, capacity and cost impact, and suppliers review designs
online and suggest changes before the products are complete.
Autoliv initially made the system available to several hundred users in two
locations in the United States. Autoliv worked with our professional services
organization for the initial implementation of our eMatrix products, and
thereafter assumed responsibility for the global implementation of its eMatrix
solution. Within five months, Autoliv rolled out the system to four other
countries, and has over 2,000 eMatrix users and over 250 suppliers on the
system. Autoliv is now prepared to extend the reach of collaboration to other
business processes, partners and customers.
Celestica
With over 18,000 employees worldwide, Celestica operates 28 manufacturing
and design facilities in the United States, Canada, Mexico, the United Kingdom,
Ireland, the Czech Republic, Thailand, Hong Kong, China, Malaysia and Brazil.
Celestica provides a broad range of services, including design, prototyping,
assembly, testing, product assurance, supply chain management, worldwide
distribution and after-sales service. Its customers include industry-leading
original equipment manufacturers, primarily in the computer and communications
sectors.
Based on numerous and closely-timed acquisitions around the globe,
Celestica needed an information technology system that enabled it to provide a
single unified face to its customers worldwide, seamless product transfer
across its global production facilities, and differentiated high-value
services. It was also necessary for Celestica to adapt and integrate its
business processes as it rapidly expanded the scope of its global multi-site
operations. Celestica also realized it needed to be able to seamlessly transfer
product information and process knowledge among its global facilities to
maximize plant utilization.
Celestica uses our eMatrix products to capture and manage customer designs
and product information online. Celestica is able to check this information for
integrity and manufacturability and can quickly communicate suggested changes
and corrections to customers. This has resulted in a reduction in bill of
material set-up times and an improvement in first-pass bill of material
accuracy. Our eMatrix products have also enabled Celestica to develop a service
offering that evaluates the component content of a customer's design and, based
on Celestica's purchasing power, suggests alternative components that can
contribute to cost savings for the customer.
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Celestica easily integrated our eMatrix products with existing business
systems, including multiple manufacturing resource planning systems as well as
its supplier and component management system. Celestica can now send product
and process information to the facilities best equipped to handle them, thereby
increasing Celestica's overall plant utilization. This software solution is
readily available to newly-acquired Celestica operations.
Celestica already has over 1,500 eMatrix users on the system at seven
locations in three countries. Celestica is extending access to its standard
component and supplier information over the Internet to its customers for
collaborative design. Customers subscribing to this service receive additional
cost benefits and reduced risk from volume changes, which gives Celestica a new
competitive advantage.
John Deere Agricultural Division
The agricultural division of John Deere & Company, its largest division, is
a global market leader in agricultural equipment with approximately 10,000
employees in 17 business units around the world. The company is known for
innovation in its products and processes and for the quality of its workplace.
John Deere's strategy is to design and manufacture products in the
countries where the products are to be sold to improve the time-to-market for
new products and to deliver products customized for local markets, thereby
increasing overall customer satisfaction. To implement this strategy, John
Deere required a system that enabled its employees located in multiple sites to
exchange in real time product information, specifications and ideas regarding
the design of complex products and the global implementation of common
development practices that supported its initiatives for quality and process
excellence improvements. In addition, John Deere needed to efficiently use all
its manufacturing resources around the world.
John Deere implemented our eMatrix products as its backbone for all phases
of its product lifecycle, including management of customer requirements and
specifications, product design applications, configuration management, product
costing, overall program management and manufacturing process planning.
Additionally by utilizing common processes across the globe, John Deere
improved the quality of information being exchanged throughout its
organization, while also eliminating redundant legacy and spread-sheet
applications. In addition, new applications are implemented globally throughout
their organization through the eMatrix platform.
In the past 18 months, John Deere expanded the availability of our eMatrix
solution from a few hundred to over 3,000 people located in more than ten sites
around the world. John Deere is rapidly adding new applications, users and
suppliers. John Deere is now focused on bringing more of the applications it
has already implemented to its supply chain as well as adding new applications,
such as part cataloging to their dealer network.
Scania
Scania is one of the world's leading manufacturers of heavy trucks and
buses. Founded in 1891, Scania has built and delivered over 900,000 units.
Scania, headquartered in Sweden, is a global company with over 23,500 employees
and operations in more than 100 countries. They have a strong presence in the
world markets, with over 97% of its trucks and buses sold outside of Sweden.
Scania needed to upgrade its existing systems to enable a smooth transition
into the new millennium while adding new functionality to better support user
requirements.
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Scania rapidly implemented its first eMatrix applications which are now
being used by over 1,500 users in multiple locations.
Through the implementation of our eMatrix products, Scania is now able to
manage the approval and release of engineering design information, making it
available over its Intranet to the entire company, its employees and contract
engineers. Users that access the system can easily find the information and
computer-aided design models that they need and then can automatically
translate this information to the format that is compatible with their own
systems. Its manufacturing facilities can get accurate and timely information
over the Internet.
Through the implementation of our eMatrix products, Scania has established
a modern object oriented Internet architecture that provides it with the
flexibility it needs. In addition, Scania can easily upgrade to future releases
of the eMatrix software, thus preserving its investment.
Research and Development
We pursue research and development through our internal engineering
organization, third-party alliances and collaborative development efforts with
our customers. Our internal research and development organization is divided
into two product line groups, platform and application engineering, with common
support groups. The focus of these two product line groups is to broaden the
global appeal of our eMatrix products by improving our products' performance
and scalability, expanding the use of XML technology for data representation
and collaboration, adding application services, increasing our distribution and
replication alternatives and extending our strong Internet security
capabilities. The platform engineering group is responsible for the development
of Internet infrastructure products, such as our servers, dynamic business
modeling engine, database caching and application integration. This group
researches and develops advanced architectures and technologies and closely
follows industry developments and standards related to e-Business, the
Internet, operating systems and software technologies. The application
engineering group is responsible for the development of Internet applications
for our customers. This group works closely with our sales, services and
product management organizations and uses the application expertise, domain
experience and resources of our customers and partners to develop and sell
applications. Quality engineering, release engineering and documentation groups
support both of our product line groups and a contract offshore engineering
group in India provides additional engineering resources.
We maximize our research and development efforts by working closely with
our customers and business partners to develop software applications and
integration products. We jointly develop software applications with our
customers, and typically retain the right to generalize the application for use
with other customers. A critical focus of our research and development
alliances is to increase the number and scope of customer-facing, supplier-
facing and industry-specific applications. We have also established
relationships with third parties to develop the majority of our integration
products pursuant to which we typically pay the third party a royalty in
connection with the license of the integration products by our customers. These
relationships have allowed us to increase the number of integration products we
offer to customers from nine to 28 in the past 18 months. We market, sell and
support our application and integration products through our direct sales
organizations, alliance partners and distributors around the globe. We are also
working with our customers, systems integrators and complementary technology
vendors to extend our integration products to supply chain management, customer
relationship management, component supplier management and additional product
data management applications.
Our research and development expenses were $4.3 million for fiscal 1997,
$7.2 million for fiscal 1998, $5.8 million for fiscal 1999 and $1.5 million for
the three months ended October 2, 1999. Research and development expenses
decreased from fiscal 1998 to fiscal 1999 due to our replacement of outside
domestic contractors with our internal engineering organization, the increased
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use of partners to more efficiently develop applications and integration
products and the replacement of some third-party contractors with a contract
research and development group in India. We expect to significantly increase
our internal research and development efforts as well as our third-party
research and development based alliances.
Selling and Marketing
We market and sell our eMatrix line of products through our direct sales
organization, distributors and other business alliances. As of October 2, 1999,
our direct sales organization consisted of 103 sales and marketing employees in
over 30 locations around the world. We have 21 sales offices in greater
metropolitan areas of North America, eight in Europe and one in Asia/Pacific.
Our European, Middle East and Africa, or EMEA, sales organization is
headquartered in Amsterdam with other offices in Cologne, Hamburg, London,
Milan, Munich, Paris, and Salzburg. Our Japanese headquarters is located in
Tokyo. We plan to significantly expand our direct sales organization and to
establish additional domestic and international sales offices.
Our sales process requires that we work closely with targeted customers to
identify short-term technical needs and long-term goals. Our sales team, which
includes both sales and technical professionals, works with the customer to
develop a proposal to address these needs. Our sales process often commences
with a rapid proof of concept or customer demonstration. Our sales cycle for
our eMatrix products ranges from one to nine months based on the customer's
need to rapidly implement a solution and whether the customer is new or is
extending its existing implementation.
Most sales of our eMatrix line of products in North America are made by our
direct sales organization. In EMEA and Asia/Pacific we market, sell and service
our products through our direct sales force and our network of approximately 20
international distributors. For example, Gedas, a subsidiary of Volkswagen, is
one of our distribution, development and systems integration partners with
sales offices in England, France, Germany, Mexico and Brazil. In EMEA our
distributors cover additional countries such as Sweden, Finland, Norway and
Spain. In Japan our direct sales organization works with three primary
distributors: Marubeni, Nippon Steel and Zuken. In addition, outside of Japan,
in Asia/Pacific we work closely with distributors in Australia, China, Korea
and Taiwan.
Our marketing personnel assist in generating new sales opportunities by
creating various marketing programs, updating our web site and hosting or
sponsoring various events. We conduct joint seminars with key partners and
participate in a number of partner-sponsored trade shows and industry events.
We also provide speakers from our company and our customers to represent us in
a number of industry forums. We communicate regularly with our installed base
via newsletter and host a yearly customer conference. Our public relations plan
is designed to convey our messages to appropriate audiences and we reinforce
this through our ongoing communications with a number of key industry analysts
and press representatives.
Alliances
The principal goals of our alliances are to accelerate the global market
acceptance of our eMatrix suite of products, extend our global resources and
help our customers realize the benefits of our products quickly. Our alliance
partners are primarily systems integrators and complementary technology
vendors. Our alliances have resulted in opportunities to license our eMatrix
line of products to new industries, locations and customers. We seek to provide
our customers a total software and services solution which results in benefits
to our customers, us and our business partners.
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Systems Integrators
We have established strategic relationships with a number of leading
systems integrators including Cap Gemini, Ernst & Young LLP, Gedas, KPMG and
Nippon Steel. On a global basis, we have alliances with over 20 systems
integrators. These systems integrators combine our eMatrix products with their
existing solutions in their e-Business, e-Commerce, new product development and
enterprise resource planning practices. They also provide us with new
opportunities to license our eMatrix line of products to their installed
customer base and have developed the eMatrix domain expertise to quickly
implement our products and service our customers.
Complementary Technology Vendors
We intend to continue to broaden the functionality of our eMatrix line of
products by integrating with best-of-breed software applications and point
solutions for e-Business, collaboration, viewing, product content,
manufacturing, project scheduling, project costing, component reuse, enterprise
resource planning and other technologies. We intend to continue to establish
additional relationships with enterprise software companies to use our eMatrix
product suite to further enhance their software solution. We are a partner of
Oracle Corporation and our eMatrix products are integrated with Oracle
Manufacturing and Oracle Projects. In November 1999, Oracle Corporation and CMP
Media recognized us as one of the Top 50 E-Business Solution Developers On
Oracle. In addition, J.D. Edwards chose us as an Alliance Partner and
integrated our eMatrix products with its OneWorld and World solutions to
provide its customers with additional functionality. We also work closely with
Oracle, IONA Technologies, RSA Security and others to incorporate their core
technology into our eMatrix software product line.
Intellectual Property and Other Proprietary Rights
Our success and ability to compete are dependent upon our ability to
develop and maintain our intellectual property and proprietary technology and
to operate without infringing on the proprietary rights of others. Our
continued success will also depend in part upon our ability to share our
proprietary rights with our partners. Generally, when we develop applications
or software in conjunction with our customers or third parties, we retain non-
exclusive rights to the code that is created. We rely primarily on a
combination of copyright, trademark, patent and trade secret laws, as well as
non-disclosure agreements with our employees, customers, partners, consultants
and systems integrators to protect our proprietary rights. We license our
software pursuant to non-exclusive license agreements which impose restrictions
on customers' ability to utilize the software. In addition, we seek to avoid
disclosure of our trade secrets by executing confidentiality agreements with
anyone having access to our proprietary information and restricting access to
our source code. We also seek to protect our software, documentation and other
written materials under trade secret and copyright laws.
We have one patent application and two provisional patent applications
pending in the United States and have filed one corresponding patent
application internationally. It is possible that no United States or foreign
patents will issue from these applications. We also pursue registration of some
of our trademarks in the United States and have various trademark applications
pending. Registered trademarks may not issue from these applications or may be
contested.
Despite our efforts to protect our intellectual property and proprietary
rights, existing laws afford only limited protection. We operate throughout the
world and the protection available for our intellectual property may not be
available to the same extent protection is available in the United States or at
all. Others may be able to develop technologies that are superior or similar to
our technology. Attempts may be made to reverse engineer our products or to
obtain and use information that we regard as proprietary. Our customers,
partners, suppliers, and former employees may
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disclose our proprietary information to parties that may use that information
to compete against us. Accordingly, we may not be able to protect our
proprietary rights against unauthorized third-party copying or use.
Furthermore, policing the unauthorized use of our intellectual property is
difficult. Expensive litigation may be necessary in the future to enforce our
intellectual property rights.
We utilize technology provided from third parties that is integrated into
our products. These technologies may infringe another party's proprietary
rights. We attempt to obtain product infringement indemnification protection in
contracts when we integrate third-party products and technology into our
products. It is also possible that third parties will claim that we have
infringed their proprietary rights. We expect that software providers will
increasingly be subject to infringement claims as the number of products in
different industry segments increase and overlap. Any resulting claim or
litigation, even if successfully defended, could result in substantial costs
and diversion of resources and management time and could have a material
negative effect on our operating results.
Competition
The market for software that enables Internet business collaboration is
new, intensely competitive, highly fragmented and changing rapidly. We compete
against different companies depending on the geographic region and the size of
the potential customer. We currently compete against:
. in-house development efforts by potential customers;
. emerging companies focused on enterprise application integration and e-
Business;
. vendors that focus on local markets, such as NEC in Japan; and
. vendors of engineering information management software such as Agile
Software, Dassault Systems and Parametric Technology.
We expect that competition will increase as a result of increased usage of
the Internet and software industry consolidation. Providers of enterprise class
software such as SAP and Oracle may seek to extend the functionality of their
products. Moreover, a number of enterprise software companies have announced
acquisitions of providers of point solutions to expand their product lines. Our
competitors may also bundle their products in a manner that may discourage
users from purchasing our eMatrix suite of products. Current and potential
competitors may establish cooperative relationships among themselves or with
third parties or adopt aggressive pricing policies to gain market share.
Consolidation in the industry also results in larger competitors that may have
significant combined resources with which to compete against us.
We believe that our ability to compete depends on many factors, both within
and beyond our control, including, without limitation;
. the performance, functionality, scalability and flexibility of our
eMatrix suite of products;
. the timing and market acceptance of new products and product
enhancements to the eMatrix suite of products;
. the effectiveness of our selling and marketing efforts; and
. the quality and performance of our services.
Although we believe that we currently compete favorably as to each of these
factors, we expect competition to persist and intensify and the market in which
we compete is rapidly changing. In addition, new competitors could emerge and
rapidly capture market share. Increased competition from existing or potential
competitors could result in reductions in price and revenues, reduced margins,
loss of customers and loss of market share, any one of which would negatively
impact our operating results.
51
<PAGE>
Legal Proceedings
On October 4, 1999, SofTech, Inc. commenced a lawsuit against us in
Middlesex Superior Court alleging fraud, unfair and deceptive trade practices,
and breach of contract in connection with the sale of assets of Adra Systems to
SofTech in 1998. SofTech has claimed $2,730,000 in damages resulting from our
allegedly improper recording of Adra Systems' second and third quarter fiscal
1998 income, unspecified contract damages, and treble damages resulting from
our alleged unfair and deceptive acts. We intend to vigorously defend each
claim asserted in the complaint and have recently filed a motion to dismiss or
stay the lawsuit pending arbitration of the claims. The court has not yet ruled
on the motion.
We may from time to time become a party to various other legal proceedings
arising in the ordinary course of our business.
Employees
As of October 2, 1999, we had a total of 260 employees. Of the total
employees, 38 were in product development, engineering or systems engineering,
103 in sales and marketing, 92 in services and 27 in operational, financial and
administrative functions.
Our employees are not represented by a labor union and are not subject to a
collective bargaining agreement. We have never experienced a work stoppage. We
believe our relations with our employees are good.
Facilities
Our headquarters is located in a 42,000 square foot facility in Chelmsford,
Massachusetts, occupied under an office lease expiring in August 2004. We lease
office space in 14 states throughout the United States. We also lease office
space in Ontario and Quebec, Canada, Austria, England, France, Germany, Italy,
Japan and The Netherlands, under leases with terms expiring at various times
through July 2006. We believe that additional space will be required as our
business expands and will be available as required on acceptable terms.
52
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth our executive officers and directors, their
ages and their positions with MatrixOne as of December 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
President, Chief Executive Officer and
Mark F. O'Connell............ 44 Director
Maurice L. Castonguay........ 48 Chief Financial Officer, Vice President of
Finance and Administration and Treasurer
Stephen P. Dunn.............. 47 Vice President of Global Alliances
Brian M. Gallagher........... 50 Vice President of Sales, Americas
Paul B. Gilmartin............ 51 Vice President of Product Management
David W. McNelis............. 40 Vice President of Engineering
Vice President of Sales, Europe, Middle East
Johannes T.J. Ruigrok........ 40 and Africa
Michael Segal................ 47 Vice President of Customer Success
Jane E. Seitz................ 48 Vice President of Human Resources
Ellen Carnahan (1)(2)........ 44 Director
Daniel Holland (1)(2)........ 63 Director
James F. Morgan.............. 62 Director
Charles R. Stuckey, Jr. (1).. 57 Director
</TABLE>
- --------
(1)Member of Compensation Committee.
(2)Member of Audit Committee.
Mark F. O'Connell has served as President since September 1996 and as Chief
Executive Officer and Director since July 1997. From March 1995 to September
1996, Mr. O'Connell was Vice President of Marketing. Prior to joining
MatrixOne, Mr. O'Connell held a number of management positions in finance and
marketing at Digital Equipment Corp., a supplier of networked computer systems,
software and services. These positions included director of software product
marketing from January 1994 to March 1995, director of corporate product
marketing communications from February 1993 to January 1994, director of
workstations and server marketing from May 1991 to February 1993, and group
manager of marketing and sales programs for the UNIX software and systems
business from January 1990 to May 1991.
Maurice L. Castonguay has served as Chief Financial Officer, Vice President
of Finance and Administration and Treasurer since January 1999. Prior to
joining MatrixOne, from August 1997 to December 1998, Mr. Castonguay was vice
president of finance and chief financial officer of Stratus Computer, Inc., a
supplier of fault tolerant computer platforms, applications and services
focused at the telecommunications and financial services markets. Mr.
Castonguay left Stratus after it was acquired by Ascend Communications. From
March 1996 to August 1997, Mr. Castonguay was vice president of finance, chief
financial officer and treasurer of Gradient Technologies, Inc., a provider of
security and infrastructure software. From September 1990 to March 1996, Mr.
Castonguay was chief financial officer at Xylogics, Inc., a data networking and
remote access company that was acquired by Bay Networks. Prior to that, Mr.
Castonguay held tax, corporate development and division controller positions at
Prime Computer from May 1987 to September 1990. Mr. Castonguay, a certified
public accountant, has served as a director of Media 100, Inc., a supplier of
digital media streaming and video editing products, since February 1997.
Stephen P. Dunn has served as Vice President of Global Alliances since
December 1997. Prior to joining MatrixOne, Mr. Dunn was the vice president of
North American sales at Workgroup Technology Inc., a developer of product data
management and workflow systems, from September 1995 to June 1997. From
November 1993 to August 1995, he was the director, eastern region for
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Rasna Corporation, a computer-aided design and design engineering firm. From
January 1992 to November 1993, Mr. Dunn was the vice president of worldwide
sales for Mechanical Dynamics, Inc., a developer of mechanical system
simulation software.
Brian M. Gallagher has served as Vice President of Sales, Americas since
June 1999. Prior to joining MatrixOne, Mr. Gallagher was vice president of
various business units at Baan Company, a provider of enterprise business
software, from February 1999 to June 1999. Prior to that, Mr. Gallagher was
vice president of worldwide sales at Baan Supply Chain from August 1997 to
February 1999, where he was responsible for building a worldwide sales
organization including Europe, Latin America and Asia. From June 1989 to July
1997, he was the director of major accounts at System Software Associates, an
enterprise resource planning software provider.
Paul B. Gilmartin has served as Vice President of Product Management since
October 1999. Mr. Gilmartin served as Vice President of Marketing from October
1997 to October 1999. Previously, Mr. Gilmartin served as Director of Product
Marketing, Matrix product line with Adra Systems from June 1995 to September
1997. From October 1987 to May 1995, Mr. Gilmartin held several positions,
including the corporate director of channels marketing for the Corporate
Software Group, at Digital Equipment Corp. Prior to that, from February 1984 to
October 1987, Mr. Gilmartin was director of North American sales at Votan
Corporation, a producer of speech technology and products.
David W. McNelis has served as Vice President of Engineering since January
1996. Previously, from October 1992 to January 1996, Mr. McNelis served as the
Director of Engineering Matrix, for Adra Systems. Prior to joining MatrixOne,
Mr. McNelis spent nine years with Sikorsky Aircraft as the senior architect of
the Igor information management system.
Johannes T. J. Ruigrok has served as Vice President of Sales, Europe,
Middle East and Africa since July 1998. Prior to that, from March 1996 to June
1998, Mr. Ruigrok was a managing director of Oracle GmbH Austria, an enterprise
software and database management company. From January 1995 to March 1996, Mr.
Ruigrok was the director of alliances, and from 1993 to January 1995 the
business unit manager industry and distribution, for Oracle BV The Netherlands.
Michael Segal has served as Vice President of Customer Success since August
1998. Previously, from December 1995 to August 1998, Mr. Segal was the Vice
President and General Manager--Matrix and, from 1988 to December 1995, Vice
President of Customer Services for Adra Systems with responsibility for all
customer service operations and technical support. Prior to joining MatrixOne,
Mr. Segal spent 11 years with Applicon Inc., a CAD/CAM vendor, where he held
management positions in manufacturing, quality assurance and customer service.
Jane E. Seitz has served as Vice President of Human Resources since July
1999. Prior to joining MatrixOne, Ms. Seitz was an interim executive with Human
Resources Management Consultant from May 1996 to July 1999 serving at several
start up companies, including: Indigo America, Inc., a manufacturer of digital
color printing products; Wellspace, Inc., a network of healthcare
practitioners; and FluidSense Corp., a provider of services and products
enabling hospitals to outsource the logistics of infusion therapy. From May
1991 to April 1996, Ms. Seitz was the vice president of human resources,
corporate services and legal administration at the Bank of Ireland First
Holdings, Inc.
Ellen Carnahan has served as a Director of MatrixOne since October 1997.
Ms. Carnahan has served as a Managing Director at William Blair Capital
Partners, L.L.C. and its predecessor funds, which are venture capital firms,
since January 1988. William Blair Capital Partners, L.L.C. is an affiliate of
William Blair & Company, an investment bank. From January 1983 through December
1987, she was vice president of marketing and planning at SPSS, Inc., an
applications software company. Ms. Carnahan also serves as a director of
NewsEdge Corporation, a provider of news and current awareness solutions.
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<PAGE>
Daniel Holland has served as a Director of MatrixOne since September 1996.
Mr. Holland is a senior advisor and partner at OneLiberty Ventures, a venture
capital firm he cofounded in 1995. Previously, he was cofounder and president
of Morgan, Holland Ventures, a venture capital firm he cofounded in 1982. He
also serves as the managing general partner of Morgan, Holland Fund.
Mr. Holland serves as a director of Vista Medical Technologies, Inc., a
developer and manufacturer of three-dimensional visualization systems.
James F. Morgan has served as a Director of MatrixOne since June 1984 and
as Corporate Advisor since July 1997. Mr. Morgan was the Chairman and Chief
Executive Officer of Adra Systems from October 1996 to July 1997. Prior to
joining MatrixOne, Mr. Morgan served as a general partner of Morgan, Holland
Fund, a venture capital fund organized in 1981, and as a general partner of
Morgan, Holland Fund II, a venture capital fund organized in 1988.
Charles R. Stuckey, Jr. has served as a Director of MatrixOne since October
1998. Mr. Stuckey has been chairman of the board and chief executive officer of
RSA Security, Inc., formerly Security Dynamics Technologies, Inc., an e-
security company, since January 1987. Mr. Stuckey serves as a director of The
Massachusetts Telecommunications Council.
Officers serve at the discretion of the board of directors. All of the
current directors were elected as directors of MatrixOne pursuant to the
Amended and Restated Stockholders Agreement dated June 17, 1999, between
MatrixOne and certain of its stockholders. The voting provisions of this
agreement will automatically terminate upon the closing of the offering. There
are no family relationships among any of the executive officers or directors of
MatrixOne.
Board Composition
MatrixOne currently has authorized five directors. MatrixOne's Second
Amended and Restated Certificate of Incorporation will provide that, effective
upon the closing of the offering, the terms of office of the members of the
board of directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2000; Class II,
whose term will expire at the annual meeting of stockholders to be held in
2001; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. The Class I director is James F. Morgan, the
Class II directors are Ellen Carnahan and Daniel J. Holland and the Class III
directors are Mark F. O'Connell and Charles R. Stuckey, Jr. At each annual
meeting of stockholders after the initial classification, the successors to
directors whose term will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total number of
directors. This classification of the board of directors may have the effect of
delaying or preventing changes in control or management of MatrixOne.
Board Committees
MatrixOne's Compensation Committee consists of Messrs. Holland and Stuckey
and Ms. Carnahan. The Compensation Committee reviews and evaluates the
compensation and benefits of all of our officers, reviews general policy
matters relating to compensation and benefits of our employees and makes
recommendations concerning these matters to the board of directors. The
Compensation Committee also administers our stock and stock purchase plans.
MatrixOne's Audit Committee consists of Mr. Holland and Ms. Carnahan. The
Audit Committee reviews with our independent public accountants the scope and
timing of the auditors' services, the auditors' report on our financial
statements following completion of the auditors' audit, and our
55
<PAGE>
policies and procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee makes annual recommendations to the
board of directors for the appointment of independent auditors for the ensuing
year.
Director Compensation
Non-employee directors are reimbursed for their reasonable travel expenses
in attending meetings of the board of directors. Beginning January 1, 2000,
non-employee directors will also receive cash compensation of $4,000 per
quarter for services provided as directors. Directors are also eligible to
participate in the 1996 Stock Plan and the 1999 Stock Plan.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the board of directors or the
Compensation Committee and the board of directors or the compensation committee
of any other company, nor has any interlocking relationship existed in the
past.
Executive Compensation
The following table sets forth the total compensation paid or accrued
during the fiscal year ended July 3, 1999 by Mark F. O'Connell, our Chief
Executive Officer and President, and each of our four other most highly
compensated executive officers whose salary and bonus exceeded $100,000 for
such fiscal year for services rendered in all capacities to MatrixOne. We refer
to all of these officers collectively as our named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------- ------------
Securities
Other Underlying All Other
Name and Principal Position Salary Bonus Compensation Options Compensation
- --------------------------- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark F. O'Connell....... $215,000 $99,446 $ -- -- $ 1,236 (1)
President, Chief
Executive Officer
and Director
Michael Segal........... 170,000 63,470 -- 12,000 8,667 (1)
Vice President of
Customer
Success
Johannes T. J. Ruigrok.. 130,539 20,000 50,858 138,000 13,886 (2)
Vice President of
Sales, Europe,
Middle East and Africa
Stephen P. Dunn......... 128,904 31,215 -- -- 532 (1)
Vice President of
Global
Alliances
David W. McNelis........ 130,000 56,864 -- 63,000 5,619 (3)
Vice President of
Engineering
</TABLE>
- --------
(1)Represents medical reimbursements.
(2)Consists of an automobile allowance.
(3)Consists of $4,500 for an automobile allowance and $1,119 for medical
reimbursements.
Maurice L. Castonguay joined MatrixOne as Chief Financial Officer, Vice
President of Finance and Administration and Treasurer in January 1999. Mr.
Castonguay's annual base salary is $175,000. In addition, in January 1999, we
granted Mr. Castonguay options to purchase 150,000 shares of
56
<PAGE>
common stock at an exercise price of $1.33 per share. Brian M. Gallagher joined
MatrixOne as Vice President of Sales, Americas in June 1999. Mr. Gallagher's
annual base salary is $175,000 and his targeted bonus is $175,000. Mr.
Gallagher was guaranteed his total target compensation for the first six months
with MatrixOne. In addition, in July 1999, we granted Mr. Gallagher options to
purchase 157,500 shares of common stock at an exercise price of $2.00 per
share.
Option Grants in Last Fiscal Year
The following table sets forth information concerning the stock option
grants made to each of the named executive officers in fiscal 1999. The
exercise price per share of each option was equal to the fair market value of
the common stock on the grant date as determined by the board of directors. We
have never granted any stock appreciation rights. The potential realizable
value is calculated based on the term of the option at its time of grant which
is ten years. This value is based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the options were granted until their
expiration date. These numbers are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect our estimate of future
stock price growth. Actual gains, if any, on stock option exercises will depend
on the future performance of the common stock and the date on which the options
are exercised.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Option Grants in Last Fiscal Year for Option Term
-------------------------------------------------------- ----------------------------
Percent of
Number of Total Options
Securities Granted to Exercise
Underlying Employees in Price Expiration
Name Options Granted Fiscal Year Per Share Date 5% 10%
- ---- --------------- ------------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mark F. O'Connell....... -- -- -- -- -- --
Michael Segal........... 12,000 0.75% $1.33 5/07/09 $ 10,037 $ 25,436
Johannes T.J. Ruigrok... 138,000 8.61 1.33 7/08/08 115,427 292,515
Stephen P. Dunn......... -- -- -- -- -- --
David W. McNelis........ 63,000 3.93 1.33 7/22/08 52,695 133,540
</TABLE>
Mr. Ruigrok's and Mr. McNelis' options vest quarterly over four years. One-
fourth of Mr. Segal's options vested immediately upon grant and the remainder
vest quarterly over nine months.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information regarding stock option exercises
in the last fiscal year and exercisable and unexercisable stock options held as
of July 3, 1999 by each of the named executive officers. Amounts described in
the following table under the headings "Value Realized" and "Value of
Unexercised In-the-Money Options at Year End" are based upon the fair market
value of the common stock as of July 3, 1999, which was $2.00 as determined by
the board of directors, less the applicable exercise price.
<TABLE>
<CAPTION>
Number of Shares of Common Value of Unexercised
Stock Underlying Unexercised In-the-Money
Options at Year End Options at Year End
-------------------------------- -------------------------
Shares Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- -------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark F. O'Connell....... -- $ -- 329,061 345,939 $220,471 $231,779
Michael Segal........... 30,000 20,100 121,312 73,688 97,119 49,371
Johannes T.J. Ruigrok... -- -- 25,875 112,125 17,336 75,124
Stephen P. Dunn......... -- -- 25,312 42,188 16,959 28,266
David W. McNelis........ -- -- 57,748 80,252 43,641 53,769
</TABLE>
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<PAGE>
Employment Agreements and Change in Control Arrangements
On January 11, 1999, we entered into an employment arrangement with Maurice
L. Castonguay, our Chief Financial Officer, Vice President of Finance and
Administration and Treasurer. The agreement provides Mr. Castonguay with a base
salary of $175,000 per year and a guaranteed fiscal year 1999 bonus of $35,000.
In addition, the agreement provides Mr. Castonguay incentive stock options to
purchase 150,000 shares of common stock at an exercise price of $1.33 per share
vesting quarterly over four years. In the event of a change of control of
MatrixOne, all of Mr. Castonguay's unvested options will be accelerated and
become fully vested. The arrangement also provides Mr. Castonguay with a one-
year severance package equal to his base salary plus bonus and all customary
executive benefits in the event of a change of control of, or if he terminates
his employment for good reason within 18 months of a change of control of,
MatrixOne.
On June 3, 1999, we entered into an employment arrangement with Brian M.
Gallagher, our Vice President of Sales, Americas. The arrangement provides that
Mr. Gallagher would receive six months of his targeted total compensation upon
the termination of his employment for any reason.
On July 15, 1998, MxOne B.V., a subsidiary of MatrixOne organized in the
Netherlands, entered into an employment agreement with Johannes T.J. Ruigrok.
Under the agreement, Mr. Ruigrok was appointed Vice President of European Sales
of MatrixOne as well as an officer of certain foreign subsidiaries of
MatrixOne. The agreement provides Mr. Ruigrok with a base salary of
(Euro)122,521 per year, commissions based on revenues targets and an allowance
for a mobile phone, a laptop and an automobile.
On April 14, 1998, we entered into an employment agreement with James F.
Morgan, our former Chairman of the Board of Directors and Chief Executive
Officer and currently a Director. Under the agreement, Mr. Morgan agreed to
serve as our full-time corporate advisor until June 30, 1998. From July 1, 1998
through January 2, 2000, Mr. Morgan agreed to serve as a part-time corporate
advisor. In December 1999, Mr. Morgan's employment agreement was extended
through March 31, 2000. For such services, we agreed to pay Mr. Morgan a
monthly salary of $13,750 until June 30, 1998 and $6,000 per month from July 1,
1998 through March 31, 2000. We also agreed to pay Mr. Morgan a bonus equal to
one percent (1%) of the net cash proceeds from the May 7, 1998 sale of assets
of Adra Systems to SofTech, Inc. The employment agreement provides that our
board may review Mr. Morgan's options at the end of the March 31, 2000 period
in order to permit the full vesting of all options not yet exercisable at the
end of the employment agreement and to permit conversion from incentive stock
options to non-qualified stock options of all unexercised options held by Mr.
Morgan to make such options exercisable until September 30, 2006. Mr. Morgan's
option agreement also provides for the full acceleration of vesting of all
unvested options on the initial public offering of common stock of MatrixOne.
The offer letter, dated December 5, 1997, of Stephen P. Dunn, our Vice
President of Global Alliances, provides for the full vesting of his initial
option grant of 67,500 shares in the event of a change in control of MatrixOne.
The standard option agreement under our 1987 and 1996 stock option plans
provides that if the board of directors approves a change of control
transaction, as long as such transaction occurs while the employee is still
employed by MatrixOne, then all unvested options of the employee shall be
accelerated. After acceleration, the employee may then exercise the option in
full. Pursuant to the option agreement, however, if the change of control
transaction is intended to be accounted for as a pooling of interests, no
acceleration of vesting will occur if any portion of the acceleration of the
option would preclude such financial accounting treatment. The standard option
agreement further provides that if any exercise of an accelerated option or the
acceleration of the vesting of any option would result in an excess parachute
payment under Section 280G(b) of the Internal Revenue Code,
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<PAGE>
then the exercise or vesting of that portion of the option, or any acceleration
thereof, resulting in the excess payment shall not be allowed or shall not
occur.
Employee Benefit Plans
1999 Stock Plan
In December 1999, our board of directors approved our 1999 Stock Plan, to
become effective on the closing of the offering. The aggregate number of shares
of common stock which may be issued under the 1999 Plan is 500,000. The 1999
Plan provides for the grant of incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, to employees. The 1999 Plan also
provides for the grant of non-qualified stock options, stock issuances and the
opportunity to make direct purchases of stock to employees, officers, directors
and consultants. Options, stock issuances and opportunities to make direct
purchases of stock are hereinafter collectively referred to as stock rights.
The 1999 Plan is currently administered by the Compensation Committee.
Subject to the provisions of the 1999 Plan, the board of directors or its
committee has the authority to select the persons to whom stock rights are
granted and determine the terms of each stock right.
Options and stock issuances granted under the 1999 Plan generally vest
quarterly over four years. The board or its committee may specify a different
vesting schedule for any particular grant. Stock rights granted under the 1999
Plan are not assignable or transferable other than by will or the laws of
descent and distribution, except for non-qualified options which are
transferable pursuant to a valid domestic relations order or with the consent
of our Chief Executive Officer or Chief Financial Officer.
The 1999 Plan provides that upon a change of control of MatrixOne, the
vesting of all unvested options will accelerate by 24 months. The Compensation
Committee also has the right to accelerate the date that any installment of an
option becomes exercisable upon a change of control or otherwise with certain
limitations. No options are outstanding under the 1999 Plan.
Amended and Restated 1996 Stock Plan
In September 1996, our board of directors approved, and in January 1997,
our stockholders approved, our 1996 Stock Plan. In March 1999, our board of
directors approved our Amended and Restated 1996 Stock Plan. The aggregate
number of shares of common stock which may be issued under the 1996 Plan is
4,650,000. The 1996 Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Internal Revenue Code, to employees
and other stock rights to employees, officers, directors and consultants.
The 1996 Plan is currently administered by the Compensation Committee.
Subject to the provisions of the 1996 Plan, the board of directors or its
committee has the authority to select the persons to whom stock rights are
granted and determine the terms of each stock right.
Options and stock issuances granted under the 1996 Plan generally vest
quarterly over four years. The board or its committee may specify a different
vesting schedule for any particular grant. Stock rights granted under the 1996
Plan are not assignable or transferable other than by will or the laws of
descent and distribution. Non-qualified options are assignable or transferable,
however, pursuant to a valid domestic relations order or with the consent of
our Chief Executive Officer or Chief Financial Officer.
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<PAGE>
The 1996 Plan provides that the Compensation Committee has the right to
accelerate the date that any installment of an option becomes exercisable upon
a change of control or otherwise with certain limitations. The Compensation
Committee also has the discretion to include automatic acceleration of vesting
provisions in option agreements.
Generally, no incentive stock option may be exercised more than sixty days
following termination of employment. However, in the event that termination is
due to death or disability, the stock option is exercisable for a maximum of
180 days after such termination. As of October 2, 1999, options to purchase
3,812,475 shares of common stock were outstanding under the 1996 Plan.
Amended and Restated 1987 Stock Option Plan
In February 1987 our board of directors approved, and in November 1987, our
stockholders approved, our 1987 Stock Option Plan. In March 1999, our board of
directors approved our Amended and Restated 1987 Stock Option Plan. The 1987
Plan provides for the grant of incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code, to employees. The 1987 Plan also
provides for the grant of non-qualified stock options to employees, officers,
non-employee directors and consultants.
The 1987 Plan is currently administered by the Compensation Committee.
Subject to the provisions of the 1987 Plan, the board of directors or its
committee has the authority to select the persons to whom options are granted
and determine the terms of each option.
Options granted under the 1987 Plan generally vest quarterly over four
years. The board or the Compensation Committee may specify a different vesting
schedule for any particular grant. Options granted under the 1987 Plan are not
assignable or transferable other than by will or the laws of descent and
distribution.
The 1987 Plan provides that the Compensation Committee has the right to
accelerate the date that any installment of an option becomes exercisable upon
a change of control or otherwise with certain limitations. The Compensation
Committee also has the discretion to include automatic acceleration of vesting
provisions in option agreements. As of October 2, 1999, options to purchase
448,704 shares of common stock were outstanding under the 1987 Plan. No new
options may be granted under the 1987 Plan.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by the board of directors
in December 1999, to become effective on the closing of the offering. The
purchase plan provides for the issuance of a maximum of 450,000 shares of
common stock. Employees who are customarily employed for more than 20 hours per
week and for more than five months per year are eligible to participate in the
purchase plan. Outside directors and employees who would own 5% or more of the
total combined voting power or value of our stock immediately after the grant
may not participate in the purchase plan.
On the first day of a designated payroll deduction or payment period, we
will grant to each eligible employee who has elected to participate in the
purchase plan an option to purchase shares of our common stock. The employee
may authorize between 1% to 10% of his or her total cash compensation to be
deducted by us from his or her base pay during the payment period. On the last
day of the payment period, the employee is deemed to have exercised the option,
at the option exercise price, to the extent of accumulated payroll deductions.
The payment periods will commence on the six-month periods commencing on
May 1 and November 1, respectively, and ending on the following October 31 and
April 30, respectively, of each
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year. In no case shall an employee be entitled to purchase more than 1,000
shares of common stock in any one payment period and in no case shall more than
75,000 shares of common stock be issued in the aggregate pursuant to the plan
in any one payment period. The exercise price for the option granted in each
payment period will be 85% of the lesser of the average market price of the
common stock on the first or last business day of the payment period.
An employee who is not a participant on the last day of the payment period
is not entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded without interest. Options
granted under the purchase plan may not be transferred or assigned. An
employee's rights under the purchase plan terminate upon his or her voluntary
withdrawal from the purchase plan at any time or upon termination of
employment. No options have been granted to date under the purchase plan.
Limitation of Liability and Indemnification of Officers and Directors
Our Amended and Restated By-Laws provide that our directors and officers
shall be indemnified to the fullest extent permitted by Delaware law against
all expenses and liabilities reasonably incurred in connection with their
service for or on behalf of MatrixOne. In addition, our Second Amended and
Restated Certificate of Incorporation provides that our directors will not be
personally liable for monetary damages for breaches of fiduciary duty, unless
they:
. violate their duty of loyalty to us or our stockholders;
. act in bad faith;
. knowingly or intentionally violate the law;
. authorize illegal dividends or redemptions; or
. derive an improper personal benefit from their action as directors.
We intend to obtain insurance which insures our directors and officers
against certain losses and which insures us against certain of our obligations
to indemnify such directors and officers.
61
<PAGE>
CERTAIN TRANSACTIONS
On June 17, 1999, we sold an aggregate of 750,000 shares of Class H
Convertible Preferred Stock in a private financing at a price of $8.00 per
share. Among the purchasers in this financing were William Blair Capital
Partners V, L.P. and Gilde IT Fund, each a 5% stockholder of MatrixOne.
We entered into a severance agreement and release with our former Chief
Financial Officer, William L. Fiedler, on August 24, 1998. Under the agreement,
we agreed to:
. pay his base salary for up to 12 months;
. pay him a bonus for the sale of assets related to the former Adra
Systems, Inc.; and
. convert his options into non-qualified stock options exercisable until
September 29, 2006.
Under the agreement, Mr. Fiedler agreed to release us from any potential claims
and agreed not to compete with us or solicit our employees for a period of one
year.
On April 14, 1998, we entered into an employment agreement with James F.
Morgan, our former Chairman of the Board of Directors and Chief Executive
Officer and a current Director. Under the agreement, Mr. Morgan agreed to serve
as our full-time corporate advisor until June 30, 1998. From July 1, 1998
through January 2, 2000, Mr. Morgan agreed to serve as a part-time corporate
advisor. In December 1999, Mr. Morgan's employment agreement was extended
through March 31, 2000. For such services, we agreed to pay Mr. Morgan a
monthly salary of $13,750 until June 30, 1998 and $6,000 per month from July 1,
1998 through March 31, 2000. We also agreed to pay Mr. Morgan a bonus equal to
one percent (1%) of the net cash proceeds from the May 7, 1998 sale of assets
of Adra Systems to SofTech, Inc. The employment agreement provides that our
board may review Mr. Morgan's options at the end of the March 31, 2000 period
in order to permit the full vesting of all options not yet exercisable at the
end of the employment agreement and to permit conversion from incentive stock
options to non-qualified stock options of all unexercised options held by Mr.
Morgan to make such options exercisable until September 30, 2006. Mr. Morgan's
option agreement also provides for the full acceleration of vesting of all
unvested options on the initial public offering of common stock of MatrixOne.
On September 27 and September 10, 1999, respectively, Mr. Morgan and Mr.
O'Connell, our President and Chief Executive Officer, entered into term
promissory notes in the principal amount of $66,500 which they used to exercise
options to purchase 50,000 shares of our common stock. The promissory notes
bear interest at an annual rate of 8% and are due September 27, 2001. Each of
Mr. Morgan and Mr. O'Connell has pledged his 50,000 shares of common stock to
secure his promissory note.
We believe that all transactions set forth above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
We have adopted a policy whereby all future transactions between us and any of
our officers, directors and affiliates will be on terms no less favorable to
MatrixOne than could be obtained from unaffiliated third parties and will be
approved by a majority of the disinterested members of our board of directors.
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of October 2, 1999, and as adjusted
to reflect the sale of the shares of common stock in the offering, by:
. each person who beneficially owns more than 5% of our common stock;
. each named executive officer;
. each of our directors; and
. all of our executive officers and directors as a group.
Unless otherwise indicated and subject to applicable community property
laws, to our knowledge, each stockholder possesses sole voting and investment
power, or shares such power with his or her spouse, with respect to all shares
listed as beneficially owned by such person. The address of each of our
officers and directors is c/o MatrixOne, Inc., Two Executive Drive, Chelmsford,
MA 01824.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission and assumes
the underwriters do not exercise their over-allotment option. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules beneficial ownership includes any shares as to which the
individual has sole or shared voting or investment power and any shares as to
which the individual has the right to acquire beneficial ownership within 60
days after October 2, 1999 through the exercise of any stock option, warrant or
other right. The inclusion in the following table of those shares, however,
does not constitute an admission that the named stockholder is a direct or
indirect beneficial owner. Percentage of beneficial ownership is based on
10,829,370 shares of common stock outstanding as of October 2, 1999, assuming
the conversion of the outstanding convertible preferred stock, and shares of
common stock outstanding after completion of the offering.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Shares Beneficially Owned Owned
--------------------------- -----------------
Name and Address of Beneficial Common Before After
Owner Stock Options Total Offering Offering
- ------------------------------ --------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
5% Stockholders
William Blair Capital Partners
V, L.P. ....................... 3,278,495 -- 3,278,495 30.3%
227 West Monroe
Suite 3400
Chicago, IL 60606
Gilde IT Fund................... 1,198,021 -- 1,198,021 11.1
Gilde Investment Management
Newtonlaan 91
P.O. Box 85067
Utrecht 3508AB
Netherlands
Morgan, Holland Fund, L.P. ..... 913,723 -- 913,723 8.4
c/o OneLiberty Ventures
150 Cambridge Park Drive
Cambridge, MA 02140
Compaq.......................... 600,000 -- 600,000 5.5
200 Forest Street
Marlboro, MA 01752
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Shares Beneficially Owned Owned
--------------------------- -----------------
Name and Address of Beneficial Common Before After
Owner Stock Options Total Offering Offering
- ------------------------------ --------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Executive Officer and Directors
Mark F. O'Connell (1)........... 50,000 346,092 396,092 3.5
Stephen P. Dunn................. 25,312 5,625 30,937 *
David W. McNelis................ -- 73,592 73,592 *
Johannes T.J. Ruigrok........... -- 43,875 43,875 *
Michael Segal (2)............... 57,562 128,812 186,374 1.7
Ellen Carnahan (3).............. 3,278,495 -- 3,278,495 30.3
Daniel J. Holland (4)........... 913,723 -- 913,723 8.4
James F. Morgan................. 50,000 250,000 300,000 2.7
Charles R. Stuckey, Jr.......... -- 20,750 20,750 *
All executive officers and
directors as a group (13
persons)....................... 4,413,217 918,509 5,331,726 45.4%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of common stock.
(1) Includes options to purchase 60,000 shares of common stock held of record
by Debra A. O'Connell, Mr. O'Connell's wife, options to purchase 20,000
shares of common stock held of record by The Mark F. O'Connell Grantor
Retained Annuity Trust-1999, options to purchase 35,000 shares of common
stock held of record by The Mark F. O'Connell Irrevocable Trust-1999 for
the benefit of Mr. O'Connell's children, options to purchase 20,000 shares
of common stock held of record by The Debra A. O'Connell Grantor Retained
Annuity Trust-1999, and options to purchase 35,000 shares of common stock
held of record by The Debra A. O'Connell Irrevocable Trust-1999 for the
benefit of Mr. O'Connell's children. Mr. O'Connell disclaims beneficial
ownership of these shares.
(2) Includes 8,000 shares of common stock and options to purchase 4,200 shares
of common stock held of record by The Michael Segal and Kathleen A. Brown
Irrevocable Trust-1999 for the benefit of Mr. Segal's children, and 3,250
shares of common stock and options to purchase 1,800 shares of common stock
held of record by The Segal/Brown Family Irrevocable Trust-1999, of which
Mr. Segal's wife is the trustee. Mr. Segal disclaims beneficial ownership
of these shares.
(3) Ms. Carnahan is a Managing Director of William Blair Capital Partners,
L.L.C. In such capacity, Ms. Carnahan may be deemed to have beneficial
ownership of the 3,278,495 shares owned by William Blair Capital Partners
V, L.P. Ms. Carnahan disclaims beneficial ownership of the shares, except
to the extent of her pecuniary interest therein.
(4) Mr. Holland is the Managing General Partner of Morgan, Holland Fund. In
such capacity, Mr. Holland may be deemed to have beneficial ownership of
the 913,723 shares owned by Morgan, Holland Fund, L.P. Mr. Holland
disclaims beneficial ownership of the shares, except to the extent of his
pecuniary interest therein.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
After the offering and the filing of our Second Amended and Restated
Certificate of Incorporation, our authorized capital stock will consist of
100,000,000 shares of common stock, par value $.01 per share, and 5,000,000
shares of preferred stock, par value $.01 per share.
As of October 2, 1999, we had:
. 1,908,443 shares of common stock issued and outstanding;
. 6,196,373 shares of preferred stock issued and 6,042,241 shares
outstanding;
. options to purchase an aggregate of 4,261,179 shares of our common stock
with a weighted average exercise price of $1.69; and
. a warrant to purchase 56,250 shares of our common stock with an exercise
price of $1.33.
At October 2, 1999, there were approximately 340 holders of record of our
capital stock. Immediately prior to the closing of the offering, all
outstanding shares of convertible preferred stock will be converted into
8,920,927 shares of common stock.
The following summary description of our capital stock, certificate of
incorporation and by-laws is not intended to be complete and assumes the filing
as of the closing of the offering of our Second Amended and Restated
Certificate of Incorporation. This description is qualified by reference to the
provisions of applicable law and to our Second Amended and Restated Certificate
of Incorporation and Amended and Restated By-laws filed as exhibits to the
registration statement of which this prospectus is a part.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in such election.
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally available
therefor, subject to any preferential dividend rights of outstanding preferred
stock. Upon our liquidation, dissolution or winding up, the holders of common
stock are entitled to receive ratably the net assets available after the
payment of all our debts and other liabilities, subject to the prior rights of
any outstanding preferred stock. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights, nor are they
entitled to the benefit of any sinking fund. The outstanding shares of common
stock are, and the shares offered by us in the offering will be, when issued
and paid for, validly issued, fully paid and nonassessable. The rights, powers,
preferences and privileges of holders of common stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
Preferred Stock
Our board of directors is authorized to issue up to an aggregate of
5,000,000 shares of preferred stock in one or more series without further
stockholder approval. Our board of directors has the discretion to determine
for each series of preferred stock the number of shares, designations,
preferences, qualifications and special or relative rights or privileges,
including dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights.
65
<PAGE>
The stockholders have granted our board of directors authority to issue the
preferred stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. The
issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power or other rights of the holders of common
stock, and could make it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, a majority of our
outstanding voting stock. We have not issued and have no present plans to issue
any shares of preferred stock.
Delaware Law and Certain Charter and By-Law Provisions and Anti-Takeover
Effects
Upon completion of the offering, we will be subject to the provisions of
Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
Our charter and by-laws divide our board of directors into three classes as
nearly equal in size as possible with staggered three-year terms. In addition,
our charter and by-laws provide that directors may be removed only for cause by
the affirmative vote of the holders of 66 2/3% of the shares of capital stock
entitled to vote therefore. Under our charter and by-laws, any vacancy on the
board of directors, however occurring, including a vacancy resulting from an
enlargement of our board may only be filled by vote of a majority of the
directors then in office or by the vote of the stockholders. The likely effect
of the classification of our board of directors and the limitations on the
removal of directors and filling of vacancies is an increase in the time
required for the stockholders to change the composition of the board of
directors.
Our charter and by-laws also provide that any action required or permitted
to be taken by our stockholders at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. Our charter and
by-laws provide that special meetings of the stockholders may only be called by
our board of directors or president. The by-laws further provide that in order
for any matter to be considered "properly brought" before an annual meeting, a
stockholder must comply with certain requirements regarding advance notice. The
foregoing provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions may also
discourage another person or entity from making a tender offer for our common
stock, because such person or entity, even if it acquired a majority of our
outstanding voting securities, would be able to take action as a stockholder
(such as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our certificate of incorporation requires
the affirmative vote of the holders of at least 66 2/3% of the shares of
capital stock issued and outstanding and entitled to vote to amend or repeal
any of the foregoing provisions of our certificate of incorporation. Our by-
laws also may be amended or repealed by a majority vote of our board of
directors subject to any limitations set forth therein. Amendment by
stockholders of provisions described in the paragraphs
66
<PAGE>
above requires the affirmative vote of the holders of at least 66 2/3% of the
shares of capital stock issued and outstanding and entitled to vote. The 66
2/3% stockholder vote would be in addition to any separate class vote that
might in the future be required pursuant to the terms of any series of
preferred stock that might be outstanding at the time any such amendments are
submitted to stockholders.
Registration Rights
After the offering, the holders of 8,977,177 shares of common stock and
rights to acquire common stock will be entitled to rights with respect to the
registration of those shares under the Securities Act. Under the terms of the
agreement between MatrixOne and the holders of those registrable shares, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders exercising
registration rights, those holders are entitled to notice of and to include
their shares of common stock in the registration. Additionally, the holders are
also entitled to specified demand registration rights pursuant to which they
may require us on up to four occasions to file a registration statement under
the Securities Act at our expense with respect to our shares of common stock.
Further, holders may require us to file additional registration statements on
Form S-3 at our expense. All of these registration rights are subject to
various conditions and limitations, among them the right of the underwriters of
an offering to limit the number of shares included in a registration and our
right not to effect a requested registration more than once in any one year
period or within 180 days of the offering.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Equiserve L.P.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our common
stock. Based on shares outstanding at October 2, 1999, upon completion of the
offering we will have outstanding an aggregate of shares of common stock,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants. Of these outstanding shares, the shares
sold in the offering will be freely tradeable without restrictions or further
registration under the Securities Act, unless such shares are purchased by our
affiliates as that term is defined in Rule 144 under the Securities Act.
Sales of Restricted Shares
The remaining 10,829,370 shares of common stock outstanding after the
offering are restricted securities under Rule 144 or Rule 701. Restricted
shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rule 144, 144(k) or 701 promulgated
under the Securities Act, which are summarized below. Subject to lock-up
agreements described below, approximately 273,929 restricted shares will be
available for resale in the public market in reliance on Rule 144(k) on the
date of this prospectus. Upon expiration of the lock-up agreements 180 days
after the date of this prospectus, an additional 4,403,841 shares will be
available for resale in the public market in reliance on Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year is entitled to sell a number of shares within any
three-month period that cannot exceed the greater of one percent of the number
of shares of common stock then outstanding, which will equal approximately
shares immediately after the offering, or the average weekly trading volume of
our common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. Sales
under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about
MatrixOne. Rule 144 also provides that affiliates who are selling shares of
common stock that are not restricted shares must nonetheless comply with the
same restrictions applicable to restricted shares with the exception of the
holding period requirement.
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
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Accordingly, unless otherwise
restricted, these shares may therefore be sold immediately upon the completion
of the offering.
Options
Rule 701 provides that the shares of common stock acquired upon the
exercise of currently outstanding options or pursuant to other rights granted
under our stock plans may be resold (to the extent not subject to the lock-up
agreements) by persons, other than affiliates, beginning 90 days after the date
of this prospectus, 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, subject to certain limitations. As of the date of this
prospectus, the board of directors has authorized an aggregate of up to
6,950,000 shares of common stock for issuance pursuant to our stock option
plans. As of October 2, 1999, options to purchase a total of 4,261,179 shares
of common stock were outstanding, 1,727,897 of which options are exercisable.
Of the total shares issuable pursuant to such options 847,697 are subject to
lock-up agreements.
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<PAGE>
We intend to file one or more registration statements on Form S-8 under the
Securities Act following the offering to register all shares of common stock,
up to 6,950,000 shares, which are issuable pursuant to our stock option and
stock purchase plans. These registration statements are expected to become
effective upon filing. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets, subject to the lock-up
agreements, to the extent applicable and to Rule 144 limitations applicable to
affiliates.
Warrants
As of the date of this prospectus, we have an outstanding warrant
exercisable for 56,250 shares of common stock, which is currently exercisable.
Of these shares, none is subject to lock-up agreements.
Lock-up Agreements
Except for sales of common stock to the underwriters pursuant to the
underwriting agreement and in limited other transactions, MatrixOne, our
executive officers and directors and some of our stockholders and optionholders
have agreed not to, among other things, sell or otherwise dispose of, directly
or indirectly, any shares of common stock (or any security convertible into or
exchangeable or exercisable for common stock) without the prior written consent
of Goldman, Sachs & Co. for a period of 180 days from the date of this
prospectus. Goldman, Sachs & Co., in its sole discretion at any time or from
time to time and without notice may release for sale in the public market all
or any portion of the shares subject to the lock-up agreements.
Registration Rights
After the offering, some of our stockholders will be entitled to require us
to register under the Securities Act up to a total of 8,977,177 shares of
outstanding common stock under the terms of a registration rights agreement
between MatrixOne and such stockholders. The registration rights agreement
provides that if we propose to register any of our securities under the
Securities Act at any time or times, such stockholders, subject to exceptions,
shall be entitled to include some or all of their shares in the registration.
Some of our stockholders also have, subject to conditions and limitations, the
right to require us, on no more than four occasions, to prepare and file a
registration statement under the Securities Act with respect to their shares.
Further, stockholders may require us to file additional registration statements
on Form S-3. All of these registration rights are subject to various conditions
and limitations, among them the fact that the managing underwriter of any
offering may exclude for marketing reasons some or all of the shares from such
registration. We are generally required to bear the expenses of all such
registrations, except underwriting discounts and commissions. The registration
rights agreement terminates ten years after the effective date of the offering.
Effects of Sales of Shares
Prior to the offering, there has been no public market for our common
stock. No predictions can be made as to the effect, if any, that market sales
of shares of our common stock from time to time, or the availability of shares
for future sale, may have on the market price for our common stock. Sales of
substantial amounts of common stock, or the perception that such sales could
occur, could adversely effect prevailing market prices for our common stock and
could impair our future ability to obtain capital through an offering of equity
securities.
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<PAGE>
UNDERWRITING
MatrixOne and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co., Dain
Rauscher Incorporated, SoundView Technology Group, Inc. and U.S. Bancorp Piper
Jaffray Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co................................................
Dain Rauscher Incorporated.........................................
SoundView Technology Group, Inc....................................
U.S. Bancorp Piper Jaffray Inc.....................................
---
Total............................................................
===
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from MatrixOne to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by MatrixOne. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
Paid by MatrixOne
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and
the other selling terms.
MatrixOne, its directors, officers and certain stockholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. Please see "Shares Eligible for Future Sale" for a discussion
of certain transfer restrictions.
At the request of MatrixOne, the underwriters have reserved up to shares
of common stock to be sold at the initial public offering price to directors,
officers, employees and friends of MatrixOne through a directed share program.
There can be no assurance that any of the reserved shares will be so purchased.
The number of shares available for sale to the general public in the offering
will be reduced by the number of reserved shares sold. Any reserved shares not
purchased will be offered to the general public on the same basis as the other
shares offered by this prospectus.
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<PAGE>
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among MatrixOne and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be MatrixOne's historical performance, estimates of the
business potential and earnings prospects of MatrixOne, an assessment of
MatrixOne's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
MatrixOne has applied to list the common stock on the Nasdaq National
Market under the symbol "MONE".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
MatrixOne estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, are estimated to be
approximately $1,000,000.
MatrixOne has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF COMMON STOCK
The validity of the shares of common stock to be issued in the offering
will be passed upon for us by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Certain legal matters in connection with the offering will be
passed upon for the underwriters by Hale and Dorr LLP. Two partners at Testa,
Hurwitz & Thibeault, LLP collectively own approximately 20,000 shares of our
stock.
EXPERTS
The financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
71
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
to be sold in the offering. As permitted by the rules and regulations of the
Commission, this prospectus omits certain information contained in the
Registration Statement. For further information with respect to MatrixOne and
the common stock to be sold in the offering, you should refer to the
registration statement and to its exhibits and schedules. Statements contained
in this prospectus regarding the contents of any agreement or other document
are not necessarily complete. You should refer in each instance to the copy of
such agreement filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference. When we complete
the offering, we will also be required to file annual, quarterly and special
reports, proxy statements and other information with the Commission.
You can read the registration statement and the exhibits and schedules
filed with the registration statement or any reports, statements or other
information MatrixOne files, at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10007 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may also obtain copies of the
documents from such offices upon payment of the prescribed fees. You may call
the Commission at 1-800-SEC-0330 for further information on the operation of
the public reference rooms. You can also request copies of the documents upon
payment of a duplicating fee, by writing to the Commission. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants (including us) that file
electronically with the Commission which you can access at http://www.sec.gov.
We intend to send to our stockholders annual reports containing our audited
consolidated financial statements.
72
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets as of June 27, 1998, July 3, 1999, October 2,
1999 (unaudited) and pro forma as of October 2, 1999 (unaudited)........ F-3
Consolidated Statements of Operations for the years ended June 28, 1997,
June 27, 1998 and July 3, 1999 and for the three months ended October 3,
1998 (unaudited) and October 2, 1999 (unaudited)........................ F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the years ended June 28, 1997, June
27, 1998 and July 3, 1999 and for the three months ended October 2, 1999
(unaudited)............................................................. F-5
Consolidated Statements of Cash Flows for the years ended June 28, 1997,
June 27, 1998 and July 3, 1999 and for the three months ended October 3,
1998 (unaudited) and October 2, 1999 (unaudited)........................ F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
MatrixOne, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of MatrixOne,
Inc. (a Delaware corporation) and its subsidiaries as of July 3, 1999 and June
27, 1998, and the related consolidated statements of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for each of the three years in the period ended July 3, 1999. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MatrixOne,
Inc. and its subsidiaries as of July 3, 1999 and June 27, 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended July 3, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
August 27, 1999, (except for the
matters discussed in Note 12 for
which the date is December 9, 1999)
F-2
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
June 27, July 3, October 2, October 2,
1998 1999 1999 1999
-------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents............. $ 8,123 $ 11,036 $ 7,594 $ 7,594
Accounts receivable, less
allowance for doubtful accounts
of $511, $772, and $792......... 6,872 14,670 15,269 15,269
Note receivable.................. 4,400 -- -- --
Prepaid expenses and other
current assets.................. 485 1,100 1,019 1,019
-------- -------- -------- --------
Total current assets........... 19,880 26,806 23,882 23,882
PROPERTY AND EQUIPMENT, NET........ 2,954 2,973 3,140 3,140
OTHER ASSETS....................... 78 108 118 118
-------- -------- -------- --------
$ 22,912 $ 29,887 $ 27,140 $ 27,140
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Line of credit................... $ -- $ 3,050 $ -- $ --
Current portion of long-term
debt............................ 221 -- -- --
Accounts payable................. 2,788 3,968 3,269 3,269
Accrued expenses................. 6,915 7,270 7,890 7,890
Deferred revenues................ 1,130 4,626 5,676 5,676
-------- -------- -------- --------
Total current liabilities...... 11,054 18,914 16,835 16,835
-------- -------- -------- --------
REDEEMABLE CONVERTIBLE PREFERRED
STOCK............................. 11,015 17,015 17,015 --
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTE
6)
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock,
$1.00 par value, 3,552 shares
authorized, 3,547 shares issued,
3,547, 3,393 and 3,393 shares
outstanding; $.01 par value,
5,000 shares authorized, no
shares issued or outstanding
(pro forma); liquidation
preference of $24,738 at October
2, 1999......................... 3,547 3,393 3,393 --
Common stock, $.01 par value,
40,000 shares authorized, 1,272,
1,668, 1,908 shares issued and
outstanding; 100,000 shares
authorized, 10,829 shares issued
and outstanding (pro forma)..... 13 17 19 108
Additional paid-in capital....... 22,395 25,496 31,867 52,186
Treasury stock; 159 shares at
cost............................ (441) -- -- --
Notes receivable from
stockholders.................... -- (117) (362) (362)
Deferred stock-based
compensation.................... -- (2,753) (8,400) (8,400)
Accumulated deficit.............. (24,669) (31,904) (33,099) (33,099)
Accumulated other comprehensive
loss............................ (2) (174) (128) (128)
-------- -------- -------- --------
Total stockholders' equity
(deficit)..................... 843 (6,042) (6,710) 10,305
-------- -------- -------- --------
$ 22,912 $ 29,887 $ 27,140 $ 27,140
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
--------------------------- -----------------------
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software license........... $ 8,450 $11,836 $21,851 $ 4,528 $ 7,460
Service.................... 3,825 9,343 19,495 3,672 6,421
------- ------- ------- ------- -------
Total revenues........... 12,275 21,179 41,346 8,200 13,881
------- ------- ------- ------- -------
COST OF REVENUES:
Software license........... 725 1,237 3,323 778 1,005
Service.................... 3,081 6,591 14,467 2,662 5,027
------- ------- ------- ------- -------
Total cost of revenues... 3,806 7,828 17,790 3,440 6,032
------- ------- ------- ------- -------
Gross profit............. 8,469 13,351 23,556 4,760 7,849
------- ------- ------- ------- -------
OPERATING EXPENSES:
Selling and marketing...... 6,883 15,369 20,611 4,287 6,171
Research and development... 4,267 7,242 5,792 1,556 1,480
General and
administrative............ 1,723 3,592 4,479 969 1,082
Stock-based compensation... -- -- 153 -- 409
------- ------- ------- ------- -------
Total operating
expenses................ 12,873 26,203 31,035 6,812 9,142
------- ------- ------- ------- -------
Loss from operations..... (4,404) (12,852) (7,479) (2,052) (1,293)
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income............ 67 178 346 115 108
Interest expense........... (205) (109) (109) (6) --
Other income (expense),
net....................... (2) (21) 7 (4) (10)
------- ------- ------- ------- -------
Total other income
(expense)............... (140) 48 244 105 98
------- ------- ------- ------- -------
Loss from continuing
operations before income
taxes................... (4,544) (12,804) (7,235) (1,947) (1,195)
BENEFIT FROM INCOME TAXES... 875 1,928 -- -- --
------- ------- ------- ------- -------
Net loss from continuing
operations................ (3,669) (10,876) (7,235) (1,947) (1,195)
------- ------- ------- ------- -------
DISCONTINUED OPERATIONS
(Note 3):
Income from discontinued
operations (net of income
taxes of $875 and $439 in
1997 and 1998)............ 1,777 1,973 -- -- --
Gain on sale of
discontinued operations
(net of income taxes of
$1,489 in 1998)........... -- 6,711 -- -- --
------- ------- ------- ------- -------
Net income from
discontinued
operations.............. 1,777 8,684 -- -- --
------- ------- ------- ------- -------
NET LOSS.................... $(1,892) $(2,192) $(7,235) $(1,947) $(1,195)
======= ======= ======= ======= =======
BASIC AND DILUTED NET INCOME
(LOSS) PER SHARE:
Continuing operations...... $ (2.95) $ (8.64) $ (4.90) $ (1.53) $ (0.69)
Discontinued operations.... 1.43 6.90 -- -- --
------- ------- ------- ------- -------
Net loss................... $ (1.52) $ (1.74) $ (4.90) $ (1.53) $ (0.69)
======= ======= ======= ======= =======
Shares used in computing
basic and diluted net
income (loss) per share... 1,243 1,259 1,476 1,276 1,734
======= ======= ======= ======= =======
PRO FORMA BASIC AND DILUTED
NET INCOME (LOSS) PER
SHARE:
Continuing operations...... $ (0.78) $ (0.11)
Discontinued operations.... -- --
------- -------
Net loss................... $ (0.78) $ (0.11)
======= =======
Shares used in computing
basic and diluted net
income (loss) per share... 9,323 10,655
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Redeemable Convertible
Convertible Preferred Common Treasury
Preferred Stock Stock Stock Stock
---------------- -------------- -------------- ----------------
Notes
Number Number Number Additional Receivable Deferred Stock-
of of of Paid-in Number of from Based
Shares Amount Shares Amount Shares Amount Capital Shares Cost Stockholders Compensation
------- -------- ------ ------ ------ ------ ---------- --------- ------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE
29, 1996........ -- $ -- 3,547 $3,547 1,216 $12 $22,443 159 $ (441) $ -- $ --
Comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............ -- -- -- -- -- -- -- -- -- -- --
Stock option
exercises....... -- -- -- -- 50 1 48 -- -- -- --
------ -------- ----- ------ ----- --- ------- ---- ------ ----- -------
BALANCE, JUNE
28, 1997........ -- -- 3,547 3,547 1,266 13 22,491 159 (441) -- --
Comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............ -- -- -- -- -- -- -- -- -- -- --
Stock option
exercises....... -- -- -- -- 6 -- 6 -- -- -- --
Issuance of
Series G
redeemable
convertible
preferred stock,
net of offering
costs of $102... 1,899 11,015 -- -- -- -- (102) -- -- -- --
------ -------- ----- ------ ----- --- ------- ---- ------ ----- -------
BALANCE, JUNE
27, 1998........ 1,899 11,015 3,547 3,547 1,272 13 22,395 159 (441) -- --
Comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............ -- -- -- -- -- -- -- -- -- -- --
Retirement of
treasury stock.. -- -- (154) (154) (5) -- (287) (159) 441 -- --
Stock option
exercises....... -- -- -- -- 287 3 366 -- -- -- --
Deferred stock-
based
compensation
(unaudited)..... -- -- -- -- -- -- 2,906 -- -- -- (2,906)
Stock-based
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- -- 153
Issuance of
common stock in
exchange for
notes
receivable...... -- -- -- -- 114 1 116 -- -- (117) --
Issuance of
Series H
redeemable
convertible
preferred
stock........... 750 6,000 -- -- -- -- -- -- -- -- --
------ -------- ----- ------ ----- --- ------- ---- ------ ----- -------
BALANCE, JULY 3,
1999............ 2,649 17,015 3,393 3,393 1,668 17 25,496 -- -- (117) (2,753)
Comprehensive
loss:
Foreign currency
translation
adjustments
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Stock option
exercises
(unaudited)..... -- -- -- -- 54 -- 72 -- -- -- --
Deferred stock-
based
compensation
(unaudited)..... -- -- -- -- -- -- 6,056 -- -- -- (6,056)
Stock-based
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- -- 409
Issuance of
common stock in
exchange for
notes receivable
(unaudited)..... -- -- -- -- 186 2 243 -- -- (245) --
------ -------- ----- ------ ----- --- ------- ---- ------ ----- -------
BALANCE, OCTOBER
2, 1999
(UNAUDITED)..... 2,649 $ 17,015 3,393 $3,393 1,908 $19 $31,867 -- $ -- $(362) $(8,400)
====== ======== ===== ====== ===== === ======= ==== ====== ===== =======
<CAPTION>
Accumulated Total
Other Stockholders'
Accumulated Comprehensive Comprehensive Equity
Deficit Loss Income (Loss) (Deficit)
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, JUNE
29, 1996........ $(20,585) $ 23 $ 4,999
Comprehensive
loss:
Foreign currency
translation
adjustments..... -- $ (84) (84) (84)
Net loss........ (1,892) (1,892) -- (1,892)
-------------
Comprehensive
loss............ -- $(1,976) -- --
=============
Stock option
exercises....... -- -- 49
----------- ------------- -------------
BALANCE, JUNE
28, 1997........ (22,477) (61) 3,072
Comprehensive
loss:
Foreign currency
translation
adjustments..... -- $ 59 59 59
Net loss........ (2,192) (2,192) -- (2,192)
-------------
Comprehensive
loss............ -- $(2,133) -- --
=============
Stock option
exercises....... -- -- 6
Issuance of
Series G
redeemable
convertible
preferred stock,
net of offering
costs of $102... -- -- (102)
----------- ------------- -------------
BALANCE, JUNE
27, 1998........ (24,669) (2) 843
Comprehensive
loss:
Foreign currency
translation
adjustments..... -- $ (172) (172) (172)
Net loss........ (7,235) (7,235) -- (7,235)
-------------
Comprehensive
loss............ -- $(7,407) -- --
=============
Retirement of
treasury stock.. -- --
Stock option
exercises....... -- -- 369
Deferred stock-
based
compensation
(unaudited)..... -- -- --
Stock-based
compensation
(unaudited)..... -- -- 153
Issuance of
common stock in
exchange for
notes
receivable...... -- -- --
Issuance of
Series H
redeemable
convertible
preferred
stock........... -- -- --
----------- ------------- -------------
BALANCE, JULY 3,
1999............ (31,904) (174) (6,042)
Comprehensive
loss:
Foreign currency
translation
adjustments
(unaudited)..... -- $ 46 46 46
Net loss
(unaudited)..... (1,195) (1,195) -- (1,195)
-------------
Comprehensive
loss
(unaudited)..... -- $(1,149) -- --
=============
Stock option
exercises
(unaudited)..... -- -- 72
Deferred stock-
based
compensation
(unaudited)..... -- -- --
Stock-based
compensation
(unaudited)..... -- -- 409
Issuance of
common stock in
exchange for
notes receivable
(unaudited)..... -- -- --
----------- ------------- -------------
BALANCE, OCTOBER
2, 1999
(UNAUDITED)..... $(33,099) $(128) $(6,710)
=========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
--------------------------- -----------------------
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss.................... $(1,892) $(2,192) $(7,235) $(1,947) $(1,195)
Net income from discontinued
operations................. (1,777) (8,684) -- -- --
------- ------- ------- ------- -------
Net loss from continuing
operations................. (3,669) (10,876) (7,235) (1,947) (1,195)
Adjustments to reconcile net
loss from continuing
operations to net cash
provided by (used in)
continuing operations:
Depreciation................ 604 834 1,257 359 333
Stock-based compensation.... -- -- 153 -- 409
Provision for doubtful
accounts................... 78 496 689 100 50
Deferred income tax
benefit.................... (875) (1,928) -- -- --
Changes in assets and
liabilities:
Accounts receivable........ (1,738) (1,957) (8,648) (1,135) 236
Prepaid expenses and other
current assets............ 323 (229) 62 6 (946)
Accounts payable........... 582 541 1,277 298 (742)
Accrued expenses........... 281 2,307 1,226 (2,097) 727
Deferred revenues.......... 405 625 2,877 806 1,703
------- ------- ------- ------- -------
Net cash provided by
(used) in continuing
operations............... (4,009) (10,187) (8,342) (3,610) 575
------- ------- ------- ------- -------
Net cash provided by (used
in) discontinued
operations............... 3,668 3,611 (1,056) (1,140) (287)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment.................. (563) (1,527) (1,306) (235) (488)
Other assets................ (53) (25) (32) 4 (8)
Collection of note
receivable................. -- -- 4,400 4,400 --
Net proceeds from sale of
discontinued operations.... -- 6,668 -- -- --
------- ------- ------- ------- -------
Net cash provided by (used
in) investing
activities............... (616) 5,116 3,062 4,169 (496)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
debt....................... 263 -- -- -- --
Repayments of debt.......... (164) (292) (221) (62) --
Proceeds from line of
credit..................... 700 1,250 4,000 -- --
Repayments of line of
credit..................... -- (3,250) (950) -- (3,050)
Proceeds from issuance of
redeemable convertible
preferred stock............ -- 10,913 6,000 -- --
Proceeds from stock option
exercises.................. 50 6 369 34 72
------- ------- ------- ------- -------
Net cash provided by (used
in) financing
activities............... 849 8,627 9,198 (28) (2,978)
------- ------- ------- ------- -------
EFFECT OF EXCHANGE RATES ON
CASH AND EQUIVALENTS........ (84) 59 51 74 (256)
------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS........ (192) 7,226 2,913 (535) (3,442)
------- ------- ------- ------- -------
CASH AND EQUIVALENTS,
BEGINNING OF PERIOD......... 1,089 897 8,123 8,123 11,036
------- ------- ------- ------- -------
CASH AND EQUIVALENTS, END OF
PERIOD...................... $ 897 $ 8,123 $11,036 $ 7,588 $ 7,594
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period
for interest............... $ 223 $ 109 $ 109 $ 6 $ --
======= ======= ======= ======= =======
NONCASH FINANCING ACTIVITY:
Issuance of common stock in
exchange for notes
receivable from
stockholders............... $ -- $ -- $ 117 $ -- $ 245
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 1: Description of the Company and Summary of Significant Accounting
Policies
Description of the Company
MatrixOne, Inc. and its subsidiaries (the "Company") is a provider of
Internet business collaboration software designed to enable interactive
collaboration over the Internet among geographically dispersed departments and
divisions within an enterprise and with an enterprise's customers, suppliers
and other business partners. The Company licenses its software both directly to
end users and through a network of domestic and international systems
integrators and distributors. The Company has its headquarters in the United
States, with offices in Austria, Canada, England, France, Germany, Italy, Japan
and The Netherlands and throughout the United States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Basis of Presentation and Principles of Consolidation
The Company operates on a 52-to-53 week fiscal year that ends on the
Saturday closest to June 30th. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Certain amounts
reported in previous periods have been reclassified to conform to the October
2, 1999 presentation.
Unaudited Interim Financial Information
The financial statements as of October 2, 1999 and for the three months
ended October 3, 1998 and October 2, 1999 are unaudited. These unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim period ended
October 2, 1999 are not necessarily indicative of results to be expected for
the entire fiscal year or future periods.
Unaudited Pro Forma Balance Sheet
Immediately prior to the closing of the initial public offering of the
Company's common stock, each outstanding share of convertible preferred stock
will be converted into common stock at the conversion ratios in effect on that
day. This conversion has been reflected in the unaudited pro forma balance
sheet as of October 2, 1999.
Unaudited Pro Forma Basic and Diluted Net Income (Loss) Per Share
Unaudited pro forma basic and diluted net income (loss) per share is
computed by dividing net income (loss) by the weighted average number of
outstanding common shares during the period plus the assumed conversion of all
convertible preferred stock into common stock, which will occur immediately
prior to the closing of
F-7
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
the initial public offering. Common stock equivalents, such as stock options
and warrants, are excluded from the calculation as their effect is
antidilutive.
Foreign Currency Translation
The functional currency of each subsidiary is the local currency. Assets
and liabilities of foreign subsidiaries are translated at the rates in effect
at the balance sheet date, while stockholders' equity (deficit) is translated
at historical rates. Statements of operations and cash flow amounts are
translated at the average rate for the period. Translation adjustments are
included as a component of accumulated other comprehensive loss. Foreign
currency gains and losses arising from transactions are reflected in the loss
from operations and were not significant in the years 1997, 1998 and 1999 and
the three months ended October 3, 1998. During the three months ended October
2, 1999, realized foreign currency losses aggregated $43 and unrealized foreign
currency gains aggregated $43 and were included in other income (expense).
Derivative Financial Instruments
Subsequent to October 2, 1999, the Company began to enter into foreign
currency forward exchange contracts to reduce its exposure to foreign currency
risk due to fluctuations in exchange rates underlying the value of accounts
receivable and payable denominated in foreign currencies (primarily European
and Asian currencies) until such receivables are collected and payables are
disbursed. A foreign currency forward exchange contract obligates the Company
to exchange predetermined amounts of specified foreign currencies at specified
exchange rates on specified dates or to make an equivalent U.S. dollar payment
equal to the value of such exchange. These foreign currency forward exchange
contracts, to qualify as hedges of existing assets or liabilities, are
denominated in the same currency in which the underlying foreign currency
receivables or payables are denominated and bear a contract value and maturity
date which approximate the value and expected settlement date, respectively, of
the underlying transactions. For contracts that are designated and effective as
hedges, discounts or premiums (the difference between the spot exchange rate
and the forward exchange rate at inception of the contract) are accreted or
amortized to other expenses over the contract lives using the straight-line
method, while unrealized gains and losses on open contracts at the end of each
accounting period resulting from changes in the spot exchange rate are
recognized in earnings in the same period as gains and losses on the underlying
foreign denominated receivables or payables are recognized and generally
offset. Contract amounts in excess of the carrying value of the Company's
foreign currency denominated accounts receivable or payable balances are marked
to market, with changes in market value recorded in earnings as foreign
exchange gains or losses. The Company does not enter into or hold derivatives
for trading or speculative purposes. The Company did not enter into any foreign
currency forward contracts during the periods presented.
Most of the Company's international revenues and expenses are denominated
in local currencies. Due to the volatility of currency exchange rates, among
other factors, the Company cannot predict the effect of exchange rate
fluctuations on future operating results.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in
stockholders' equity (deficit), except stockholders' investments and
distributions.
F-8
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Revenue Recognition
The Company generates revenues from licensing its software and providing
professional services and training, maintenance and customer support services.
The Company has separate agreements which govern the terms and conditions of
each software license and each arrangement for professional training and
maintenance and customer support services with each customer. These separate
agreements, together with the Company's price list, provide the basis for
establishing vendor-specific objective evidence of fair value allowing the
Company to appropriately allocate fair value among the multiple elements in an
arrangement.
The Company recognizes software license revenues upon execution of a
license agreement, delivery of the software to a customer and determination
that collection of a fixed license fee is probable.
Service revenues include professional services and training, maintenance
and customer support fees. Professional services and training revenues are
recognized as the services are performed for time and material contracts or on
a percentage-of-completion basis for fixed price contracts. If conditions for
acceptance are required, professional services revenues are recognized upon
customer acceptance. Customer maintenance and customer support fees are
recognized ratably over the term of the maintenance contract on a straight-line
basis. When a customer maintenance fee is included with a software license fee,
the Company allocates a portion of the software license fee to customer
maintenance fees based on the Company's objective evidence of the fair value of
each element of the arrangement.
Cash Equivalents
The Company considers all time deposits and short-term investments with
original maturities of 90 days or less to be cash equivalents. The Company's
cash equivalents are primarily comprised of money market mutual funds and are
stated at cost, which approximates market.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
equivalents, accounts receivable, notes receivable, accounts payable and debt
instruments. The book values of such financial instruments approximated their
respective fair values as of each balance sheet presented due to their short-
term maturities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are principally cash and equivalents and accounts
receivable. Concentration of credit risk, with respect to cash and equivalents
is limited because the Company deposits its cash in highly rated financial
institutions and invests in diversified money market investments. Concentration
of credit risk with respect to accounts receivable is limited to certain
customers to whom the Company makes substantial sales. To reduce its credit
risk, the Company routinely assesses the financial strength of its customers.
The Company maintains an allowance for potential credit losses but historically
has not experienced any significant losses related to individual customers or
groups of customers in any particular industry or geographic area.
F-9
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
No one customer accounted for more than 10% of the Company's total revenues
during the years 1997, 1998, and 1999. No one customer represented greater than
10% of the Company's accounts receivable at June 28, 1997, June 27, 1998 and
July 3, 1999.
Revenues from one customer were approximately 11% of the Company's total
revenues for the three months ended October 3, 1998.
Revenues from two customers were approximately 24% and 10% of the Company's
total revenues for the three months ended October 2, 1999. Accounts receivable
from these customers represented approximately 17% and 12% of the Company's
accounts receivable at October 2, 1999.
Property and Equipment
Property and equipment are recorded at cost. Internal and external costs
incurred to develop and install computer software for internal use are
capitalized. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets (computer equipment and software, two to
five years; furniture and fixtures, four years; machinery and equipment, five
years; leasehold improvements, shorter of useful life or remaining lease term).
Maintenance and repair expenditures are charged to operations when incurred,
and additions and improvements are capitalized. The Company reviews its
property and equipment whenever events or changes in circumstances may indicate
that the carrying amount of certain assets may not be recoverable and
recognizes an impairment loss when it is probable that the estimated cash flows
are less than the carrying value of these assets. Property and equipment to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
Stock-Based Compensation
The Company records stock-based compensation issued to employees using the
intrinsic value method and stock-based compensation issued to non-employees
using the fair value method. Stock-based compensation is recognized on options
issued to employees if the option exercise price is less than the market price
of the underlying stock on the date of grant.
Research and Development and Software Development Costs
Research and development costs are expensed as incurred. Software
development costs are included in research and development and are expensed as
incurred. After technological feasibility is established, material software
development costs are capitalized. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or in the ratio of current
revenues to total projected product revenues, whichever is greater. To date,
the period between achieving technological feasibility, which the Company has
defined as when beta testing commences, and the general availability of such
software has been minimal, and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs for the periods presented.
Income Taxes
The Company accounts for income taxes under the asset and liability method,
which recognizes deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the tax basis of assets and
liabilities and their financial statement reported amounts. The Company records
a valuation allowance against deferred tax assets when it is more likely than
not that such assets will not be realized.
F-10
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is computed by dividing net income (loss)
by the shares used in the calculation of basic net income (loss) per share plus
the dilutive effect of common stock equivalents, such as stock options,
warrants and convertible preferred stock, using the treasury stock method.
Common stock equivalents are excluded from the computation of dilutive net
income (loss) per share if their effect is antidilutive.
Recently Issued Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, as amended by SFAS No. 137, will be effective for the Company's financial
reporting beginning in the first quarter of 2001. SFAS No. 133 will require the
Company to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The accounting for gains and losses from changes in the fair value of a
particular derivative will depend on the intended use of the derivative. The
Company does not expect the adoption of SFAS No. 133 to have a material impact
on the results of its operations or financial position.
Note 2: Details of Financial Statement Components
<TABLE>
<CAPTION>
June 27, July 3, October 2,
1998 1999 1999
-------- ------- ----------
<S> <C> <C> <C>
CASH AND EQUIVALENTS:
Cash............................................ $1,883 $ 1,633 $1,666
Money market mutual funds....................... 6,240 9,403 5,928
------ ------- ------
$8,123 $11,036 $7,594
====== ======= ======
PROPERTY AND EQUIPMENT:
Computer equipment and software................. $6,181 $ 3,845 $4,201
Leasehold improvements.......................... 840 942 882
Furniture and fixtures.......................... 759 156 248
Office equipment................................ 1,129 122 251
------ ------- ------
8,909 5,065 5,582
Accumulated depreciation........................ (5,955) (2,092) (2,442)
------ ------- ------
$2,954 $ 2,973 $3,140
====== ======= ======
ACCRUED EXPENSES:
Compensation.................................... $3,623 $ 3,629 $3,867
Discontinued operations......................... 2,006 950 663
Royalties....................................... 440 1,280 842
Taxes........................................... -- 275 813
Other........................................... 846 1,136 1,705
------ ------- ------
$6,915 $ 7,270 $7,890
====== ======= ======
</TABLE>
F-11
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 3: Discontinued Operations
In 1998, the Company decided to focus its business on its eMatrix software
suite of products and services. On May 7, 1998, the Company sold substantially
all of the net assets of its legacy design and manufacturing business, which
had been operated as a wholly-owned subsidiary of the Company under the name
Adra Systems, Inc. ("Adra Systems"), to SofTech, Inc. The purchase price
consisted of $7,000 of cash, a $4,400 promissory note which accrued interest at
7% and was collected on July 2, 1998, and contingent payments of up to $2,200
based on SofTech's revenues after the acquisition. SofTech has notified the
Company that no contingent payments were due.
The Company recorded a $6,711 gain on the sale of the net assets of Adra
Systems, comprised of the cash and promissory note proceeds of $11,400 less
estimated transaction costs of $2,338, income taxes of $1,489 and net assets
sold of $862. The transaction costs consisted principally of investment
banking, legal and accounting fees, and bonus and severance arrangements with
certain employees. The net assets sold consisted of the following:
<TABLE>
<S> <C>
Current assets....................................................... $3,598
Property and equipment, net.......................................... 725
------
Total assets......................................................... 4,323
Current liabilities.................................................. (3,461)
------
Net assets sold.................................................... $ 862
======
</TABLE>
The consolidated financial statements of the Company have been restated to
reflect the financial results of Adra Systems as a discontinued operation.
Reported revenues, expenses and cash flows exclude the operating results of
Adra Systems. Revenues from Adra Systems were approximately $15,946 for the
year ended June 28, 1997 and $12,434 for the period through May 7, 1998. At
June 27, 1998, July 3, 1999 and October 2, 1999, accrued transaction costs
relating to the sale of the net assets of Adra Systems, included in accrued
expenses, were $2,006, $950 and $663, respectively.
Note 4: Income Taxes
At July 3, 1999, the Company had available net operating loss ("NOL")
carryforwards in the United States ("U.S.") of approximately $21,100 and
approximately $658 of available U.S. tax credits to reduce future U.S. income
taxes. The NOLs and tax credit carryforwards expire commencing in fiscal 2000.
Use of these NOLs and tax credits may be limited due to certain changes in
ownership.
The Company also has NOLs in certain foreign countries that are also
subject to certain limitations. These NOLs are not material.
The Company has recorded a valuation allowance against its deferred tax
asset due to the uncertainty surrounding the timing of the realization of these
tax benefits. Realization of these tax benefits is dependent on generating
sufficient taxable income.
F-12
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
The components of the deferred tax asset are as follows:
<TABLE>
<CAPTION>
June 27, July 3,
1998 1999
-------- -------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 6,195 $ 7,170
Deferred revenues......................................... 525 1,163
Tax credits............................................... 658 658
Accrued liabilities....................................... 1,225 563
Allowance for doubtful accounts........................... 275 289
Depreciation.............................................. 164 71
------- -------
Total deferred tax assets............................... 9,042 9,914
Valuation allowance....................................... (9,042) (9,914)
------- -------
Net deferred tax asset.................................. $ -- $ --
======= =======
</TABLE>
During 1997 and 1998, the Company recognized an income tax benefit from
continuing operations of $875 and $1,928, respectively, to offset the income
taxes relating to discontinued operations.
The reconciliation between the statutory federal income tax rate and the
Company's effective tax rate for continuing operations is as follows:
<TABLE>
<CAPTION>
June 28, June 27, July 3,
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Federal statutory rate........................... 35% 35% 35%
State tax, net of federal tax benefit............ 6 6 6
Income tax benefit used to offset income taxes
from discontinued operations.................... (19) (15) --
Provision for valuation allowance................ (41) (41) (41)
--- --- ---
(19)% (15)% -- %
=== === ===
</TABLE>
The effective tax rate for discontinued operations was 33% and 18% for 1997
and 1998, respectively.
Note 5: Line of Credit and Debt
On December 29, 1998, the Company obtained a line of credit of $7,000 from
a bank. Borrowings under the line of credit are limited to 80% of eligible
accounts receivable, less 10% of the U.S. dollar value of each forward contract
up to a total of $500, and bear interest at the bank's prime rate plus 0.5%
(8.5% and 8.75% at July 3, 1999 and October 2, 1999, respectively). The line of
credit expires in December 1999 and is collateralized by all of the assets of
the Company. The line of credit includes certain reporting and financial
covenants, including minimum quick ratio, tangible net worth and liquidity
requirements, and limits the Company's ability to incur additional
indebtedness, merge or consolidate, make certain investments and change its
management or ownership without prior approval of the bank.
The Company had a term loan that was payable in 33 equal installments of
$21 that commenced on October 31, 1996. The term loan was paid in full during
1999.
F-13
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 6: Commitments and Contingencies
The Company leases its facilities, automobiles and certain office equipment
under various operating leases that expire through fiscal 2006. Certain of the
facility leases require the Company to pay its proportionate share of building
expenses and provide the Company with the option to renew its lease for an
extended period. Aggregate rental expense under operating leases was
approximately $1,042, $1,187 and $1,616 for the years ended 1997, 1998 and
1999, respectively, and $354 and $472 for the three months ended October 3,
1998 and October 2, 1999, respectively.
Future minimum lease commitments, by fiscal year, as of July 3, 1999 are as
follows:
<TABLE>
<CAPTION>
Autos and
Facilities Equipment Total
---------- --------- ------
<S> <C> <C> <C>
2000............................................. $1,165 $291 $1,456
2001............................................. 1,018 213 1,231
2002............................................. 824 111 935
2003............................................. 444 21 465
2004............................................. 15 5 20
Thereafter....................................... 10 2 12
------ ---- ------
$3,476 $643 $4,119
====== ==== ======
</TABLE>
During 1999, the Company entered into an agreement for telecommunication
services at favorable pricing based on minimum purchase requirements of
approximately $325 each year through fiscal 2001.
Note 7: Redeemable Convertible Preferred Stock
On June 17, 1999, the Company sold 750 shares of Class H redeemable
convertible preferred stock at $8.00 per share for $6,000. On October 1, 1997,
the Company sold 1,899 shares of Class G redeemable convertible preferred stock
at $5.80 per share for $11,015. As of July 3, 1999 and October 2, 1999,
redeemable convertible preferred stock was comprised of the following:
<TABLE>
<CAPTION>
Shares Shares Shares Redemption Liquidation
Authorized Issued Outstanding Value Preference
---------- ------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Class G, $1.00 par value;
liquidation preference
of $5.80 per share...... 2,000 1,899 1,899 $11,015 $11,015
Class H, $1.00 par value;
liquidation preference
of $8.00 per share...... 750 750 750 6,000 6,000
----- ----- ----- ------- -------
2,750 2,649 2,649 $17,015 $17,015
===== ===== ===== ======= =======
</TABLE>
The Company has authorized the issuance of up to 6,552 shares of preferred
stock of which 250 shares are undesignated. The rights, preferences and
privileges of the Class G and Class H redeemable convertible preferred stock
are listed below.
F-14
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Conversion
Each share of Class G and Class H redeemable convertible preferred stock is
convertible into 1.425 and 1.5 shares, respectively, of common stock at the
option of the holder.
Immediately prior to the closing of a registered public offering at an
offering price of not less than $17.40 (or $11.60 as adjusted for the 3 for 2
stock split effected on August 25, 1999) per common share, conversion of Class
G is mandatory and at an offering price of not less than $24.00 (or $16.00 as
adjusted for the 3 for 2 stock split effected on August 25, 1999), conversion
of Class H is mandatory.
Liquidation
In the event of liquidation, the holders of Class G and H redeemable
convertible preferred stock are entitled to receive, prior to any distribution
to holders of Class A through Class F convertible preferred stock and common
stockholders, a liquidation preference aggregating $17,015 in per share amounts
of $5.80 and $8.00, respectively. In addition, in the event of a merger or
consolidation of the Company, the holders of Class G and H redeemable
convertible preferred stock may elect to have their preferred shares
repurchased by the Company at the applicable liquidation preference price.
Redemption
In connection with the issuance of the Class G redeemable convertible
preferred stock, the redemption rights of Class A through Class F convertible
preferred stock were eliminated.
Class G redeemable convertible preferred stock is redeemable at the option
of the majority of the Class G stockholders on October 1, 2002 for 50% of the
outstanding shares at $5.80 per share plus any accrued and unpaid dividends. On
October 1, 2003, the Company is required to redeem 100% of the outstanding
Class G redeemable convertible preferred stock at $5.80 per share, plus any
accrued and unpaid dividends.
Class H redeemable convertible preferred stock is redeemable at the option
of the majority of the Class H stockholders on October 1, 2002 for 50% of the
outstanding shares at $8.00 per share, plus any accrued and unpaid dividends.
On October 1, 2003, at the option of the majority of the Class H stockholders,
the Company is required to redeem 100% of the outstanding Class H redeemable
convertible preferred stock at $8.00 per share, plus any accrued and unpaid
dividends. The Company may not redeem or purchase any junior securities unless
the consent of the majority of the Class H stockholders is obtained or the
Class H stock is redeemed.
Voting
The holders of the redeemable convertible preferred stock and convertible
preferred stock shall vote as one class and are entitled to that number of
votes equal to the number of shares of common stock into which the preferred
stock is then convertible.
Dividends
The holders of the Class G and H redeemable convertible preferred stock are
entitled to receive dividends when and if declared by the Board of Directors
(the "Board").
F-15
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 8: Stockholders' Equity (Deficit)
Common Stock
On August 10, 1999 the Board voted to approve a 3 for 2 stock split,
effected as a 50% stock dividend, provide for a single class of common stock,
eliminate the Class B common stock and increase the number of authorized shares
of common stock from 12,000 to 40,000. The consolidated financial statements
for all periods presented have been restated to reflect the 3 for 2 stock
split. As of October 2, 1999, 6,000 shares of common stock had been authorized
for issuance pursuant to the exercise of stock options and other stock rights.
Convertible Preferred Stock
As of July 3, 1999 and October 2, 1999, Class A through Class F convertible
preferred stock was comprised of the following:
<TABLE>
<CAPTION>
Shares Shares Shares Liquidation
Authorized Issued Outstanding Amount Preference
---------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Class A, $1.00 par value;
liquidation preference of
$4.88 per share............ 615 615 512 $ 512 $ 2,501
Class B, $1.00 par value;
liquidation preference of
$7.32 per share............ 492 491 444 444 3,250
Class C, $1.00 par value;
liquidation preference of
$6.20 per share............ 1,195 1,194 1,194 1,194 7,403
Class D, $1.00 par value;
liquidation preference of
$9.00 per share............ 683 680 676 676 6,084
Class E, $1.00 par value;
liquidation preference of
$9.00 per share............ 167 167 167 167 1,500
Class F, $1.00 par value;
liquidation preference of
$10.00 per share........... 400 400 400 400 4,000
----- ----- ----- ------ -------
3,552 3,547 3,393 $3,393 $24,738
===== ===== ===== ====== =======
</TABLE>
The rights, preferences and privileges of the Class A through Class F
convertible preferred stock are listed below.
Conversion
Each share of Class A through F convertible preferred stock, is convertible
into 1.5 shares of common stock at the option of the holder.
Liquidation
In the event of liquidation, the holders of convertible preferred stock are
entitled to receive, prior to any distribution to common stockholders, a
liquidation preference aggregating $24,738 in per share amounts ranging from
$4.88 to $10.00. In addition, in the event of a merger or consolidation of the
Company, holders of Class A through Class F convertible preferred stock may
elect to have their preferred shares repurchased by the Company at the
applicable liquidation preference price.
Redemption
In connection with the issuance of the Class G redeemable convertible
preferred stock, the redemption rights of Class A through Class F convertible
preferred stock were eliminated.
F-16
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Voting
The holders of Class A through Class F convertible preferred stock and the
holders of redeemable convertible preferred stock vote as one class and are
entitled to that number of votes per share of convertible preferred stock equal
to the number of shares of common stock into which each share of preferred
stock is then convertible.
Dividends
The holders of the Class A through Class F convertible preferred stock are
entitled to receive dividends when and if declared by the Board.
Notes Receivable from Stockholders
During 1999 and the three months ended October 2, 1999, the Company issued
114 and 186 shares of common stock, respectively, in exchange for notes
receivable from stockholders with principal balances aggregating $117 and $245,
respectively. These notes are full recourse to the stockholders and are
additionally collaterized by the underlying shares of common stock. The notes
receivable are payable in full on varying dates through December 27, 2002 and
bear interest at 8%. These notes receivable have been reported as a reduction
to stockholders' equity.
Warrants
In May 1997, the Company issued a warrant to purchase 56 shares of common
stock in conjunction with its line of credit. The warrants have an exercise
price of $1.33 and expire in May 2002. No value has been ascribed to these
warrants as the amount would not be material to the financial statements.
Stock Option Plans
The Company's 1987 Stock Option Plan (the "1987 Plan") has been terminated;
however, options issued under the 1987 Plan remain outstanding. The 1987 Plan
provided for the granting of both incentive stock options and nonqualified
stock options. Incentive stock options were granted at the fair market value of
the common stock on the date of grant, as determined by the Board. Options
granted under the 1987 Plan generally vest over four years and expire no later
than ten years from the date of the grant.
In fiscal year 1996, the Company adopted a stock plan (the "1996 Plan")
pursuant to which 4,650 shares of the Company's common stock are reserved for
issuance. The 1996 Plan provides for the granting of both incentive stock
options, nonqualified stock options and other stock rights. Options may be
granted at not less than the fair market value of the Company's common stock on
the date of grant, as determined by the Board. Options granted under the 1996
plan generally vest over four years and expire no later than ten years from the
date of the grant. There were 461 shares available for future grant at October
2, 1999.
F-17
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
The following is a summary of stock option activity for all stock plans:
<TABLE>
<CAPTION>
June 28, 1997 June 27, 1998 July 3, 1999 October 2, 1999
---------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding:
Beginning balance....... 1,107 $1.11 1,873 $1.25 3,375 $1.29 3,914 $1.34
Granted................. 1,204 1.33 1,944 1.33 1,602 1.38 614 3.81
Exercised............... (50) 1.01 (6) 1.28 (401) 1.19 (240) 1.32
Canceled................ (388) 1.14 (436) 1.30 (662) 1.26 (27) 1.52
----- ----- ----- ----- ----- ----- ----- -----
Ending balance.......... 1,873 $1.25 3,375 $1.29 3,914 $1.34 4,261 $1.69
===== ===== ===== ===== ===== ===== ===== =====
Exercisable............. 982 $1.17 1,493 $1.23 1,719 $1.29 1,728 $1.29
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The fair value of options granted in 1997, 1998 and 1999 and the three
months ended October 3, 1998 and October 2, 1999 have been determined using the
Black-Scholes option pricing model. The assumptions used are as follows:
<TABLE>
<CAPTION>
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Risk-free interest
rate................... 6.10% 5.70% 5.10% 5.10% 5.80%
Expected dividend
yield.................. None None None None None
Expected lives.......... 5 years 5 years 5 years 5 years 5 years
Expected volatility..... -- -- -- -- --
</TABLE>
The weighted average fair value of options granted in 1997, 1998 and 1999
and the three months ended October 3, 1998 and October 2, 1999 were $0.36,
$0.34, $2.13, $0.30 and $10.82 per share, respectively.
Information regarding stock options outstanding as of July 3, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Exercise Price Shares Life (Years) Exercise Price Shares Exercise Price
-------------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$1.00................... 229 4.60 $1.00 229 $1.00
$1.33................... 3,527 8.09 1.33 1,490 1.33
$2.00................... 158 9.99 2.00 -- --
----- ---- ----- ----- -----
3,914 7.96 $1.34 1,719 $1.29
===== ==== ===== ===== =====
</TABLE>
F-18
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Information regarding options outstanding as of October 2, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number of Average
Exercise Price Shares Life (Years) Exercise Price Shares Exercise Price
-------------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$1.00--$1.33............ 3,492 7.68 $ 1.31 1,716 $1.29
$2.00--$3.33............ 725 9.79 3.04 12 2.23
$10.00.................. 44 9.99 10.00 -- --
----- ---- ------ ----- -----
4,261 8.06 $ 1.69 1,728 $1.29
===== ==== ====== ===== =====
</TABLE>
In connection with certain stock option grants to employees, the Company
recorded deferred stock-based compensation of $2,906 for the year ended July 3,
1999 and $6,056 for the three months ended October 2, 1999. Deferred stock-
based compensation represents the difference between the option price and the
deemed fair value of the Company's common stock on the date of grant and is
reported as a component of stockholders' equity (deficit). Deferred stock-based
compensation is amortized through charges to operations over the vesting period
of the options, which is generally four years. Stock-based compensation was
$153 for the year ended July 3, 1999 and $409 for the three months ended
October 2, 1999.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in subjective assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
Had compensation expense for stock options been determined based on fair
value as proscribed by SFAS No. 123, the Company's pro forma net loss would
have been as follows:
<TABLE>
<CAPTION>
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Loss:
As reported................. $(1,892) $(2,192) $(7,235) $(1,947) $(1,195)
Pro forma................... $(1,989) $(2,411) $(7,558) $(2,025) $(1,303)
</TABLE>
Because the method proscribed by SFAS No. 123 has not been applied to stock
options granted prior to June 30, 1995 and no expected volatility factor has
been used to value any stock options granted, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
Note 9: Employee Benefit Plans
Eligible employees of the Company's North American offices may elect to
participate in the Company's 401(k) plan. The Company does not make
contributions to the 401(k) plan. Employees of certain of the Company's
subsidiaries are provided with savings plans to which the Company and the
employee contribute. The Company's contributions to these plans have not been
material.
F-19
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 10: Segment and Geographic Information
The Company measures operating results as a single reportable segment,
which provides multiple products and services to enable interactive
collaboration over the Internet among geographically dispersed departments and
divisions within an enterprise and with the enterprise's customers, suppliers
and other business partners. The Company reports revenues in the geographic
region of the customer at the time of the license. However, the customer has
the right to redeploy licenses anywhere in the world. Revenues and property and
equipment by significant geographic region are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
------------------------- ---------------------
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
North America............ $ 9,403 $15,644 $30,557 $6,878 $ 6,770
------- ------- ------- ------ -------
Germany.................. 1,531 2,573 6,048 501 2,228
Asia/Pacific............. -- -- -- -- 3,281
Europe (excluding Germa-
ny)..................... 1,341 2,962 4,741 821 1,602
------- ------- ------- ------ -------
Total international.... 2,872 5,535 10,789 1,322 7,111
------- ------- ------- ------ -------
$12,275 $21,179 $41,346 $8,200 $13,881
======= ======= ======= ====== =======
</TABLE>
Property and Equipment:
<TABLE>
<CAPTION>
As of
---------------------------
June 27, July 3, October 2,
1998 1999 1999
-------- ------- ----------
<S> <C> <C> <C>
North America.................................. $2,641 $2,498 $2,618
------ ------ ------
Germany........................................ 60 123 144
Asia/Pacific................................... -- -- 19
Europe (excluding Germany)..................... 253 352 359
------ ------ ------
Total international.......................... 313 475 522
------ ------ ------
$2,954 $2,973 $3,140
====== ====== ======
</TABLE>
F-20
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 11: Net Income (Loss) Per Share
The calculation of basic and diluted and pro forma basic and diluted net
income (loss) per share is as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
--------------------------- ---------------------
June 28, June 27, July 3, October 3, October 2,
1997 1998 1999 1998 1999
-------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Basic and Diluted Net
Income (Loss) Per Share:
Net loss from continuing
operations................ $ (3,669) $(10,876) $(7,235) $(1,947) $ (1,195)
Net income from discontin-
ued operations............ 1,777 8,684 -- -- --
-------- -------- ------- ------- --------
Net loss................... $ (1,892) $ (2,192) $(7,235) $(1,947) $ (1,195)
======== ======== ======= ======= ========
Basic and diluted net loss
per share from continuing
operations................ $ (2.95) $ (8.64) $ (4.90) $ (1.53) $ (0.69)
Basic and diluted net
income per share from
discontinued operations... 1.43 6.90 -- -- --
-------- -------- ------- ------- --------
Basic and diluted net loss
per share................. $ (1.52) $ (1.74) $ (4.90) $ (1.53) $ (0.69)
======== ======== ======= ======= ========
Shares used in computing
basic and diluted net
income (loss) per share... 1,243 1,259 1,476 1,276 1,734
======== ======== ======= ======= ========
Pro Forma Basic and Diluted
Net Income (Loss) Per
Share:
Shares used in computing
basic and diluted net loss
per share................. 1,476 1,734
Adjustment to reflect the
effect of the conversion
of preferred stock........ 7,847 8,921
-------
Shares used in computing
pro forma basic and
diluted net loss per
share..................... 9,323 10,655
======= ========
Pro forma basic and diluted
net loss per share from
continuing operations..... $ (0.78) $ (0.11)
Pro forma basic and diluted
net income per share from
discontinued operations... -- --
------- --------
Pro forma basic and diluted
net loss per share........ $ (0.78) $ (0.11)
======= ========
</TABLE>
Potentially dilutive common stock options and warrants aggregating 1,929,
3,431, 3,970, 3,932 and 4,317 shares for the years ended 1997, 1998 and 1999
and the three months ended October 3, 1998 and October 2, 1999, respectively,
have been excluded from the computation of basic and diluted net income (loss)
per share because their inclusion would be antidilutive.
F-21
<PAGE>
MATRIXONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Including data applicable to unaudited periods)
(In thousands, except per share amounts)
Note 12: Subsequent Events
Proposed Public Offering of Common Stock
On December 9, 1999, the Board authorized the Company to proceed with an
initial public offering of its common stock. If the offering is consummated as
presently anticipated, all of the outstanding shares of convertible preferred
stock will automatically convert into common stock. The unaudited pro forma
stockholders' equity (deficit) at October 2, 1999 gives effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
and convertible preferred stock at October 2, 1999 into 8,921 shares of common
stock upon completion of the offering. On December 9, 1999, the Board also
approved, effective upon the closing of the offering, a change in the total
number of shares which the Company is authorized to issue to 105,000 shares, of
which 100,000 shares will be common stock and 5,000 shares will be preferred
stock.
2000 Employee Stock Purchase Plan
The Company's 2000 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board in December 1999 to be effective upon the completion of
the Company's initial public offering of its common stock. The Company has
reserved a total of 450 shares of common stock for issuance under the Purchase
Plan. Eligible employees may purchase common stock at 85% of the lesser of the
average market price of the Company's common stock on the first or last day of
the applicable six month payment period.
1999 Stock Plan
In December 1999, the Board adopted the 1999 Stock Plan (the "1999 Plan")
to be effective upon the completion of the Company's initial public offering of
its common stock. The Company has reserved a total of 500 shares of common
stock for issuance under the 1999 Plan which provides for the grant of
incentive and nonqualified stock options, stock issuances and opportunities to
make direct purchases of stock to employees, officers, directors or consultants
of the Company.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, and only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 34
Management............................................................... 53
Certain Transactions..................................................... 62
Principal Stockholders................................................... 63
Description of Capital Stock............................................. 65
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Validity of Common Stock................................................. 71
Experts.................................................................. 71
Where You Can Find More Information...................................... 72
Index to Financial Statements............................................ F-1
</TABLE>
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as underwriter and with respect to an unsold allotment
or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
MatrixOne, Inc.
Common Stock
---------------
[MatrixOne, Inc. Logo]
---------------
Goldman, Sachs & Co.
Dain Rauscher Wessels
SoundView Technology Group
U.S. Bancorp Piper Jaffray
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses payable in connection with the sale of the common stock
in the offering are as follows:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 19,800
NASD filing fee............................................... 8,000
Nasdaq National Market listing fee............................ 95,000
Blue sky fees................................................. 15,000
Printing and engraving expenses............................... 150,000
Legal fees and expenses....................................... 400,000
Accounting fees and expenses.................................. 250,000
Transfer agent and registrar fees and expenses................ 5,000
Miscellaneous................................................. 57,200
----------
Total..................................................... $1,000,000
==========
</TABLE>
The registrant will bear all of the expenses shown above.
Item 14. Indemnification of Directors and Officers.
The Delaware General Corporation Law and the registrant's charter and by-
laws provide for indemnification of the registrant's directors and officers for
liabilities and expenses that they may incur in such capacities.
ARTICLE EIGHTH of the registrant's charter provides that, to the maximum
extent permitted by the General Corporation Law of the State of Delaware, no
director of the registrant shall be personally liable to the registrant or to
any of its stockholders for monetary damages arising out of such director's
breach of fiduciary duty.
ARTICLE 7 of the registrant's by-laws provides that the registrant shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that
such person is or was a director, trustee, partner, officer, employee or agent
of the corporation, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or non-profit entity, against all liability,
losses, expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement by such person in connection with such action, suit or
proceeding. The registrant shall only provide indemnification if such person
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the registrant, and, with respect to any criminal
action or proceedings, if such person had no reasonable cause to believe his
conduct was unlawful.
The Underwriting Agreement provides that the underwriters are obligated,
under certain circumstances to indemnify directors, officers and controlling
persons of the registrant against certain liabilities, including liabilities
under the Securities Act of 1933. Reference is made to the form of underwriting
agreement filed as Exhibit 1.1 hereto.
The registrant intends to apply for a directors' and officers' insurance
policy.
The effect of these provisions would be to permit indemnification by the
Company for, among other liabilities, liabilities arising out of the Securities
Act.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Stock Splits
The registrant has effected and will effect the following splits of its
common stock:
.On August 25, 1999, the registrant effected a 3-for-2 stock split of its
common stock in the form of a stock dividend of one share of common
stock paid on every two shares of common stock outstanding and held of
record by a stockholder as of August 20, 1999. In connection with such
stock split, the registrant issued to its stockholders of record as of
August 20, 1999 an aggregate of 558,523 shares of common stock. All
common and preferred share and per share amounts herein have been
retroactively adjusted to reflect the stock split.
.Prior to the consummation of the offering, the registrant will effect a -
for- stock split of its common stock in the form of a stock dividend
of shares of common stock to be paid on each share of common stock
outstanding as of , 2000. In connection with such stock split, the
registrant will issue to its stockholders of record as of , 2000 an
aggregate of shares of common stock.
Certain Sales of Securities
In the three years preceding the filing of this registration statement, the
registrant has issued the following securities that were not registered under
the Securities Act:
.On May 16, 1997, the registrant issued a warrant to its bank in
conjunction with its line of credit to purchase 56,250 shares of Common
Stock at an exercise price of $1.33 per share.
.On October 1, 1997, the registrant issued and sold an aggregate of
1,899,138 shares of its Class G Convertible Preferred Stock, par value
$1.00 per share, to seven investors at a price of $5.80 per share
pursuant to a Class G Preferred Stock Purchase Agreement.
.On June 17, 1999, the registrant issued and sold an aggregate of 750,000
shares of its Class H Convertible Preferred Stock, par value $1.00 per
share, to two investors at a price of $8.00 per share pursuant to a
Class H Preferred Stock Purchase Agreement.
.Effective upon the closing of the offering, all of the Company's
convertible preferred stock will automatically convert into an
aggregate 8,920,927 shares of common stock.
.Since December 13, 1996, the registrant has granted options to purchase an
aggregate of 4,238,942 shares of common stock under its equity plans,
exercisable at a weighted average price of $1.90 per share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon the exemption from the registration provisions
of the Securities Act provided by Sections 2(3) and 4(2) thereof for
transactions not involving a public offering or, in the case of the options to
purchase common stock, Rule 701 under the Securities Act. All of the foregoing
securities are deemed restricted securities for the purposes of the Securities
Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
registrant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.2 Form of Second Amended and Restated Certificate of Incorporation
to be filed upon the closing of the offering
3.3 Restated By-laws of the registrant
3.4 Form of Amended and Restated By-laws of the registrant to take
effect as of the effectiveness of the offering
4.1+ Specimen certificate representing the common stock of the
registrant
5.1+ Opinion of Testa, Hurwitz & Thibeault, LLP
10.1 Amended and Restated 1987 Stock Option Plan
10.2 Amended and Restated 1996 Stock Plan
10.3+ 1999 Stock Plan
10.4+ 2000 Employee Stock Purchase Plan
10.5 Warrant Purchase Agreement by and among the registrant and Silicon
Valley Bank, dated as of May 16, 1997
10.6 Asset Purchase Agreement dated May 7, 1998 by and among SofTech,
Inc., Adra Systems, Inc. and the registrant
10.7 Amended and Restated Registration Rights, Restricted Stock and
Stock Option Agreement by and among the registrant and certain
stockholders of registrant, dated as of October 11, 1988
10.8 Amendment No. 1 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
June 26, 1991
10.9 Amendment No. 2 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
August 19, 1991
10.10 Amendment No. 3 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
October 1, 1997
10.11 Amendment No. 4 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
June 17, 1999
10.12 Amended and Restated Stockholders Agreement by and among the
registrant and the stockholders listed therein, dated as of June
17, 1999
10.13 Office Lease by and between the registrant and New Boston
Chelmsford Limited Partnership, dated March 2, 1994
10.14 Loan and Security Agreement between the registrant and Silicon
Valley Bank, dated as of December 29, 1998
10.15 Employment Agreement with James F. Morgan, dated as of April 14,
1998
10.16 Letter Agreement between the registrant and Maurice L. Castonguay,
dated as of January 11, 1999
10.17+ Agreement between the registrant and Oracle Corporation, dated as
of May 22, 1996
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.18 Employment Agreement between the registrant and Johannes T.J.
Ruigrok, dated as of July 15, 1998
10.19 Letter Agreement between the registrant and Brian M. Gallagher,
dated as of June 3, 1999
10.20 Letter Agreement between the registrant and Stephen P. Dunn, dated
as of December 5, 1997
21.1 Subsidiaries of the registrant
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
+ To be filed by amendment.
(b) Financial Statements Schedules:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II--Valuation and Qualifying Accounts and Reserves................ S-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes (1) to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser; (2) that for purposes of determining
any liability under the Securities Act, the information omitted from the form
of prospectus filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by 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 (3) that for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Chelmsford, Massachusetts on
December 14, 1999.
Matrixone, Inc.
/s/ Mark F. O'Connell
By: _________________________________
Mark F. O'Connell
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
The undersigned officers and directors of MatrixOne, Inc. hereby constitute
and appoint Mark F. O'Connell and Maurice L. Castonguay, and each of them
singly, with full power of substitution, our true and lawful attorneys-in-fact
and agents to take any actions to enable MatrixOne, Inc. to comply with the
Securities Act, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this registration statement,
including the power and authority to sign for us in our names in the capacities
indicated below any and all amendments to this registration statement and any
other registration statement filed pursuant to the provisions of Rule 462 under
the Securities Act.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Mark F. O'Connell President, Chief Executive December 14, 1999
______________________________________ Officer and Director
Mark F. O'Connell (principal executive
officer)
/s/ Maurice L. Castonguay Chief Financial Officer, December 14, 1999
______________________________________ Vice President of Finance
Maurice L. Castonguay and Administration and
Treasurer (principal
financial and accounting
officer)
/s/ Ellen Carnahan Director December 14, 1999
______________________________________
Ellen Carnahan
/s/ Daniel J. Holland Director December 14, 1999
______________________________________
Daniel J. Holland
/s/ James F. Morgan Director December 14, 1999
______________________________________
James F. Morgan
/s/ Charles R. Stuckey, Jr. Director December 14, 1999
______________________________________
Charles R. Stuckey, Jr.
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders and Board of Directors of
MatrixOne, Inc. and Subsidiaries:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of MatrixOne, Inc. included in this
registration statement and have issued our report thereon dated August 27,
1999. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 16(b) is the
responsibility of the Company's management and is presented for purposes of
complying with Securities and Exchange Commission's rules and is not a part of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein, in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
August 27, 1999
S-1
<PAGE>
Schedule II
MATRIXONE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End
Description the Period Expenses Accounts Deductions of Period
- ----------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
June 28, 1997......... $ 94 $ 78 $ -- $ -- $ 172
June 27, 1998......... $ 172 $ 496 $ -- $ (157) $ 511
July 3, 1999.......... $ 511 $ 689 $ -- $ (428) $ 772
Reserve for Discontinued
Operations:
June 28, 1997......... $ -- $ -- $ -- $ -- $ --
June 27, 1998......... $ -- $ -- $2,338(1) $ (332) $2,006
July 3, 1999.......... $2,006 $ -- $ -- $(1,056) $ 950
</TABLE>
- --------
(1)Addition to the reserve for discontinued operations includes transaction
costs consisting principally of investment banking, legal and accounting
fees, and bonus and severance arrangements with certain employees, which
were charged against the gain on sale of discontinued operations.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
registrant
3.2 Form of Second Amended and Restated Certificate of Incorporation
to be filed upon the closing of the offering
3.3 Restated By-laws of the registrant
3.4 Form of Amended and Restated By-laws of the registrant to take
effect as of the effectiveness of the offering
4.1+ Specimen certificate representing the common stock of the
registrant
5.1+ Opinion of Testa, Hurwitz & Thibeault, LLP
10.1 Amended and Restated 1987 Stock Option Plan
10.2 Amended and Restated 1996 Stock Plan
10.3+ 1999 Stock Plan
10.4+ 2000 Employee Stock Purchase Plan
10.5 Warrant Purchase Agreement by and among the registrant and Silicon
Valley Bank, dated as of May 16, 1997
10.6 Asset Purchase Agreement dated May 7, 1998 by and among SofTech,
Inc., Adra Systems, Inc. and the registrant
10.7 Amended and Restated Registration Rights, Restricted Stock and
Stock Option Agreement by and among the registrant and certain
stockholders of registrant, dated as of October 11, 1988
10.8 Amendment No. 1 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
June 26, 1991
10.9 Amendment No. 2 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
August 19, 1991
10.10 Amendment No. 3 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
October 1, 1997
10.11 Amendment No. 4 to Amended and Restated Registration Rights,
Restricted Stock and Stock Option Agreement by and among the
registrant and certain stockholders of registrant, dated as of
June 17, 1999
10.12 Amended and Restated Stockholders Agreement by and among the
registrant and the stockholders listed therein, dated as of June
17, 1999
10.13 Office Lease by and between the registrant and New Boston
Chelmsford Limited Partnership, dated March 2, 1994
10.14 Loan and Security Agreement between the registrant and Silicon
Valley Bank, dated as of December 29, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.15 Employment Agreement with James F. Morgan, dated as of April 14,
1998
10.16 Letter Agreement between the registrant and Maurice L. Castonguay,
dated as of January 11, 1999
10.17+ Agreement between the registrant and Oracle Corporation, dated as
of May 22, 1996
10.18 Employment Agreement between the registrant and Johannes T.J.
Ruigrok, dated as of July 15, 1998
10.19 Letter Agreement between the registrant and Brian M. Gallagher,
dated as of June 3, 1999
10.20 Letter Agreement between the registrant and Stephen P. Dunn, dated
as of December 5, 1997
21.1 Subsidiaries of the registrant
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (included in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
+ To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MATRIXONE, INC.
(Incorporated July 19, 1983 as Adra Systems, Inc.)
I, Mark F. O'Connell, President and Chief Executive Officer of MatrixOne,
Inc. (the "Corporation"), a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, do hereby
certify that the Certificate of Incorporation of MatrixOne, Inc., as amended,
has been amended and restated, in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware, and, as amended
and restated, is set forth in its entirety as follows:
FIRST. The name of the Corporation is MatrixOne, Inc.
SECOND. The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which Corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH. The maximum number of shares which the Corporation is authorized to
issue is 46,551,367 shares, 40,000,000 of which are classified and designated as
Common Stock, $.01 par value per share (the "Common Stock"), 615,000 of which
are designated as Class A Convertible Preferred Stock, $1.00 par value per share
(the "Class A Preferred Stock"), 491,800 of which are designated as Class B
Convertible Preferred Stock, $1.00 par value per share (the "Class B Preferred
Stock"), 1,195,000 of which are designated as Class C Convertible Preferred
Stock, $1.00 par value per share (the "Class C Preferred Stock"), 682,900 of
which are designated as Class D Convertible Preferred Stock, $1.00 par value per
share (the "Class D Preferred Stock"), 166,667 of which are designated as Class
E Convertible Preferred Stock, $1.00 par value per share (the "Class E Preferred
Stock"), 400,000 of which are designated as Class F Convertible Preferred Stock,
$1.00 par value per share (the "Class F Preferred Stock")
<PAGE>
(the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred
Stock, the Class D Preferred Stock, the Class E Preferred Stock and the Class F
Preferred Stock being hereinafter sometimes collectively referred to as the
"Preferred Stock"), 2,000,000 of which are designated as Class G Convertible
Preferred Stock, $1.00 par value per share (the "Class G Preferred Stock"),
750,000 of which are designated as Class H Convertible Preferred Stock, $1.00
par value per share (the "Class H Preferred Stock") and 250,000 of which are
undesignated preferred stock (the "Undesignated Preferred Stock"), $1.00 par
value per share.
The Undesignated Preferred Stock may be issued in one or more classes or
series at such time or times and for such consideration or considerations as the
Board of Directors of the Corporation may determine. Each class or series shall
be so designated as to distinguish the shares thereof from the shares of all
other classes and series. Except as otherwise provided in this Amended and
Restated Certificate of Incorporation, different classes or series of
Undesignated Preferred Stock shall not be construed to constitute different
classes of shares for the purpose of voting by classes.
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the Undesignated Preferred Stock in one or more classes
or series, each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such class or series, and a certificate of
said resolution or resolutions (a "Certificate of Designation") shall be filed
in accordance with the General Corporation Law of the State of Delaware. 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 provide that
the shares of each such class or series may be: (i) subject to redemption at
such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on such
conditions, and at such times, and payable in preference to, or in such relation
to, the dividends payable on any other class or classes or any other series;
(iii) entitled to such rights upon the dissolution of, or upon any distribution
of the assets of, the Corporation; (iv) convertible into, or exchangeable for,
shares of any other class or classes of stock, or of any other series of the
same or any other class or classes of stock of the Corporation at such price or
2
<PAGE>
prices or at such rates of exchange and with such adjustments, if any; (v)
entitled to the benefit of such limitations, if any, on the issuance of
additional shares of such class or series or shares of any other class or series
of Undesignated Preferred Stock; or (vi) entitled to such other preferences,
powers, qualifications, rights and privileges, all as the Board of Directors may
deem advisable and as are not inconsistent with law and the provisions of this
Amended and Restated Certificate of Incorporation.
A description of the voting, dividend, liquidation and conversion rights of
the different classes of the Corporation's stock is set forth below.
A. Voting Rights
-------------
(i) Except as otherwise provided in subparagraphs (ii) through
(viii) of this Paragraph A, subparagraphs (i) and (iii) of Paragraph C,
Paragraph E Section 12 and Paragraph F Section 12 of this Amended and Restated
Certificate of Incorporation of the Corporation or by law, the Common Stock, the
Class A Preferred Stock, the Class B Preferred Stock, Class C Preferred Stock,
the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred
Stock, the Class G Preferred Stock and the Class H Preferred Stock shall vote
together as one class, with the holder of each share of Common Stock being
entitled to one vote in respect of such share of Common Stock and the holder of
each share of such Class A Preferred Stock, Class B Preferred Stock, Class C
Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F
Preferred Stock, Class G Preferred Stock and the Class H Preferred Stock being
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Class A Preferred Stock, Class B Preferred Stock, Class
C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F
Preferred Stock, Class G Preferred Stock and Class H Preferred Stock could then
be converted as of the record date for such vote or, if no record date is
specified, as of the date of such vote.
(ii) So long as there are at least 120,000 shares of Class A
Preferred Stock outstanding, no amendment of the Certificate of Incorporation
adversely affecting the voting, dividend, liquidation or conversion rights of
the Class A Preferred Stock shall be valid or effective without the previous
affirmative authorization by vote or written consent of the record holders of a
majority of the outstanding shares of the Class A Preferred Stock, voting
separately as a class.
(iii) So long as there are at least 120,000 shares of Class B
Preferred Stock outstanding, no amendment of the Certificate of Incorporation
adversely affecting the voting, dividend, liquidation or conversion rights of
the Class B Preferred Stock shall be valid or effective without the previous
affirmative authorization by vote or written consent of the record holders of a
majority of the outstanding shares of the Class B Preferred Stock, voting
separately as a class.
3
<PAGE>
(iv) So long as there are at least 120,000 shares of Class C
Preferred Stock outstanding, no amendment of the Certificate of Incorporation
adversely affecting the voting, dividend, liquidation or conversion rights of
the Class C Preferred Stock shall be valid or effective without the previous
affirmative authorization by vote or written consent of the record holders of a
majority of the outstanding shares of the Class C Preferred Stock, voting
separately as a class.
(v) So long as there are at least 120,000 shares of Class D
Preferred Stock outstanding, no amendment of the Certificate of Incorporation
adversely affecting the voting, dividend, liquidation or conversion rights of
the Class D Preferred Stock shall be valid or effective without the previous
affirmative authorization by vote or written consent of the record holders of a
majority of the outstanding shares of the Class D Preferred Stock, voting
separately as a class.
(vi) So long as there are at least 40,000 shares of Class E
Preferred Stock outstanding, no amendment of the Certificate of Incorporation
adversely affecting the voting, dividend, liquidation or conversion rights of
the Class E Preferred Stock shall be valid or effective without the previous
affirmative authorization by vote or written consent of the record holders of a
majority of the outstanding shares of the Class E Preferred Stock, voting
separately as a class.
(vii) So long as there are at least 120,000 shares of Class F
Preferred Stock outstanding, no amendment of the Certificate of Incorporation
adversely affecting the voting, dividend, liquidation or conversion rights of
the Class F Preferred Stock shall be valid or effective without the previous
affirmative authorization by vote or written consent of the record holders of a
majority of the outstanding shares of the Class F Preferred Stock, voting
separately as a class.
(viii) So long as there are at least 120,000 shares of Preferred Stock
outstanding, no merger, consolidation or sale of substantially all of the assets
of the Corporation shall be valid or effective without the previous affirmative
authorization by vote or written consent of the record holders of a majority of
the then outstanding shares of the Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock
and Class F Preferred Stock, voting together as a single class.
(ix) Except with respect to the matters described in subparagraphs
(ii) through (viii) of this Paragraph A, subparagraphs (i) and (iii) of
Paragraph C, in Paragraph E Section 12 and Paragraph F Section 12, no action
submitted to a vote of the stockholders of the Corporation shall be valid or
effective without the affirmative vote of the record holders of two-thirds of
the outstanding shares of Common Stock, Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E
Preferred Stock and Class F Preferred Stock, voting together as a single class.
4
<PAGE>
B. Dividend Rights
---------------
(i) So long as shares of Preferred Stock shall be outstanding, no
dividends or distributions, whether in partial liquidation, as capital
distributions or otherwise, shall be paid to the holders of shares of Common
Stock, except out of the net earnings of the Corporation and except to the
extent reflected in its earned surplus as reflected on its books for financial
accounting purposes.
(ii) The holders of shares of Preferred Stock shall participate
equally, share for share, in all dividends and distributions (except as provided
in Paragraph C) if and when declared by the Board of Directors, except that the
holder of each share of Preferred Stock shall be entitled to receive dividends
and distributions in the amount payable in respect of the number of shares of
Common Stock into which such Preferred Stock is then convertible.
Notwithstanding the foregoing, no dividends payable in shares of Common Stock
shall be paid to holders of Preferred Stock.
C. Liquidation Preference; Merger and Consolidation
------------------------------------------------
(i) Notice of any voluntary or involuntary liquidation, dissolution
or winding up (each of which is hereinafter referred to as "Liquidation") of the
Corporation shall be given to the holders of Preferred Stock at least 30 days
prior to the date of the Liquidation unless waived by a vote or written consent
of at least two-thirds of the Preferred Stock, voting together as a single
class. In the event of any Liquidation of the Corporation, then, before any
distribution or payment shall be made to or set apart for the holders of the
Common Stock but after distribution or payment shall be made to or set apart for
the holders of the Class H Preferred Stock as set forth in Paragraph F Section 1
below and the Class G Preferred Stock as set forth in Paragraph E Section 1
below, holders of Preferred Stock shall be entitled to receive the following
respective amounts per share:
<TABLE>
Payment
Class Per Share
----- ---------
<S> <C>
Class A Preferred Stock $4.878 (the "Class A Liquidation Preference")
Class B Preferred Stock $7.32 (the "Class B Liquidation Preference")
Class C Preferred Stock $6.20 (the "Class C Liquidation Preference")
Class D Preferred Stock $9.00 (the "Class D Liquidation Preference")
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Class E Preferred Stock $9.00 (the "Class E Liquidation Preference")
Class F Preferred Stock $10.00 (the "Class F Liquidation Preference")
</TABLE>
(The Class A Liquidation Preference, the Class B Liquidation Preference, the
Class C Liquidation Preference, the Class D Liquidation Preference, the Class E
Liquidation Preference and the Class F Liquidation Preference are each referred
to herein as a "Liquidation Preference".) If upon the occurrence of a
Liquidation, the assets to be thus distributed between and among the holders of
the Class A Preferred Stock, the holders of the Class B Preferred Stock, the
holders of the Class C Preferred Stock, the holders of the Class D Preferred
Stock, the holders of the Class E Preferred Stock and the holders of Class F
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid amounts, then each issued and outstanding share of Class A
Preferred Stock shall entitle the holder thereof to an equal proportion, as
among the holders of Class A Preferred Stock, of the assets to be distributed,
each issued and outstanding share of Class B Preferred Stock shall entitle the
owner thereof to an equal proportion, as among the holders of the Class B
Preferred Stock, of the assets to be distributed, each issued and outstanding
share of Class C Preferred Stock shall entitle the owner thereof to an equal
proportion, as among the holders of the Class C Preferred Stock, of the assets
to be distributed, each issued and outstanding share of Class D Preferred Stock
shall entitle the owner thereof to an equal proportion, as among the holders of
the Class D Preferred Stock, of the assets to be distributed, each issued and
outstanding share of Class E Preferred Stock shall entitle the owner thereof to
an equal proportion, as among the holders of the Class E Preferred Stock and
each issued and outstanding share of Class F Preferred Stock shall entitle the
owner thereof to an equal proportion, as among the holders of the Class F
Preferred Stock, of the assets to be distributed; provided, however, that the
holders of the Class A Preferred Stock as a class, the holders of the Class B
Preferred Stock as a class, the holders of the Class C Preferred Stock as a
class, the holders of the Class D Preferred Stock as a class, the holders of the
Class E Preferred Stock as a class and the holders of the Class F Preferred
Stock as a class, shall share ratably in any such distribution of assets
according to the respective amounts which would be payable with respect to the
shares of each class held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full; and the holders of the
Common Stock shall in no event be entitled to participate in any such
distribution in respect of their shares of Common Stock.
(ii) In the event of any Liquidation of the Corporation, if the
assets of the Corporation available for distribution to shareholders exceed the
aggregate amount of the Liquidation Preferences with respect to all shares of
Preferred Stock outstanding, any remaining assets of the Corporation shall be
distributed pro rata to the holders of Common Stock.
(iii) In the event of any merger or consolidation of the Corporation
into or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof, each holder of the Preferred Stock shall be entitled, at his option, to
6
<PAGE>
require that the Corporation repurchase all or a part of his shares of Preferred
Stock, as herein provided. Unless waived by vote or written consent of at least
two-thirds of the Preferred Stock, voting together as a single class, the
Corporation shall notify each holder of Preferred Stock, in writing at least 30
days prior to the record date established for any merger or consolidation of the
Corporation, of the identity of the other entity into which or with which the
Corporation is proposed to be merged or consolidated and the proposed terms and
conditions of the merger or consolidation. Each holder of Preferred Stock shall
have the right, by written notice given at any time within 15 days after receipt
of the notice described in the immediately preceding sentence, or within such
shorter period as two-thirds of the Preferred Stock voting together as a single
class shall determine if such notice is waived, to elect to have its Preferred
Stock repurchased, in which event the Corporation will, upon the effective time
of such merger or consolidation, repurchase or cause the repurchase of all of
the shares of Preferred Stock then issued, outstanding and held of record by
such holder of the Preferred Stock which such holder has elected to have
repurchased, and such merger or consolidation shall not be effective until such
repurchase has been consummated. The purchase price per share to be paid by the
Corporation upon the repurchase of such shares of Preferred Stock shall be equal
to the Liquidation Preference which would have been payable to the holders of
Preferred Stock pursuant to subparagraph (i) of this Paragraph C with respect to
such shares (assuming that the Corporation had no other indebtedness and had
sufficient assets to pay the Liquidation Preference in full) had the Corporation
been liquidated on the date of repurchase.
(iv) The respective Liquidation Preference of each class of Preferred
Stock shall be subject to equitable adjustment whenever there shall occur a
subdivision, combination, reclassification or other similar event involving the
Preferred Stock.
D. Conversion Rights
-----------------
(i) The rights and obligations of the holders of the Preferred Stock
to convert such shares into Common Stock of the Corporation shall be as follows:
(a) The shares of Class A Preferred Stock, Class B Preferred
Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock
and Class F Preferred Stock shall be convertible at the option of the respective
holders thereof, at any time, at the office of the Corporation into fully paid
and nonassessable shares of Common Stock of the Corporation at the rate (subject
to adjustment as provided in subparagraph (i)(d) of this Paragraph D, and such
rate, as so adjusted, to be herein referred to as the "Conversion Rate") of one
share of Common Stock for each share of such Preferred Stock so converted.
(b) All shares of the Preferred Stock shall be deemed to be
converted automatically into fully paid and nonassessable shares of Common Stock
at the applicable Conversion Rate, on the date of the closing of a firm
commitment underwritten public offering of the Common Stock of the Corporation
registered under the Securities Act of 1933, as amended, provided, such offering
yields aggregate gross proceeds of at least $7,500,000 and the offering price
(or the actual sale price, if different from the offering price) for shares of
the Corporation's Common Stock sold in such offering is not less than $15.50 per
share (as adjusted for any
7
<PAGE>
subdivision, combination or reclassification of, or the paying of any stock
dividend in, shares of Common Stock subsequent to August 15, 1988). For purposes
of the preceding sentence the aggregate gross proceeds of an offering shall be
determined by multiplying the number of shares sold in such offering by the
offering price (or the actual sale price, if different from the offering price).
(c) Before any holder of shares of Preferred Stock shall be entitled
pursuant to subparagraph (i)(a) of this Paragraph D to convert the same into
shares of Common Stock, he shall surrender the certificate or certificates
therefor at the office of the Corporation, and shall give written notice to the
Corporation at said office that he elects to convert the same and shall state in
such notice the name or names (his own and/or one or more nominees) in which he
wishes the certificate or certificates for shares of Common Stock to be
registered. The Corporation will, as soon as practicable thereafter, issue and
deliver at said office to the person for whose account such surrender of the
shares of Preferred Stock was made or to his nominee or nominees certificates
for the number of full shares of Common Stock to which he shall be entitled as
aforesaid together with the cash payment to be made in respect of any fraction
of a share as herein provided. Such conversion shall be deemed to have been made
as of the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on said date. In the
event of any conversion of shares of Preferred Stock pursuant to subparagraph
(i)(b) of this Paragraph D, the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such Common Stock on the date of the closing
therein described.
(d) If at any time the Corporation shall change by subdivision or
combination or by the paying of a stock dividend the number of shares of Common
Stock then outstanding into a different number of shares (hereinafter referred
to as "New Shares"), any holder of shares of Preferred Stock, upon conversion
thereof shall be entitled to receive, in lieu of the number of shares of Common
Stock to which he would have been entitled upon conversion immediately prior to
such change, the New Shares into which such number of shares of Common Stock
would have been changed if the conversion of such shares of Preferred Stock had
been effected prior to such change into New Shares, and the Conversion Rate
shall be adjusted accordingly.
(e) Upon each adjustment referred to in subparagraph (i)(d) of this
Paragraph D, the Corporation shall forthwith give written notice thereof to each
affected holder of shares of Preferred Stock in the form of a certificate
executed by its president or treasurer, stating the new number of shares so
receivable and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(f) The shares of Common Stock issued by the Corporation from time to
time upon the conversion of any shares of Preferred Stock shall be deemed fully
paid and not liable to any further call or assessment thereon.
8
<PAGE>
(g) All shares of Preferred Stock so converted shall be retired and
shall not be reissued.
(h) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued shares of Common Stock solely for the purpose
of effecting the conversion of the shares of Preferred Stock, the full number of
shares of Common Stock deliverable upon conversion of all of the shares of
Preferred Stock from time to time outstanding.
(i) No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any of the shares of Preferred Stock. If
any such conversion results in a fraction, an amount equal to such fraction
multiplied by an amount determined by the Board of Directors of the Corporation
to be the fair market value of such stock shall be paid to such holder in cash
by the Corporation.
(ii) The Corporation shall pay all taxes and other charges arising in
respect of the issuance of Common Stock upon any conversion under subparagraph
(i) of this Paragraph D.
E. Class G Convertible Preferred Stock
-----------------------------------
Section 1. Liquidation.
---------- -----------
Upon any liquidation, dissolution or winding up of the
Corporation (whether voluntary or involuntary), subject to the rights of the
Class H Preferred Stock in Section 1 of Paragraph F, each holder of Class G
Preferred Stock shall be entitled to be paid, before any distribution or payment
is made upon any Junior Securities, an amount in cash equal to the aggregate
Class G Liquidation Value of all shares of Class G Preferred Stock (each, a
"Class G Share") held by such holder (plus all accrued and unpaid dividends
thereon, if any), and the holders of Class G Preferred Stock shall not be
entitled to any further payment. If upon any such liquidation, dissolution or
winding up of the Corporation the Corporation's assets to be distributed among
the holders of the Class G Preferred Stock are insufficient to permit payment to
such holders of the aggregate amount which they are entitled to be paid under
this Section 1 of Paragraph E, then subject to the rights of the Class H
Preferred Stock in Section 1 of Paragraph F, the entire assets available to be
distributed to the Corporation's stockholders shall be distributed pro rata
among the holders of Class G Preferred Stock based upon the aggregate Class G
Liquidation Value (plus all accrued and unpaid dividends, if any) of the Class G
Preferred Stock held by each such holder. Not less than 30 days prior to the
payment date stated therein, the Corporation shall mail written notice of any
such liquidation, dissolution or winding up to each record holder of Class G
Preferred Stock, setting forth in reasonable detail the amount of proceeds to be
paid with respect to each Class G Share and each share of Class H Preferred
Stock and Junior Securities in connection with such liquidation, dissolution or
winding up. Neither the consolidation or merger of the Corporation into or with
any other entity or entities (whether or not the Corporation is the surviving
entity), nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation nor any other
form of recapitalization or reorganization affecting the Corporation
9
<PAGE>
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 1.
Section 2. Priority of Class G Preferred Stock on Redemptions.
---------- --------------------------------------------------
So long as any Class G Preferred Stock remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Class G Preferred Stock, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, if at the time of or immediately after any such redemption,
purchase or acquisition the Corporation has failed to make any redemption of the
Class G Preferred Stock required hereunder.
Section 3. Redemptions.
---------- -----------
3A. Optional Redemption. On October 1, 2002 ("Optional Redemption Date")
--------------------
and with the affirmative vote of the holders of a majority of the Class G
Preferred Stock, the Corporation shall redeem 50% of the then outstanding Class
G Preferred Stock at a price per share equal to the Class G Liquidation Value
thereof (plus all accrued and unpaid dividends thereon, if any) pro rata among
the holders thereof based upon the aggregate Class G Liquidation Value (plus all
accrued and unpaid dividends thereon, if any) of the Class G Preferred Stock
held by each such holder.
3B. Scheduled Redemption. On October 1, 2003 ("Scheduled Redemption
--------------------
Date") and with the affirmative vote of the holders of a majority of
the Class G Preferred Stock, the Corporation shall redeem 100% of the then
outstanding Class G Preferred Stock at a price per share equal to the Class G
Liquidation Value thereof (plus accrued and unpaid dividends thereon, if any)
pro rata among the holders thereof based upon the aggregate Class G Liquidation
Value (plus all accrued and unpaid dividends thereon, if any) of the Class G
Preferred Stock held by each such holder.
3C. Redemption Payments. For each Class G Share which is to be redeemed
-------------------
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Class G Share) an amount in
immediately available funds equal to the Class G Liquidation Value of such Class
G Share (plus all accrued and unpaid dividends thereon, if any). If the funds
of the Corporation legally available for redemption of Class G Shares on any
Redemption Date are insufficient to redeem the total number of Class G Shares to
be redeemed on such date, subject to the rights of the Class H Preferred Stock,
those funds which are legally available shall be used to redeem the maximum
possible number of Class G Shares pro rata among the holders of the Class G
Shares to be redeemed based upon the aggregate Class G Liquidation Value of such
Class G Shares held by each such holder (plus all accrued and unpaid dividends
thereon, if any). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Class G Shares, subject
to the rights of the Class H Preferred Stock, such funds shall be used at the
end of the next succeeding fiscal quarter to redeem the balance of the Class G
Shares or such portion thereof for which funds are then legally
10
<PAGE>
available which the Corporation has become obligated to redeem on any Redemption
Date but which it has not redeemed.
3D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any Class G
Preferred Stock to each record holder thereof not more than 60 nor less than 30
days prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Class G
Shares specified in such notice at the time of redemption specified therein. In
case fewer than the total number of Class G Shares represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed Class G Shares shall be issued to the holder thereof without cost to
such holder upon the later of five business days after (i) the Redemption Date
or (ii) the surrender by the holder of the certificate representing the redeemed
Class G Shares.
3E. Determination of the Number of Each Holder's Class G Shares to be
-----------------------------------------------------------------
Redeemed. The number of Class G Shares of Class G Preferred Stock to be
- --------
redeemed from each holder thereof in redemptions hereunder shall be the number
of Class G Shares determined by multiplying the total number of Class G Shares
to be redeemed times a fraction, the numerator of which shall be the total
number of Class G Shares then held by such holder and the denominator of which
shall be the total number of Class G Shares then outstanding.
3F. Rights After Redemption Date. No Class G Share shall be entitled to
----------------------------
any dividends accruing after the Redemption Date on which the Class G
Liquidation Value of such Class G Share (plus all accrued and unpaid dividends
thereon, if any) is obligated to be paid to the holder of such Class G Share by
the Corporation. On such date, all rights of the holder of such Class G Share
shall cease, and such Class G Share shall no longer be deemed to be issued and
outstanding.
3G. Redeemed or Otherwise Acquired Class G Shares. Any Class G Shares
---------------------------------------------
which are redeemed or otherwise acquired by the Corporation shall be canceled
and retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
3H. Other Redemptions or Acquisitions. The Corporation shall not, nor
---------------------------------
shall it permit any Subsidiary to, redeem or otherwise acquire any Class G
Shares of Class G Preferred Stock, except as expressly authorized herein or
pursuant to a purchase offer made pro rata to all holders of Class G Preferred
Stock on the basis of the number of Class G Shares owned by each such holder.
3I. Special Redemptions.
-------------------
(i) If a Change in Ownership has occurred or the Corporation obtains
knowledge that a Change in Ownership is proposed to occur, the Corporation shall
give prompt written notice of such Change in Ownership describing in reasonable
detail the material terms and date of consummation thereof to each holder of
Class G Preferred Stock, but in any event
11
<PAGE>
such notice shall not be given later than five days after the occurrence of such
Change in Ownership, and the Corporation shall give each holder of Class G
Preferred Stock prompt written notice of any material change in the terms or
timing of such transaction. The holder or holders of a majority of the Class G
Preferred Stock then outstanding may require the Corporation to redeem all or
any portion of the Class G Preferred Stock owned by such holder or holders at a
price per Class G Share equal to the Class G Liquidation Value thereof (plus all
accrued and unpaid dividends thereon, if any) by giving written notice to the
Corporation of such election prior to the later of (a) 21 days after receipt of
the Corporation's notice and (b) five days prior to the consummation of the
Change in Ownership (the "Expiration Date"). The Corporation shall give prompt
written notice of any such election to all other holders of Class G Preferred
Stock within five days after the receipt thereof, and each such holder shall
have until the later of (a) the Expiration Date or (b) ten days after receipt of
such second notice to request redemption hereunder (by giving written notice to
the Corporation) of all or any portion of the Class G Preferred Stock owned by
such holder.
Upon receipt of such election(s), the Corporation shall be obligated
subject to the rights of the Class H Preferred Stock, to redeem the aggregate
number of Class G Shares specified therein on the later of (a) the occurrence of
the Change in Ownership or (b) five days after the Corporation's receipt of such
election(s); provided, however, that if any proposed Change in Ownership does
not occur, all requests for redemption in connection therewith shall be
automatically rescinded, or if there has been a material change in the terms or
the timing of the transaction, any holder of Class G Preferred Stock may rescind
such holder's request for redemption by giving written notice of such rescission
to the Corporation.
If the funds of the Corporation legally available for redemption of Class G
Shares are insufficient to redeem the total number of Class G Shares to be
redeemed, subject to the rights of the Class H Preferred Stock, those funds
which are legally available shall be used to redeem the maximum possible number
of Class G Shares pro rata among the holders of the Class G Shares to be
redeemed based upon the aggregate Class G Liquidation Value of such Class G
Shares held by each such holder (plus all accrued and unpaid dividends thereon,
if any). At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Class G Shares, subject to the rights of
the Class H Preferred Stock, such funds shall be used at the end of the next
succeeding fiscal quarter to redeem the balance of the Class G Shares or such
portion thereof for which funds are then legally available which the Corporation
has become obligated to redeem but which it has not redeemed.
The term "Change in Ownership" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of shares of the Corporation's
capital stock by the Corporation or any holders thereof which results in any
Person or group of Persons (as the term "group" is used under the Securities
Exchange Act of 1934), other than Persons who own individually, on a fully
diluted basis, at least 10% of the Common Stock as of the date immediately prior
to or as of the date of the Purchase Agreement, owning capital stock of the
Corporation possessing the voting power (under ordinary circumstances) to elect
a majority of the Corporation's Board of Directors.
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<PAGE>
(ii) If a Fundamental Change is proposed to occur, the Corporation shall
give written notice of such Fundamental Change describing in reasonable detail
the material terms and date of consummation thereof to each holder of Class G
Preferred Stock not more than 45 days nor less than 20 days prior to the
consummation of such Fundamental Change, and the Corporation shall give each
holder of Class G Preferred Stock prompt written notice of any material change
in the terms or timing of such transaction. The holder or holders of a majority
of the Class G Preferred Stock then outstanding may require the Corporation to
redeem all or any portion of the Class G Preferred Stock owned by such holder or
holders at a price per Class G Share equal to the Class G Liquidation Value
thereof (plus all accrued and unpaid dividends thereon, if any) by giving
written notice to the Corporation of such election prior to the later of (a) ten
days prior to the consummation of the Fundamental Change or (b) ten days after
receipt of notice from the Corporation. The Corporation shall give prompt
written notice of such election to all other holders of Class G Preferred Stock
(but in any event within five days prior to the consummation of the Fundamental
Change), and each such holder shall have until two days after the receipt of
such notice to request redemption (by written notice given to the Corporation)
of all or any portion of the Class G Preferred Stock owned by such holder.
Upon receipt of such election(s), the Corporation shall be obligated
subject to the rights of the Class H Preferred Stock, to redeem the aggregate
number of Class G Shares specified therein upon the consummation of such
Fundamental Change; provided, however, that if any proposed Fundamental Change
does not occur, all requests for redemption in connection therewith shall be
automatically rescinded, or if there has been a material change in the terms or
the timing of the transaction, any holder of Class G Preferred Stock may rescind
such holder's request for redemption by delivering written notice thereof to the
Corporation prior to the consummation of the transaction.
If the funds of the Corporation legally available for redemption of Class G
Shares are insufficient to redeem the total number of Class G Shares to be
redeemed, subject to the rights of the Class H Preferred Stock, those funds
which are legally available shall be used to redeem the maximum possible number
of Class G Shares pro rata among the holders of the Class G Shares to be
redeemed based upon the aggregate Class G Liquidation Value of such Class G
Shares held by each such holder (plus all accrued and unpaid dividends thereon,
if any). At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Class G Shares, subject to the rights of
the Class H Preferred Stock, such funds shall be used at the end of the next
succeeding fiscal quarter to redeem the balance of the Class G Shares or such
portion thereof for which funds are then legally available which the Corporation
has become obligated to redeem but which it has not redeemed.
The term "Fundamental Change" means (a) any sale or transfer of more than
50% of the assets of the Corporation and its Subsidiaries on a consolidated
basis (measured either by book value in accordance with generally accepted
accounting principles consistently applied or by fair market value determined in
the reasonable good faith judgment of the Corporation's Board of Directors) in
any transaction or series of transactions (other than sales in the ordinary
course of business) and (b) any merger or consolidation to which the Corporation
is a party, except for a merger in which the Corporation is the surviving
Corporation, the terms of the
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Class G Preferred Stock are not changed and the Class G Preferred Stock is not
exchanged for cash, securities or other property, and after giving effect to
such merger, the holders of the Corporation's outstanding capital stock
possessing a majority of the voting power (under ordinary circumstances) to
elect a majority of the Corporation's Board of Directors immediately prior to
the merger shall continue to own the Corporation's outstanding capital stock
possessing the voting power (under ordinary circumstances) to elect a majority
of the Corporation's Board of Directors.
(iii) Redemptions made pursuant to this paragraph 3I shall not relieve the
Corporation of its obligation to redeem Class G Preferred Stock on the Optional
and Scheduled Redemption Dates pursuant to paragraphs 3A and 3B above.
Section 4. Voting Rights. The holders of the Class G Preferred Stock
--------- -------------
shall be entitled to notice of all stockholders meetings in accordance with the
Corporation's bylaws, and shall be entitled to vote on all matters submitted to
the stockholders for a vote together with the holders of the Common Stock, the
Preferred Stock and the Class H Preferred Stock voting together as a single
class with each Class G Share of Class G Preferred Stock entitled to one vote
for each share of Common Stock issuable upon conversion of the Class G Preferred
Stock as of the record date for such vote or, if no record date is specified, as
of the date of such vote.
Section 5. Conversion.
--------- ----------
5A. Conversion Procedure.
--------------------
(i) At any time and from time to time, any holder of Class G Preferred
Stock may convert all or any portion of the Class G Preferred Stock (including
any fraction of a Class G Share) held by such holder into a number of shares of
Conversion Stock computed by multiplying the number of Class G Shares to be
converted by $5.80 and dividing the result by the Class G Conversion Price then
in effect.
(ii) Except as otherwise provided herein, each conversion of Class G
Preferred Stock shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Class G Preferred Stock to be converted have been surrendered for conversion at
the principal office of the Corporation. At the time any such conversion has
been effected, the rights of the holder of the Class G Shares converted as a
holder of Class G Preferred Stock shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Conversion Stock are
to be issued upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Conversion Stock represented thereby.
(iii) The conversion rights of any Class G Share subject to redemption
hereunder shall terminate on the Redemption Date for such Class G Share unless
the Corporation has failed to pay to the holder thereof the Class G Liquidation
Value of such Class G Share (plus all accrued and unpaid dividends thereon, if
any); provided, however, upon such payment by the Corporation at any time
thereafter the conversion rights of any share redeemed shall terminate.
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<PAGE>
(iv) Notwithstanding any other provision hereof, if a conversion of
Class G Preferred Stock is to be made in connection with a public offering, a
Change in Ownership, a Fundamental Change or other transaction affecting the
Corporation, the conversion of any Class G Shares of Class G Preferred Stock
may, at the election of the holder thereof, be conditioned upon the consummation
of such transaction, in which case such conversion shall not be deemed to be
effective until such transaction has been consummated.
(v) As soon as possible after a conversion has been effected (but
in any event within five business days in the case of subparagraph (a) below),
the Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(b) payment in an amount equal to all accrued dividends, if
any, with respect to each Class G Share converted which have not been paid
prior thereto, plus the amount payable under subparagraph (ix) below with
respect to such conversion; and
(c) a certificate representing any Class G Shares of Class G
Preferred Stock which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted.
(vi) The issuance of certificates for shares of Conversion Stock
upon conversion of Class G Preferred Stock shall be made without charge to the
holders of such Class G Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon conversion of each
Class G Share of Class G Preferred Stock, the Corporation shall take all such
actions as are necessary in order to insure that the Conversion Stock issuable
with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with
respect to the issuance thereof.
(vii) The Corporation shall not close its books against the transfer
of Class G Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Class G Preferred Stock in any manner which interferes with the
timely conversion of Class G Preferred Stock, except as may otherwise be
required to comply with applicable securities laws. The Corporation shall assist
and cooperate with any holder of Class G Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Class G Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
(viii) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Class G Preferred Stock, such
number of shares of Conversion Stock issuable
15
<PAGE>
upon the conversion of all outstanding Class G Preferred Stock. All shares of
Conversion Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Corporation shall take all such actions as may be necessary to assure that
all such shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of the Class G Preferred Stock.
(ix) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subparagraph, be delivered upon any conversion
of the Class G Preferred Stock, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
(x) If the shares of Conversion Stock issuable by reason of
conversion of Class G Preferred Stock are convertible into or exchangeable for
any other stock or securities of the Corporation, the Corporation shall, at the
converting holder's option, upon surrender of the Class G Shares to be converted
by such holder as provided herein together with any notice, statement or payment
required to effect such conversion or exchange of Conversion Stock, deliver to
such holder or as otherwise specified by such holder a certificate or
certificates representing the stock or securities into which the shares of
Conversion Stock issuable by reason of such conversion are so convertible or
exchangeable, registered in such name or names and in such denomination or
denominations as such holder has specified.
5B. Class G Conversion Price.
------------------------
(i) The Class G Initial Conversion Price shall be $5.80 (such price
as last adjusted pursuant to the terms hereof, the "Class G Conversion Price").
In order to prevent dilution of the conversion rights granted under this Section
5, the Class G Conversion Price shall be subject to adjustment from time to time
pursuant to this paragraph 5B.
(ii) If and whenever on or after the original date of issuance of the
Class G Preferred Stock the Corporation issues or sells, or in accordance with
paragraph 5C is deemed to have issued or sold, any shares of its Common Stock
for a consideration per share less than the Class G Conversion Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale (x) the Class G Conversion Price shall be
reduced to the Class G Conversion Price determined by dividing (a) the sum of
(1) the product derived by multiplying the Class G Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received by the Corporation upon such issue or sale, by
(b) the number of shares of Common Stock Deemed Outstanding immediately
16
<PAGE>
after such issue or sale and (y) the number of shares of Common Stock to be
received upon conversion shall be increased accordingly.
(iii) Notwithstanding the foregoing, there shall be no adjustment in the
Class G Conversion Price as a result of any issue or sale (or deemed issue or
sale) of (i) any shares of Common Stock upon the conversion of any shares of
Junior Preferred or the Class H Preferred Stock; (ii) up to an aggregate of
4,000,000 shares of Common Stock to employees of the Corporation and its
Subsidiaries pursuant to stock option plans and stock ownership plans approved
by the Corporation's Board of Directors (as such number of shares is
proportionately adjusted for subsequent stock splits, combinations and dividends
affecting the Common Stock and as such number includes all such stock options
and purchase rights outstanding at the time of the issuance of the Class G
Preferred Stock); and (iii) any shares of Common Stock upon the exercise of any
warrants outstanding as of the date of the Purchase Agreement.
5C. Effect on Class G Conversion Price of Certain Events. For purposes
----------------------------------------------------
of determining the adjusted Class G Conversion Price under paragraph 5B, the
following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any manner
-----------------------------
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Class G Conversion Price in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the granting or sale of
such Options for such price per share. For purposes of this paragraph, the
"price per share for which Common Stock is issuable" shall be determined by
dividing (A) the total amount, if any, received or receivable by the Corporation
as consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation upon
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further adjustment of
the Class G Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any manner
----------------------------------
issues or sells any Convertible Securities and the price per share for which
Common Stock is issuable upon conversion or exchange thereof is less than the
Class G Conversion Price in effect immediately prior to the time of such issue
or sale then the maximum number of shares of
17
<PAGE>
Common Stock issuable upon conversion or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the issuance or sale of such Convertible Securities
for such price per share. For the purposes of this paragraph, the "price per
share for which Common Stock is issuable" shall be determined by dividing (A)
the total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Class G Conversion Price shall be made
when Common Stock is actually issued upon the conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Class G Conversion Price had been or are to be made pursuant to other provisions
of this Section 5, no further adjustment of the Class G Conversion Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price
-----------------------------------------
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time, the Class G Conversion Price in effect at the time of such
change shall be immediately adjusted to the Class G Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold; provided that if such adjustment would result in an
increase of the Class G Conversion Price then in effect, such adjustment shall
not be effective until 30 days after written notice thereof has been given by
the Corporation to all holders of the Class G Preferred Stock. For purposes of
paragraph 5C, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of the Class G Preferred Stock are
changed in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change.
(iv) Treatment of Expired Options and Unexercised Convertible Securities.
-------------------------------------------------------------------
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Security without the exercise of any such Option or
right, the Class G Conversion Price then in effect hereunder shall be adjusted
immediately to the Class G Conversion Price which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been issued; provided that if such expiration or termination
would result in an increase in the Class G Conversion Price then in effect, such
increase shall not be effective until 30 days after written notice thereof has
been given to all holders of the Class G Preferred Stock. For purposes of
paragraph 5C, the expiration or termination of any Option or Convertible
Security which was outstanding as of the date of issuance of the Class G
Preferred Stock shall not cause the Class G Conversion Price hereunder to be
adjusted unless, and only to the extent
18
<PAGE>
that, a change in the terms of such Option or Convertible Security caused it to
be deemed to have been issued after the date of issuance of the Class G
Preferred Stock.
(v) Calculation of Consideration Received. If any Common Stock, Option
-------------------------------------
or Convertible Security is issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, Option or Convertible Security is issued or sold
for a consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such consideration
as determined by the Corporation's Board of Directors in good faith, except
where such consideration consists of securities, in which case the amount of
consideration received by the Corporation shall be the Market Price thereof as
of the date of receipt. If any Common Stock, Option or Convertible Security is
issued to the owners of the non-surviving entity in connection with any merger
in which the Corporation is the surviving Corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Option or Convertible Security, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the outstanding
Class G Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Class G Preferred Stock. The determination of such appraiser
shall be final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne jointly by the Corporation and the holders of the
outstanding Class G Preferred Stock.
(vi) Integrated Transactions. In case any Option is issued in connection
-----------------------
with the issue or sale of other securities of the Corporation, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option shall be deemed to
have been issued for a consideration of $.01.
(vii) Treasury Class G Shares. The number of shares of Common Stock
-----------------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders of
-----------
Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
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<PAGE>
(ix) Stock Dividends. In case the Corporation shall declare a dividend or
---------------
make any other distribution upon any stock of the Corporation (other than the
Common Stock) payable in Common Stock, Options or in Convertible Securities,
then any Common Stock, Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
5D. Subdivision or Combination of Common Stock. If the Corporation at any
------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) outstanding shares of Common Stock into a greater number of shares,
the Class G Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Corporation at any time combines
(by reverse stock split or otherwise) outstanding shares of Common Stock into a
smaller number of shares, the Class G Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
5E. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
---------------------------------------------------------------
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Corporation's assets or other transaction, in
each case which is effected in such a manner that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as an "Organic Change." Prior to the consummation of any
Organic Change, the Corporation shall make appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the Class G
Preferred Stock then outstanding) to insure that each of the holders of Class G
Preferred Stock shall thereafter have the right to acquire and receive, in lieu
of or in addition to (as the case may be) the shares of Conversion Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Class G Preferred Stock, such shares of stock, securities or assets as
such holder would have received in connection with such Organic Change if such
holder had converted its Class G Preferred Stock immediately prior to such
Organic Change. In each such case, the Corporation shall also make appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Class G Preferred Stock then outstanding) to insure that the
provisions of this Section 5 and Sections 6 and 7 of this Paragraph E hereof
shall thereafter be applicable to the Class G Preferred Stock (including, in the
case of any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Corporation, an immediate adjustment of the
Class G Conversion Price to the value for the Common Stock reflected by the
terms of such consolidation, merger or sale, and a corresponding immediate
adjustment in the number of shares of Conversion Stock acquirable and receivable
upon conversion of Class G Preferred Stock, if the value so reflected is less
than the Class G Conversion Price in effect immediately prior to such
consolidation, merger or sale). In the event of the issuance of stock in
connection with an acquisition, the Board of Directors shall, in good faith,
determine the price per share of the shares issued. The Corporation shall not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Corporation) resulting from
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to the holders of a majority of
the Class G Preferred Stock then outstanding), the obligation to deliver to each
such
20
<PAGE>
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
5F. Special Adjustment to the Conversion Price. If the Adra Business is
------------------------------------------
not sold by January 2, 1999, the Conversion Price shall be reduced to the
Conversion Price determined by multiplying the initial Conversion Price as set
forth in paragraph 5B(i) by 81.22% and then adjusting the result thereof by all
adjustments which would have been required after the initial issuance of the
Class G Preferred if the initial Conversion Price had been equal to such result
so that the effect is to retroactively change the initial Conversion Price. If
the sale of the Adra Business is sold by such date but produces Net Cash
Proceeds above or below $8 million, the Conversion Price of the Class G
Preferred will be adjusted to the Conversion Price determined by multiplying the
initial Conversion Price as set forth in paragraph 5B(i) by a fraction the
numerator of which is the sum of (a) $34,600,000 plus (b) the actual Net Cash
Proceeds from the sale of the Adra Business and the denominator of which is
$42,600,000, and then adjusting the result thereof by all adjustments which
would have been required after the initial issuance of Class G Preferred if the
initial Conversion Price had been equal to such result so that the effect is to
retroactively change the initial Conversion Price. In the event that the Adra
Business is sold by January 2, 1999 and there is a public offering in connection
with which there exists a Public Offering Adjustment Amount then the Conversion
Price of the Class G Preferred shall be adjusted pursuant to the calculation in
the immediately preceding sentence after giving effect to the reduction in the
Net Cash Proceeds by the Public Offering Adjustment Amount.
5G. Certain Events. If any event occurs of the type contemplated by the
--------------
provisions of this Section 5 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Class G Conversion Price so as to protect the rights of the holders of Class G
Preferred Stock; provided that no such adjustment shall increase the Class G
Conversion Price as otherwise determined pursuant to this Section 5 or decrease
the number of shares of Conversion Stock issuable upon conversion of each Class
G Share of Class G Preferred Stock.
5H. Notices.
-------
(i) Immediately upon any adjustment of the Class G Conversion Price, the
Corporation shall give written notice thereof to all holders of Class G
Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Class G
Preferred Stock at least 20 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders of
Class G Preferred Stock at least 20 days prior to the date on which any Organic
Change shall take place.
21
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5I. Mandatory Conversion. If at any time the Corporation shall effect a
--------------------
firm commitment underwritten public offering of shares of Common Stock (a
"Public Offering") in which the price paid for each such share by the public
shall be at least equal to 3.0 multiplied by the Class G Initial Conversion
Price (as appropriately adjusted to reflect any event described in Section 5D
that may have occurred), then effective upon the closing of the sale of such
shares by the Corporation pursuant to such Public Offering, all outstanding
Class G Preferred Stock shall automatically convert to shares of Common Stock on
the basis set forth in this Section 5I. Holders of shares of Class G Preferred
Stock so converted may deliver to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to such holders) during its usual business hours, the
certificate or certificates for the shares so converted. As promptly as
practicable thereafter, the Corporation shall issue and deliver to such holder a
certificate or certificates for the number of whole shares of Common Stock to
which such holder is entitled, together with all accrued dividends, if any, with
respect to each Class G Share converted which have not been paid prior thereto,
and payment in lieu of fractional shares to which such holder may be entitled
pursuant to Section 5A(ix). Until such time as a holder of shares of Class G
Preferred Stock shall surrender his or its certificates therefor as provided
above, such certificates shall be deemed to represent the shares of Common Stock
to which such holder shall be entitled upon the surrender thereof.
Section 6. Dividends.
--------- ---------
6A. Liquidating Dividends. If the Corporation declares or pays a dividend
---------------------
upon the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Corporation shall pay to the holders
of Class G Preferred Stock at the time of payment thereof the Liquidating
Dividends which would have been paid on the shares of Conversion Stock had such
Class G Preferred Stock been converted immediately prior to the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
6B. No Cumulative Dividends. Unless and until declared by the Board of
-----------------------
Directors of the Corporation, the Class G Preferred Stock shall not be entitled
to any cumulative or accruing dividends of any nature.
Section 7. Purchase Rights.
--------- ---------------
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then each holder of Class G Preferred Stock shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Conversion Stock acquirable upon conversion of
such holder's Class G Preferred Stock immediately before the date on which a
record is taken for the grant, issuance or
22
<PAGE>
sale of such Purchase Rights, or if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
Section 8. Events of Noncompliance.
--------- -----------------------
8A Definition. An Event of Noncompliance shall have occurred if:
----------
(i) the Corporation fails to make any redemption payment with respect to
the Class G Preferred Stock which it is required to make hereunder, whether or
not such payment is legally permissible or is prohibited by any agreement to
which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or observe
any other covenant or agreement set forth herein or in the Purchase Agreement or
with charter provisions applicable to the Class G Preferred Stock;
(iii) any representation or warranty contained in the Purchase Agreement
or required to be furnished to any holder of Class G Preferred Stock pursuant to
the Purchase Agreement, is false or misleading in any material respect on the
date made;
(iv) the Corporation or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any Subsidiary is entered
under the Federal Bankruptcy Code; or the Corporation or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such petition
or application is filed, or any such proceeding is commenced, against the
Corporation or any Subsidiary and either (a) the Corporation or any such
Subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (b) such petition, application or proceeding is not
dismissed within 60 days; or
(v) a judgment in excess of $300,000 net of all insurance proceeds
received or to be received by the Corporation in connection therewith is
rendered against the Corporation or any Subsidiary and, within 60 days after
entry thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged.
8B. Consequences of Events of Noncompliance.
---------------------------------------
(i) If an Event of Noncompliance of the type described in Section 8A(i),
(ii) or (v) of this Paragraph E has occurred and continues for a period of 30
days or any other Event of Noncompliance has occurred, then the holder or
holders of a majority of the Class G Preferred
23
<PAGE>
Stock then outstanding may demand (by written notice delivered to the
Corporation) immediate redemption of all or any portion of the Class G Preferred
Stock owned by such holder or holders at a price per Class G Share equal to the
Class G Liquidation Value thereof (plus all accrued and unpaid dividends
thereon, if any). The Corporation shall give prompt written notice of such
election to the other holders of Class G Preferred Stock (but in any event
within five days after receipt of the initial demand for redemption), and each
such other holder may demand immediate redemption of all or any portion of such
holder's Class G Preferred Stock by giving written notice thereof to the
Corporation within seven days after receipt of the Corporation's notice. The
Corporation shall redeem all Class G Preferred Stock as to which rights under
this paragraph have been exercised within 15 days after receipt of the initial
demand for redemption. Notwithstanding the foregoing, if the funds of the
Corporation legally available for the redemption are insufficient to redeem all
Class G Preferred Stock requested to be redeemed, subject to the rights of the
Class H Preferred Stock, the holders of Class G Preferred Stock to be redeemed
shall share ratably in any funds legally available for redemption of such shares
according to the respective amounts which would be payable with respect to the
full number of shares owned by them if all such shares of Class G Preferred
Stock were redeemed in full. The shares of Class G Preferred Stock to be
redeemed and not so redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter when additional funds of
the Corporation are legally available for the redemption of such shares of Class
G Preferred Stock, subject to the rights of the Class H Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
(ii) If any Event of Noncompliance of the type described in Section 8A(i),
(ii) or (v) of this Paragraph E has occurred and has continued for 30 days or
any other Event of Noncompliance has occurred, the holders of Class G Preferred
Stock shall have the special right, voting together with the holders of the
Class H Preferred Stock as a single class (with each Class G Share and each
Class H Share being entitled to one vote) and to the exclusion of all other
classes of the Corporation's stock, to elect a majority of the Corporation's
Board of Directors. The special right of the holders of Class G Preferred Stock
and Class H Preferred Stock to elect a majority of the Board of Directors may be
exercised at the special meeting called pursuant to this subparagraph (ii), at
any annual or other special meeting of stockholders and, to the extent and in
the manner permitted by applicable law, pursuant to a written consent in lieu of
a stockholders meeting. Such special right shall continue until such time as
there is no longer any Event of Noncompliance in existence, at which time such
special right shall terminate subject to revesting upon the occurrence and
continuation of any Event of Noncompliance which gives rise to such special
right hereunder.
At any time when such special right has vested in the holders of Class G
Preferred Stock and Class H Preferred Stock, a proper officer of the Corporation
shall, upon the written request of the holders of at least 15% of the Class G
Preferred Stock or the Class H Preferred Stock then outstanding, addressed to
the secretary of the Corporation, call a special meeting of the holders of Class
G Preferred Stock and Class H Preferred Stock for the purpose of electing
directors pursuant to this subparagraph. Such meeting shall be held at the
earliest legally permissible date at the principal office of the Corporation, or
at such other place designated by
24
<PAGE>
the holders of at least 15% of the Class G Preferred Stock and Class H Preferred
Stock then outstanding. If such meeting has not been called by a proper officer
of the Corporation within 10 days after personal service of such written request
upon the secretary of the Corporation or within 20 days after mailing the same
to the secretary of the Corporation at its principal office, then the holders of
at least 15% of the Class G Preferred Stock and Class H Preferred Stock then
outstanding may designate in writing one of their number to call such meeting at
the expense of the Corporation, and such meeting may be called by such Person so
designated upon the notice required for annual meetings of stockholders and
shall be held at the Corporation's principal office, or at such other place
designated by the holders of at least 15% of the Class G Preferred Stock and
Class H Preferred Stock then outstanding. Any holder of Class G Preferred Stock
or Class H Preferred Stock so designated shall be given access to the stock
record books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to this subsection.
At any meeting or at any adjournment thereof at which the holders of Class
G Preferred Stock and Class H Preferred Stock have the special right to elect
directors, the presence, in person or by proxy, of the holders of a majority of
the Class G Preferred Stock and Class H Preferred Stock then outstanding shall
be required to constitute a quorum for the election or removal of any director
by the holders of the Class G Preferred Stock and Class H Preferred Stock
exercising such special right. The vote of a majority of such quorum shall be
required to elect or remove any such director.
Any directors so elected by the holders of Class G Preferred Stock and
Class H Preferred Stock shall continue to serve as directors until the
expiration of a period of three months following the date on which there is no
longer any Event of Noncompliance.
(iii) If any Event of Noncompliance exists, each holder of Class G
Preferred Stock and Class H Preferred Stock shall also have any other rights
which such holder is entitled to under any contract or agreement at any time and
any other rights which such holder may have pursuant to applicable law.
Section 9. Registration of Transfer.
--------- ------------------------
The Corporation shall keep at its principal office a register for the
registration of Class G Preferred Stock. Upon the surrender of any certificate
representing Class G Preferred Stock at such place, the Corporation shall, at
the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of Class G Shares represented
by the surrendered certificate. Each such new certificate shall be registered
in such name and shall represent such number of Class G Shares as is requested
by the holder of the surrendered certificate and shall be substantially
identical in form to the surrendered certificate, and dividends shall accrue on
the Class G Preferred Stock represented by such new certificate from the date to
which dividends have been fully paid on such Class G Preferred Stock
represented by the surrendered certificate.
25
<PAGE>
Section 10. Replacement.
---------- -----------
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Class G
Shares of Class G Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Class G Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Class G Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
Section 11. Definitions.
---------- -----------
The following definitions shall apply to this Paragraph E only:
"Adra Business" means the Corporation's computer-aided design and
-------------
manufacturing software and related services business which had: (i) the assets
(other than any cash or cash equivalents) and liabilities as set forth on the
August 31, 1997 balance sheet as attached to the Purchase Agreement, as the same
may change in the ordinary course of business of such business consistent with
the Corporation's past custom and practice (after giving effect to such changes,
the "Adra Business Balance Sheet"); (ii) all contingent liabilities such as
product warranty, employment and environmental liabilities relating to the
business reflected on such balance sheet; and (iii) all employees working
primarily in the business reflected thereon.
"Change in Ownership" has the meaning set forth in Section 3I(i) hereof.
-------------------
"Class G Conversion Price" has the meaning set forth in Section 5B hereof.
------------------------
"Class G Initial Conversion Price" of the Class G Preferred Stock shall be
--------------------------------
equal to $5.80 per share.
"Class G Liquidation Value" of any Class G Share as of any particular date
-------------------------
shall be equal to $5.80.
"Common Stock" means, collectively, the Corporation's Common Stock and any
------------
capital stock of any class of the Corporation hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Corporation.
26
<PAGE>
"Common Stock Deemed Outstanding" means, at any given time, the number of
-------------------------------
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 5C(i) and
5C(ii) hereof whether or not the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable upon
conversion of the Class G Preferred Stock.
"Conversion Stock" means shares of the Corporation's Common Stock, par
----------------
value $.01 per share; provided that if there is a change such that the
securities issuable upon conversion of the Class G Preferred Stock are issued by
an entity other than the Corporation or there is a change in the type or class
of securities so issuable, then the term "Conversion Stock" shall mean one share
of the security issuable upon conversion of the Class G Preferred Stock if such
security is issuable in shares, or shall mean the smallest unit in which such
security is issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities directly or
----------------------
indirectly convertible into or exchangeable for Common Stock.
"Fundamental Change" has the meaning set forth in Section 3I(ii) hereof.
------------------
"Junior Preferred" means the Corporation's Class A Preferred Stock, Class B
----------------
Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E
Preferred Stock and Class F Preferred Stock.
"Junior Securities" means any capital stock (including Junior Preferred) or
-----------------
other equity securities of the Corporation other than the Class G Preferred
Stock.
"Indebtedness" means all indebtedness for borrowed money (including
------------
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Market Price" of any security means the average of the closing prices of
------------
such security's sales on all securities exchanges on which such security may at
the time be listed, or, if there has been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
Nasdaq System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the Nasdaq System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the Nasdaq System or the over-the-counter market, the
"Market Price"
27
<PAGE>
shall be the fair value thereof as determined by the Corporation's Board of
Directors in good faith.
"Net Cash Proceeds" means the net cash proceeds paid to the Corporation at
-----------------
a closing of the sale of the Adra Business, it being expressly understood that
Net Cash Proceeds shall include only: (i) cash; (ii) any securities that are
converted into cash within 90 days after such closing, net of all expenses
related to the conversion of such securities including, but not limited to
taxes, commissions and other such transaction costs; and (iii) the amount of any
Indebtedness of the Corporation assumed by the purchasers of the Adra Business
to the extent not set forth on the face of the Adra Business Balance Sheet. It
is expressly understood that Net Cash Proceeds shall not include: (i) any non-
cash consideration other than promissory notes (except as set forth in (ii)
above) issued to the Corporation in the case of a sale of the Adra Business to
management of the Adra Business (or to an entity controlled by such management)
so long as such notes do not represent more than 25% of the total consideration
paid; (ii) any bonuses, other compensation, fees and out-of-pocket expenses
incurred by the Corporation in connection with any sale of the Adra Business;
(iii) any cost or expense of disposition of assets or liabilities of the Adra
Business that are not sold; (iv) any contingent purchase price, any purchase
price held back by the purchaser of the Adra Business or placed in escrow or (v)
any Public Offering Adjustment Amount. It is expressly understood that
immediately preceding the consummation of a Public Offering by the Company, the
calculation of Net Cash Proceeds shall be reduced by the following amount (the
"Public Offering Adjustment Amount"): any portion of the purchase price for the
Adra Business (i) which has been repaid as a result of any indemnification
claims; (ii) which is subject to any pending indemnification claims; or (iii)
which is subject to future indemnification claims (other than such portion that
is subject to pending or future indemnification claims which, in the reasonable
judgment of the representative of the Class G Preferred Stock serving on the
Corporation's Board of Directors, is not likely to have to be used to make an
indemnification payment to any purchaser of the Adra Business or to any other
person who could make a claim for indemnification). Notwithstanding the
foregoing, the Public Offering Adjustment Amount shall be increased by any
amounts which were held back, placed in escrow or otherwise contingent as
described in clause (iv) above and subsequently released to the Corporation
prior to the calculation of the Public Offering Adjustment Amount.
"Options" means any rights, warrants or options to subscribe for or
-------
purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a Corporation, a limited
------
liability company, a limited liability partnership, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
"Purchase Agreement" means the Purchase Agreement, dated as of October 1,
------------------
1997 by and among the Corporation and certain investors, as such agreement may
from time to time be amended in accordance with its terms.
28
<PAGE>
"Redemption Date" as to any Class G Share means the date specified in the
---------------
notice of any redemption or the applicable date specified herein in the case of
any other redemption; provided that no such date shall be a Redemption Date
unless the Class G Liquidation Value of such Class G Share (plus all accrued and
unpaid dividends thereon, if any, and any required premium with respect thereto)
is actually paid in full on such date, and if not so paid in full, the
Redemption Date shall be the date on which such amount is fully paid.
"Subsidiary" means any Corporation of which the shares of outstanding
----------
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 12. Amendment and Waiver.
------------ --------------------
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 13 of this Paragraph E hereof without
the prior written consent of the holders of at least a majority of the Class G
Preferred Stock outstanding at the time such action is taken; provided that no
such action shall change (a) the rate at which or the manner in which dividends
on the Class G Preferred Stock accrue or the times at which such dividends
become payable or the amount payable on redemption of the Class G Preferred
Stock or the times at which redemption of Class G Preferred Stock is to occur,
without the prior written consent of the holders of at least 60% of the Class G
Preferred Stock then outstanding, (b) the Class G Conversion Price of the Class
G Preferred Stock or the number of shares or class of stock into which the Class
G Preferred Stock is convertible, without the prior written consent of the
holder of at least 60% of the Class G Preferred Stock then outstanding or (c)
the percentage required to approve any change described in clauses (a) and (b)
above, without the prior written consent of the holders of at least 60% of the
Class G Preferred Stock then outstanding; and provided further that no change in
the terms hereof may be accomplished by merger or consolidation of the
Corporation with another corporation or entity unless the Corporation has
obtained the prior written consent of the holders of the applicable percentage
of the Class G Preferred Stock then outstanding.
Section 13. Notices.
----------- -------
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
29
<PAGE>
F. Class H Convertible Preferred Stock
-----------------------------------
Section 1. Liquidation.
--------- -----------
Upon any liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), each holder of Class H Preferred Stock shall
be entitled to be paid, before any distribution or payment is made upon any
Junior Securities, an amount in cash equal to the aggregate Class H Liquidation
Value of all shares of Class H Preferred Stock (each, a "Class H Share") held by
-------------
such holder (plus all accrued and unpaid dividends thereon, if any), and the
holders of Class H Preferred Stock shall not be entitled to any further payment.
If upon any such liquidation, dissolution or winding up of the Corporation the
Corporation's assets to be distributed among the holders of the Class H
Preferred Stock are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 1, then
---------
the entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among the holders of Class H Preferred Stock based
upon the aggregate Class H Liquidation Value (plus all accrued and unpaid
dividends, if any) of the Class H Preferred Stock held by each such holder. Not
less than 30 days prior to the payment date stated therein, the Corporation
shall mail written notice of any such liquidation, dissolution or winding up to
each record holder of Class H Preferred Stock, setting forth in reasonable
detail the amount of proceeds to be paid with respect to each Class H Share and
each share of Junior Securities in connection with such liquidation, dissolution
or winding up. Neither the consolidation or merger of the Corporation into or
with any other entity or entities (whether or not the Corporation is the
surviving entity), nor the sale or transfer by the Corporation of all or any
part of its assets, nor the reduction of the capital stock of the Corporation
nor any other form of recapitalization or reorganization affecting the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section 1.
---------
Section 2. Priority of Class H Preferred Stock on Redemptions.
---------- --------------------------------------------------
So long as any Class H Preferred Stock remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Class H Preferred Stock, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, if at the time of or immediately after any such redemption,
purchase or acquisition the Corporation has failed to make any redemption of the
Class H Preferred Stock required hereunder.
Section 3. Redemptions.
---------- -----------
3A. Optional Redemption. On October 1, 2002 ("Optional Redemption Date")
------------------- ------------------------
and with the affirmative vote of the holders of a majority of the Class H
Preferred Stock, the Corporation shall redeem 50% of the then outstanding Class
H Preferred Stock at a price per share equal to the Class H Liquidation Value
thereof (plus all accrued and unpaid dividends thereon, if any) pro rata among
the holders thereof based upon the aggregate Class H Liquidation Value (plus all
accrued and unpaid dividends thereon, if any) of the Class H Preferred Stock
held by each such holder.
30
<PAGE>
3B. Scheduled Redemption. On October 1, 2003 ("Scheduled Redemption Date")
-------------------- -------------------------
and with the affirmative vote of the holders of a majority of the Class H
Preferred Stock, the Corporation shall redeem 100% of the then outstanding Class
H Preferred Stock at a price per share equal to the Class H Liquidation Value
thereof (plus accrued and unpaid dividends thereon, if any) pro rata among the
holders thereof based upon the aggregate Class H Liquidation Value (plus all
accrued and unpaid dividends thereon, if any) of the Class H Preferred Stock
held by each such holder.
3C. Redemption Payments. For each Class H Share which is to be redeemed
-------------------
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Class H Share) an amount in
immediately available funds equal to the Class H Liquidation Value of such Class
H Share (plus all accrued and unpaid dividends thereon, if any). If the funds
of the Corporation legally available for redemption of Class H Shares on any
Redemption Date are insufficient to redeem the total number of Class H Shares to
be redeemed on such date, those funds which are legally available shall be used
to redeem the maximum possible number of Class H Shares pro rata among the
holders of the Class H Shares to be redeemed based upon the aggregate Class H
Liquidation Value of such Class H Shares held by each such holder (plus all
accrued and unpaid dividends thereon, if any). At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
Class H Shares, such funds shall be used at the end of the next succeeding
fiscal quarter to redeem the balance of the Class H Shares or such portion
thereof for which funds are then legally available which the Corporation has
become obligated to redeem on any Redemption Date but which it has not redeemed.
3D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any Class H
Preferred Stock to each record holder thereof not more than 60 nor less than 30
days prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Class H
Shares specified in such notice at the time of redemption specified therein. In
case fewer than the total number of Class H Shares represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed Class H Shares shall be issued to the holder thereof without cost to
such holder upon the later of five business days after (i) the Redemption Date
or (ii) the surrender by the holder of the certificate representing the redeemed
Class H Shares.
3E. Determination of the Number of Each Holder's Class H Shares to be
-----------------------------------------------------------------
Redeemed. The number of Class H Shares of Class H Preferred Stock to be redeemed
- --------
from each holder thereof in redemptions hereunder shall be the number of Class H
Shares determined by multiplying the total number of Class H Shares to be
redeemed times a fraction, the numerator of which shall be the total number of
Class H Shares then held by such holder and the denominator of which shall be
the total number of Class H Shares then outstanding.
31
<PAGE>
3F. Rights After Redemption Date. No Class H Share shall be entitled to
----------------------------
any dividends accruing after the Redemption Date on which the Class H
Liquidation Value of such Class H Share (plus all accrued and unpaid dividends
thereon, if any) is obligated to be paid to the holder of such Class H Share by
the Corporation. On such date, all rights of the holder of such Class H Share
shall cease, and such Class H Share shall no longer be deemed to be issued and
outstanding.
3G. Redeemed or Otherwise Acquired Class H Shares. Any Class H Shares
---------------------------------------------
which are redeemed or otherwise acquired by the Corporation shall be canceled
and retired to authorized but unissued shares and shall not be reissued, sold or
transferred.
3H. Other Redemptions or Acquisitions. The Corporation shall not, nor
---------------------------------
shall it permit any Subsidiary to, redeem or otherwise acquire any Class H
Shares of Class H Preferred Stock, except as expressly authorized herein or
pursuant to a purchase offer made pro rata to all holders of Class H Preferred
Stock on the basis of the number of Class H Shares owned by each such holder.
3I. Special Redemptions.
-------------------
(i) If a Change in Ownership has occurred or the Corporation obtains
knowledge that a Change in Ownership is proposed to occur, the Corporation shall
give prompt written notice of such Change in Ownership describing in reasonable
detail the material terms and date of consummation thereof to each holder of
Class H Preferred Stock, but in any event such notice shall not be given later
than five days after the occurrence of such Change in Ownership, and the
Corporation shall give each holder of Class H Preferred Stock prompt written
notice of any material change in the terms or timing of such transaction. The
holder or holders of a majority of the Class H Preferred Stock then outstanding
may require the Corporation to redeem all or any portion of the Class H
Preferred Stock owned by such holder or holders at a price per Share equal to
the Class H Liquidation Value thereof (plus all accrued and unpaid dividends
thereon, if any) by giving written notice to the Corporation of such election
prior to the later of (a) 21 days after receipt of the Corporation's notice and
(b) five days prior to the consummation of the Change in Ownership (the
"Expiration Date"). The Corporation shall give prompt written notice of any such
---------------
election to all other holders of Class H Preferred Stock within five days after
the receipt thereof, and each such holder shall have until the later of (a) the
Expiration Date or (b) ten days after receipt of such second notice to request
redemption hereunder (by giving written notice to the Corporation) of all or any
portion of the Class H Preferred Stock owned by such holder.
Upon receipt of such election(s), the Corporation shall be obligated to
redeem the aggregate number of Class H Shares specified therein on the later of
(a) the occurrence of the Change in Ownership or (b) five days after the
Corporation's receipt of such election(s); provided, however, that if any
proposed Change in Ownership does not occur, all requests for redemption in
connection therewith shall be automatically rescinded, or if there has been a
material change in the terms or the timing of the transaction, any holder of
Class H Preferred
32
<PAGE>
Stock may rescind such holder's request for redemption by giving written notice
of such rescission to the Corporation.
If the funds of the Corporation legally available for redemption of Class H
Shares are insufficient to redeem the total number of Class H Shares to be
redeemed, those funds which are legally available shall be used to redeem the
maximum possible number of Class H Shares pro rata among the holders of the
Class H Shares to be redeemed based upon the aggregate Class H Liquidation Value
of such Class H Shares held by each such holder (plus all accrued and unpaid
dividends thereon, if any). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Class H Shares, such
funds shall be used at the end of the next succeeding fiscal quarter to redeem
the balance of the Class H Shares or such portion thereof for which funds are
then legally available which the Corporation has become obligated to redeem but
which it has not redeemed.
The term "Change in Ownership" means any sale, transfer or issuance or
-------------------
series of sales, transfers and/or issuances of shares of the Corporation's
capital stock by the Corporation or any holders thereof which results in any
Person or group of Persons (as the term "group" is used under the Securities
-----
Exchange Act of 1934), other than Persons who own individually, on a fully
diluted basis, at least 10% of the Common Stock as of the date immediately prior
to or as of the date of the Purchase Agreement, owning capital stock of the
Corporation possessing the voting power (under ordinary circumstances) to elect
a majority of the Corporation's Board of Directors.
(ii) If a Fundamental Change is proposed to occur, the Corporation shall
give written notice of such Fundamental Change describing in reasonable detail
the material terms and date of consummation thereof to each holder of Class H
Preferred Stock not more than 45 days nor less than 20 days prior to the
consummation of such Fundamental Change, and the Corporation shall give each
holder of Class H Preferred Stock prompt written notice of any material change
in the terms or timing of such transaction. The holder or holders of a majority
of the Class H Preferred Stock then outstanding may require the Corporation to
redeem all or any portion of the Class H Preferred Stock owned by such holder or
holders at a price per Class H Share equal to the Class H Liquidation Value
thereof (plus all accrued and unpaid dividends thereon, if any) by giving
written notice to the Corporation of such election prior to the later of (a) ten
days prior to the consummation of the Fundamental Change or (b) ten days after
receipt of notice from the Corporation. The Corporation shall give prompt
written notice of such election to all other holders of Class H Preferred Stock
(but in any event within five days prior to the consummation of the Fundamental
Change), and each such holder shall have until two days after the receipt of
such notice to request redemption (by written notice given to the Corporation)
of all or any portion of the Class H Preferred Stock owned by such holder.
Upon receipt of such election(s), the Corporation shall be obligated to
redeem the aggregate number of Class H Shares specified therein upon the
consummation of such Fundamental Change; provided, however, that if any proposed
Fundamental Change does not occur, all requests for redemption in connection
therewith shall be automatically rescinded, or if there has been a material
change in the terms or the timing of the transaction, any holder of
33
<PAGE>
Class H Preferred Stock may rescind such holder's request for redemption by
delivering written notice thereof to the Corporation prior to the consummation
of the transaction.
If the funds of the Corporation legally available for redemption of Class H
Shares are insufficient to redeem the total number of Class H Shares to be
redeemed, those funds which are legally available shall be used to redeem the
maximum possible number of Class H Shares pro rata among the holders of the
Class H Shares to be redeemed based upon the aggregate Class H Liquidation Value
of such Class H Shares held by each such holder (plus all accrued and unpaid
dividends thereon, if any). At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Class H Shares, such
funds shall be used at the end of the next succeeding fiscal quarter to redeem
the balance of the Class H Shares or such portion thereof for which funds are
then legally available which the Corporation has become obligated to redeem but
which it has not redeemed.
The term "Fundamental Change" means (a) any sale or transfer of more than
------------------
50% of the assets of the Corporation and its Subsidiaries on a consolidated
basis (measured either by book value in accordance with generally accepted
accounting principles consistently applied or by fair market value determined in
the reasonable good faith judgment of the Corporation's Board of Directors) in
any transaction or series of transactions (other than sales in the ordinary
course of business) and (b) any merger or consolidation to which the Corporation
is a party, except for a merger in which the Corporation is the surviving
corporation, the terms of the Class H Preferred Stock are not changed and the
Class H Preferred Stock is not exchanged for cash, securities or other property,
and after giving effect to such merger, the holders of the Corporation's
outstanding capital stock possessing a majority of the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Corporation's Board of
Directors.
(iii) Redemptions made pursuant to this Section 3I shall not relieve the
----------
Corporation of its obligation to redeem Class H Preferred Stock on the Optional
and Scheduled Redemption Dates pursuant to Sections 3A and 3B of this Paragraph
----------- --
F above.
Section 4. Voting Rights. The holders of the Class H Preferred Stock shall
--------- -------------
be entitled to notice of all stockholders meetings in accordance with the
Corporation's bylaws, and shall be entitled to vote on all matters submitted to
the stockholders for a vote together with the holders of the Common Stock, the
Preferred Stock and the Class G Preferred Stock voting together as a single
class with each Class H Share of Class H Preferred Stock entitled to one vote
for each share of Common Stock issuable upon conversion of the Class H Preferred
Stock as of the record date for such vote or, if no record date is specified, as
of the date of such vote.
34
<PAGE>
Section 5. Conversion.
---------- ----------
5A. Conversion Procedure.
--------------------
(i) At any time and from time to time, any holder of Class H Preferred
Stock may convert all or any portion of the Class H Preferred Stock (including
any fraction of a Class H Share) held by such holder into a number of shares of
Conversion Stock computed by multiplying the number of Class H Shares to be
converted by $8.00 and dividing the result by the Class H Conversion Price then
in effect.
(ii) Except as otherwise provided herein, each conversion of Class H
Preferred Stock shall be deemed to have been effected as of the close of
business on the date on which the certificate or certificates representing the
Class H Preferred Stock to be converted have been surrendered for conversion at
the principal office of the Corporation. At the time any such conversion has
been effected, the rights of the holder of the Class H Shares converted as a
holder of Class H Preferred Stock shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Conversion Stock are
to be issued upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Conversion Stock represented thereby.
(iii) The conversion rights of any Class H Share subject to redemption
hereunder shall terminate on the Redemption Date for such Class H Share unless
the Corporation has failed to pay to the holder thereof the Class H Liquidation
Value of such Class H Share (plus all accrued and unpaid dividends thereon, if
any); provided, however, upon such payment by the Corporation at any time
thereafter the conversion rights of any share redeemed shall terminate.
(iv) Notwithstanding any other provision hereof, if a conversion of Class
H Preferred Stock is to be made in connection with a public offering, a Change
in Ownership, a Fundamental Change or other transaction affecting the
Corporation, the conversion of any Class H Shares of Class H Preferred Stock
may, at the election of the holder thereof, be conditioned upon the consummation
of such transaction, in which case such conversion shall not be deemed to be
effective until such transaction has been consummated.
(v) As soon as possible after a conversion has been effected (but in any
event within five business days in the case of subsection (a) below), the
Corporation shall deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(b) payment in an amount equal to all accrued dividends, if any,
with respect to each Class H Share converted which have not been paid prior
thereto, plus the amount payable under subsection (ix) below with respect
to such conversion; and
35
<PAGE>
(c) a certificate representing any Class H Shares of Class
H Preferred Stock which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but which
were not converted.
(vi) The issuance of certificates for shares of Conversion Stock
upon conversion of Class H Preferred Stock shall be made without charge to the
holders of such Class H Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon conversion of each
Class H Share of Class H Preferred Stock, the Corporation shall take all such
actions as are necessary in order to insure that the Conversion Stock issuable
with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with
respect to the issuance thereof.
(vii) The Corporation shall not close its books against the transfer
of Class H Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Class H Preferred Stock in any manner which interferes with the
timely conversion of Class H Preferred Stock, except as may otherwise be
required to comply with applicable securities laws. The Corporation shall assist
and cooperate with any holder of Class H Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Class H Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
(viii) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Class H Preferred Stock, such
number of shares of Conversion Stock issuable upon the conversion of all
outstanding Class H Preferred Stock. All shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Conversion Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon each
such issuance). The Corporation shall not take any action which would cause the
number of authorized but unissued shares of Conversion Stock to be less than the
number of such shares required to be reserved hereunder for issuance upon
conversion of the Class H Preferred Stock.
(ix) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subsection, be delivered upon any
conversion of the Class H Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, shall pay an amount to the holder
thereof equal to the Market Price of such fractional interest as of the date of
conversion.
(x) If the shares of Conversion Stock issuable by reason of
conversion of Class H Preferred Stock are convertible into or exchangeable for
any other stock or securities of the Corporation, the Corporation shall, at the
converting holder's option, upon surrender of the
36
<PAGE>
Class H Shares to be converted by such holder as provided herein together with
any notice, statement or payment required to effect such conversion or exchange
of Conversion Stock, deliver to such holder or as otherwise specified by such
holder a certificate or certificates representing the stock or securities into
which the shares of Conversion Stock issuable by reason of such conversion are
so convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such holder has specified.
5B. Class H Conversion Price.
------------------------
(i) The Initial Class H Conversion Price shall be $8.00 (such price
as last adjusted pursuant to the terms hereof, the "Class H Conversion Price").
------------------------
In order to prevent dilution of the conversion rights granted under this Section
-------
5, the Class H Conversion Price shall be subject to adjustment from time to time
- -
pursuant to this Section 5B.
----------
(ii) If and whenever on or after the original date of issuance of
the Class H Preferred Stock the Corporation issues or sells, or in accordance
with Section 5C is deemed to have issued or sold, any shares of its Common Stock
----------
for a consideration per share less than the Class H Conversion Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale (x) the Class H Conversion Price shall be
reduced to the Class H Conversion Price determined by dividing (a) the sum of
(1) the product derived by multiplying the Class H Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received by the Corporation upon such issue or sale, by
(b) the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale and (y) the number of shares of Common Stock to be received
upon conversion shall be increased accordingly.
(iii) Notwithstanding the foregoing, there shall be no adjustment in
the Class H Conversion Price as a result of any issue or sale (or deemed issue
or sale) of (i) any shares of Common Stock upon the conversion of any shares of
Junior Preferred; (ii) up to an aggregate of 4,000,000 shares of Common Stock to
employees of the Corporation and its Subsidiaries pursuant to stock option plans
and stock ownership plans approved by the Corporation's Board of Directors (as
such number of shares is proportionately adjusted for subsequent stock splits,
combinations and dividends affecting the Common Stock and as such number
includes all such stock options and purchase rights outstanding at the time of
the issuance of the Class H Preferred Stock); and (iii) any shares of Common
Stock upon the exercise of any warrants outstanding as of the date of the
Purchase Agreement.
5C. Effect on Class H Conversion Price of Certain Events. For
----------------------------------------------------
purposes of determining the adjusted Class H Conversion Price under Section 5B,
----------
the following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any manner
-----------------------------
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon
37
<PAGE>
exercise of such Options, is less than the Class H Conversion Price in effect
immediately prior to the time of the granting or sale of such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Corporation at
the time of the granting or sale of such Options for such price per share. For
purposes of this Section, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount, if any, received
or receivable by the Corporation as consideration for the granting or sale of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Class H Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any
----------------------------------
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Class H Conversion Price in effect immediately prior to the time of such
issue or sale then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Class H Conversion Price shall be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Class H Conversion
Price had been or are to be made pursuant to other provisions of this Section 5,
---------
no further adjustment of the Class H Conversion Price shall be made by reason of
such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
-----------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, the Class H Conversion Price in effect at the time of
such change shall be immediately adjusted to the Class H Conversion Price which
would have been in effect at such time had such Options or
38
<PAGE>
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that if such adjustment would
result in an increase of the Class H Conversion Price then in effect, such
adjustment shall not be effective until 30 days after written notice thereof has
been given by the Corporation to all holders of the Class H Preferred Stock. For
purposes of Section 5C, if the terms of any Option or Convertible Security which
----------
was outstanding as of the date of issuance of the Class H Preferred Stock are
changed in the manner described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right to
- ----------
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Class H Conversion Price then in effect hereunder shall be
adjusted immediately to the Class H Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued; provided that if such expiration
or termination would result in an increase in the Class H Conversion Price then
in effect, such increase shall not be effective until 30 days after written
notice thereof has been given to all holders of the Class H Preferred Stock. For
purposes of Section 5C, the expiration or termination of any Option or
----------
Convertible Security which was outstanding as of the date of issuance of the
Class H Preferred Stock shall not cause the Class H Conversion Price hereunder
to be adjusted unless, and only to the extent that, a change in the terms of
such Option or Convertible Security caused it to be deemed to have been issued
after the date of issuance of the Class H Preferred Stock.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be the fair value of such
consideration as determined by the Corporation's Board of Directors in good
faith, except where such consideration consists of securities, in which case the
amount of consideration received by the Corporation shall be the Market Price
thereof as of the date of receipt. If any Common Stock, Option or Convertible
Security is issued to the owners of the non-surviving entity in connection with
any merger in which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Option or Convertible Security, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the outstanding
Class H Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Class H Preferred Stock. The
39
<PAGE>
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne jointly by the
Corporation and the holders of the outstanding Class H Preferred Stock.
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (b) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
(ix) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation (other
than the Common Stock) payable in Common Stock, Options or in Convertible
Securities, then any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
5D. Subdivision or Combination of Common Stock. If the Corporation
------------------------------------------
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) outstanding shares of Common Stock into a greater number of shares,
the Class H Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Corporation at any time combines
(by reverse stock split or otherwise) outstanding shares of Common Stock into a
smaller number of shares, the Class H Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
5E. Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. Any recapitalization, reorganization, reclassification, consolidation,
- ----
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an "Organic Change." Prior to the
--------------
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Class H Preferred Stock then outstanding) to insure that each of
the holders of Class H Preferred Stock shall thereafter have the right to
40
<PAGE>
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Conversion Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Class H Preferred Stock, such shares of
stock, securities or assets as such holder would have received in connection
with such Organic Change if such holder had converted its Class H Preferred
Stock immediately prior to such Organic Change. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
reasonably satisfactory to the holders of a majority of the Class H Preferred
Stock then outstanding) to insure that the provisions of this Section 5 and
---------
Sections 6 and 7 of this Paragraph F hereof shall thereafter be applicable to
- ---------- -
the Class H Preferred Stock (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than
the Corporation, an immediate adjustment of the Class H Conversion Price to the
value for the Common Stock reflected by the terms of such consolidation, merger
or sale, and a corresponding immediate adjustment in the number of shares of
Conversion Stock acquirable and receivable upon conversion of Class H Preferred
Stock, if the value so reflected is less than the Class H Conversion Price in
effect immediately prior to such consolidation, merger or sale). In the event of
the issuance of stock in connection with an acquisition, the Board of Directors
shall, in good faith, determine the price per share of the shares issued. The
Corporation shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the holders of a majority of the Class H Preferred Stock then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
5F. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 5 but not expressly provided for by such
---------
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Class H Conversion Price so as to protect the rights of the holders of Class H
Preferred Stock; provided that no such adjustment shall increase the Class H
Conversion Price as otherwise determined pursuant to this Section 5 or decrease
---------
the number of shares of Conversion Stock issuable upon conversion of each Class
H Share of Class H Preferred Stock.
5G. Notices.
-------
(i) Immediately upon any adjustment of the Class H Conversion Price,
the Corporation shall give written notice thereof to all holders of Class H
Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to all holders of Class
H Preferred Stock at least 20 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation.
41
<PAGE>
(iii) The Corporation shall also give written notice to the holders
of Class H Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
5H. Mandatory Conversion. If at any time the Corporation shall
--------------------
effect a firm commitment underwritten public offering of shares of Common Stock
(a "Public Offering") in which the price paid for each such share by the public
---------------
shall be at least equal to 3.0 multiplied by the Initial Class H Conversion
Price (as appropriately adjusted to reflect any event described in Section 5D
----------
that may have occurred), then effective upon the closing of the sale of such
shares by the Corporation pursuant to such Public Offering, all outstanding
Class H Preferred Stock shall automatically convert to shares of Common Stock on
the basis set forth in this Section 5H. Holders of shares of Class H Preferred
----------
Stock so converted may deliver to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to such holders) during its usual business hours, the
certificate or certificates for the shares so converted. As promptly as
practicable thereafter, the Corporation shall issue and deliver to such holder a
certificate or certificates for the number of whole shares of Common Stock to
which such holder is entitled, together with all accrued dividends, if any, with
respect to each Share converted which have not been paid prior thereto, and
payment in lieu of fractional shares to which such holder may be entitled
pursuant to Section 5A(ix). Until such time as a holder of shares of Class H
--------------
Preferred Stock shall surrender his or its certificates therefor as provided
above, such certificates shall be deemed to represent the shares of Common Stock
to which such holder shall be entitled upon the surrender thereof.
Section 6. Dividends.
---------- ---------
6A. Dividend Rights. So long as shares of Class H Preferred Stock
---------------
shall be outstanding, no dividends or distributions, whether in partial
liquidation, as capital distributions or otherwise, shall be paid to the holders
of shares of Common Stock, except out of the net earnings of the Corporation and
except to the extent reflected in its earned surplus as reflected on its books
for financial accounting purposes.
6B. The holders of shares of Class H Preferred Stock shall
participate equally, share for share, in all dividends and distributions (except
as provided in Section 1) if and when declared by the Board of Directors, except
---------
that the holder of each share of Class H Preferred Stock shall be entitled to
receive dividends and distributions in the amount payable in respect of the
number of shares of Common Stock into which such Class H Preferred Stock is then
convertible. Notwithstanding the foregoing, no dividends payable in shares of
Common Stock shall be paid to holders of Class H Preferred Stock.
6C. Liquidating Dividends. If the Corporation declares or pays a
---------------------
dividend upon the Common Stock payable otherwise than in cash out of earnings or
earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a stock dividend payable in shares
of Common Stock (a "Liquidating Dividend"), then the Corporation shall pay to
--------------------
the holders of Class H Preferred Stock at the time of payment thereof the
Liquidating Dividends which would have been paid on the shares of Conversion
Stock had such Class H Preferred Stock been converted immediately prior to the
date on which a
42
<PAGE>
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
6D. No Cumulative Dividends. Unless and until declared by the Board
-----------------------
of Directors of the Corporation, the Class H Preferred Stock shall not be
entitled to any cumulative or accruing dividends of any nature.
Section 7. Purchase Rights.
---------- ---------------
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of Common Stock (the "Purchase
--------
Rights"), then each holder of Class H Preferred Stock shall be entitled to
- ------
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Class H Preferred Stock immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
Section 8. Events of Noncompliance.
--------- -----------------------
8A. Definition. An Event of Noncompliance shall have occurred if:
----------
(i) the Corporation fails to make any redemption payment with
respect to the Class H Preferred Stock which it is required to make hereunder,
whether or not such payment is legally permissible or is prohibited by any
agreement to which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Purchase
Agreement or with charter provisions applicable to the Class H Preferred Stock;
(iii) any representation or warranty contained in the Purchase
Agreement or required to be furnished to any holder of Class H Preferred Stock
pursuant to the Purchase Agreement, is false or misleading in any material
respect on the date made;
(iv) the Corporation or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any Subsidiary is entered
under the Federal Bankruptcy Code; or the Corporation or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any Subsidiary or of any
substantial part of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary liquidation
and dissolution of a Subsidiary) relating to the Corporation or any Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of
43
<PAGE>
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Corporation or any Subsidiary and either
(a) the Corporation or any such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such petition,
application or proceeding is not dismissed within 60 days; or
(v) a judgment in excess of $300,000 net of all insurance proceeds
received or to be received by the Corporation in connection therewith is
rendered against the Corporation or any Subsidiary and, within 60 days after
entry thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged.
8B. Consequences of Events of Noncompliance.
---------------------------------------
(i) If an Event of Noncompliance of the type described in
subsection 8A(i), (ii) or (v) has occurred and continues for a period of 30 days
or any other Event of Noncompliance has occurred, then the holder or holders of
a majority of the Class H Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of all or any
portion of the Class H Preferred Stock owned by such holder or holders at a
price per Class H Share equal to the Class H Liquidation Value thereof (plus all
accrued and unpaid dividends thereon, if any). The Corporation shall give prompt
written notice of such election to the other holders of Class H Preferred Stock
(but in any event within five days after receipt of the initial demand for
redemption), and each such other holder may demand immediate redemption of all
or any portion of such holder's Class H Preferred Stock by giving written notice
thereof to the Corporation within seven days after receipt of the Corporation's
notice. The Corporation shall redeem all Class H Preferred Stock as to which
rights under this Section have been exercised within 15 days after receipt of
the initial demand for redemption. Notwithstanding the foregoing, if the funds
of the Corporation legally available for the redemption are insufficient to
redeem all Class H Preferred Stock requested to be redeemed, the holders of
Class H Preferred Stock to be redeemed shall share ratably in any funds legally
available for redemption of such shares according to the respective amounts
which would be payable with respect to the full number of shares owned by them
if all such shares of Class H Preferred Stock were redeemed in full. The shares
of Class H Preferred Stock to be redeemed and not so redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of such shares of Class H Preferred Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the balance of
such shares, or such portion thereof for which funds are then legally available,
on the basis set forth above.
(ii) If any Event of Noncompliance of the type described in
subsection 8A(i), (ii) or (v) has occurred and has continued for 30 days or any
other Event of Noncompliance has occurred, the holders of Class H Preferred
Stock shall have the special right, voting together with the holders of the
Class G Preferred Stock as a single class (with each Class H Share and each
Class G Share being entitled to one vote) and to the exclusion of all other
classes of the Corporation's stock, to elect a majority of the Corporation's
Board of Directors. The special right of the holders of Class H Preferred Stock
and Class G Preferred Stock to elect a majority of the Board
44
<PAGE>
of Directors may be exercised at the special meeting called pursuant to this
subsection (ii), at any annual or other special meeting of stockholders and, to
the extent and in the manner permitted by applicable law, pursuant to a written
consent in lieu of a stockholders meeting. Such special right shall continue
until such time as there is no longer any Event of Noncompliance in existence,
at which time such special right shall terminate subject to revesting upon the
occurrence and continuation of any Event of Noncompliance which gives rise to
such special right hereunder.
At any time when such special right has vested in the holders of Class
H Preferred Stock and Class G Preferred Stock, a proper officer of the
Corporation shall, upon the written request of the holders of at least 15% of
the Class H Preferred Stock or the Class G Preferred Stock then outstanding,
addressed to the secretary of the Corporation, call a special meeting of the
holders of Class H Preferred Stock and the Class G Preferred Stock for the
purpose of electing directors pursuant to this subsection. Such meeting shall be
held at the earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the holders of at least 15% of
the Class H Preferred Stock and the Class G Preferred Stock then outstanding. If
such meeting has not been called by a proper officer of the Corporation within
10 days after personal service of such written request upon the secretary of the
Corporation or within 20 days after mailing the same to the secretary of the
Corporation at its principal office, then the holders of at least 15% of the
Class H Preferred Stock and the Class G Preferred Stock then outstanding may
designate in writing one of their number to call such meeting at the expense of
the Corporation, and such meeting may be called by such Person so designated
upon the notice required for annual meetings of stockholders and shall be held
at the Corporation's principal office, or at such other place designated by the
holders of at least 15% of the Class H Preferred Stock and the Class G Preferred
Stock then outstanding. Any holder of Class H Preferred Stock and the Class G
Preferred Stock so designated shall be given access to the stock record books of
the Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to this subsection.
At any meeting or at any adjournment thereof at which the holders of
Class H Preferred Stock and the Class G Preferred Stock have the special right
to elect directors, the presence, in person or by proxy, of the holders of a
majority of the Class H Preferred Stock and the Class G Preferred Stock then
outstanding shall be required to constitute a quorum for the election or removal
of any director by the holders of the Class H Preferred Stock and the Class G
Preferred Stock exercising such special right. The vote of a majority of such
quorum shall be required to elect or remove any such director.
Any directors so elected by the holders of Class H Preferred Stock and
the Class G Preferred Stock shall continue to serve as directors until the
expiration of a period of three months following the date on which there is no
longer any Event of Noncompliance.
(iii) If any Event of Noncompliance exists, each holder of Class H
Preferred Stock and the Class G Preferred Stock shall also have any other rights
which such holder is entitled to under any contract or agreement at any time and
any other rights which such holder may have pursuant to applicable law.
45
<PAGE>
Section 9. Registration of Transfer.
---------- ------------------------
The Corporation shall keep at its principal office a register for the
registration of Class H Preferred Stock. Upon the surrender of any certificate
representing Class H Preferred Stock at such place, the Corporation shall, at
the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of Class H Shares represented
by the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of Class H Shares as is requested by
the holder of the surrendered certificate and shall be substantially identical
in form to the surrendered certificate, and dividends shall accrue on the Class
H Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such Class H Preferred Stock represented by
the surrendered certificate.
Section 10. Replacement.
----------- -----------
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
Class H Shares of Class H Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Class H Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Class H Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
Section 11. Definitions.
----------- -----------
The following definitions shall apply to this Paragraph F only:
"Change in Ownership" has the meaning set forth in Section 3I(i)
------------------- -------------
hereof.
"Class H Conversion Price" has the meaning set forth in Section 5B
------------------------ ----------
hereof.
"Class H Liquidation Value" of any Class H Share as of any particular
-------------------------
date shall be equal to $8.00.
"Common Stock" means, collectively, the Corporation's Common Stock and
------------
any capital stock of any class of the Corporation hereafter authorized which is
not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to
46
<PAGE>
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the number
-------------------------------
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 5C(i) and
--------------
5C(ii) hereof whether or not the Options or Convertible Securities are actually
- ------
exercisable at such time, but excluding any shares of Common Stock issuable upon
conversion of the Class H Preferred Stock.
"Conversion Stock" means shares of the Corporation's Common Stock, par
----------------
value $.01 per share; provided that if there is a change such that the
securities issuable upon conversion of the Class H Preferred Stock are issued by
an entity other than the Corporation or there is a change in the type or class
of securities so issuable, then the term "Conversion Stock" shall mean one share
----------------
of the security issuable upon conversion of the Class H Preferred Stock if such
security is issuable in shares, or shall mean the smallest unit in which such
security is issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities directly or
----------------------
indirectly convertible into or exchangeable for Common Stock.
"Fundamental Change" has the meaning set forth in Section 3I (ii)
------------------ ----------
hereof.
"Junior Preferred" means the Corporation's Class A Preferred Stock,
----------------
Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class
E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock.
"Junior Securities" means any capital stock (including Junior
-----------------
Preferred) or other equity securities of the Corporation other than the Class H
Preferred Stock.
"Indebtedness" means all indebtedness for borrowed money (including
------------
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Initial Class H Conversion Price" of the Class H Preferred Stock
--------------------------------
shall be equal to $8.00 per share.
"Market Price" of any security means the average of the closing prices
------------
of such security's sales on all securities exchanges on which such security may
at the time be listed, or, if there has been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
Nasdaq System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the Nasdaq System, the average of the highest bid and lowest asked
prices on such day in the
47
<PAGE>
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in the
Nasdaq System or the over-the-counter market, the "Market Price" shall be
------------
the fair value thereof as determined by the Corporation's Board of Directors in
good faith.
"Options" means any rights, warrants or options to subscribe for or
-------
purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, a limited liability partnership, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
"Purchase Agreement" means the Purchase Agreement, dated as of June
------------------
17, 1999 by and among the Corporation and certain investors, as such agreement
may from time to time be amended in accordance with its terms.
"Redemption Date" as to any Class H Share means the date specified in
---------------
the notice of any redemption or the applicable date specified herein in the case
of any other redemption; provided that no such date shall be a Redemption Date
unless the Class H Liquidation Value of such Class H Share (plus all accrued and
unpaid dividends thereon, if any, and any required premium with respect thereto)
is actually paid in full on such date, and if not so paid in full, the
Redemption Date shall be the date on which such amount is fully paid.
"Subsidiary" means any corporation of which the shares of outstanding
----------
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
Section 12. Amendment and Waiver.
----------- --------------------
No amendment, modification or waiver shall be binding or effective
with respect to any provision of Sections 1 to 13 of this Paragraph F hereof
without the prior written consent of the holders of at least a majority of the
Class H Preferred Stock outstanding at the time such action is taken; provided
that no such action shall change (a) the rate at which or the manner in which
dividends on the Class H Preferred Stock accrue or the times at which such
dividends become payable or the amount payable on redemption of the Class H
Preferred Stock or the times at which redemption of Class H Preferred Stock is
to occur, without the prior written consent of the holders of at least 60% of
the Class H Preferred Stock then outstanding, (b) the Class H Conversion Price
of the Class H Preferred Stock or the number of shares or class of stock into
which the Class H Preferred Stock is convertible, without the prior written
consent of the holders of at least 60% of the Class H Preferred Stock then
outstanding or (c) the percentage
48
<PAGE>
required to approve any change described in clauses (a) and (b) above, without
the prior written consent of the holders of at least 60% of the Class H
Preferred Stock then outstanding; and provided further that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Class H
Preferred Stock then outstanding.
Section 13. Notices.
----------- -------
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly authorized
to adopt, amend or repeal the by-laws of the Corporation .
B. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the by-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders,
49
<PAGE>
of this Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths in value
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case maybe, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
EIGHTH. The Corporation eliminates the personal liability of each member
of its Board of Directors to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that the foregoing
shall not eliminate the liability of a director (i) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware
Code or (iv) for any transaction from which such director derived an improper
personal benefit.
NINTH. The Corporation reserves the right to amend or repeal any
provisions contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon a stockholder herein are granted subject to this reservation.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
50
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Amended and Restated Certificate of
Incorporation are true under the penalties of perjury this 19 day of July,
1999.
/s/ Mark F. O'Connell
-----------------------------
Mark F. O'Connell
President and
Chief Executive Officer
Attest:
/s/ Gordon H. Hayes, Jr.
- -----------------------------
Assistant Secretary
51
<PAGE>
EXHIBIT 3.2
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MATRIXONE, INC.
(Incorporated July 19, 1983 as Adra Systems, Inc.)
* * * * * *
I, Mark F. O'Connell, President and Chief Executive Officer of MatrixOne,
Inc. (the "Corporation"), a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, do hereby
certify that the Certificate of Incorporation of MatrixOne, Inc., as amended,
originally incorporated under the name Adra Systems, Inc., has been further
amended, and restated as amended, in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware, and, as
amended and restated, is set forth in its entirety as follows:
FIRST. The name of the Corporation is MatrixOne, Inc.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 105,000,000 shares, consisting
of 100,000,000 shares of Common Stock with a par value of $.01 per share (the
"Common Stock") and 5,000,000 shares of Preferred Stock with a par value of $.01
per share (the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions of the Preferred Stock and Common Stock are as
follows:
A. COMMON STOCK
------------
1. General. All shares of Common Stock will be identical and will entitle
-------
the holders thereof to the same rights, powers and privileges. The rights,
powers and privileges of the holders of the Common Stock are subject to and
qualified by the rights of holders of the Preferred Stock.
<PAGE>
-2-
2. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. Dissolution, Liquidation or Winding Up. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
4. Voting Rights. Except as otherwise required by law or this Second
-------------
Amended and Restated Certificate of Incorporation, each holder of Common Stock
shall have one vote in respect of each share of stock held of record by such
holder on the books of the Corporation for the election of directors and on all
matters submitted to a vote of stockholders of the Corporation. Except as
otherwise required by law or provided herein, holders of Common Stock shall vote
together with holders of the Preferred Stock as a single class, subject to any
special or preferential voting rights of any then outstanding Preferred Stock.
There shall be no cumulative voting.
B. PREFERRED STOCK
---------------
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors of
the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Second Amended and Restated Certificate of
Incorporation, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the undesignated Preferred Stock in one or more series,
each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions (a "Certificate of Designation") shall be filed in
accordance with the General Corporation Law of the State of Delaware. The
authority of the Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may be: (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (iv) convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock of the Corporation at such price or prices or at such rates
of exchange and with such adjustments, if any; (v) entitled to the benefit of
such limitations, if any, on the issuance of additional shares of such series or
shares of any other series of Preferred
<PAGE>
-3-
Stock; or (vi) entitled to such other preferences, powers, qualifications,
rights and privileges, all as the Board of Directors may deem advisable and as
are not inconsistent with law and the provisions of this Second Amended and
Restated Certificate of Incorporation.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and stockholders:
1. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors of the Corporation.
2. The Board of Directors of the Corporation is expressly authorized
to adopt, amend or repeal the By-laws of the Corporation, subject to any
limitation thereof contained in the By-laws. The stockholders shall also have
the power to adopt, amend or repeal the By-laws of the Corporation; provided,
--------
however, that, in addition to any vote of the holders of any class or series of
- -------
stock of the Corporation required by law or by this Second Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to adopt, amend or repeal any provision of the By-laws of the
Corporation.
3. Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting.
4. Special meetings of stockholders may be called at any time only by
the President, the Chairman of the Board of Directors (if any) or a majority of
the Board of Directors. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
5. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH.
1. Number of Directors. The number of directors which shall constitute
-------------------
the whole Board of Directors shall be determined by resolution of a majority of
the Board of Directors, but in no event shall the number of directors be less
than three. The number of directors may be decreased at any time and from time
to time by a majority of the directors then in office, but only to eliminate
vacancies existing by reason of the death, resignation, removal or expiration of
the term of one or more directors. The directors shall be elected at the annual
meeting of stockholders by such stockholders as have the right to vote on such
election. Directors need not be stockholders of the Corporation.
<PAGE>
-4-
2. Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class.
3. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending July 1, 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending June 30,
2001; and each initial director in Class III shall serve for a term ending on
the date of the annual meeting next following the end of the Corporation's
fiscal year ending June 29, 2002.
5. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as director of the class of which he or she is a
member until the expiration of such director's current term or his or her prior
death, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the
extent possible, consistent with the foregoing rule, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, though less than a quorum. No decrease in the number
of directors constituting the whole Board of Directors shall shorten the term of
an incumbent Director.
6. Tenure. Notwithstanding any provisions to the contrary contained
------
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
7. Vacancies. Unless and until filled by the stockholders, any vacancy in
---------
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board of Directors, may be filled only by vote of a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his or her predecessor in office, if applicable, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen and until his or her successor is elected and
qualified, or until his or her earlier death, resignation or removal.
8. Quorum. A majority of the total number of the whole Board of Directors
------
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the
<PAGE>
-5-
directors shall be disqualified to vote at any meeting, then the required quorum
shall be reduced by one for each such director so disqualified; provided,
however, that in no case shall less than one-third (1/3) of the number so fixed
constitute a quorum. In the absence of a quorum at any such meeting, a majority
of the directors present may adjourn the meeting from time to time without
further notice other than announcement at the meeting, until a quorum shall be
present.
9. Action at Meeting. At any meeting of the Board of Directors at which a
-----------------
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law or the
Corporation's By-laws.
10. Removal. Any one or more or all of the directors may be removed with
-------
cause only by the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the shares then entitled to vote at an election of directors. Directors may
not be removed without cause.
11. Stockholder Nominations and Introduction of Business, Etc. Advance
----------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided in the By-laws of the Corporation.
12. Rights of Preferred Stock. The provisions of this Article are subject
-------------------------
to the rights of the holders of any series of Preferred Stock from time to time
outstanding.
EIGHTH. No director (including any advisory director) of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability; provided, however, that, to the extent provided
by applicable law, this provision shall not eliminate the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.
No amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
NINTH. The Board of Directors of the Corporation, when evaluating any
offer of another party (a) to make a tender or exchange offer for any equity
security of the Corporation or (b) to effect a business combination, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation as whole, be authorized to give due consideration
to any such factors as the Board of Directors determines to be relevant,
including, without limitation:
(i) the interests of the Corporation's stockholders, including the
possibility that these interests might be best served by the continued
independence of the Corporation;
(ii) whether the proposed transaction might violate federal or state
laws;
<PAGE>
-6-
(iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Corporation, but also to the market price for the
capital stock of the Corporation over a period of years, the estimated price
that might be achieved in a negotiated sale of the Corporation as a whole or
in part or through orderly liquidation, the premiums over market price for
the securities of other corporations in similar transactions, current
political, economic and other factors bearing on securities prices and the
Corporation's financial condition and future prospects; and
(iv) the social, legal and economic effects upon employees, suppliers,
customers, creditors and others having similar relationships with the
Corporation, upon the communities in which the Corporation conducts its
business and upon the economy of the state, region and nation.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board of
Directors may determine.
TENTH. The Corporation reserves the right to amend or repeal any provision
contained in this Second Amended and Restated Certificate of Incorporation in
the manner prescribed by the laws of the State of Delaware and all rights
conferred upon stockholders are granted subject to this reservation, provided,
--------
however, that in addition to any vote of the holders of any class or series of
- -------
stock of the Corporation required by law, this Second Amended and Restated
Certificate of Incorporation or a Certificate of Designation with respect to a
series of Preferred Stock, the affirmative vote of the holders of shares of
voting stock of the Corporation representing at least sixty-six and two-thirds
percent (66 2/3%) of the voting power of all of the then outstanding shares of
the capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required to (i) reduce
or eliminate the number of authorized shares of Common Stock or the number of
authorized shares of Preferred Stock set forth in Article FOURTH or (ii) amend
or repeal, or adopt any provision inconsistent with, Parts A and B of Article
FOURTH and Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH and this Article TENTH
of this Second Amended and Restated Certificate of Incorporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-7-
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Second Amended and Restated Certificate
of Incorporation are true under the penalties of perjury this ____ day of ____,
2000.
______________________________
Name: Mark F. O'Connell
Title: President and Chief Executive Officer
Attest:
______________________________
Name: Gordon H. Hayes, Jr.
Title: Secretary
<PAGE>
EXHIBIT 3.3
Restated By-Laws of
MATRIXONE, INC.
_________________________
A Delaware Corporation
Dated: October 1, 1997
<PAGE>
Table of Contents
Page
----
ARTICLE I. Meetings of Stockholders
Section 1. Place of Meetings..............................................1
Section 2. Annual Meeting.................................................1
Section 3. Special Meetings...............................................1
Section 4. Notice of Meetings.............................................1
Section 5. Voting List....................................................2
Section 6. Quorum.........................................................2
Section 7. Adjournments...................................................2
Section 8. Action at Meetings.............................................2
Section 9. Voting and Proxies.............................................2
Section 10. Action Without Meeting........................................3
Article II. Directors
Section 1. Number, Election, Tenure and Qualification.....................3
Section 2. Enlargement....................................................3
Section 3. Vacancies......................................................3
Section 4. Resignation and Removal........................................3
Section 5. General Powers.................................................4
Section 6. Chairman of the Board..........................................4
Section 7. Place of Meetings..............................................4
Section 8. Regular Meetings...............................................4
Section 9. Special Meetings...............................................4
Section 10. Quorum, Action at Meeting, Adjournment........................4
Section 11. Action by Consent.............................................5
Section 12. Telephonic Meetings...........................................5
Section 13. Committees....................................................5
Section 14. Compensation..................................................6
Article III. Officers
Section 1. Enumeration....................................................6
Section 2. Election.......................................................6
Section 3. Tenure.........................................................6
Section 4. President......................................................7
Section 5. Vice-Presidents................................................7
Section 6. Secretary......................................................7
Section 7. Assistant Secretaries..........................................7
Section 8. Treasurer......................................................8
Section 9. Assistant Treasurers...........................................8
Section 10. Bond..........................................................8
-i-
<PAGE>
Article IV. Notices
Section 1. Delivery.......................................................8
Section 2. Waiver of Notice...............................................9
Article V. Indemnification
Section 1. Actions other than by or in the Right of the Corporation.......8
Section 2. Actions by or in the Right of the Corporation..................9
Section 3. Success on the Merits..........................................9
Section 4. Specific Authorization.........................................9
Section 5. Advance Payment................................................9
Section 6. Non-Exclusivity...............................................10
Section 7. Insurance.....................................................10
Section 8. Severability..................................................10
Section 9. Intent of Article.............................................10
Article VI. Capital Stock
Section 1. Certificates of Stock.........................................11
Section 2. Lost Certificates.............................................11
Section 3. Transfer of Stock.............................................11
Section 4. Record Date...................................................12
Section 5. Registered Stockholders.......................................12
Article VII. Certain Transactions
Section 1. Transactions with Interested Parties..........................12
Section 2. Quorum........................................................13
Article VIII. General Provisions
Section 1. Dividends.....................................................13
Section 2. Reserves......................................................13
Section 3. Checks........................................................13
Section 4. Fiscal Year...................................................13
Section 5. Seal..........................................................13
Article IX. Amendments
Addendum
Register of Amendments to the By-laws
-ii-
<PAGE>
MATRIXONE, INC.
* * * * * * *
BY-LAWS
* * * * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such place within or without the State of Delaware as may be fixed from
time to time by the board of directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
--------------
on the second Tuesday in October in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time by the board of
directors or the chief executive officer, at which meeting the stockholders
shall elect by a plurality vote a board of directors and shall transact such
other business as may properly be brought before the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient,
which meeting shall be designated a special meeting in lieu of annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for any
----------------
purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the board of directors or the chief
executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning 15% (fifteen percent) or more
of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
------------------
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
<PAGE>
Section 5. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or town where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these by-laws.
Section 7. Adjournments. Any meeting of stockholders may be adjourned from
------------
time to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote, though less than a
quorum, or, if no stockholder is present or represented by proxy, by any officer
entitled to preside at or to act as secretary of such meeting, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any meeting,
------------------
the vote of the holders of a majority of the stock present in person or
represented by proxy and entitled to vote on the question shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of law, the certificate of incorporation or these by-laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 9. Voting and Proxies. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
-2-
<PAGE>
Section 10. Action Without Meeting. Any action required to be taken at any
----------------------
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
------------------------------------------
directors which shall constitute the whole board shall not be less than one.
Within such limit, the number of directors shall be determined by resolution of
the board of directors or by the stockholders at the annual meeting or at any
special meeting of stockholders. The directors shall be elected at the annual
meeting or at any special meeting of the stockholders, except as provided in
Section 3 of this Article, and each director elected shall hold office until his
successor is elected and qualified, unless sooner displaced. Directors need not
be stockholders.
Section 2. Enlargement. The number of the board of directors may be
-----------
increased at any time by vote of a majority of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directors resulting from
---------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, by a sole remaining
director, or by the vote of the stockholders, and the directors so chosen shall
hold office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. In the event of a vacancy in the board of directors, the remaining
directors, except as otherwise provided by law or these by-laws, may exercise
the powers of the full board until the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any time
-----------------------
upon written notice to the corporation at its principal place of business or to
the chief executive officer or secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the corporation
--------------
shall be managed by its board of directors, which may exercise all powers of the
corporation and do all such lawful
-3-
<PAGE>
acts and things as are not by statute or by the certificate of incorporation or
by these by-laws directed or required to be exercised or done by the
stockholders.
Section 6. Chairman of the Board. If the board of directors appoints a
---------------------
chairman of the board, he shall, when present, preside at all meetings of the
stockholders and the board of directors. He shall perform such duties and
possess such powers as are customarily vested in the office of the chairman of
the board or as may be vested in him by the board of directors.
Section 7. Place of Meetings. The board of directors may hold meetings,
-----------------
both regular and special, either within or without the State of Delaware. The
directors shall meet, either by a regular or a special meeting, at least once
during each fiscal quarter.
Section 8. Regular Meetings. Regular meetings of the board of directors
----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the board of directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be called
----------------
by the chief executive officer, secretary, or on the written request of any one
or more directors. Two days' notice to each director, either personally or by
telegram, cable, telecopy, commercial delivery service, telex or similar means
sent to his business or home address, or three days' notice by written notice
deposited in the mail, shall be given to each director by the secretary or by
the officer or one of the directors calling the meeting. A notice or waiver of
notice of a meeting of the board of directors need not specify the purposes of
the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of the
---------------------------------------
board a majority of directors then in office, but in no event less than one
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these by-laws; provided, however, that if
less than all the number so fixed of directors were elected, the "entire board"
shall mean the greatest number of directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
-----------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
-4-
<PAGE>
Section 12. Telephonic Meetings. Unless otherwise restricted by the
-------------------
certificate of incorporation or these by-laws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution passed by
----------
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the board of
directors, shall have and may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the certificate of incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution designating such committee or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and make such reports to the board of
directors as the board of directors may request. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these by-laws for the conduct of its business by the board of
directors
Section 14. Compensation. Unless otherwise restricted by the certificate of
------------
incorporation or these by-laws, the board of director shall have the authority
to fix from time to time the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and the performance of their responsibilities as directors and may be
paid a fixed sum for attendance at each meeting of the board of directors and/or
a stated salary as director. No such payment shall preclude any director from
serving the corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The board of directors may also
allow compensation for members of special or standing committees for service on
such committees.
-5-
<PAGE>
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen by
-----------
the board of directors and shall be a president, a secretary and a treasurer and
such other officers with such titles, terms of office and duties as the board of
directors may from time to time determine, including a chairman of the board,
one or more vice-presidents, and one or more assistant secretaries and assistant
treasurers. If authorized by resolution of the board of directors, the chief
executive officer may be empowered to appoint from time to time assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. Election. The board of directors at its first meeting after
--------
each annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the corporation shall hold office until
------
their successors are chosen and qualify, unless a different term is specified in
the vote choosing or appointing him, or until his earlier death, resignation or
removal. Any officer elected or appointed by the board of directors or by the
chief executive officer may be removed at any time by the affirmative vote of a
majority of the board of directors or a committee duly authorized to do so,
except that any officer appointed by the chief executive officer may also be
removed at any time by the chief executive officer. Any vacancy occurring in any
office of the corporation may be filled by the board of directors, at its
discretion. Any officer may resign by delivering his written resignation to the
corporation at its principal place of business or to the chief executive officer
or the secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Section 4. President. The president shall be the chief operating officer
---------
of the corporation. He shall also be the chief executive officer unless the
board of directors otherwise provides. The president shall, unless the board of
directors provides otherwise in a specific instance or generally, preside at all
meetings of the stockholders and the board of directors, have general and active
management of the business of the corporation and see that all orders and
resolutions of the board of directors are carried into effect. The president
shall execute bonds, mortgages, and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other office or
agent of the corporation.
Section 5. Vice-Presidents. In the absence of the president or in the
---------------
event of his inability or refusal to act, the vice-presidents, or if there be
more than one vice-president, the vice-presidents in the order designated by the
board of directors or the chief executive officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be
-6-
<PAGE>
subject to all the restrictions upon the president. The vice-presidents shall
perform such other duties and have such other powers as the board of directors
or the chief executive officer may from time to time prescribe.
Section 6. Secretary. The secretary shall have such powers and perform
---------
such duties as are incident to the office of secretary. He shall maintain a
stock ledger and prepare lists of stockholders and their addresses as required
and shall be the custodian of corporate records. The secretary shall attend all
meetings of the board of directors and all meetings of the stockholders and
record all the proceedings of the meetings of the corporation and of the board
of directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be from time to time
prescribed by the board of directors or chief executive officer, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 7. Assistant Secretaries. The assistant secretary, or if there be
---------------------
more than one, the assistant secretaries in the order determined by the board of
directors, the chief executive officer or the secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors,
the chief executive officer or the secretary may from time to time prescribe. In
the absence of the secretary or any assistant secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary or acting secretary to keep a record of the meeting.
Section 8. Treasurer. The treasurer shall perform such duties and shall
---------
have such powers as may be assigned to him by the board of directors or the
chief executive officer. In addition, the treasurer shall perform such duties
and have such powers as are incident to the office of treasurer. The treasurer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chief executive officer and the board of
directors, when the cheif executive officer or board of directors so requires,
an account of all his transactions as treasurer and of the financial condition
of the corporation.
Section 9. Assistant Treasurers. The assistant treasurer, or if there
--------------------
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the chief executive officer or the treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the treasurer or in the event of his inability or
refusal to
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<PAGE>
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors,
the chief executive officer or the treasurer may from time to time prescribe.
Section 10. Bond. If required by the board of directors, any officer shall
----
give the corporation a bond in such sum and with such surety or sureties and
upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
--------
certificate of incorporation or these by-laws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Unless written notice by mail is required by law, written notice
may also be given by telegram, cable, telecopy, commercial delivery service,
telex or similar means, addressed to such director or stockholder at his address
as it appears on the records of the corporation, in which case such notice shall
be deemed to be given when delivered into the control of the persons charged
with effecting such transmission, the transmission charge to be paid by the
corporation or the person sending such notice and not by the addressee. Oral
notice or other in-hand delivery (in person or by telephone) shall be deemed
given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be given
----------------
under the provisions of law or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation. The
--------------------------------------------------------
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and
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<PAGE>
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in the manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceedings, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. Actions by or in the Right of the Corporation. The corporation
---------------------------------------------
shall indemnity any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
Section 3. Success on the Merits. To the extent that any person described
---------------------
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section 1 or
----------------------
2 of this Article V (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Sections. Such determination shall be made (1) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or even
if obtainable a quorum of disinterested directors so directors, by independent
legal counsel in a written opinion, or (3) by the stockholders of the
corporation.
Section 5. Advance Payment. Expenses incurred in defending a civil or
---------------
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of
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<PAGE>
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of any person described in said Section to repay such amount if it shall
ultimately be determined that he is not entitled to indemnification by the
corporation as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification and advancement of
---------------
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which those provided
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 7. Insurance. The board of directors may authorize, by a vote of
---------
the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
Section 8. Continuation of Indemnification and Advancement of Expenses.
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 9. Severability. If any word, clause or provision of this Article
------------
V or any award made hereunder shall for any reason be determined to be invalid,
the provisions hereof shall not otherwise be affected thereby but shall remain
in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to provide
-----------------
for indemnification and advancement of expenses to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware. To the extent that
such Section or any successor section may be amended or supplemented from time
to time, this Article V shall be amended automatically and construed so as to
permit indemnification and advancement of expenses to the fullest extent from
time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the corporation
---------------------
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice-chairman of the board of directors, or the
president or a vice-president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation. Any or all of the signatures
on the certificate
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<PAGE>
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Certificates may be issued for partly paid shares and in such case upon the face
or back of the certificates issued to represent any such partly paid shares, the
total amount of the consideration to be paid therefor, and the amount paid
thereon shall be specified.
Section 2. Lost Certificates. The board of directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give
reasonable evidence of such loss, theft or destruction, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the corporation or the
-----------------
transfer agent of the corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Record Date. In order that the corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty day nor less then ten days before the date of
such meeting, nor more than sixty day prior to any other action to which such
record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting. If no record date is fixed, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day before the day on
which notice is given, or, if notice is waived, at the close of business on the
day before the day on which the meeting is held. The record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the board of directors is necessary, shall be
the day on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating to
such purpose.
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<PAGE>
Section 5. Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
------------------------------------
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof
which authorizes the contract or transaction or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors,
a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be counted in
------
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
---------
if any, may be declared by the board of directors at any regular or special
meeting or by written consent, pursuant to law. Dividends may be paid in cash,
in property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
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<PAGE>
Section 2. Reserves. The directors may set apart out of any funds of the
--------
corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed
-----------
by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution, adopt a
----
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
ARTICLE IX
AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such meeting.
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<PAGE>
Register of Amendments to the Restated By-laws
Date Section Affected Change
- --------------------------------------------------------------------------------
-14-
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
MATRIXONE, INC.
___________________________________
A Delaware Corporation
Dated: ___________, 2000
<PAGE>
BY-LAWS
-------
TABLE OF CONTENTS
-----------------
Page
ARTICLE 1 - Stockholders.................................................... 1
Section 1.1 Place of Meetings........................................ 1
Section 1.2 Annual Meeting........................................... 1
Section 1.3 Special Meetings......................................... 1
Section 1.4 Notice of Meetings....................................... 1
Section 1.5 Voting List.............................................. 1
Section 1.6 Quorum................................................... 2
Section 1.7 Adjournments............................................. 2
Section 1.8 Voting and Proxies....................................... 2
Section 1.9 Action at Meeting........................................ 3
Section 1.10 Introduction of Business at Meeting...................... 3
Section 1.11 Action without Meeting................................... 5
ARTICLE 2 - Directors....................................................... 6
Section 2.1 General Powers........................................... 6
Section 2.2 Number; Election and Qualification....................... 6
Section 2.3 Classes of Directors..................................... 7
Section 2.4 Terms in Office.......................................... 7
Section 2.5 Allocation of Directors Among Classes in the Event
of Increases or Decreases in the Number of Directors..... 7
Section 2.6 Tenure................................................... 7
Section 2.7 Vacancies................................................ 7
Section 2.8 Resignation.............................................. 7
Section 2.9 Regular Meetings......................................... 8
Section 2.10 Special Meetings......................................... 8
Section 2.11 Notice of Special Meetings............................... 8
Section 2.12 Meetings by Telephone Conference Calls................... 8
Section 2.13 Quorum................................................... 8
Section 2.14 Action at Meeting........................................ 8
Section 2.15 Action by Written Consent................................ 8
Section 2.16 Removal.................................................. 9
Section 2.17 Committees............................................... 9
Section 2.18 Compensation of Directors................................ 9
Section 2.19 Amendments to Article.................................... 9
<PAGE>
-ii-
ARTICLE 3 - Officers........................................................ 9
Section 3.1 Enumeration.............................................. 10
Section 3.2 Election................................................. 10
Section 3.3 Qualification............................................ 10
Section 3.4 Tenure................................................... 10
Section 3.5 Resignation and Removal.................................. 10
Section 3.6 Vacancies................................................ 10
Section 3.7 Chairman of the Board and Vice-Chairman of the Board..... 10
Section 3.8 President................................................ 11
Section 3.9 Vice Presidents.......................................... 11
Section 3.10 Secretary and Assistant Secretaries...................... 11
Section 3.11 Treasurer and Assistant Treasurers....................... 12
Section 3.12 Salaries................................................. 12
Section 3.13 Action with Respect to Securities of Other Corporations.. 12
ARTICLE 4 - Capital Stock................................................... 12
Section 4.1 Issuance of Stock........................................ 12
Section 4.2 Certificates of Stock.................................... 12
Section 4.3 Transfers................................................ 13
Section 4.4 Lost, Stolen or Destroyed Certificates................... 13
Section 4.5 Record Date.............................................. 13
ARTICLE 5 - General Provisions.............................................. 14
Section 5.1 Fiscal Year.............................................. 14
Section 5.2 Corporate Seal........................................... 14
Section 5.3 Notices.................................................. 14
Section 5.4 Waiver of Notice......................................... 14
Section 5.5 Evidence of Authority.................................... 14
Section 5.6 Facsimile Signatures..................................... 14
Section 5.7 Reliance upon Books, Reports and Records................. 14
Section 5.8 Time Periods............................................. 14
Section 5.9 Certificate of Incorporation............................. 15
Section 5.10 Transactions with Interested Parties..................... 15
Section 5.11 Severability............................................. 15
Section 5.12 Pronouns................................................. 15
ARTICLE 6 - Amendments...................................................... 15
Section 6.1 By the Board of Directors................................ 15
Section 6.2 By the Stockholders...................................... 16
ARTICLE 7 - Indemnification................................................. 16
<PAGE>
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Section 7.1 Actions Other Than by or in the Right of the
Corporation.............................................. 16
Section 7.2 Actions by or in the Right of the Corporation............ 16
Section 7.3 Success on the Merits..................................... 17
Section 7.4 Authorization............................................. 17
Section 7.5 Expense Advance........................................... 17
Section 7.6 Nonexclusivity............................................ 17
Section 7.7 Insurance................................................. 17
Section 7.8 "The Corporation"......................................... 18
Section 7.9 Other Indemnification..................................... 18
Section 7.10 Other Definitions......................................... 18
Section 7.11 Continuation of Indemnification........................... 18
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MATRIXONE, INC. (the "Corporation")
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Chairman of the Board (if any), the board of directors of
the Corporation (the "Board of Directors") or the President or, if not so
designated, at the registered office of the Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Chairman of the Board (if any), the Board of Directors or the President
(which date shall not be a legal holiday in the place where the meeting is to be
held) at the time and place to be fixed by the Chairman of the Board, the Board
of Directors or the President and stated in the notice of the meeting.
1.3 Special Meetings. Special meetings of stockholders may be called
----------------
at any time only by the Chairman of the Board (if any), a majority of the Board
of Directors or the President and shall be held at such place, on such date and
at such time as shall be fixed by the Board of Directors or the person calling
the meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date ot
the meeting to each stockholder entitled to vote at such meeting. The notices of
all meetings shall state the place, date and hour of the meeting. The notice of
a special meeting shall state, in addition the purpose or purposes for which the
meeting is called. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his or her address
as it appears on the records of the Corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
Corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the metropolitan
area of the city where the meeting is to be held, which place shall be specified
in the notice of the
<PAGE>
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meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and may be inspected by any stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these Amended and Restated By-Laws, as amended from time to
time (the "By-Laws") the holders of a majority of the shares of the capital
stock of the Corporation issued and outstanding and entitled to vote at the
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. Shares held by brokers which such brokers are
prohibited from voting (pursuant to their discretionary authority on behalf of
beneficial owners of such shares who have not submitted a proxy with respect to
such shares) on some or all of the matters before the stockholders, but which
shares would otherwise be entitled to vote at the meeting ("Broker Non-Votes")
shall be counted, for the purpose of determining the presence or absence of a
quorum, both (a) toward the total voting power of the shares of capital stock of
the Corporation and (b) as being represented by proxy. If a quorum has been
established for the purpose of conducting the meeting, a quorum shall be deemed
to be present for the purpose of all votes to be conducted at such meeting,
provided that where a separate vote by a class or classes, or series thereof, is
required, a majority of the voting power of the shares of such class or classes,
or series, present in person or represented by proxy shall constitute a quorum
entitled to take action with respect to that vote on that matter. If a quorum
shall fail to attend any meeting, the chairman of the meeting or the holders of
a majority of the voting power of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the Corporation may transact any business that might have
been transacted at the original meeting.
1.8 Voting and Proxies. At any meeting of the stockholders, each
------------------
stockholder shall have one vote for each share of stock entitled to vote at such
meeting held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting (to the extent not otherwise prohibited by the Certificate of
Incorporation or these By-laws), may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for such
stockholder by written proxy executed by such stockholder or his or her
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the Corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section 1.8
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used,
<PAGE>
-3-
provided that such copy, facsimile telecommunication or reproduction shall be a
complete reproduction of the entire original writing or transmission.
In the election of directors, voting shall be by written ballot, and
for any other action, voting need not be by ballot.
The Corporation may, and to the extent required by law or the
Certificate of Incorporation, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at such meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
such meeting may, and to the extent required by law or the Certificate of
Incorporation, shall, appoint one or more inspectors to act at such meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
1.9 Action at Meeting. When a quorum is present at any meeting of
-----------------
stockholders, the holders of a majority of the stock present or represented and
voting on a matter (or if there are two or more classes of stock entitled to
vote as separate classes, then in the case of each such class, the holders of a
majority of the stock of that class present or represented and voting on such
matter) shall decide any matter to be voted upon by the stockholders at such
meeting (other than the election of directors), except when a different vote is
required by express provision of law, the Certificate of Incorporation or these
By-Laws. Any election of directors by the stockholders shall be determined by a
plurality of the votes cast by the stockholders entitled to vote at such
election, except as otherwise provided by the Certificate of Incorporation. For
the purposes of this paragraph, Broker Non-Votes represented at the meeting but
not permitted to vote on a particular matter shall not be counted, with respect
to the vote on such matter, in the number of (a) votes cast, (b) votes cast
affirmatively, or (c) votes cast negatively.
1.10 Introduction of Business at Meetings.
------------------------------------
A. Annual Meetings of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of
notice provided for in this Section 1.10, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in
this Section 1.10.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause
(c) of paragraph (A)(1) of this Section 1.10, the stockholder must
have given timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a proper matter
for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the one hundred
<PAGE>
-4-
twentieth (120th) day nor earlier than the close of business on the
one hundred fiftieth (150th) day prior to the first anniversary of
the date of the proxy statement delivered to stockholders in
connection with the preceding year's annual meeting; provided,
however, that if either (i) the date of the annual meeting is more
than thirty (30) days before or more than sixty (60) days after the
first anniversary date of the preceding year's annual meeting or (ii)
no proxy statement was delivered to stockholders in connection with
the preceding year's annual meeting, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on
the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day
prior to such annual meeting or the close of business on the tenth
(10th) day following the day on which public announcement of the date
of such meeting is first made by the Corporation. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b)
as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner
and (ii) the class and number of shares of capital stock of the
Corporation that are owned beneficially and held of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 1.10 to the contrary, in the event
that the number of directors to be elected to the Board of Directors
of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding
year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary
date, at least seventy (70) days prior to such annual meeting), a
stockholder's notice required by this Section 1.10 shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive office of the Corporation not
later than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
B. Special Meetings of Stockholders. Only such business shall
--------------------------------
be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board
<PAGE>
-5-
of Directors has determined that directors shall be elected at such
meeting, by any stockholder of the Corporation who is a stockholder
of record at the time of giving of notice of the special meeting, who
shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 1.10. If the Corporation
calls a special meeting of stockholders for the purpose of electing
one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (A)(2) of
this Section 1.10 shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the
ninetieth (90th) day prior to such special meeting nor later than the
later of (x) the close of business on the sixtieth (60th) day prior
to such special meeting or (y) the close of business on the tenth
(10th) day following the day on which public announcement is first
made of the date of such special meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting.
C. General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.10 shall be eligible to serve
as directors and only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 1.10. Except
as otherwise provided by law, the Certificate of Incorporation or
these By-Laws, the chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be,
in accordance with the procedures set forth in this Section 1.10 and,
if any proposed nomination or business is not in compliance herewith,
to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Section 1.10, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press, PR Newswire, Reuters or comparable
national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 1.10, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth herein. Nothing in
this Section 1.10 shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii)
of the holders of any series of Preferred Stock to elect directors
under specified circumstances.
1.11 Action without Meeting. Stockholders of the Corporation may not
----------------------
take any action by written consent in lieu of a meeting. Notwithstanding any
other provision of law, the Certificate of Incorporation or these By-Laws, and
notwithstanding the fact that a lesser percentage may be specified
<PAGE>
-6-
by law, the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the votes which all the stockholders would be entitled to
cast at any annual election of directors or class of directors shall be required
to amend or repeal, or to adopt any provision inconsistent with, this Section
1.11.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the Corporation shall
--------------
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the Corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled. Without limiting the foregoing, the Board
of Directors may:
(a) declare dividends from time to time in accordance with law;
(b) purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(c) authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, to borrow funds and guarantee
obligations, and to do all things necessary in connection therewith;
(d) remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(e) confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(f) adopt from time to time such stock option, stock purchase, bonus
or other compensation plans for directors, officers, employees,
consultants and agents of the Corporation and its subsidiaries as it may
determine;
(g) adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees, consultants and agents
of the Corporation and its subsidiaries as it may determine; and
(h) adopt from time to time regulations, not inconsistent herewith,
for the management of the Corporation's business and affairs.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death,
<PAGE>
-7-
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders (or, if so
determined by the Board of Directors pursuant to Section 10 hereof, at a special
meeting of stockholders), by such stockholders as have the right to vote on such
election. Directors need not be stockholders of the Corporation.
2.3 Classes of Directors. The Board of Directors shall be and is
--------------------
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class.
2.4 Terms in Office. Each director shall serve for a term ending on
---------------
the date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending July 1, 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending June 30,
2001; and each initial director in Class III shall serve for a term ending on
the date of the annual meeting next following the end of the Corporation's
fiscal year ending June 29, 2002.
2.5 Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member until the expiration of such director's current term or his or her prior
death, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors, subject to the
second sentence of Section 2.3. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. No decrease in the number of directors constituting the whole Board of
Directors shall shorten the term of an incumbent Director.
2.6 Tenure. Notwithstanding any provisions to the contrary contained
------
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.7 Vacancies. Unless and until filled by the stockholders, any
---------
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement thereof, may be filled by vote of a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his or her predecessor in office, if any, and a director
chosen to fill a position resulting from an increase in the number of directors
shall hold office until the next election of directors of the class for which
such director was chosen and until his or her successor is elected and
qualified, or until his or her earlier death, resignation or removal.
2.8 Resignation. Any director may resign by delivering his or her
-----------
written resignation to the Corporation at its principal office or to the
President or Secretary. Such resignation shall be effective
<PAGE>
-8-
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
2.9 Regular Meetings. Regular meetings of the Board of Directors may
----------------
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination is
made shall be given notice of the determination.
2.10 Special Meetings. Special meetings of the Board of Directors may
----------------
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board (if any), the President, two
or more directors, or by one director in the event that there is only a single
director in office.
2.11 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least forty-eight (48) hours in advance of the meeting, (ii) by sending a
telegram or delivering written notice by facsimile transmission or by hand, to
his or her last known business or home address at least forty-eight (48) hours
in advance of the meeting, or (iii) by mailing written notice to his or her last
known business or home address at least seventy-two (72) hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.12 Meetings by Telephone Conference Calls. Directors or any members
--------------------------------------
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall be deemed to constitute presence in person at such meeting.
2.13 Quorum. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the total number of the whole Board of Directors constitute a quorum.
In the absence of a quorum at any such meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be present.
2.14 Action at Meeting. At any meeting of the Board of Directors at
-----------------
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.15 Action by Written Consent. Any action required or permitted to be
-------------------------
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to such action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
<PAGE>
-9-
2.16 Removal. Unless otherwise provided in the Certificate of
-------
Incorporation, any one or more or all of the directors may be removed with cause
only by the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the shares then entitled to vote at an election of directors. Directors may not
be removed without cause.
2.17 Committees. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at such meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine or as provided herein, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors. Adequate provisions shall be made for notice to members of all
meeting of committees. One-third (1/3) of the members of any committee shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
2.18 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.19 Amendments to Article. Notwithstanding any other provisions of
---------------------
law, the Certificate of Incorporation or these By-Laws, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote of
the holders of a least sixty-six and two-thirds percent (66-2/3%) of the votes
which all the stockholders would be entitled to cast at any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article 2.
<PAGE>
-10-
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the Corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including, but not limited to,
a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing such officer, or until his or her earlier death,
resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
or her written resignation to the Chairman of the Board (if any), to the Board
of Directors at a meeting thereof, to the Corporation at its principal office or
to the President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his or her resignation or removal, or any right to
damages on account of such removal, whether his or her compensation be by the
month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the Corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring
---------
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Chairman
----------------------------------------------------
of the Board, if any, shall preside at all meetings of the Board of Directors
and stockholders at which he or she is present and shall perform such duties and
possess such powers as are designated by the Board of
<PAGE>
-11-
Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he
or she shall, in the absence or disability of the Chairman of the Board, perform
the duties and exercise the powers of the Chairman of the Board and shall
perform such other duties and possess such other powers as may from time to time
be designated by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
---------
Board of Directors, have general charge and supervision of the business of the
Corporation. Unless otherwise provided by the Board of Directors, and provided
that there is no Chairman of the Board or that the Chairman and Vice-Chairman,
if any, are not available, the President shall preside at all meetings of the
stockholders, and, if a director, at all meetings of the Board of Directors.
Unless the Board of Directors has designated another officer as the Chief
Executive Officer, the President shall be the Chief Executive Officer of the
Corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe. The
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and, when so performing, shall have all the powers of
and be subject to all the restrictions upon the President. The Board of
Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors. Unless otherwise determined by the Board of Directors, any Vice
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
-----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
<PAGE>
-12-
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit funds of
the Corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts for such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
Corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the Corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13 Action with Respect to Securities of Other Corporations. Unless
-------------------------------------------------------
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President, shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any issued, authorized capital stock of the
Corporation held in its treasury may be issued, sold, transferred or otherwise
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the Corporation
---------------------
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by such stockholder in the Corporation. Each such certificate shall be
signed by, or in the name of the Corporation by, the Chairman or Vice-Chairman,
if any, of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation. Any or all of the signatures on such certificate may be a
facsimile.
<PAGE>
-13-
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the By-
Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the Corporation shall have conspicuously
noted on the face or back of such certificate either the full text of such
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
---------
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the Corporation by the
surrender to the Corporation or its transfer agent of the certificate
representing such shares, properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the Corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue
--------------------------------------
a new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the
President may require for the protection of the Corporation or any transfer
agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or, to the extent permitted by the
Certificate of Incorporation and these By-laws, to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action. Such record date shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other action
to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting (to the
extent permitted by the Certificate of Incorporation and these By-laws) when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
<PAGE>
-14-
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
5.1 Fiscal Year. The fiscal year of the Corporation shall be fixed by
-----------
resolution of the Board of Directors.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
--------------
be approved by the Board of Directors.
5.3 Notices. Except as otherwise specifically provided herein or
-------
required by law or the Certificate of Incorporation, all notices required to be
given to any person pursuant to these by-laws shall be in writing and may in
every instance be effectively given by hand delivery to the recipient thereof,
by depositing such notice in the mails, postage paid, or by sending such notice
by prepaid telegram or facsimile transmission. Any such notice shall be
addressed to such person at his or her last known address as the same appears on
the books of the Corporation. The time when such notice is received shall be
deemed to be the time of the giving of the notice.
5.4 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, facsimile transmission
or any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
Corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of such action.
5.6 Facsimile Signatures. In addition to the provisions for use of
--------------------
facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
5.7 Reliance upon Books, Reports and Records. Each director, each
----------------------------------------
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees or committees
of the Board of Directors so designated, or by any other person as to matters
which such director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
<PAGE>
-15-
5.8 Time Periods. In applying any provision of these By-Laws that
------------
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
5.9 Certificate of Incorporation. All references in these By-Laws to
----------------------------
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
5.10 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because such director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.11 Severability. Any determination that any provision of these By-
------------
Laws is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.12 Pronouns. All pronouns used in these By-Laws shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the persons or persons so designated may require.
ARTICLE 6 - Amendments
----------------------
<PAGE>
-16-
6.1 By the Board of Directors. Except as is otherwise set forth in
-------------------------
these By-Laws, these By-Laws may be altered, amended or repealed, or new by-laws
may be adopted, by the affirmative vote of a majority of the directors present
at any regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 By the Stockholders. Except as otherwise set forth in these By-
-------------------
Laws, these By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of sixty-six and two-thirds
percent (66-2/3%) of the shares of the capital stock of the Corporation issued
and outstanding and entitled to vote at any regular meeting of stockholders, or
at any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
ARTICLE 7 - Indemnification
---------------------------
7.1 Actions Other Than by or in the Right of the Corporation. The
--------------------------------------------------------
Corporation shall indemnify and hold harmless, to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, any person
who was or is a party or is threatened to be made a party or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that such person,
or a person for whom such person is the legal representative, is or was a
director, trustee, partner, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise or non-profit entity, against all liability, losses, expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
7.2 Actions by or in the Right of the Corporation. The Corporation
---------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, trustee, partner, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or non-profit entity against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the
<PAGE>
-17-
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all the circumstances of the case, such person fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
7.3 Success on the Merits. To the extent that any person referred to
---------------------
in Sections 7.1 or 7.2 has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to therein, or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
7.4. Authorization. Any indemnification under Sections 7.1, 7.2 or 7.3
-------------
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, partner, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections 7.1
and 7.2. Such determination shall be made: (a) by the Board of Directors, by a
majority vote of directors who are not parties to such action, suit or
proceeding (whether or not a quorum), or (b) if there are no disinterested
directors or if a majority of disinterested directors so directs, by independent
legal counsel (who may be regular legal counsel to the corporation) in a written
opinion, or (c) by the stockholders.
7.5 Expense Advance. Expenses (including attorneys' fees) incurred by
---------------
an officer or director of the Corporation in defending any pending or threatened
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the manner
provided in Section 7.4 of this Article upon receipt of an undertaking by or on
behalf of such officer or director to repay such amount, if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees) incurred
by other employees or agents of the Corporation may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
7.6 Nonexclusivity. The indemnification and advancement of expenses
--------------
provided by, or granted pursuant to, the other Sections of this Article shall
not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
7.7 Insurance. The Corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, partner, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or
non-profit entity against any liability asserted against and incurred by such
person in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify such person
against
<PAGE>
-18-
such liability under the provisions of this Article or Section 145 of the
Delaware General Corporation Law.
7.8 "The Corporation". For the purposes of this Article, references to
-----------------
"the Corporation" shall include the resulting corporation and, to the extent
that the Board of Directors of the resulting corporation so decides, all
constituent corporations (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents so that any person who is or was a director, officer,
employee or agent of such a constituent corporation or is or was serving at the
request of such constituent corporation as director, trustee, partner, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise or non-profit entity shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
7.9 Other Indemnification. The Corporation's obligation, if any, to
---------------------
indemnify any person who was or is serving at its request as a director,
trustee, partner, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or non-profit entity shall
be reduced by any amount such person may collect as indemnification from such
other corporation, partnership, joint venture, trust or other enterprise or non-
profit entity or from insurance.
7.10 Other Definitions. For purposes of this Article, references to
-----------------
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, trustee, officer, employee or agent of
the Corporation which imposes duties on, or involves services by, such director,
trustee, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
7.11 Continuation of Indemnification. The indemnification and
-------------------------------
advancement of expenses provided by, or granted pursuant to, this Article shall,
unless otherwise provided when authorized or ratified, continue as a person who
has ceased to be a director, trustee, partner, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
--------------------
1987 STOCK OPTION PLAN
----------------------
1. Purpose. This 1987 Stock Option Plan (the "Plan") is intended to
-------
provide incentives (a) to the officers and other employees of MatrixOne, Inc.
(formerly Adra Systems, Inc. and herein referred to as the "Company"), its
parent (if any) and any present or future subsidiaries of the Company
(collectively, "Related Corporations") by providing them with opportunities to
purchase stock in the Company pursuant to options which qualify as "incentive
stock options" under Section 422A(b) of the Internal Revenue Code of 1986 (the
"Code"), granted hereunder ("ISO" or "ISOs"), and (b) to directors, officers,
employees and consultants of the Company and Related Corporations by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which do not qualify as ISOs ("Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options."
As used herein, the terms "parent" and "subsidiary" mean "parent corporation"
and "subsidiary corporation" as those terms are defined in Section 425 of the
Code.
2. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may appoint a Stock Plan Committee (the
"Committee") of three or more of its members to administer this Plan; provided
that, until such time as the Company registers any class of any equity security
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, the
Board may appoint a Committee of two or more of its members to administer this
Plan. No member of the Committee, while a member or for a period of one year
prior to the date he becomes a member, shall be eligible to participate in this
Plan or in any other stock option or stock plan of the Company or nay of its
affiliates. Subject to ratification of the grant of each Option by the Board (if
so required by applicable state law), and subject to the terms of the Plan, the
Committee, if so appointed, shall have the authority to (i) determine the
employees of the Company and Related Corporations (from among the class of
employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options) to whom Non-
Qualified Options may be granted; (ii) determine the time or times at which
Options may be granted; (iii) determine the option price of shares subject to
each Option, which price (with respect to ISOs) shall not be less than the
minimum price specified in paragraph 6; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become exercisable and the
duration of the exercise period; (vi) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, and the
nature of such
<PAGE>
restrictions, if any, and (vii) interpret the Plan and prescribe and rescind
rules and regulations relating to it. If the Committee determines to issue a
Non-Qualified Option, it shall take whatever actions it deems necessary, under
Section 422A of the Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. The interpretation and construction
by the Committee of any provisions of the Plan or of any Option granted under it
shall be final unless otherwise determined by the Board. The Committee may from
time to time adopt such rules and regulations for carrying out the Plan as it
may deem best. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
(b) The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a majority
of the Committee, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be the valid acts of the Committee. All
references in this Plan to the Committee shall mean the Board if no Committee
has been appointed. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(c) Notwithstanding the provisions of paragraph 2(a), Options may be
granted to members of the Board, but no Option shall be granted to any person
who is, at the time of the proposed grant, a member of the Board, unless such
grant has been approved by a majority vote of the other members of the Board.
All grants of Options to members of the Board shall in all other respects be
made in accordance with the provisions of this Plan applicable to other eligible
persons. Members of the Board who are either (i) eligible for Options pursuant
to the Plan or (ii) have been granted Options may vote on any matters affecting
the administration of the Plan or the grant of any Options pursuant to the Plan,
except that no such member shall act upon the granting to himself of Options but
any such member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the granting
to him of Options.
(d) Notwithstanding any other provision of this paragraph 2, in the event
the Company registers any class of any equity security pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grants
to directors of Options made at any time from the effective date of such
registration until six months after the determination of such registration shall
be made only by the Board; provided, however, that if a majority of the Board is
eligible to participate in the Plan or in any other stock option or other stock
plan of the Company or any of its affiliates, or has been so eligible at any
time within the preceding year, any grant to directors of Options must be made
by, or only in accordance with the recommendation of, a Committee consisting of
three or more persons, who may but need not be directors or employees of the
Company, appointed by the Board but having full authority to act in the
-2-
<PAGE>
matter, none of whom is eligible to participate in this Plan or any other stock
option or other stock plan of the Company or any of its affiliates, or has been
eligible at any time within the preceding year. The requirements imposed by the
preceding sentence shall also apply with respect to grants to officers who are
not also directors. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board.
3. Eligible Employees and Others. ISOs may be granted to any officer or
-----------------------------
other employee of the Company or any Related Corporation. Those officers and
directors of the Company who are not employees may not be granted ISOs under the
Plan. Non-Qualified Options may be granted to any directors (whether or not an
employee), officer, employee or consultant of the Company or any Related
Corporation. The Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO or a Non-Qualified Option.
Granting of any Option to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him from, participation in any other
grant of Options.
4. Stock. The stock subject to Options shall be authorized but unissued
-----
shares of Class A Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 950,000, subject to adjustment as provided in paragraph 13. Any such shares
may be issued as ISOs or Non-Qualified Options, so long as the number of shares
so issued does not exceed such number, as adjusted. If any Option granted under
the Plan shall expire or terminate for any reason without having been exercised
in full or shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject to such Options shall again by available for grants
of Options under the Plan.
5. Granting of Options. Options may be granted under the Plan at any time
-------------------
on or after February 11, 1987 and on or before February 10, 1997. The date of
grant of an Option under the Plan will be the date specified by the Committee at
the time it grants the Option; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16.
6. Minimum Option Price; ISO Limitations.
-------------------------------------
(a) The price per share specified in the agreement relating to each
Non-Qualified Option granted under the Plan shall in no event be less than the
lesser of (i) the book value per share of Common Stock as of the end of the
fiscal year of the Company immediately preceding the date of such grant, or (ii)
50 percent of the fair market value per share of Common Stock on the date of
such grant.
(b) The price per share specified in the agreement relating to each ISO
granted under the Plan shall not be less than the fair market value per share of
Common Stock on
-3-
<PAGE>
the date of such grant. In the case of an ISO to be granted to an employee
owning stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the price per
share specified in the agreement relating to such ISO shall not be less than 100
percent of the fair market value of Common Stock on the date of grant.
(c) In no event shall the aggregate fair market value (determined at the
time the option is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000.
(d) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common stock is traded, if
such Stock is then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the NASDAQ National
Market List, if the Common Stock is not then traded on a national securities
exchange and is then reported on such list; or (iii) the Closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is not then traded
on a national securities exchange and is not reported on the NASDAQ National
Market List. However, if the Common stock is not publicly traded at the time an
Option is granted under the Plan. "fair market value' shall be deemed to be the
fair market value of the Common stock as determined by the Committee after
taking into consideration all factors which it deems appropriate , including,
without limitation, recent sale and offer prices of the Common stock in private
transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years from the date of grant in the case of
ISOs generally, and (ii) five years from the date of grant in the case of ISOs
granted to an employee owning stock possessing more then ten percent of the
total combined voting power of all classes of stock of the Company or any
Related Corporation. Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified option pursuant to Paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date of grant
or shall become exercisable thereafter in such installments as the Committee may
specify.
-4-
<PAGE>
(b) Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
(c) Each Option or installment may be exercised at any time or from
time to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable.
(d) The Committee shall have the right to accelerate the date of
exercise of any installments of any Option; provided that the committee shall
not accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and installment of any Option granted to any employee as an
ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 16) if such acceleration would violate the annual vesting limitation
contained in Section 422A(b)(7) of the Code, as described in paragraph 6(C).
Notwithstanding the immediately preceding sentence, upon the
occurrence of a Change in Control (as hereinafter defined) of the
Company, the Committee shall have the right to accelerate the date
that any installment of any Option becomes exercisable without regard
to the annual vesting limitation contained in Section 422(d) of the
Code. The Committee shall also have the discretion to include or
exclude automatic acceleration-of-vesting provisions within stock
option agreements issued hereunder from time to time based on such
criteria as the Committee, in its sole discretion, may determine. For
purposes of this Plan and any Options granted hereunder, a "Change in
Control" shall have occurred if at any time any of the following
events shall occur (expressly excluding from this definition any
issuance of securities by the Company in an underwritten, firm
commitment public offering registered under the Securities Act of
1933, as amended):
(i) the Company is merged or consolidated or reorganized into
or with another corporation or other legal person, and as a result of
such merger, consolidation or reorganization less than a majority of
the combined voting power of the then-outstanding securities of such
surviving, resulting or reorganized corporation or person immediately
after such transaction is held in the aggregate by the holders of the
then-outstanding securities entitled to vote generally in the election
of directors of the Company ("Voting Stock") immediately prior to such
transaction;
(ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other
legal, and as a result of such sale or transfer less than a majority
of the combined voting power of the then-outstanding securities of
such corporation or person immediately
-5-
<PAGE>
after such sale or transfer is held in the aggregate by the holders of
the Voting Stock of the Company immediately prior to such sale or
transfer;
(iii) there is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated
pursuant to the Exchange Act, disclosing that any "person" (as such
term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act) has become the "beneficial owner" (as such term is used in Rule
13d-3 under the Exchange Act) of securities representing 50% or more
of the Voting Stock of the Company;
(iv) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a change in control of
the Company has occurred; or
(v) if during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Board cease for
any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's
stockholders, of each director of the Company first elected during
such period was approved by a vote of at least a majority of the
directors then still in office who were directors of the Company at
the beginning of any such period.
provided, however, that notwithstanding the foregoing provisions
--------- -------
of this Section 8(d), a "Change in Control" shall not be deemed
to have occurred for the purposes of this Plan solely because (i)
the Company, (ii) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the voting
securities, or (iii) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company,
either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1,
Form 8-K or Schedule 14A (or any successor schedule, form or
report) under the Exchange Act, disclosing beneficial ownership
by it of shares of Voting Stock, or because the Company reports
that a change in control of the Company has or may have occurred
or will or may occur in the future by reason of such beneficial
ownership.
9. Termination of Employment. If an ISO optionee ceases to be employed by
-------------------------
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of 60 days
from the date of termination of his employment, but in no event later than on
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into
-6-
<PAGE>
Non-Qualified Options pursuant to paragraph 16. Leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation or continue the employment of
the employee after the approved period of absence. Employment shall also be
considered as continuing uninterrupted during any other bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed 90
days or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as optionee continues to be an employee of the Company or
any Related Corporation. Nothing in the Plan shall be deemed to give any grantee
of any Option the right to be retained in employment or other service by the
Company or any Related Corporation for any period of time. In granting any Non-
Qualified Option, the Committee may specify that such Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
or cancellation provisions as the Committee may determine.
10. Death; Disability; Dissolution. If an ISO optionee ceases to be
------------------------------
employed by the Company and all Related Corporations by reason of his death, any
ISO of his may be exercised, to the extent of the number of shares with respect
to which he could have exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the ISO by will or by
the laws of descent and distribution, at any time prior to the earlier of the
ISO's specified expiration date or 180 days from the date of the optionee's
death.
If an ISO optionee ceases to be employed by the Company and all Related
Corporations by reason of his disability, he shall have the right to exercise
any ISO held by him on the date of termination of employment, to the extent of
the number of shares with respect to which he could have exercised it on that
date, at any time prior to the earlier of the ISO's specified expiration date or
180 days from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability' shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or successor statute.
In granting any Non-Qualified Option, the Committee may specify that such
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine.
11. Assignability. No option shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Options shall be exercisable only by him.
-7-
<PAGE>
12. Terms and conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 and 11 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan, including restrictions applicable to shares of Common Stock issuable upon
exercise of Options. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the company to execute and deliver such instruments. The proper officers of the
company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the happening of any of the following described
-----------
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the recipient and the Company relating
to such Option:
(a) In the event shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if, upon a merger, consolidation,
reorganization, split-up, liquidation, combination, recapitalization or the like
of the Company, the shares of Common Stock shall be exchanged for other
securities of the Company or of another corporation, each optionee shall be
entitled, subject to the conditions herein stated, to purchase such number of
shares of Common Stock or amount of other securities of the Company or of such
other corporation as were exchangeable for the number of shares of Common Stock
which such optionee would have been entitled to purchase except for such action,
and appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination, or exchange; and
(b) In the event the Company shall issue any of its shares as a stock
dividend upon or with respect to the shares of stock of the class which shall at
the time be subject to option hereunder, each optionee upon exercising an Option
shall be entitled to receive (for the purchase price paid upon such exercise)
the shares as to which he is exercising his Option and, in addition thereto (at
no additional cost), such number of shares of the class or classes in which such
stock dividend or dividends were declared or paid, and such amount of cash in
lieu of fractional shares, as he would have received if he had been the holder
of the shares as to which he is exercising his Option at all times between the
date of grant of such Option and the date of its exercise.
(c) If any person or entity owning restricted Common Stock obtained by
exercise of an Option made hereunder receives new or additional or different
shares or securities ("New Securities") in connection with a corporate
transaction described in subparagraph A above or a stock dividend described in
subparagraph B above as a result of owning such restricted Common Stock, such
New Securities shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such New
Securities were issued.
-8-
<PAGE>
(d) Notwithstanding the foregoing, any adjustments made pursuant to
subparagraphs (a) or (b) with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the company, determines whether
such adjustments would constitute a "modification" of such ISOs as that term is
defined in Section 425 of the Code, or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such adjustments
made with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments.
(e) No adjustments shall be made for dividends paid in cash or in property
other than securities of the Company.
(f) No fractional shares shall actually be issued under the Plan. Any
fractional shares which, but for this subparagraph F, would have been issued to
an optionee pursuant to an Option, shall be deemed to have been issued and
immediately sold to the Company for their fair market value, and the optionee
shall receive from the Company cash in lieu of such fractional shares.
(g) Upon the happening of any of the foregoing events described in
subparagraphs (a) or (b) above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Committee
shall determine the specific adjustments to be made under this paragraph 13 and,
subject to paragraph 2, its determination shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor in United States
dollars in cash or by check. The holder of an Option shall not have the rights
of a shareholder with respect to the shares covered by his Option until the date
of issuance of a stock certificate to him for such shares. Except as expressly
provided above in paragraph 13 with respect to changes in capitalization and
stock dividends, no adjustment shall be made for dividends or similar rights for
which the record date is before the date such stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
--------------------------
February 11, 1987, subject to approval of the Plan by the holders of a majority
of the outstanding shares of voting capital stock of the Company at the next
Meeting of Stockholders. The Plan shall expire on February 10, 1997 (except as
to Options outstanding on that date). Subject to the provisions of paragraph 5
above, Options may be granted under the Plan prior to the date of stockholder
approval of the Plan. If the approval of Stockholders is not obtained by
February 10, 1988, any grants of ISOs under the Plan made prior to that date
will be rescinded. The Board may terminate or amend
-9-
<PAGE>
the Plan in any respect at any time, except that, without the approval of such
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(b) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
provided in the fourth sentence of this paragraph 15, in no event may action of
the Board or stockholders alter or impair the rights of an optionee without his
consent, under any Option previously granted to him.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
------------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options at the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application Of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a Non-
--------------------------------------
Qualified Option or the making of a Disqualifying Disposition (as defined in
paragraph 20), the Disqualifying Disposition (as defined in paragraph 20), the
Company, in accordance with Section 3204(a) of the Code, may require the
optionee, to pay additional withholding taxes in respect of the amount that is
considered compensation includible in such person's gross income. The committee
in its discretion may condition the exercise
-10-
<PAGE>
of an Option on the purchaser's or recipient's payment of such additional
withholding taxes.
20. Notice to Company of Disqualifying Disposition. Each employee who
----------------------------------------------
receives ISOs shall agree to notify the Company in writing immediately after the
employee makes a disqualifying disposition of any Common Stock received pursuant
to the exercise of an ISO (a "Disqualifying Disposition"). Disqualifying
Disposition means any disposition (including any sale) of such stock before the
later of (a) two years after the employee was granted the ISO under which he
acquired such stock, or (b) one year after the employee acquired such stock by
exercising such ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.
21. Governing Law; Construction. The validity and construction of the
---------------------------
Plan and the instruments evidencing Options shall be governed by the laws of the
Commonwealth of Massachusetts. In construing this Plan, the singular shall
include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
-11-
<PAGE>
Register of Amendments
Date Section Change
- ------ ------- ------
December 9, 1987 2(a) Decrease required size of
Committee to 2
August 23, 1988 4 Increase shares to 425,000
August 8, 1990 4 Increase shares to 675,000
and change authorized shares
to Class A Common Stock
December 15, 1993 4 Increase Shares to 750,000
August 10, 1994 4 Increase shares to
950,000
October 23, 1997 8(d) Add language to allow
Committee the right to
accelerate vesting of options
on a Change of Control
March 18, 1999 1 Reflect corporate name change
from Adra Systems, Inc. to
MatrixOne, Inc.
March 18, 1999 7 Deleted requirement that
(effective 4/14/98) Non-Qualified Options expire
on the date not more than ten
years and one day from the
date of grant
March 18, 1999 8(d)(iii) Change 20% to 50
-12-
<PAGE>
EXHIBIT 10.2
MATRIXONE, INC.
AMENDED AND RESTATED
1996 STOCK PLAN
---------------
1. Purpose. The purpose of the MatrixOne, Inc. 1996 Stock Plan (the
-------
"Plan") is to encourage key employees of MatrixOne, Inc. (the "Company") and of
any present or future parent or subsidiary of the Company (collectively,
"Related Corporations") and other individuals who render services to the Company
or a Related Corporation, by providing opportunities to participate in the
ownership of the Company and its future growth through (a) the grant of options
which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"); (b) the grant of options
which do not qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in
the Company ("Awards"); and (d) opportunities to make direct purchases of stock
in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred
to hereafter individually as an "Option" and collectively as "Options."
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
---------------------------
A. Board or Committee Administration. The Plan shall be administered by
---------------------------------
the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"); provided that the Plan shall be
administered: (i) to the extent required by applicable regulations under
162(m) of the code by two or more "outside directors" (as defined in
applicable regulations thereunder) and (ii) to the extent required by Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any successor provision ("Rule 16b-3"), by a disinterested
administrator or administrators within the meaning of Rule 16b-3.
Hereinafter, all references in this Plan to the "Committee" shall mean the
Board if no Committee has been appointed. Subject to ratification of the
grant or authorization of each Stock Right by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the Committee
shall have the authority to (i) determine to whom (from among the class of
employees eligible under paragraph 3 to receive ISOs) ISOs shall be granted,
and to whom (from among the class of individuals and entities eligible under
paragraph 3 to receive Non-Qualified Options and Awards and to make
Purchases) Non-Qualified Options, Awards and authorizations to make Purchases
may be granted; (ii) determine the time or times at which Options or Awards
shall be granted or Purchases made; (iii) determine the purchase price of
shares subject to each Option or Purchase, which prices shall not be less
than the minimum price specified in paragraph 6; (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v) determine
(subject to paragraphs 7 and 8) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) extend the
period
<PAGE>
-2-
during which outstanding Options may be exercised; (vii) determine whether
restrictions such as repurchase options are to be imposed on shares subject
to Options, Awards and Purchases and the nature of such restrictions, if any,
and (viii) interpret the Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a Non-Qualified Option,
it shall take whatever actions it deems necessary, under Section 422 of the
Code and the regulations promulgated thereunder, to ensure that such Option
is not treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock Right granted under
it shall be final unless otherwise determined by the Board. The Committee may
from time to time adopt such rules and regulations for carrying out the Plan
as it may deem advisable. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members as its
-----------------
chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts of
a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts
of the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Subject to the provisions of
--------------------------------------
the first sentence of paragraph 2(A) above, if applicable, Stock Rights may
be granted to members of the Board. All grants of Stock Rights to members of
the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Consistent
with the provisions of the first sentence of Paragraph 2(A) above, members of
the Board who either (i) are eligible to receive grants of Stock Rights
pursuant to the Plan or (ii) have been granted Stock Rights may vote on any
matters affecting the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan, except that no such member shall act upon the
granting to himself or herself of Stock Rights, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting to such member of
Stock Rights.
3. Eligible Employees and Others. ISOs may be granted only to employees
-----------------------------
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
<PAGE>
-3-
4. Stock. The stock subject to Stock Rights shall be authorized but
-----
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 3,100,000, subject to adjustment as provided in paragraph 13. If any Stock
Right granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part or shall be repurchased by the Company, the shares of Common
Stock subject to such Stock Right shall again be available for grants of Stock
Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
------------------------
at any time on or after September 30, 1996 and prior to September 30, 2006. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
6. Minimum Option Price; ISO Limitations.
-------------------------------------
A. Price for Non-Qualified Options, Awards and Purchases. The exercise
-----------------------------------------------------
price per share specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock granted in any
Award or authorized as a Purchase, under the Plan shall in no event be less
than the minimum legal consideration required therefor under the laws of any
jurisdiction in which the Company or its successors in interest may be
organized.
B. Price for ISOs. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock
on the date of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee may
-----------------------------------------
be granted Options treated as ISOs only to the extent that, in the aggregate
under this Plan and all incentive stock option plans of the Company and any
Related Corporation, ISOs do not become exercisable for the first time by
such employee during any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were granted) in excess of
$100,000. The Company intends to designate any Options granted in excess of
such limitation as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the date of grant or, if the prices
or quotes discussed in this sentence are
<PAGE>
-4-
unavailable for such date, the last business day for which such prices or
quotes are available prior to the date of grant and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the
Nasdaq National Market. If the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall mean the
fair value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of ISOs generally and (ii) five years
from the date of grant in the case of ISOs granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation, as determined under
paragraph 6(B). Subject to earlier termination as provided in paragraphs 9 and
10, the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date of
-------
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. Full Vesting of Installments. Once an installment becomes exercisable
----------------------------
it shall remain exercisable until expiration or termination of the Option,
unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at any
----------------
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
-----------------------
accelerate the date that any installment of any Option becomes exercisable;
provided that the Committee shall not, without the consent of an optionee,
accelerate the permitted exercise date of any installment of any Option
granted to any employee as an ISO (and not previously converted into a Non-
Qualified Option pursuant to paragraph 16) if such acceleration would violate
<PAGE>
-5-
the annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
Notwithstanding the immediately preceding sentence, upon the occurrence of
a Change in Control (as hereinafter defined) of the Company, the Committee
shall have the right to accelerate the date that any installment of any
Option becomes exercisable without regard to the annual vesting limitation
contained in Section 422(d) of the Code. The Committee shall also have the
discretion to include or exclude automatic acceleration-of-vesting provisions
within stock option agreements issued hereunder from time to time based on
such criteria as the Committee, in its sole discretion, may determine. For
purposes of this Plan and any Options granted hereunder, a "Change in
Control" shall have occurred if at any time any of the following events shall
occur (expressly excluding from this definition any issuance of securities by
the Company in an underwritten, firm commitment public offering registered
under the Securities Act of 1933, as amended):
(i) the Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such surviving, resulting
or reorganized corporation or person immediately after such transaction is
held in the aggregate by the holders of the then-outstanding securities
entitled to vote generally in the election of directors of the Company
("Voting Stock") immediately prior to such transaction;
(ii) the Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the
holders of the Voting Stock of the Company immediately prior to such sale or
transfer;
(iii) there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any "person" (as such term is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the "beneficial
owner" (as such term is used in Rule 13d-3 under the Exchange Act) of
securities representing 50% or more of the Voting Stock of the Company;
(iv) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has occurred;
or
(v) if during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's stockholders, of each director of
the Company first elected during such period was approved
<PAGE>
-6-
by a vote of at least a majority of the directors then still in office who
were directors of the Company at the beginning of any such period.
provided, however, that notwithstanding the foregoing provisions of this
-------- -------
Section 8D, a "Change in Control" shall not be deemed to have occurred for
the purposes of this Plan solely because (i) the Company, (ii) an entity in
which the Company directly or indirectly beneficially owns 50% or more of the
voting securities, or (iii) any Company-sponsored employee stock ownership
plan or any other employee benefit plan of the Company, either files or
becomes obligated to file a report or a proxy statement under or in response
to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report) under the Exchange Act, disclosing beneficial
ownership by it of shares of Voting Stock, or because the Company reports
that a change in control of the Company has or may have occurred or will or
may occur in the future by reason of such beneficial ownership.
9. Termination of Employment. Unless otherwise specified in the agreement
-------------------------
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further installments of his or her ISOs shall become
exercisable, and his or her ISOs shall terminate on the earlier of (a) sixty
(60) days after the date of termination of his or her employment, or (b) their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. For purposes of this paragraph 9, employment shall be considered
as continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Committee shall not
be considered an interruption of employment under this paragraph 9, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
10. Death; Disability.
-----------------
A. Death. If an ISO optionee ceases to be employed by the Company and
-----
all Related Corporations by reason of his or her death, any ISO owned by such
optionee may be exercised by the estate, personal representative or
beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified expiration date of the
ISO or (ii) 180 days from the date of the optionee's death.
<PAGE>
-7-
B. Disability. If an ISO optionee ceases to be employed by the Company
----------
and all Related Corporations by reason of his or her disability, such
optionee shall have the right to exercise any ISO held by him or her on the
date of termination of employment, for the number of shares for which he or
she could have exercised it on that date, until the earlier of (i) the
specified expiration date of the ISO or (ii) 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or any successor statute.
11. Assignability. No Stock Right shall be assignable or transferable by
-------------
the grantee except by will, by the laws of descent and distribution or, in the
case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or
if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either
(i) make appropriate provision for the continuation of such
<PAGE>
-8-
Options by substituting on an equitable basis for the shares then subject to
such Options either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving corporation or (c) such other securities as
the Successor Board deems appropriate, the fair market value of which shall
not materially exceed the fair market value of the shares of Common Stock
subject to such Options immediately preceding the Acquisition; or (ii) upon
written notice to the optionees, provide that all Options must be exercised,
to the extent then exercisable, within a specified number of days of the date
of such notice, at the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options (to the
extent then exercisable) over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionee upon exercising an Option shall be
entitled to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had exercised such
Option prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to subparagraphs A, B or C with respect to ISOs shall be made
only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, each Option will terminate immediately prior
to the consummation of such proposed action or at such other time and subject
to such other conditions as shall be determined by the Committee.
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in
<PAGE>
-9-
paragraph 4 hereof that are subject to Stock Rights which previously have
been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments
to be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify
the number of shares as to which such Option is being exercised, accompanied by
full payment of the purchase price therefor either (a) in United States dollars
in cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
--------------------------
September 30, 1996, subject, with respect to the validation of ISOs granted
under the Plan, to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders or, in lieu thereof, by written consent. If
the approval of stockholders is not obtained prior to September 30, 1997, any
grants of ISOs under the Plan made prior to that date will be rescinded or
converted to Non-Qualified Options. The Plan shall expire at the end of the day
on September 30, 2006 (except as to Options outstanding on that date). Subject
to the provisions of paragraph 5 above, Options may be granted under the Plan
prior to the date of stockholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that, without the approval
of the stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the benefits accruing to participants
under the Plan may not be materially increased; (c) the requirements as to
eligibility for participation in the Plan may not be materially modified; (d)
the provisions of paragraph 3 regarding eligibility for grants of ISOs may not
be
<PAGE>
-10-
modified; (e) the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); (f) the expiration date of the Plan may
not be extended; and (g) the Board may not take any action which would cause the
Plan to fail to comply with Rule 16b-3. Except as otherwise provided in this
paragraph 15, in no event may action of the Board or stockholders alter or
impair the rights of a grantee, without such grantee's consent, under any Option
previously granted to such grantee.
16. Conversion of ISOs into Non-Qualified Options. The Committee, at the
---------------------------------------------
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting Non-
Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action.
17. Application Of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Notice to Company of Disqualifying Disposition. By accepting an ISO
----------------------------------------------
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. Withholding of Additional Income Taxes. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includable in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash
or by check of the amount of the
<PAGE>
-11-
withholding taxes or, at the discretion of the Committee, by the grantee's
delivery of previously held shares of Common Stock or the withholding from the
shares of Common Stock otherwise deliverable upon exercise of a Option shares
having an aggregate fair market value equal to the amount of such withholding
taxes.
20. Governmental Regulation. The Company's obligation to sell and
-----------------------
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. Governing Law. The validity and construction of the Plan and the
-------------
instruments evidencing Options shall be governed by the laws of the Commonwealth
of Massachusetts.
<PAGE>
-12-
Register of Amendments
<TABLE>
<CAPTION>
Date Section Change
- ---- ------- ------
<S> <C> <C>
July 22, 1997 4 Increase shares to 900,000
October 1, 1997 4 Increase shares to 2,100,000
October 23, 1997 8(D) Allow for full acceleration of
vesting in option agreements
upon a Change of Control
July 22, 1998 4 Increase shares to 2,600,000
March 18, 1999 1 Reflect name change from Adra
Systems, Inc. to MatrixOne,Inc.
March 18, 1999 4 Increase shares to 3,100,000
March 18, 1999 7 Delete requirement that
(effective 4/14/98) Non-Qualified Options must
expire not more than ten years
from the date of grant
March 18, 1999 8(D)(iii) Change 20% to 50%
</TABLE>
<PAGE>
EXHIBIT 10.5
WARRANT PURCHASE AGREEMENT
--------------------------
This Warrant Purchase Agreement is entered into as of May 16, 1997, by and
between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East"
("Investor"), and ADRA SYSTEMS, INC., a Delaware corporation with its principal
place of business at Two Executive Drive, Chelmsford, MA 01824 (the "Company"),
and is as follows:
Number of Shares: 37,500
Class of Stock: Class A Common, $.01 par value per share
Initial Exercise Price: $2.00 per share
ARTICLE 1.
ISSUANCE OF WARRANT
-------------------
1.1. Sale and Purchase of Warrant. The Company shall sell to Investor,
----------------------------
and Investor shall purchase from the Company, a warrant in substantially the
form attached to this Agreement as Exhibit A (The "Warrant"). The cost of the
Warrant to Investor shall be $1.00 (the "Purchase Price"). The Warrant shall
give Investor the right to purchase the above number of shares of the above
referenced class of the Company's securities (the "Shares") at the exercise
price referenced above, all subject to adjustment as provided in the Warrant.
1.2. Closing. The issuance of the Warrant shall take place upon execution
-------
of this Agreement or on such other date as the parties may agree (the
"Closing"). At the Closing, the Company shall deliver the Warrant to Investor,
issued in the name of Investor. Investor may pay the Purchase Price by check,
in form of cancellation of indebtedness, or by such other means as the parties
may agree.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
2.1. Truth of Statements. The Company hereby represents and warrants to
-------------------
Investor that, except as set forth on Exhibit B, each of the statements set
forth in this Article 2 is true, accurate, and complete as of the date hereof
and will be true, accurate, and complete as of the date of the Closing. If
Exhibit B is blank or there is no Exhibit B attached, then there are no
exceptions.
2.1. Corporate Status. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the state of its
incorporation and has all requisite legal and corporate power and authority to
own, lease, and operate its properties and assets and to carry on its business
as now conducted and as proposed to be conducted. The Company is in
<PAGE>
-2-
good standing as a foreign corporation qualified to do business in all states in
which the failure to be so qualified would have a material adverse effect on its
business or properties.
2.3. Valuation and Capitalization. The Initial Exercise Price referenced
----------------------------
above is in the good faith reasonable opinion of the Company's President and
Chief Financial Officer, not greater than the fair market value of the Shares as
of the date of this Agreement. All outstanding securities of the Company have
been duly authorized and are validly issued, fully paid, and nonassessable, and
have been issued in compliance with all applicable state and Federal securities
laws.
2.4. Authorization. All corporate action on the part of the Company and
-------------
its officers, directors, and shareholders necessary for the Company to
authorize, execute, deliver, and perform this Agreement including without
limitation the authorization, execution, issuance, and delivery of the Warrant,
the reservation of the Shares issuable upon the exercise of the Warrant, and the
offer and grant of registration rights to the investor, has been taken. The
persons signing this Agreement and the Warrant have full power and authority to
execute and deliver this Agreement and the Warrant on behalf of the Company.
When executed and delivered, this Agreement and the Warrant will constitute a
valid and binding obligation of the Company.
2.5. Corporate Power. The Company has all requisite legal and corporate
---------------
power and authority to enter into is Agreement and all requisite legal and
corporate power and authority to issue and deliver the Warrant and the Shares,
and to carry out and perform its obligations under the terms and conditions of
this Agreement and the Warrant.
2.6. Validity of Warrant. Upon issuance, the Warrant will constitute a
-------------------
valid and binding obligation of the Company. The Shares have been duly and
validly reserved for issuance upon exercise of the Warrant Upon issuance, the
Warrant and the Shares will be duly authorized, validly issued, fully paid,
nonassessable, and free of liens or encumbrances except for restrictions on
transfer provided for under applicable federal and state securities laws. The
Company shall at all times have authorized and reserved for issuance sufficient
shares of the Shares. The issuance of the Warrant is not, and the issuance of
the Shares will not be, subject to any preemptive rights or rights of first
refusal.
2.7 No Antidilution Upon Issuance or Exercise of Warrant. Neither the
----------------------------------------------------
issuance nor the exercise of the Warrant will cause the rate at which any of the
Company's outstanding convertible securities are ultimately convertible to
Common Stock to change, nor will it otherwise invoke any "antidilution" feature
of any of the Company's outstanding securities or rights to purchase securities.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
----------------------------------------------
3.1. Truth of Statements. Investor hereby represents and warrants to the
-------------------
Company that each of the statements set forth in this Article 3 is true,
accurate, and complete as of the date hereof and will be true, accurate, and
complete as of the date of the Closing. For the purpose of
<PAGE>
-3-
this Article 3, the word `Shares' also includes securities issuable, directly or
indirectly, upon conversion of the Shares, if any.
3.2. Authorization. The persons signing this Agreement have full power
-------------
and authority to enter into this Agreement on behalf of Investor. When executed
and delivered, this Agreement will constitute a valid and legally binding
obligation of Investor.
3.3. No Registration. Investor understands that the Warrant and the
---------------
Shares have not been registered under the Securities Act of 1933, as amended
(the "Act") and will be issued pursuant to an exemption from registration
contained in the Act based in part upon the representations of Investor
contained in this Agreement.
3.4. Acquisition for Investment. Investor is acquiring the Warrant and
--------------------------
the Shares solely for its own account and not as a nominee for any other party
and not with a view toward the resale or distribution of the Warrant or the
Shares.
3.5. Experience. Investor is a sophisticated lender to publicly traded
----------
and non-publicly traded high-technology and other businesses and is able to fend
for itself. Investor is able to bear the economic risk of the purchase of the
Warrant and the Shares, including a complete loss of Investor's investment.
Investor has had an opportunity to ask such questions of the Company's officers,
employees, agents, accountants, and representatives concerning the Company's
business, operations, financial condition, assets, liabilities, and other
matters as it has deemed necessary or desirable.
3.6. Accredited Investor. Investor is an `Accredited Investor' as defined
-------------------
in S.E.C. Rule 501 (a).
ARTICLE 4.
CONDITIONS TO INVESTOR'S OBLIGATION TO CLOSE
--------------------------------------------
The obligation of Investor to purchase the Warrant is subject to the
satisfaction of the following conditions, or Investor's written waiver thereof,
before or at the Closing:
4.1 Representations and Warranties. The representations and warranties of
------------------------------
the Company set forth in this Agreement shall be true and correct.
4.2. Corporate Action. All corporate action on the part of the Company
----------------
and its officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of this Agreement and the Warrant and the
consummation of the transactions contemplated hereby shall have been taken.
4.3. Tender of Waiver. The Company shall have tendered the Warrant to
----------------
Investor, fully executed and in proper form.
<PAGE>
-4-
ARTICLE 5.
CONDITIONS TO THE COMPANY'S OBLIGATIONS TO CLOSE
------------------------------------------------
The obligation of the Company to issue the Warrant is subject to the
satisfaction of the following conditions, or the Company's written waiver
thereof, before or at the Closing:
5.1. Representations and Warranties. The representations and warranties
------------------------------
of Investor contained in Article 3 shall be true and correct.
5.2. Tender of Purchase Price. Investor shall have tendered the Purchase
------------------------
Price to the Company.
ARTICLE 6.
REGISTRATION RIGHTS
-------------------
The Company hereby irrevocably offers Investor the registration rights set
forth in Exhibit C hereto.
ARTICLE 7.
COVENANTS OF THE COMPANY
------------------------
7.1. Information Rights. So long as Investor holds the Warrant or any
------------------
Shares, and it the Company does not have a credit relationship with Investor,
the Company shall deliver to Investor the Company's annual audited or reviewed
financial statements (consisting of a consolidated profit or loss statement for
such fiscal year, a consolidated balance sheet of the Company as of the end of
the year, and a consolidated statement of changes in financial condition for
such fiscal year, certified by independent public accountants of recognized
standing selected by the Company) within 90 days after the end of each fiscal
year of the Company. The right to receive financial statements under this
Article 7 may be transferred only to any subsequent holder of the Warrant who is
a subsidiary or an affiliate of Investor.
7.2. Governmental Approvals. The Company shall obtain and keep effective
----------------------
such securities acts filings and permits, consents, and approvals of
governmental agencies as needed to enable the Company to lawfully issue, sell,
and deliver this Warrant and the Shares to Investor and Investor's permitted
assigns.
ARTICLE 8.
MISCELLANEOUS
-------------
8.1 Brokers and Finders.
-------------------
8.1.1. Investor. Investor (a) represents and warrants that Investor
--------
has retained no finder or broker connection with the transactions contemplated
by this Agreement and (b) shall indemnify and hold the Company harmless of and
from any liability for commissions or compensation in the nature of a finder's
fee to any broker or other person or firm (and the costs
<PAGE>
-5-
and expenses of defending against such liability or asserted liability) for
which Investor, or any of Investor's employees or representatives, is
responsible.
8.1.2. The Company. The Company (a) represents and warrants that the
-----------
Company has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (b) shall indemnify and hold harmless
Investor of and from any liability for commissions or compensation in the nature
of a finders fee to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company, or any of the Company's employees or representatives, is
responsible.
8.2. Survival. The representations. warranties, covenants, and agreements
--------
made herein shall survive any investigation made by any party hereto and the
closing of the transactions contemplated hereby.
8.3. Additional Actions and Documents. The parties shall execute and
--------------------------------
deliver such further documents and instruments and shall take such other further
actions as may be required or appropriate to carry out the intent and purposes
of this Agreement.
8.4. Successors and Assigns. This Agreement and The Warrant shall bind
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns. Subject to the provision of this Agreement and in the Warrant,
Investor may transfer all or part of its interest in this Agreement and the
Warrant.
8.5. Parties in Interest. Nothing in this Agreement is intended to confer
-------------------
rights or remedies under or by reason of this Agreement on any persons other
than the parties to it and their respective successors and assigns. Nothing in
this Agreement is intended to relieve or discharge the obligation or liability
of any third persons to any party to this Agreement. No provision of this
Agreement shall give any third person any right of subrogation or _________ over
or against any party to this Agreement.
8.6. Amendments Waivers, and Consents. This Agreement shall not be
--------------------------------
changed or modified, in whole or in part, except by supplemental agreement
signed by the parties. Any party may waive compliance by any other party with
any of the covenants or conditions of this Agreement, but no waiver shall be
binding unless executed in __________ by the party making the waiver. No waiver
of any provision of this Agreement shall be deemed, or shall constitute, a
waiver of any other provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. Any consent under this Agreement shall be in
writing and shall be effective only to the extent specifically set forth in such
writing. For the protection of all parties, amendments, waivers, and consents
that are not in writing and executed by the party to be bound may be enforced
only if they are detrimentally relied upon and proved by clear and convincing
evidence. Such evidence may not include the alleged reliance.
8.7. Notice. Any notice, instruction, or communication required or
------
permitted to be given under this Agreement or the Warrant to any party shall be
in writing and shall be deemed given when actually received or, if earlier, five
days after deposit in the United States Mail by
<PAGE>
-6-
certified or express mail, return receipt requested, postage prepaid, addressed
to the principal office of such party or to such other address as such party may
request by written notice.
8.8. Expenses. The Company shall reimburse Investor for its reasonable
--------
expenses in connection with the negotiation and preparation of this Agreement,
including the reasonable fees of Investors legal counsel in an amount not to
exceed $3,000. The Company shall also pay all of Investor's costs and expenses,
including without limitation attorney's fees, associated with modifying this
Agreement and/or negotiating with the Company to modify this Agreement or the
Warrant. Investor has no duty to modify or consider modifying this Agreement or
the Warrant. Each party has been represented by counsel in the negotiation and
execution of this Agreement.
8.9. Specific Performance. The parties acknowledge that it will be
--------------------
impossible to measure in money the damage to the parties hereto of any failure
to comply with any of the restrictions or obligations imposed by this Agreement
or the Warrant, that every such restriction and obligation is material, and that
in the event of any such failure, the parties will not have an adequate remedy
at law or in damages. Therefore, each party consents to the issuance of an
injunction or the enforcement of other equitable remedies against it at the suit
of an aggrieved party _____ compel performance of all of the terms of this
Agreement or the Warrant, and waives any defenses to the ______ability of
equitable relief, including without limitation the defenses of failure of
consideration, breach of any other provision of this Agreement or the Warrant,
and availability of relief in damages.
8.10. Attorneys' Fees. If Investor brings any suit, action, counterclaim,
---------------
or arbitration to enforce the provision of this Agreement or the Warrant, the
prevailing party therein shall be entitled to recover a reasonable allowance for
attorneys' fees and litigation expenses in addition to court costs. "Prevailing
party" within the meaning of this Section includes without limitation a party
who agrees to dismiss an action or proceeding upon the others payment of the
sums allegedly due or performance of the covenants allegedly breached, or who
obtains substantially the relief sought by it.
8.11. Governing Law. The rights and obligations of the parties shall be
-------------
governed by, and this Agreement and the Warrant shall be construed and enforced
in accordance with, the General Corporate Law of the State of Delaware as to
matters within the scope thereof, and as to all other matters, shall be governed
by, construed and enforced in accordance with the internal laws of the
Commonwealth of Massachusetts, excluding its conflict of laws rules to the
extent such rules would apply the law of another jurisdiction.
8.12. Jurisdiction and Venue. The parties hereto consent to the
----------------------
jurisdiction of all federal and state courts in the Commonwealth of
Massachusetts in any action, suit, or proceeding of any kind which arises out of
or by reason of this Agreement; provided, however, that if for any reason Bank
cannot avail itself of the courts of the Commonwealth of Massachusetts, the
Company accepts jurisdiction of the courts and venue in Santa Clara County,
California.
8.13. Entire Agreement. This Agreement and the documents and agreements
----------------
contemplated herein constitute the entire agreement between the parties and
supersedes all previous agreements between or among the parties, with regard to
the Warrant, the Shares, and
<PAGE>
-7-
any securities issuable, directly or indirectly, upon conversion of __________
Shares. There are now no agreements, representations, or warranties between or
among the parties, with regard to the Warrant, the Shares, and any securities
issuable, directly or indirectly, upon conversion of the Shares, other than
those set forth herein or therein or herein or therein provided for.
8.14. Severability. If any provision of this Agreement or the Warrant, or
------------
the application of such provision to any person or circumstances, is held
invalid or unenforceable, the remainder of this Agreement and the Warrant, or
the application of such provision to persons or circumstances other than those
as to which it is held invalid or unenforceable shall not be affected thereby.
8.15. Exhibits. All Exhibits hereto shall be deemed to be a part of this
--------
Agreement and are fully incorporated herein by this reference.
8.16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this WARRANT PURCHASE
AGREEMENT as of the date first set forth above.
"COMPANY" "BANK"
ADRA SYSTEMS, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Mark O'Connell By: /s/ David B. Fischer
---------------------------------- --------------------------------
Mark O'Connell, President David B. Fischer, SVP
By: /s/ William L. Fiedler SILICON VALLEY BANK
---------------------------------
William L. Fiedler, SVP - Finance
By: /s/ Authorized Signatory
--------------------------------
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: ADRA SYSTEMS, INC., a Delaware corporation
Number of Shares: 37,500
Class of Stock: Class A Common, $.01 par value per share
("Common Stock")
Initial Exercise Price: $2.00 per share
Issue Date: May 16,1997
Expiration Date: May 15, 2002
THIS WARRANT CERTIFIES THAT, for value received, SILICON VALLEY BANK
("Holder") is entitled to purchase the above referenced number of fully paid and
nonassessable shares of the above referenced class of securities (the "Shares")
of the above referenced corporation (the "Company") at the above referenced
initial exercise price per Share (the "Warrant Price"), subject to the
provisions and upon the terms and conditions set forth of this Warrant.
ARTICLE 1.
TERM AND EXERCISE
-----------------
1.1. Term; Notice of Expiration. This Warrant is exercisable, in whole
---------------------------
or in part, at any time and from time to time on or before the Expiration Date
set forth above.
1.2. Method of Exercise. Holder may exercise this Warrant by delivering
------------------
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.3, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.3. Conversion Right. In lieu of exercising this Warrant as specified in
----------------
Section 1.2, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.4. Alternative Stock Appreciation Right. INTENTIONALLY DELETED
------------------------------------
A-1
<PAGE>
1.5. Fair Market Value. If the Shares are traded regularly in a public
-----------------
market, the fair market value of the Shares shall be the last sale price or bid
price reported for the business day immediately before Holder delivers its
Notice of Exercise to the Company. If the Shares are not regularly traded, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment.
1.6. Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.7. Lost or Destroyed Warrant. If this Warrant is lost, stolen,
-------------------------
destroyed, or mutilated, the Company shall at the request of Holder and upon the
surrender of any remains of this Warrant execute and deliver to Holder a
replacement warrant in form identical to this Warrant. The replacement warrant
shall be an obligation of the Company enforceable by the Holder regardless of
whether the lost, stolen, destroyed, or mutilated warrant is enforceable by
anyone. This Warrant is not a negotiable instrument and is transferable only in
accordance with the provisions of Section 3.3.
1.8. Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.8.1. "Acquisition". For the purpose of this Warrant, "Acquisition"
-----------
means any sale, or other disposition of substantially all of the assets of the
Company, or any reorganization, consolidation, or merger of the Company where
the Company is not the surviving corporation and the securities issued with
respect to the Company's securities outstanding immediately before the
transaction represent less than 50% of the beneficial ownership of the new
entity immediately after the transaction.
1.8.2. Assumption of Warrant. If upon the closing of any Acquisition
---------------------
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.8.3. Nonassumption. If upon the closing of any Acquisition the
-------------
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.3. The Board of Directors of the Company shall then reasonably and in
good faith calculate the pro rata amount of cash, property, and securities the
Holder would be entitled to receive if Holder had exercised the unexercised
portion of this Warrant in full for cash immediately before the record date for
determining the shareholders entitled to participate in the Acquisition (the
"Gross Proceeds"). The Company shall then distribute to Holder the amount of
such cash, property, and securities, in the same proportion as
A-2
<PAGE>
distributed to the other shareholders of the Company, equal in value to the
Gross Proceeds less the aggregate Warrant Price of the unexercised portion of
this Warrant, but not less than zero.
ARTICLE 2.
FRACTIONAL SHARES
-----------------
No fractional Shares shall be issuable upon exercise of the Warrant and the
number of Shares to be issued shall be rounded down to the nearest whole Share,
if a fractional share interest arises upon any exercise of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder an
amount computed by multiplying the fractional interest by the fair market value
of a full Share.
ARTICLE 3.
MISCELLANEOUS
-------------
3.1. Legends. This Warrant and the Shares shall be imprinted with a
-------
legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
3.2. Compliance with Securities Laws on Transfer. This Warrant and the
-------------------------------------------
Share issuable upon exercise of this Warrant may not be transferred or assigned
in whole or in part without compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
3.3. Transfer Procedure. Subject to the provision of Section 3.2, Holder
------------------
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant by giving the Company notice of the portion of the Warrant being
transferred setting forth the name, address. and taxpayer identification number
of the transferee and surrendering this Warrant to the Company for reissuance to
the transferee(s) (and Holder if applicable). Unless the Company is filing
financial information with the SEC pursuant to the Securities Exchange Act of
1934, the Company shall have the right to refuse to transfer any portion of this
Warrant to any person who directly competes with the Company.
A-3
<PAGE>
3.4. Notice of Certain Events. No holder of this Warrant, as such, shall
------------------------
be entitled to vote or receive dividends or be deemed a holder of the Shares,
nor shall anything contained herein be construed to confer upon the holder of
this Warrant, as such, any voting rights or other rights as a shareholder of the
Company until this Warrant shall have been exercised and the Shares purchasable
upon the exercise hereof shall have become deliverable as provided herein.
Notwithstanding the foregoing, if the Company proposes at any time (a) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of Common Stock any
additional shares of stock of any class or series or other rights; (c) to effect
any reclassification or recapitalization of Common Stock; (d) to merge or
consolidate with or into any other corporation (other than a wholly-owned
subsidiary of the Company) in which the voting power of the Company immediately
prior to such merger or consolidation is less than 50% of the voting power of
the resulting or surviving entity, or sell, lease, license, or convey all or
substantially all of its assets, or to liquidate, dissolve, or wind up; or (e)
offer holders of registration rights the opportunity to participate in an
underwritten public offering of the Company's securities for cash, then, in
connection with each such event, the Company shall give Holder (i) at least 20
days' prior written notice of the date on which a record will be taken for such
dividend, distribution, or subscription rights (and specifying the date on which
the holders of Common Stock will be entitled thereto) or for determining rights
to vote, if any, in respect of the matters referred to in (c) and (d) above;
(ii) in the case of the matters referred to in (c) and (d) above, at least 20
days' prior written notice of the date when the same will take place (and
specifying the date on which the holders of Common Stock will be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event); and (iii) in the case of the matter referred to
in (e) above, the same notice as is given to the holders of such registration
rights.
3.5. Subject to Warrant Purchase Agreement. This Warrant is issued
-------------------------------------
pursuant to a Warrant Purchase Agreement between the Company and Holder. All of
the terms of Article 8 of the Warrant Purchase Agreement (miscellaneous
provisions) are incorporated in this Warrant by reference. If there is no
Warrant Purchase Agreement in connection with the issuance of this Warrant, or
such Agreement is not substantially in the form prepared initially by Holder,
the Warrant Purchase Agreement referred to in this Section 3.5 shall be to the
form of Warrant Purchase Agreement last submitted by Holder to the Company
before the Company issued this Warrant.
ADRA SYSTEMS, INC.
By: /s/ Mark O'Connell
--------------------------------------
Mark O'Connell, President
By: /s/ William L. Fiedler
--------------------------------------
William L. Fiedler, SVP - Finance
A-4
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE OF WARRANT
1 The undersigned hereby elects to purchase _____ shares of Class A
Common Stock, $.01 par value per share, of Adra Systems, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
OR
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised
with respect to _______ of the Shares covered by the Warrant.
[Strike paragraph above that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
_______________________________________________
(Name)
_______________________________________________
(Address)
_______________________________________________
The undersigned represents that it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_______________________________________________
(Holder)
_______________________________________________
(Signature)
_______________________________________________
(Date)
Ap-1
<PAGE>
EXHIBIT B
---------
Exceptions to the Representations and Warranties of the Company set forth
in Article 2 of the Warrant Purchase Agreement dated May __, 1997.
Section 2.3
-----------
Each share of Class A, Class B, Class C, Class D and Class F Preferred
Stock is convertible into one share of Class A Common Stock. Each share of
Class B Preferred Stock is convertible into one share of Class B Common Stock.
B-1
<PAGE>
EXHIBIT C
TO WARRANT PURCHASE AGREEMENT
REGISTRATION RIGHTS
1. Definitions. As used in this Exhibit D, the following terms shall, in
-----------
addition to the terms defined in this Warrant Purchase Agreement and in Exhibit
A to the Warrant Purchase Agreement, have the following respective meanings: `
1.1 "Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act and the
Exchange Act.
1.2 "Common Stock" means (i) the Class A Common Stock, $.01 par
value, of the Company, as authorized on the date of the Warrant Purchase
Agreement, (ii) any other capital stock of any class of classes (however
designated) of the Company, authorized on or after the date of the Warrant
Purchase Agreement, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of the
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Company's Certificate of Incorporation, be
entitled to vote for the election of a majority of directors of the Company
(even though the right to so vote has been suspended by the occurrence of such a
contingency or provision), and (iii) any other securities into which or for
which any of the securities described in (i) or (ii) above may be converted or
exchanged pursuant to a plan or recapitalization, reorganization, merger, sale
of assets or otherwise.
1.3 "Exchange Act" means the Securities Exchange Act of 1934 or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be amended from time to time.
1.4 "Registrable Shares" means the shares of Common Stock issued to
the Holder upon exercise of the Warrant; provided, however, that shares of
Common Stock that are Registrable Shares shall cease to be Registrable Shares
upon any sale pursuant to (i) a registration statement under the Securities Act,
(ii) Section 4(1) of the Securities Act or (iii) Rule 144 promulgated under the
Securities Act.
1.5 "Securities Act" means the Securities Act of 1933 or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be amended from time to time.
2. "Piggy Back" Registration. If at any time or times the Company shall
------------------------
determine to register under the Securities Act, (including pursuant to a demand
of any stockholder of the Company exercising registration rights) any of its
Common Stock, other than on Form S-8 or Form S-4 or the then equivalents of such
Forms, except with respect to shares to be issued solely
C-2
<PAGE>
in connection with any acquisition of any entity or business, shares issuable
solely upon the exercise of stock options, or shares issuable solely pursuant to
employee benefit plans, it shall send to each holder of Registrable Shares,
written notice of such determination and, if within twenty (20) days after
receipt of such notice, each such holder shall so request in writing, the
Company shall use its best efforts to include in such registration statement all
of the Registrable Shares, except that if, in connection with any offering
involving an underwriting of Common Stock to be issued by the Company, the
managing underwriter shall impose a limitation on the number of shares of such
Common Stock which may be included in any such registration statement because,
in its judgment, such limitation is necessary to effect an orderly public
distribution, then the Company shall be obligated to include in such
registration statement only such limited portion, if any, of the Registrable
Shares with respect to which such holders have requested inclusion hereunder
after the Company shall have included in such registration the number of shares
of Common Stock requested to be included by other Common Stockholders who have
been granted registration rights prior to the date of this Agreement.
3. Effectiveness. The Company will use its best efforts to maintain the
-------------
effectiveness for up to nine (9) months of any registration statement pursuant
to which the Registrable Shares are being offered, and from time to time will
amend or supplement such registration statement and the prospectus contained
therein as and to the extent necessary to comply with the Securities Act and any
applicable statute securities statute or regulation.
4. Indemnification of Holder of Registrable Shares. In the event that the
-----------------------------------------------
Company registers the Registrable Shares under the Securities Act, the Company
will, to the extent permitted by law, indemnify and hold harmless each holder
and each underwriter (including their officers, directors, affiliates and
partners) of the Registrable Shares (including any broker or dealer through whom
such shares may be sold) and each person, if any, who controls such holder or
any such underwriter within the meaning of Section 15 of the Securities Act from
and against and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter and
each such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement, in any preliminary or amended preliminary
prospectus, or in the prospectus (or the registration statement or prospectus as
from time to time amended or supplemented by the Company), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration, unless (i) such untrue statement or alleged untrue statement or
------
omission or alleged omission was made in such registration statement,
preliminary or amended preliminary prospectus or prospectus in reliance upon and
conformity with information furnished in writing to the Company in connection
therewith by such holder of Registrable Shares, any such
C-3
<PAGE>
underwriter or any such controlling person expressly for use therein, or unless
------
(ii) in the case of a sale directly by such holder of Registrable Shares
(including a sale of such Registrable Shares through any underwriter retained by
such holder of Registrable Shares to engage in a distribution solely on behalf
of such holder of Registrable Shares), such untrue statement or alleged untrue
statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and such holder of
Registrable Shares failed to deliver a copy of the final or amended prospectus
at or to the person asserting any such loss, claim, damage or liability in any
case where such delivery is required by the Securities Act.
Promptly after receipt, by any holder of Registrable Shares, any
underwriter or any controlling person, of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, such
holder of Registrable Shares, or such underwriter or such controlling person, as
the case may be, will notify the Company in ___________ of the commencement
thereof, and, subject to the provisions hereinafter stated, the Company shall
assume the defense of such action (including the employment of counsel, who
shall be counsel satisfactory to such holder of Registrable Shares, such
underwriter or such controlling person, as the case may be), and the payment of
expenses insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the Company.
Such holder of Registrable Shares, any such underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof if such holder, underwriter or
controlling person reasonably believes that his or its interests are adverse to
those of the Company. The fees and expenses of one such counsel shall be paid
by the Company. The Company shall not be liable to indemnify any person for any
settlement of any such action effected without the Company's consent, which
consent shall not be unreasonably delayed. The Company shall not, except with
the approval of each party being indemnified under this Section 4, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
parties being so indemnified of a release from all liability in respect to such
claim or litigation.
5. Indemnification of Company. In the event that the Company registers
--------------------------
the Registrable Shares under the Securities Act, each holder of the Registrable
Shares so registered will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
underwriter of the Registrable Shares so registered (including any broker or
dealer through whom such of the shares may be sold) and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director,
officer, underwriter or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or
C-4
<PAGE>
amended preliminary prospectus, or in the prospectus (or the registration
statement or prospectus as from time to time amended or supplemented), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company in connection therewith by such holder of Registrable
Share expressly for use therein; provided, however, that such holder's
-------- -------
obligations hereunder shall be limited to an amount equal to the proceeds to
such holder of the Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against such holder of Registrable
Shares, the Company will notify such holder of Registrable Shares in writing of
the commencement thereof, and such holder of the Registrable Shares shall,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel, who shall be counsel satisfactory to the
Company) and the payment of expenses insofar as such action shall relate to the
alleged liability in respect of which indemnity may be sought against such
holder of Registrable Shares.
The Company and each such director, officer, underwriter or controlling
person shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, if the Company or any such director,
officer, underwriter or controlling person believes that his or its interests
are adverse to those of such holder of Registrable Shares. The fees and
expenses of one such counsel shall be paid by such holder of Registrable Shares.
Such holder of Registrable Shares shall not be liable to indemnify any person
for any settlement of any such action effected without such holder's consent,
which consent shall not be unreasonably delayed.
6. Exchange Act Registration. The Company will use its best efforts to
-------------------------
timely file with the Securities and Exchange Commission such information as the
Commission may require under either of Section 13 or Section 15(d) of the
Exchange Act; the Company shall use its best efforts to take all action as may
be required as a condition to the availability of Rule 144 under the Securities
Act (or any successor exemptive rule hereinafter in effect) with respect to such
Common Stock. The Company shall furnish to any holder of Registrable Shares
forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, (ii) a copy of the most
recent annual or quarterly report of the Company as filed with the Securities
and Exchange Commission, and (iii) such other reports and documents as a holder
may reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission allowing a holder to sell any such
Registrable Securities without registration.
7. Damages. The Company recognizes and agrees that the holder of
-------
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Exhibit D and that damages will not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
person entitled to the benefits of this Exhibit D requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Exhibit D.
C-5
<PAGE>
8. Further Obligations of the Company. Whenever under the preceding
----------------------------------
Sections of this Exhibit D, the Company is required hereunder to register the
Registrable Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder such copies of each preliminary and
final prospectus and such other documents as said holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable Shares
covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling holder may reasonably
request; provided, however, that the Company shall not be obligated to
-------- -------
qualify to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to the service of
process in suits other than those arising out of the offer or sale of the
securities covered by the registration statement in any jurisdiction where
it is not then so subject;
(c) Furnish to each selling holder a signed counterpart of
(i) an opinion of counsel for the Company, dated the effective
date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent public
accountants who have examined and reported on the Company's financial
statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified
Public Accountants,
covering, with respect to both (i) and (ii) immediately above,
substantially the same matters with respect to the registration statement
(and the prospectus included therein) and (in the case of the accountants'
"comfort" letters) with respect to events subsequent to the date of the
financial statements, as are customarily covered in opinions of issuers
counsel and in accountants' "comfort" letters delivered to the underwriters
in underwritten public offerings of securities, to the extent that the
Company is required to deliver or cause the delivery of such opinion or
"comfort" letters to the underwriters in an underwritten public offering of
securities;
(d) Upon three days prior written notice and at reasonable times
during normal business hours and without undue interruption of the
Company's business or operations, permit each selling holder or his counsel
or other representatives to inspect and copy such corporate documents and
records as may reasonably be requested by them;
(e) Furnish to each selling holder a copy of all documents filed and
all correspondence dispatched from or to the Securities and Exchange
Commission in connection with any such offering; and
(f) Use its best efforts to insure the obtaining of all necessary
approval from the National Association of Securities Dealers, Inc.
C-6
<PAGE>
Whenever under this Exhibit D the holders of Registrable Shares are registering
such shares pursuant to any registration statement, each such holder agrees to
(i) timely provide to the Company such information and materials as it may
reasonably request in order to effect the registration of such Registrable
Shares.
9. Expenses. In the case of a registration under Section 2 of this
--------
Exhibit D the Company shall bear all costs and expenses of each such
registration, including, but not limited to, printing, legal and accounting
expenses, Securities and Exchange Commission filing fees and "blue sky" fees and
expenses; provided, however, that the Company shall have no obligation to pay or
-------- -------
otherwise bear (i) any portion of the fees or disbursements of counsel for the
holders of Registrable Shares in connection with the registration of their
Registrable Shares, other than not more than $10,000 in fees and disbursements
of one counsel for all such holders of Registrable Shares, or (ii) any portion
of the underwriters' commissions or discounts attributable to the Registrable
Shares being offered and sold by the holders of Registrable Shares.
10. Approval of Underwriter; Underwriting Agreement. Any managing
-----------------------------------------------
underwriter engaged in any registration made pursuant to Section 2 of this
Exhibit D shall require the consent of the Company, which consent shall not be
unreasonably withheld. In connection therewith, the Company shall enter into an
underwriting agreement with such managing underwriter (or underwriters)
containing such terms as may then be usual and customary for an underwritten
public offering, consistent with the size of the offering, and the business and
financial condition of the Company.
C-7
<PAGE>
EXHIBIT 10.6
------------
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement (the "Agreement") dated as of May 7, 1998 by and
among SofTech, Inc., a Massachusetts corporation (the "Buyer" or "SofTech"),
Adra Systems, Inc., a Delaware corporation, Adra Systems, GmbH, ("Adra GmbH") a
wholly owned subsidiary of MatrixOne, Inc. (collectively the "Seller" or "ADRA")
and MatrixOne, Inc., a Delaware corporation which owns all of the outstanding
stock of ADRA (the "Parent").
WITNESSETH
WHEREAS, subject to the terms and conditions hereof, Seller desires to sell
substantially all of the properties and assets of ADRA and all of the
outstanding shares of capital stock of Adra GmbH, and Parent has authorized
Seller to effect such sale; and
WHEREAS, subject to the terms and conditions hereof, Buyer desires to
purchase said properties and assets of Seller for the consideration specified
herein and the assumption by Buyer of certain liabilities and obligations of
Seller specified herein;
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
Section 1
PURCHASE AND SALE OF ASSETS
1.1 Sale of Assets. Subject to the provisions of this Agreement on the
--------------
date this Agreement is signed (the "`Closing"), at such time and place as shall
be determined by mutual agreement of the parties, Seller agrees to sell and
Buyer agrees to purchase, all of the Seller's right, title and interest in and
to the properties and assets used primarily in the business of ADRA
(collectively, the "Business") of every kind and description, tangible and
intangible, real personal or mixed, and wherever located, including, without
limitation, all assets shown or reflected on the Base Balance Sheet (as defined
in Section 2.7 hereof) and listed on Schedule 1.1 (except for those disposed of
or converted into cash after the date of such Balance Sheet in each case in the
ordinary course of business), the capital stock of Adra GmbH, and all of the
Proprietary Rights (as defined in Section 2.22 below); provided, however, that
the following property shall be excluded from such purchase and sale:
(a) Seller's corporate seals, corporate franchise, organizing or
governing documents, Bylaws, stock record books, corporate record books
containing minutes of meetings of directors and stockholders and such other
records as have to do exclusively with Seller's organization or stock
capitalization (collectively, the "Corporate Records");
(b) All refunds of any Taxes for which Seller, Parent or Adra GmbH is
liable; Seller's tax and accounting records; provided, however, that Seller
shall provide Buyer with access to these documents in accordance with Section
2.15 hereof;
<PAGE>
-2-
(c) All cash on hand, cash overdraft positions, bank deposits and cash
equivalents of or associated with the Business wherever conducted as of the
Closing Date; and
(d) any assets of the Business sold or otherwise disposed of or
converted into cash in the ordinary course of business after the March 31, 1998
Balance Sheet up to and including the Closing Date.
The assets, property and business of Seller to be sold to and purchased by
Buyer under this Agreement are hereinafter sometimes referred to as the "Subject
Assets", and the assets, property and business of Seller to be excluded from the
sale to Buyer are hereinafter sometimes referred to as the "Excluded Assets" and
are detailed at Schedule 1.1(a).
1.2 Limited Assumption of Liabilities. Upon the sale and purchase of the
---------------------------------
Subject Assets, Buyer shall assume and agree to pay or discharge when due in
accordance with their respective terms, those liabilities listed on Schedule
1.2, including without limitation all obligations of Seller reflected on the
March 28, 1998 Balance Sheet and other obligations incurred following such
Balance Sheet Date in the ordinary course of business, all obligations on all
contracts including those listed on Schedule 2.11, all liabilities in respect of
Taxes for which Buyer is responsible, any warranty or other obligations to
provide service on, or to repair or replace, any products sold by ADRA prior to
the Closing Date. Buyer shall not assume or be liable for any liabilities or
obligations of Seller arising at or prior to the Closing unless identified
herein or on Schedule 1.2. Without limiting the foregoing, and unless
identified herein or on Schedule 1.2, Buyer shall not assume and shall not pay
any of the following liabilities or obligations:
(a) liabilities incurred by Seller in connection with this Agreement,
and the transactions provided for herein, including, without limitation, counsel
and accountants' fees, salary continuation arrangements extended to ADRA
employees and severance arrangements incurred by or for the account of Seller,
or committed to by Seller, in each case prior to the Closing Date, and expenses
pertaining to the performance by Seller of its obligations hereunder whenever
incurred;
(b) subject to Section 1.10 hereof, Taxes (as defined in Section 2.8
hereof) payable by Seller, except for Taxes related to the Subject Assets with
respect to periods ending after the Closing Date. Buyer shall not be
responsible for any income related Taxes incurred by Seller prior to the Closing
Date;
(c) liabilities of Seller with respect to any options, warrants,
agreements or convertible or other rights to acquire any shares of its capital
stock of any class; and
(d) liabilities in connection with or relating to any actions, suits,
claims, proceedings, demands, assessments and judgments, costs, losses,
liabilities, damages, deficiencies and expenses (whether or not arising out of
third-party claims but in each and every case exclusively arising out of the
conduct of the Business before the Closing Date), including, without limitation,
interest, penalties, attorneys' and accountants' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing.
<PAGE>
-3-
The liabilities to be assumed by the Buyer under this Agreement are hereinafter
sometimes referred to as the "Liabilities" and the liabilities which are not
assumed by Buyer under this Agreement are hereinafter sometimes referred to as
the "Excluded Liabilities". The assumption of said Liabilities by Buyer
hereunder shall not enlarge any rights of third parties under contracts or
arrangements with Buyer or Seller, and nothing herein shall prevent Buyer or
Seller from contesting in any manner any of said Liabilities.
1.3 Base Purchase Price and Payment. In reliance upon the representations
-------------------------------
and warranties of the Seller herein contained and made at the Closing and in
full consideration of the terms and conditions hereof and the sale by Seller to
Buyer of the Subject Assets, SofTech shall deliver (the "Base Purchase Price")
to the Seller at the Closing the sum of $5,000,000 by wire transfer of
immediately available funds to such account(s) as Seller shall designate and
$2,000,000 in the form of a SofTech check from Fleet Bank, Boston,
Massachusetts.
1.4 Additional Purchase Price; Deferred Payments. In addition to the cash
--------------------------------------------
paid to Seller by Buyer at the Closing, additional cash payments of $4,400,000
(not dependent in any way on the performance of the Business) shall be due no
later than the sixtieth day immediately following the transaction Closing Date
(the "Deferred Payments"). The Buyer shall execute a note for the Deferred
Payments and a Common Stock Purchase Warrant at the Closing in the forms
appended hereto as Exhibits A and B.
1.5 Additional Purchase Price; Contingent Payments. In addition to the
----------------------------------------------
cash paid to the Seller by the Buyer at the Closing and the Deferred Payments,
additional payments will be due the Seller from the Buyer in cash in the event
that either of two alternative software license revenue goals are achieved in
the two six month periods (the "Measurement Periods") immediately following the
transaction Closing Date. The goals and the percentage of license revenue to be
due for each of the two Measurement Periods shall be as follows:
<TABLE>
<CAPTION>
ADRA License % of License Revenue
Revenue Goals: Payable to Seller:
------------- -----------------
<S> <C>
Less than $2,750,000 0
Equal to or more than $2,750,000 25.3% of the Business software
license revenue up to a maximum of
$1,100,000;
OR
SofTech Consolidated % of License
License Revenue Goals: Revenue
--------------------- -------
Less than $7,350,000 0
Equal to or more than $7,350,000 9.4% of consolidated SofTech
software license revenues up to a
maximum of $1,100,000.
</TABLE>
<PAGE>
-4-
Each of the two six-month Measurement Periods will be measured independent
of one another and Buyer will pay Seller the higher of the two payments
calculated under the two alternative methods. The Business software license
revenue shall be comprised of all revenues generated from the license of all of
the Business software products purchased by Buyer in this transaction (including
revenue from future versions and enhancements of existing Business software but
specifically excluding maintenance revenue). The SofTech software license
revenue shall be comprised of all revenues generated from the license of all
proprietary and third party software products marketed by SofTech including all
Business products during the applicable Measurement Period.
In no event shall the Contingent Payments exceed $ 1,100,000 for either of
the Measurement Periods or $2,200,000 for both periods. Contingent Payments
earned in respect of either Measurement Period shall be paid to Seller within 30
days of the end of the applicable Measurement Period. Buyer's records with
respect to revenue generated from the license of ADRA and other software
products in respect of the Measurement Periods will be subject to audit by
Seller or its agents during regular business hours with reasonable notice.
1.6 Allocation of Purchase Price. Both parties agree that the Base Purchase
----------------------------
Price and Deferred Payments of $11.4 million will be allocated as follows:
Software purchased $10,000,000
Net tangible assets 250,000
Goodwill 1,050,000
Capital stock of Adra GmbH 100,000
-----------
Total $11,400,000
The parties further agree that the Contingent Payments shall be allocated to
Software purchased. The parties agree that the amounts so allocated are fair
measures of the market value of the software and net tangible assets (except
that the net tangible assets reflect accrued liability of approximately $600,000
by the Buyer for transaction costs as compared with Seller's net tangible assets
sold of approximately $850,000) based on assumptions regarding current market
information, replacement value, projected cash flow from expected revenue and
experience from marketing such assets to other interested parties, and the
parties agree to file all required reports with the Internal Revenue Service
consistent with the foregoing.
1.7 Transfer of Subject Assets. Unless waived by Buyer at the Closing,
--------------------------
Seller shall deliver or cause to be delivered to Buyer good and sufficient
instruments of transfer transferring to Buyer title to all Subject Assets. Such
instruments of transfer (a) shall be in the form (not inconsistent with the
provisions hereof) which are usual and customary for transferring the type of
property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance reasonably satisfactory to Buyer
and its counsel, and (c) shall effectively vest in Buyer good and marketable
title to all the Subject Assets free and clear of all liens, restrictions and
encumbrances not shown or reflected on the Base Balance Sheet except anything
arising from actions of Buyer and except for such liens as are identified on the
Disclosure
<PAGE>
-5-
Schedule with respect to which Buyer shall take the assets subject to
such liens. Notwithstanding anything to the contrary in this Agreement, title to
(i) Sellers assets (tangible and intangible) located in France, (ii) the stock
of Adra Systems, GmbH, and (iii) contracts which the Seller and/or Parent
requires a sublicense of rights under prior to assigning same to Buyer, shall
pass as promptly as reasonably and commercially practicable following the
Closing.
1.8 Delivery of Records and Contracts. Within four (4) weeks of the
---------------------------------
Closing, Seller shall use reasonable commercial efforts to deliver or cause to
be delivered to Buyer all of Seller's leases, contracts, commitments, agreements
applicable to the ADRA business (including without limitation non-competition
agreements) and rights, and will use reasonable commercial efforts to assist
Buyer in obtaining such assignments thereof and consents to assignments as are
necessary to assure Buyer of the full benefit of the same. Buyer in its sole
discretion may waive the obtainment of any necessary consent or assignment prior
to the Closing, in which case Seller's sole obligation with respect thereto will
be to use reasonable efforts to cooperate with Buyer in obtaining same following
the Closing. Seller shall also deliver to Buyer at the Closing all of Seller's
business records, tax returns, books and other data, in each case relating to
the Business (except corporate records and other property of Seller excluded
under Section 1.1 as to which only copies need to be delivered in accordance
with such Section), and Seller shall take all reasonable steps to put Buyer in
actual possession and operating control of the ADRA assets and Business.
1.9 Further Assurances. Seller from time to time after the Closing at the
------------------
request of Buyer and without further consideration shall execute and deliver
further instruments of transfer and assignment and take such other action as
Buyer may reasonably require to more effectively transfer and assign to, and
vest in, Buyer each of the Subject Assets. Seller shall cooperate with Buyer to
permit Buyer to enjoy Seller's rating and benefits under the workman's
compensation laws and unemployment compensation laws of the applicable
jurisdictions, to the extent permitted by such laws.
1.10 Sales and Transfer Taxes. All sales, use, value added, and transfer
------------------------
taxes, fees and duties under applicable law incurred in connection with this
Agreement or the transactions contemplated thereby will be shared equally by
Buyer and Seller whether imposed by federal, state, local or foreign
governmental authorities.
Section 2
REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 Making of Representations and Warranties. As a material inducement to
----------------------------------------
Buyer to enter into this Agreement and consummate the transactions contemplated
hereby, Seller and Parent, jointly and severally, hereby make to Buyer the
representations and warranties contained in this Section 2, (all such
representations and warranties being deemed to be supplemented or conditioned by
any material contained in the disclosure schedule).
2.2 Organization and Qualification of ADRA. ADRA is a corporation duly
--------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware with full
<PAGE>
-6-
corporate power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is currently conducted. The copies of ADRA's Certificate
of Incorporation and bylaws, as amended to date, certified by the Secretary of
State of the State of Delaware are complete and correct, and no amendments are
pending or contemplated. ADRA is not required to be licensed or qualified to
conduct its business or own its property in any other jurisdiction in which it
is not qualified except in any jurisdiction where the failure to so qualify will
not have a material adverse effect on ADRA.
2.3 Subsidiaries. ADRA has no subsidiaries and does not own any
------------
securities issued by, and has not loaned any funds to, any other business
organization or governmental authority other than those listed on Schedule 2.3.
2.5 Authority. Seller has full right, authority and power to
---------
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by Seller pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution delivery and performance by
Seller of this Agreement and each such agreement, document and instrument have
been fully authorized by all necessary action of Seller and no other action on
the part of Seller is required in connection therewith with the exception of the
obtainment of any necessary consents to transfer or other transfer transactions
which have been waived by the Buyer herein. The execution, delivery and
performance of this Agreement by Seller does not and will not: (a) violate any
provision of the Certificate of Incorporation or bylaws; (b) violate any laws of
the United States, or any state or other jurisdiction applicable to Seller or
require Seller to obtain any approval, consent or waiver of, or make any filing
with, any person or entity that has not been obtained or made; and (c) result in
a material breach of, constitute a material default under, accelerate any
material obligation under, or give rise to a right of termination of any
material contract, agreement, or lease to which Seller is a party except as set
forth on Schedule 2.5.
2.6 Status of Tangible Property.
---------------------------
(a) No Real Property Owned. Seller does not currently, nor has Seller
----------------------
in the past, owned any real property.
(b) Leased Real Property. All real property leased by Seller as
--------------------
tenant or lessee and used in the ADRA business is listed on Schedule 2.6(b).
Copies of all the leases have been provided to Buyer and are complete, accurate,
true and correct. Each of the Leases is in full force and effect on the terms
set forth therein and have not been modified, amended or altered, in writing or
otherwise.
(c) Personal Property. A complete list of machinery, equipment,
-----------------
furniture, fixtures, leasehold improvements and all other tangible personal
property owned or leased by Seller and used in the ADRA business is listed on
Schedule 2.6(c). Seller has good and valid, legal title to all of the personal
property owned by it and used in the Business, free and clear of all claims,
liens and encumbrances and all of its equipment leases are valid and no default
exists under any such lease. All such personal property is being sold to Buyer
on an "as is, where is" basis.
<PAGE>
-7-
2.7 Financial Statements.
--------------------
(a) Buyer has received the following financial statements and
statements of revenues related to the actual performance and the financial
position of the ADRA business, copies of which are attached hereto as part of
Schedule 2.7: balance sheets as of June 27, 1997 and March 28, 1998; and
statements of income and cash flows for the nine months ended March 28, 1998;
and statements of revenue for the twelve months ended June 27, 1997 and June 29,
1996. Said financial statements have been prepared in accordance with generally
accepted accounting principles applied consistently during the periods covered
thereby, and present fairly the financial position of the Business at the dates
of said statements and the results of its operations for the periods covered
thereby subject to year-end audit and adjustments which are not expected to be
material. The balance sheet of ADRA as of March 28, 1998 is hereafter referred
to as the "Base Balance Sheet".
(b) As of the date hereof, ADRA had no known liabilities of any nature
that would be required to be disclosed in accordance with generally accepted
accounting principles, whether accrued, absolute, contingent or otherwise,
asserted or unasserted except liabilities (i) stated or adequately reserved
against on the Base Balance Sheet, or (ii) specifically reflected on the
Schedules furnished to Buyer hereunder as of the date hereof, or (iii) incurred
in the ordinary course of business since the date of the Base Balance Sheet.
2.8 Taxes.
-----
(a) Seller has paid or caused to be paid all federal, state, local,
foreign and other taxes, including, without limitation, income taxes, estimated
taxes, alternative taxes, excise taxes, sales taxes, use taxes, value-added
taxes, gross receipts taxes, capital stock taxes, franchise taxes, employment
and payroll related taxes, withholding taxes, property taxes, whether or not
measured in whole or part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties owed by it (collectively,
"Taxes") required to be paid by it through the date hereof whether disputed or
not.
(b) Seller has, in accordance with applicable law, filed all federal,
state, local and foreign tax returns required to be filed by it through the date
hereof, and all such returns correctly and accurately set forth the amount of
any Taxes relating to the applicable period. Schedule 2.8(b) lists all federal,
state, local and foreign income tax returns filed by Seller for the fiscal year
ended June 30, 1995, 1996 and 1997 with notation as to those returns that have
been audited or are currently being audited. Seller has delivered to Buyer a
complete and correct copy of each of those returns listed and all examination
reports and statements of deficiencies assessed against or agreed to by Seller
with respect to such returns.
2.9 Accounts Receivable.
-------------------
(a) Except as set forth in the Schedule 2.9(a) attached hereto, all of
the accounts receivable of ADRA shown or reflected on the Base Balance Sheet or
existing on the date hereof are valid and enforceable claims, fully collectible
and subject to no setoff or counterclaim except to the extent of the reserve
established for doubtful accounts as of the Base
<PAGE>
-8-
Balance Sheet. Schedule 2.9(a) is the detailed aging of accounts receivable as
of March 28, 1998 reconciled to the balance sheet of the same date. ADRA has no
accounts or loans receivable from any person, firm or corporation which is
affiliated with ADRA or from any of its directors, officers, employees or
shareholders except intercompany accounts which have been eliminated in the
ordinary consolidation process.
(b) Schedule 2.9(b) presents a rollforward of the allowance for
doubtful accounts from June 28, 1997 through March 31, 1998 by fiscal year
detailing the additions to the reserve and the accounts written off against the
reserve. Seller represents that since June 30, 1997 all uncollectible accounts
have been written off against such reserve and no material revenue reversals or
direct writeoffs have been recorded except as reflected on Schedule 2.9(b) to be
delivered post-closing.
2.10 Absence of Certain Changes. Since the date of the Base
--------------------------
Balance Sheet there has not been:
(a) any material adverse change in the financial condition,
properties, assets, liabilities, business or operations of the Business;
(b) any material contingent liability incurred by the Business as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any debt or claim owing to, or waiver of any right of
Seller;
(c) any material obligation or liability of any nature incurred by
Seller, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, other than obligations and liabilities incurred in the ordinary
course of business consistent with the terms of this Agreement;
(d) any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any assets of
Seller other than in the ordinary course of business;
(e) any labor trouble or claim of unfair labor practices involving
Seller, any change in compensation by Seller to any officers, employees,
agents or independent contractors other than normal merit increases in
accordance with its usual practices, or any bonus payment or arrangement
made to or with any of such officers, employees, agents or independent
contractors;
(f) any payment or discharge of a lien or liability of Seller which
was not shown on the Base Balance Sheet or incurred in the ordinary course
of business thereafter,
(g) any change in accounting methods or practices, credit practices or
collection policies used by Seller,
<PAGE>
-9-
(h) any agreement or understanding, whether in writing or otherwise,
for Seller to take any of the actions specified in paragraphs (a) through
(g) above; or
(i) any material change in relations with customers, employees or
distributors that would have a material adverse effect on the Business.
2.11 Contracts. Schedule 2.1 1 is a complete list of all material written
---------
and oral contracts, commitments, plans, agreements and licenses to which Seller
is a party relating to ADRA. Seller is not a party to any other material
contract, commitment, plan, agreement or license relating to the Business that
is not described on Schedule 2.11.
Seller is not in material default under any such contracts, commitments,
plans, agreements or licenses described on Schedule 2.11 and has no knowledge of
conditions or facts which with notice or passage of time, or both, would
constitute default. To the knowledge of Seller, no other party to any such
contract, commitment, plan, agreement or license is in default thereunder.
2.12 Litigation. There is no litigation or governmental or administrative
----------
proceeding or investigation pending against Seller or threatened against Seller
which is reasonably likely to have a material adverse effect on Seller's assets,
prospects, financial condition or business or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
2.13 Compliance with Laws. Seller is in compliance in all material respects
--------------------
with all applicable statutes, ordinances, orders, rules and regulations
promulgated by any federal, state, municipal or governmental authority which
apply to the conduct of its business, and Seller has not received written notice
of a violation or alleged violation of any such statute, ordinance, order, rule
or regulation.
2.15 Corporate Records. The corporate record books of ADRA record all
-----------------
material corporate action taken by its stockholders and board of directors and
committees thereof. The copies of the ADRA's Corporate Records delivered to
Buyer are true and complete copies of the originals of such documents. Seller
has provided Buyer with access to all tax and accounting records in order to
perform its due diligence procedures. Seller represents that such tax and
accounting records are complete.
2.16 Employee Benefit Plan. Schedule 2.16 lists and describes all employee
---------------------
benefit plans that have been offered to employees of the ADRA business since
inception through the Closing Date. Seller has provided Buyer with complete
copies of all documents embodying or governing such Plans.
2.17 Environmental Matters. ADRA has never generated, transported, used,
---------------------
stored, treated, disposed of or managed any Hazardous Waste. No Hazardous
Material has ever been or is threatened to be spilled, released or disposed of
by or on behalf of ADRA at any site presently or formerly owned, operated,
leased or used by ADRA. For the purposes of this Section 2.17, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material
<PAGE>
-10-
hazardous substance, petroleum product, oil, toxic substance, pollutant
contaminant or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; (iii) "Environmental Law" shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
bylaw at the foreign, federal state, or local level, whether existing as of the
date hereof, previously enforced, or subsequently enacted; and (iv) "Seller"
shall mean and include Seller and all other entities for whose conduct Seller is
or may be held responsible under any Environmental Law.
2.18 Directors, Officers, and Suppliers.
----------------------------------
(a) Schedule 2.18(a) is a true and complete list of all current
directors and officers of Seller. Neither the Seller nor, to Seller's
knowledge, any other director or officer of Seller, owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer, director, employee of or consultant to, any customer, competitor
or supplier of ADRA or any organization that has a material contract or
arrangement with or lease of real or personal property to the Business.
(b) Schedule 2.18(b) is a true and complete list of the suppliers of
ADRA to whom ADRA has made a payment of $10,000 or more during or with respect
to the fiscal year ended June 30, 1997 or during the nine month period ended
March 31, 1998 showing with respect to each, the name, address and dollar volume
involved.
2.19 Disclosure. To the knowledge of Seller, the representations,
----------
warranties and statements contained in this Agreement and in the certificates,
exhibits and schedules delivered by ADRA to Buyer pursuant to this transaction
do not contain any untrue statement of a material fact.
2.20 Employees and Labor Matters.
---------------------------
(a) As of the date hereof, Seller employs 76 full-time employees and 2
part-time employees in the ADRA business and generally enjoys a good employer-
employee relationship. Schedule 2.20(a) sets forth the name, position, pay
rate, fulltime or part-time status, date of hire, annual review date and exempt
or nonexempt status of each of ADRA's employees. Seller has no knowledge that
any employee of the Business does not plan to accept employment with Buyer other
than as detailed on Schedule 2.20(a).
(b) Schedule 2.20(b) is a list of all employees that have terminated
employment, for any reason, voluntarily or otherwise, with ADRA over the last
nine (9) months with a brief description of the circumstances of such
termination. Also included on said Schedule is a description of the former
position held by the former employee and the pay rate of said former employee.
Seller is not delinquent in payments to any of its employees, past or
present, for any wages, salaries, commissions, bonuses or other direct
compensation for any services provided or
<PAGE>
-11-
amounts required to be reimbursed, relating to the Business. There are no
workers' compensation or other similar claims filed against Seller, and the
Seller does not know of any injury or other event that may give rise to any such
claim, relating to the Business. There are no charges of employment
discrimination or unfair labor practices that have been filed against or
involving Seller, relating to the Business. There are no grievances, complaints,
or charges that have been filed against Seller, relating to the Business. Seller
is, and has been at all times since its effective date, in compliance with the
requirements of the Immigration Reform Control Act of 1986, relating to the
Business. Seller's payroll systems and classification of employees is and for 18
months prior to the Closing has been consistent with and in compliance with the
requirements of the Fair Labor Standards Act, as amended, and any and all
applicable state minimum wage and overtime laws, relating to the Business.
2.21 Customers and Distributors.
--------------------------
(a) As of the date hereof, Schedule 2.21(a) sets forth any
representative, distributor or direct customer who accounted for more than
$100,000 of revenue to the Business in any of the fiscal years ended June 30,
1996 and 1997 or for the nine month period ended March 28, 1998. The Schedule
shall include customer name and dollar amount purchased. Schedule shall also
quantify the sales in units to distributors during each of fiscal years 1996,
1997 and for the nine months ended March 28, 1998.
(b) Schedule 2.21(b) is the list maintained by the Seller of license
sales of ADRA products by customer in North America only from inception through
April 30, 1998 and is hereinafter defined as the Installed Base. Such Schedule
identifies those customers currently on maintenance. This listing of Installed
Base includes customer name, location, contact person, phone number, and other
pertinent information available from the books and records of ADRA the list is
provided "as is, where is". Seller represents that to its knowledge, such
listing is complete and accurate in all material respects.
2.22 Proprietary Rights,
------------------
(a) "Proprietary Rights" means all of the following owned by, issued
to or licensed to Seller and used exclusively in the Business, and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world: patents, patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice) and any reissues,
continuations, continuations-in-part, revisions, extensions, or reexaminations
thereof; trade marks, service marks, trade dress, logos, trade names, corporate
names, together with all goodwill associated therewith; copyrights and
copyrightable works; and registrations, applications and renewals for any of the
foregoing; trade secrets and confidential information (including, without
limitation, ideas, formulae, compositions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data, financial
and accounting data, business and marketing plans, and customer and supplier
lists and related information); computer software (including, without
limitation, data, data bases and documentation); other intellectual property
<PAGE>
-12-
rights; and all copies and tangible embodiments of the foregoing (in whatever
form or medium), in each case including, without limitation, the items set forth
in Schedule 2.21 attached hereto.
(b) Schedule 2.22 sets forth a complete list of all: (i) patented or
registered Proprietary Rights and pending patent applications or other
applications for registrations of Proprietary Rights owned or filed by or on
behalf of ADRA; (ii) all material trade names and material unregistered
trademarks and service marks owned by ADRA and used exclusively in the Business;
(iii) all material software owned by ADRA and licensed to third parties
exclusively through the Business ("Material Software"); and (iv) all licenses or
similar agreements under which ADRA is the licensee of any Proprietary Rights.
(c) Except as set forth in Schedule 2.22: (i) to its knowledge, ADRA
owns and possesses all right, title and interest in and to, or has a valid and
enforceable license to use, the Proprietary Rights reasonably necessary for the
operation of the Business as currently conducted, free and clear of all liens,
licenses, security interests, encumbrances and other restrictions, (ii) no claim
by any third party contesting the validity, enforceability, use or ownership of
any of the Proprietary Rights has been made, is currently outstanding or, to its
knowledge, is threatened, (iii) to its knowledge, the conduct of the Business
has not infringed, misappropriated or otherwise conflicted with any intellectual
property rights of any third parties, and ADRA has not received any notices of,
and is not aware of any facts which indicate a likelihood of, any infringement
or misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights (including any demands by third parties that ADRA take a
license of any intellectual property for use in the Business); and (iv) to its
knowledge, no independent contractor developed or assisted in the development of
any other Material Software, except in accordance with a written agreement
assigning to ADRA or Parent such independent contractor's right, title and
interest in such Material Software.
(d) ADRA has taken all steps required to maintain and protect the
Proprietary Rights. Such steps have included, but are not limited to: (i) the
affixation of all copyright notices required by U.S. law to all copies of
Material Software and the documentation related thereto; (ii) distribution of
source code of Material Software (A) to employees, consultants, contractors and
potential investors, only subject to appropriate confidentiality agreements or
(B) to customers of the Business, only subject to license agreements; and (iii)
disclosure of material confidential information of the Business (including but
not limited to source code and systems documentation for Material Software) only
to persons who require access to such information for the Business, and only
subject to written confidentiality agreements.
2.23 Warranty. Except as expressly provided herein, Seller and/or Parent
--------
make no warranty of any kind whatsoever, including, without limitations any
representation as to physical condition, suitability for a particular use, value
of assets or future earnings or performance of the ADRA Business. All implied
warranties of merchantability and fitness for a particular purpose are expressly
excluded.
<PAGE>
-13-
Section 3
REPRESENTATIONS AND WARRANTIES OF SOFTECH
3.1 Making of Representations and Warranties. As a material inducement to
----------------------------------------
Sellers to enter into and to consummate the transactions contemplated by this
Agreement, Buyer hereby represents and warrants the following:
(a) SofTech is duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts with full corporate power
and authority to own or lease its properties and to conduct its business in the
manner and in the places where such properties are owned or leased or such
business is conducted by them.
(b) SofTech has the full right, authority and power to enter into
this Agreement and each agreement, document and instrument to be executed and
delivered pursuant to this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by SofTech of this
Agreement has been duly authorized by all necessary corporate action of SofTech,
and no other action on the part of SofTech or its Board of Directors or
shareholders is required in connection therewith.
3.2 Disclosure. To the knowledge of Buyer, the representations,
----------
warranties and statements contained in this Agreement and in the certificates,
exhibits and schedules delivered by Buyer to Seller pursuant to this transaction
do not contain any untrue statement of a material fact.
3.3 SEC Documents. Buyer has furnished or made available to Seller a true
-------------
and complete copy of its definitive proxy statement in connection with the
annual meeting of its Stockholders, its annual report and Form 10-K for the
fiscal year ended May 31, 1997, its current reports on Form 8-K and any other
document dated prior to the date of this Agreement which Buyer filed under the
Securities and Exchange Act of 1934 after the filing of such Form 10-K
(collectively, the "SEC Documents"), which are all of the documents (other than
preliminary material) that Buyer was required to file with the Commission since
such date. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, or the
Securities Exchange Act of 1934, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such SEC Documents, and,
to the knowledge of Buyer, none of the SEC Documents, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Buyer included in the SEC
Documents complied as to form in all material respects with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Rule 10-01 of Regulation S-X) and fairly
presented in accordance with applicable requirements of GAAP (subject, in the
case of the unaudited statements, to normal recurring adjustments, none of which
will be material) the
<PAGE>
-14-
consolidated financial position of Buyer as of their respective dates and the
consolidated results of operations and consolidated cash flows of Buyer for the
periods presented therein.
3.4 Litigation. Except as disclosed in the SEC Documents, there is no
----------
litigation or governmental or administrative proceeding or investigation pending
against Buyer which is reasonably likely to have a material adverse effect on
Buyer's assets, prospects, financial condition or business or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement or performance by Buyer of its obligations under this Agreement.
3.5 Compliance with Laws. Buyer is in compliance in all material respects
--------------------
with all applicable statutes, ordinances, orders, rules and regulations
promulgated by any federal, state, municipal or governmental authority which
apply to the conduct of its business, and Buyer has not received any notice of a
violation or alleged violation of any such statute, ordinance, order, rule or
regulation.
Section 4
INDEMNIFICATION
4.1 Indemnification by the Sellers. Each Seller, jointly and severally,
------------------------------
agrees to indemnify and hold Buyer and their respective subsidiaries, officers,
directors, partners or employees harmless from and against any damages,
diminution in value, liabilities, losses, claims, taxes or expenditures of any
kind or nature whatsoever which may be sustained or suffered by any of them
arising out of or based upon any breach of any representation, warranty or
covenant under this Agreement or in any agreement, certificate, schedule or
exhibit delivered pursuant hereto, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing
constituting a breach of such representation, warranty, covenant or agreement,
in each case to the extent a claim for indemnity with respect thereto is
asserted within the time period specified in Section 4.6.
4.2 Indemnification by SofTech. SofTech agrees to indemnify and hold
--------------------------
Seller harmless from and against any damages, liabilities, losses, taxes or
expenditures of any kind or nature whatsoever which may be sustained or suffered
by any of them arising out of or based upon any breach of any representation,
warranty, covenant or agreement under this Agreement or in any agreement,
certificate, schedule or exhibit delivered pursuant hereto, or by reason of any
claim, action or proceeding asserted or instituted growing out of any matter or
thing constituting a breach of such representation, warranty, covenant or
agreement in each case to the extent a claim for indemnity with respect thereto
is asserted within the time period specified in Section 4.6.
4.3 Notice and Defense of Claims. In the event of a claim arising under
----------------------------
the indemnification provisions detailed above, the party making the claim shall
do so in writing to the person or persons responsible for the indemnification.
The party receiving such claim has 30 days to review the written notification
and either agree the claim is valid or dispute such claim in writing to the
other party, or contend that liability might be properly asserted but that a
claim for
<PAGE>
-15-
a certain dollar amount has not matured as of such date; provided, that a claim
in respect of any action at law or suit in equity by or against a third person
as to which indemnification will be sought shall be given promptly after the
action or suit is commenced; provided further that failure to give such notice
shall not relieve the indemnitor of its obligations hereunder except to the
extent it shall have been prejudiced by such failure. In calculating any loss or
expense there shall be deducted (i) any insurance recovery in respect thereof
(and no right of subrogation shall accrue hereunder to any insurer) and (ii) the
amount of any tax benefit to the indemnified party (or any of its affiliates)
with respect to such loss or expense (after giving effect to the tax effect of
receipt of the indemnification payments). In the case of loss or expense
asserted against, resulting to, imposed upon, or suffered by any indemnified
party by reason of any claim by any third party (a "Third Party Claim"), the
indemnified party shall provide a claim as previously provided. Upon receipt of
a claim in respect of a Third Party Claim, the indemnitor may, in its sole
discretion, undertake the defense thereof by counsel of its own choosing, which
counsel shall be reasonably satisfactory to the indemnified party (it being
understood, in the event that the indemnitor undertakes such defense, the
defense, compromise, or settlement of such claim shall be for the account of,
and at the risk of, the indemnitor); provided, however, that the indemnified
party shall have the right at its own expense to participate in the defense
thereof and to employ counsel at its own expense to assist in such defense. If
the indemnified party has not, within fifteen (15) days after a claim with
respect to any Third Party Claim is made, received written notice from the
indemnitor stating that the indemnitor elects to assume the defense of such
Third Party Claim, the indemnified party shall have the right, with counsel
reasonably acceptable to the indemnitor, to undertake and control the defense,
compromise or settlement of such Third Party Claim. The indemnitor shall not,
without the prior written consent of each indemnified party against whom a Third
Party Claim is asserted, settle or compromise any claim or consent to the entry
of any judgment relating to or cease to defend any such Third Party Claim,
unless such settlement, compromise, or judgment includes as an unconditional
term thereof the giving by the claimant or by the plaintiff to each indemnified
party against whom a Third Party Claim is asserted, a release from all
liabilities in respect of such Third Party Claim and does not result in the
imposition on the indemnified party of any remedy other than monetary damages
for which the indemnified party is fully indemnified. The indemnitor shall, at
its expense, provide each indemnified party against whom a Third Party Claim is
asserted with reasonable access to all records and documents of the indemnitor
relating to any Third Party Claim. The indemnified party shall, at the expense
of the indemnitor, provide the indemnitor with reasonable access to all records
and documents of the indemnified party relating to any Third Party Claim. In the
event of agreement with the validity of such claim, payment shall be made within
45 days of receipt of notification. If the dispute cannot be settled by
negotiation between the parties within 90 days of receipt of notification, upon
election of either party, the dispute shall be referred to the American
Arbitration Association to be settled in Boston, MA on an expedited basis in
accordance with the commercial arbitration rules of said organization. Fees and
expenses of such arbitration shall be shared equally.
4.4 Exclusive Remedy. The parties agree that the remedies provided in
----------------
Section 4 shall be the exclusive remedies with respect to any alleged breach of
any representation or warranty or covenant made in this Agreement. The only
legal action which may be asserted by any party with respect to any matter shall
be a contract action to enforce, or to recover damages
<PAGE>
-16-
for the breach of, this Section 4. Without limiting the generality of the
preceding sentence, no legal action sounding in tort or strict liability may be
maintained by any party.
4.5 Tax Effect of Indemnification Payments. In determining the amount of
--------------------------------------
claims against an indemnifying party pursuant to this Section 4, there shall be
added (in the case of a tax detriment) or deducted (in the case of a tax
benefit) to or from the amounts to be paid by the indemnifying party an amount
equal to the net present value of any tax benefit or tax detriment (federal,
state, local or foreign) realized or expected by the independent public
accountants of Seller to be realized by the indemnified party by reason of such
claim and the receipt of any indemnity payment pursuant to this Section 4.
For purposes of this Section 4.5, "present value" shall be calculated using
the applicable annual Federal midterm rate, as that term is defined in the Code,
as in effect for the month in which the payment is to be made; "tax benefit" and
"tax detriment" shall be calculated using the actual effective tax rate with
respect to the taxable period or periods for which the tax benefit or the tax
detriment, as the case may be, is realized or incurred, or expected by the
independent public accountants of Seller to be realized or incurred, as the case
may be.
4.6 Limitation on Indemnification by Sellers. The right of the Buyer to
----------------------------------------
indemnification from the Seller shall be subject to the following provisions:
(a) The Seller shall be provided with a $500,000 deductible for all claims
for indemnification under Section 4.1 by the Buyer. No payments of such claims
shall be made by the Seller to the Buyer until such time as such claims exceed
$500,000 and only to the extent that such claims exceed that amount; and
(b) No indemnification shall be payable to the Buyer from the Seller
pursuant to Section 4.1 for claims in excess of $1.0 million in the aggregate
exclusive of claims relating to the Excluded Liabilities as to which there shall
be no such limitation and which shall not be counted toward such limitation.
4.7 Survival. The representations and warranties of each party contained
--------
in this Agreement shall survive the Closing Date until December 31, 1998. Any
claim for indemnity shall be asserted on or before such date except that any
claim relating to Taxes may be asserted until the 60th day after the running of
the applicable statute of limitations with respect to the taxable period to
which the particular claim relates. Notwithstanding anything to the contrary
contained in this Agreement, no time or other limitation applies to losses
relating to Excluded Liabilities.
Section 5
POST CLOSING OBLIGATIONS
5.1 Required Audits of ADRA. Seller agrees to cooperate reasonably
-----------------------
following the transaction to complete the required audits of prior fiscal years
as required for Buyer's Form 8K
<PAGE>
-17-
filing. Such audited financial statements must be filed with the Securities and
Exchange Commission on or before the 75th day following the Closing date of the
transaction.
5.2 Nonsolicitation. Each of the Buyer and Seller agree that, for a
---------------
period of one year from the Closing Date, without the prior written consent of
the other party, which consent shall not be unreasonably withheld, they shall
not, directly or indirectly, solicit for employment hire as an employee,
consultant or contractor, or otherwise engage any employee who was employed by
the other party as of the transaction date or for a period of six months
immediately preceding transaction date. For the purpose of this section 5.2
only, all employees of the Business that are offered employment by the Buyer
shall be deemed employees of Buyer at the transaction date regardless of their
ultimate acceptance of such offer of employment with Buyer, provided, however,
that Seller may offer employment to a former employee of the Business 15 days
after their rejection of an offer of employment with Buyer.
5.3 Account Reconciliation. Seller agrees to close the April 30, 1998
----------------------
ADRA books and records in the normal course and to provide Buyer with such final
records by May 26, 1998.
5.4 Assignment of Registered Trademarks. Seller agrees to enter into an
-----------------------------------
assignment agreement with Buyer subsequent to the Closing to assign all of the
registered trademarks listed of the Business as listed on Schedule 2.22 to
Buyer. Such assignment agreement shall be in a form suitable for filing with the
Patent and Trademark Office.
Section 6
OTHER INFORMATION
6.1 Governing Law. This Agreement shall be construed under and governed by
-------------
the internal laws of the Commonwealth of Massachusetts.
6.2 Notices. Any notice or communication required hereunder shall be in
-------
writing and shall be deemed to have been given if sent by facsimile transmission
(with confirming copy by mail) upon receipt. All notices will be sent to the
addresses set forth below:
To SofTech:
SofTech, Inc.
3260 Eagle Park Drive, N.E.
Grand Rapids, MI 49505
Attention: Mark Sweetland
To the Sellers:
MatrixOne, Inc.
Two Executive Drive
Chelmsford, MA 01824
Attention: Mark O'Connell
<PAGE>
-18-
To Seller's Legal Counsel:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 021 10
Attention: Gordon H. Hayes
6.3 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. All inducements to the making of
this Agreement relied upon by either party have been expressed herein.
6.4 Assignability. This Agreement may not be assigned by the Buyer or the
-------------
Seller without the prior written consent of the other party. This Agreement
shall be binding upon and enforceable by, and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. No right
hereunder shall be created in any person or entity not a party to this
Agreement, it being the express intention of the parties hereto that no third
party beneficiary rights shall be created or implied by virtue of this
Agreement.
<PAGE>
-19-
ASSET PURCHASE AGREEMENT SIGNATURE PAGE
---------------------------------------
IN WITNESS WHEREOF the parties hereto have executed or caused this
Agreement to be executed by their duly authorized representatives as of the date
set forth above.
SOFTECH, INC.
By: /s/ Joseph Mullaney
-----------------------------
Joseph P. Mullaney
Chief Financial Officer
ADRA SYSTEMS, INC.
By: /s/ William L. Fiedler
-----------------------------
William L. Fiedler
Chief Financial Officer
MATRIXONE, INC.
By: /s/ William L. Fiedler
-----------------------------
William L. Fiedler
Chief Financial Officer
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
REGISTRATION RIGHTS, RESTRICTED STOCK
AND STOCK OPTION AGREEMENT
Agreement, dated as of October 11, 1988, by and among Adra Systems, Inc., a
Delaware corporation (the "Company"), and those parties listed as Stockholders
on the signature pages hereto (the "Stockholders").
WHEREAS, the Company and certain of the Stockholders desire to amend and
restate a certain Registration Rights, Restricted Stock and Stock Option
Agreement, dated as of August 26, 1988, by and among the Company and certain of
the Stockholders (the "Original Agreement") to take into account the issuance
and sale of additional shares of Class D Preferred Stock and the issuance and
sale of Class E Preferred Stock, in some cases to Stockholders which were not
party to the Original Agreement;
NOW, THEREFORE, the parties hereby amend and restate the Original Agreement
to read in its entirety as provided herein.
ARTICLE I. DEFINITIONS
1.1 "Applicable Securities Laws" has the meaning set out in Section 3.8.
1.2 "Class A Common Stock" means the Class A Common Stock, $.01 par value,
of the Company.
1.3 "Class A Preferred Stock" means the Class A Convertible Preferred
Stock, $1.00 par value, of the Company issued pursuant to the Class A Purchase
Agreement or the Mason Preferred Stock Purchase Agreement dated as of August 24,
1983 among the Company and William T. Mason, as amended.
1.4 "Class A Purchase Agreement" means the Preferred Stock Purchase
Agreement, dated August 24, 1983, among the Company and various investors, as
amended.
1.5 "Class B Preferred Stock" means the Class B Convertible Preferred
Stock, $1.00 par value, of the Company issued pursuant to the Class B Purchase
Agreement.
1.6 "Class B Common Stock" means the Class B Common Stock, $.01 par value,
of the Company.
1.7 "Class B Purchase Agreement" means the Class B Preferred Stock
Purchase Agreement, dated December 20, 1984, among the Company and various
investors, as amended.
1.8 "Class C Preferred Stock" means the Class C Convertible Preferred
Stock, $1.00 par value, of the Company issued pursuant to either of the Class C
Purchase Agreements.
<PAGE>
1.9 "Class C Purchase Agreements" means the Class C Preferred Stock
Purchase Agreement, dated December 18, 1985, among the Company and various
investors, as amended (the "earlier Class C Purchase Agreement"), and the Class
C Preferred Stock Purchase Agreement, dated January 20, 1987, among the Company
and various investors, as amended (the "later Class C Purchase Agreement").
1.10 "Class D Preferred Stock" means the Class D Convertible Preferred
Stock, $1.00 par value, of the Company issued (a) upon conversion of those
Convertible Subordinated Demand Promissory Notes issued by the Company and dated
October 16, 1987 or (b) to former shareholders of Elcam in connection with the
merger contemplated by the Reorganization Agreement or (c) pursuant to the Class
D and Class E Purchase Agreement.
1.11 "Class D and Class E Purchase Agreement" means the Class D Preferred
Stock and Class E Preferred Stock Purchase Agreement, dated as of October 11,
1988, among the Company and various investors, as amended.
1.12 "Class E Preferred Stock" means the Class E Convertible Preferred
Stock, $1.00 par value, of the Company issued pursuant to the Class D and Class
E Purchase Agreement.
1.13 "Commission" means the United States Securities and Exchange
Commission.
1.14 "Common Stock" means the Class A Common Stock and the Class B Common
Stock.
1.15 "Elcam" means Elcam, Inc., a Delaware corporation.
1.16 "Excluded Registrations" shall have the meaning set out in Section
3.4.
1.17 "Merger Common Stock" means Common Stock initially issued to former
stockholders of Elcam in connection with the merger contemplated by the
Reorganization Agreement.
1.18 "Merger Stockholder" means the Stockholders listed as Merger
Stockholders on the signature pages hereto.
1.19 "1984 Options" means options issued pursuant to Article IX of the
Class B Purchase Agreement.
1.20 "1985 Options" means options issued pursuant to Article IX of the
earlier Class C Purchase Agreement.
1.21 "1987 Options" means options issued pursuant to Article IX of the
later Class C Purchase Agreement.
1.22 "1988 E Options" means options issued pursuant to Article VIII of the
Class D and Class E Purchase Agreement.
<PAGE>
1.23 "1988 Options" means options issued pursuant to Article IV of this
Agreement.
1.24 "1933 Act" means the Securities Act of 1933.
1.25 "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.26 "Reorganization Agreement" means the Agreement and Plan of
Reorganization entered into between the Company, Adra Merger Corp., Elcam and
certain shareholders of Elcam.
1.27 "Stock" means the Class A Preferred Stock, the Class B Preferred
Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class E
Preferred Stock, any Common Stock issued on conversion of any of the Class A
Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the
Class D Preferred Stock or the Class E Preferred Stock, any Common Stock issued
upon exercise of any of the 1984 Options, the 1985 Options, the 1987 Options,
the 1988 Options or the 1988 E Options, any Common Stock issued upon exercise of
any Warrant issued pursuant to a certain Note and Warrant Purchase Agreement
among the Company and certain investors dated as of October 16, 1987, any shares
of Merger Common Stock, and any equity security of the Company issued as a
dividend or distribution thereon or in exchange therefor or upon conversion
thereof (whether such stock is held by a Stockholder or its assignees, other
than persons acquiring shares of stock in a underwritten public offering), but
not to other stock of the same class or of any other class which is now or
hereafter may be outstanding.
1.28 "Stockholder" shall have the meaning set out in the preamble hereto.
ARTICLE II. INVESTMENT REPRESENTATIONS OF
CERTAIN STOCKHOLDERS
The following representations, warranties and statements are each made as
of August 26, 1988.
2.1 Compliance with Securities Laws. Each of the Merger Stockholders,
-------------------------------
severally and not jointly, represents and warrants to the Company that such
Stockholder: (a) is acquiring shares of Stock to be issued to such Stockholder
solely in exchange for the shares of capital stock of Elcam owned by such
Stockholder and solely in connection with the transactions contemplated by the
Reorganization Agreement; (b) has paid no brokerage or similar commission in
connection with the acquisition of such shares of Stock; (c) is acquiring such
shares of Stock solely for his or its account; (d) is a sophisticated investor,
with such knowledge and experience in financial and business matters as to be
able to evaluate the merits and risks of acquiring shares of Stock; (e) has no
need for liquidity in connection with its acquisition of shares of Stock; and
(f) is able to bear the economic risk of loss of its investment in the Stock.
Each such Stockholder understands and agrees that his or its shares of Stock or
any interest therein have not been registered under the 1933 Act and may not be
sold, assigned or otherwise transferred in the absence of an effective
registration statement under the 1933 Act covering the
<PAGE>
transfer unless the sale or transfer is (i) made pursuant to Section 3.2 or (ii)
made in compliance with Rule 144 under the 1933 Act.
Each Merger Stockholder has provided such information as may reasonably
have been requested by the Company in order for the Company or its counsel to
evaluate the availability of an exemption under the 1933 Act for the issuance of
Class D Preferred Stock and the Merger Common Stock to such Stockholder.
2.2 Company Documents. Each Merger Stockholder hereby acknowledges
-----------------
receipt of the Reorganization Agreement, together with all schedules and
exhibits thereto and all financial statements referred to therein, which
documents each such Stockholder warrants have been reviewed such Stockholder.
Each such Stockholder acknowledges and warrants that, prior to the
execution of the Original Agreement, such Stockholder has had the opportunity to
ask questions and receive answers from the Company concerning the terms and
conditions of the transactions contemplated by the Reorganization Agreement and
the issuance of the shares of Stock in connection therewith, and concerning the
Company, its business and any of the documents identified above, and to obtain
such additional further information from the Company as such Stockholder has
deemed necessary to verify the accuracy of the information contained in the
documents identified above or any other information furnished to such
Stockholder.
2.3 1933 Act Matters. Each Merger Stockholder acknowledges and agrees
----------------
that the shares of Stock to be issued to such Stockholder have not been (and at
the time of acquisition by such Stockholder, will not be) registered under the
1933 Act or under the securities laws of any state, in reliance upon certain
exemptive provisions of such statutes. Each such Stockholder recognizes and
acknowledges that such claims of exemption are based, in part, upon the
representations of each such Stockholder contained in this Agreement. Each such
Stockholder further recognizes and acknowledges that, because the shares of
Stock are unregistered under federal and state laws, they are not presently
eligible for resale, and that they must be held indefinitely unless resold
pursuant to an effective registration statement under the 1933 Act and any
applicable state securities laws, or pursuant to a valid exemption from such
registration requirements. Each such Stockholder recognizes and acknowledges
that Rule 144 promulgated under the 1933 Act (which facilitates routine sales of
securities in limited amounts in accordance with the terms and conditions of
that Rule, including a holding period requirement) may not now be available to
such Stockholder for resale of the shares of Stock, and each such Stockholder
recognizes and acknowledges that, in the absence of the availability of Rule
144, a sale pursuant to a claim of exemption from registration under the 1933
Act would require compliance with some other exemption under the 1933 Act, none
of which may be available for resale of the shares of Stock by such Stockholder.
Each such Stockholder recognizes and acknowledges that, except as set forth in
the Agreement, the Company is under no obligation to register the shares of
Stock acquired by such Stockholder, either pursuant to the 1933 Act or the
securities laws of any state.
ARTICLE III. TRANSFER RESTRICTIONS AND REGISTRATIONS
<PAGE>
3.1 Legend. Unless and until otherwise permitted as hereinafter provided,
------
each certificate for Stock and each certificate issued to any subsequent
transferee of any such certificate shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT."
When (a) any Stock shall have been effectively registered and disposed of
in accordance with registrations under the 1933 Act and any applicable state
securities laws, or (b) both counsel referred to in Section 3.2 shall have
determined that such legends are no longer required in order to ensure
compliance with applicable federal or state laws, the holders of Stock bearing
such restrictive legend shall be entitled to receive from the Company, without
expense, a new certificate for such Stock not bearing such restrictive legend.
3.2 Transfer of Stock Where Registration Not Required. Before
-------------------------------------------------
transferring any Stock other than pursuant to Rule 144 under the 1933 Act and
other than Stock which has been registered under the 1933 Act, each holder of
Stock shall give written notice to the Company of its intention to do so,
describing briefly the manner of the disposition to be made thereof. Promptly
upon receiving such written notice, the Company shall present copies thereof to
its counsel. If the Company so requires, such holder shall furnish the Company
with an opinion of counsel acceptable to the Company (it being agreed that
Foley, Hoag & Eliot, Debevoise & Plimpton, Ropes & Gray or Proskauer, Rose,
Goetz & Mendelsohn is acceptable), with respect to the proposed disposition. If
in the opinion of counsel for the Company, which opinion shall be rendered as
promptly as practicable and in any event not later than 15 days after the later
of receipt by the Company of (a) such written notice or (b) such opinion of
holder's counsel, the proposed disposition of Stock may be effected without
registration or qualification thereof under any federal or state law, the
Company, as promptly as practicable, shall notify such holder of such opinion,
whereupon such holder shall be entitled to dispose of the Stock in accordance
with the terms of the notice delivered by it to the Company. Anything herein to
the contrary notwithstanding, provided that the transferee agrees to be bound by
the terms of this Agreement, any holder of Stock may transfer any Stock without
such notice to a partner, retired partner, a stockholder, a subsidiary or a
successor of such holder (or the estate of such partner, retired partner or
stockholder) or the ultimate parent corporation of such holder or any wholly-
owned direct or indirect subsidiary of such ultimate parent corporation,
provided such holder first obtains from counsel satisfactory to the Company (it
being agreed that Foley, Hoag & Eliot, Debevoise & Plimpton, Ropes & Gray or
Proskauer, Rose, Goetz & Mendelsohn is satisfactory) a written opinion that the
proposed transfer of the Stock may be effected without the registration
<PAGE>
or qualification thereof under any federal or state law or that any required
registration or qualification has been effected.
3.3 Required Registration. Any holder of Stock, provided such holder,
---------------------
together with any other holder exercising rights pursuant to this Section 3.3,
holds at least 35% of the then outstanding shares of Stock (excluding, however,
for purposes of calculation of such percentage, any shares of Common Stock
issued upon the exercise of any 1984 Option, any 1985 Option, any 1987 Option,
any 1988 Option or any 1988 E Option), shall have the right to require the
Company to effect any necessary registration or qualification in connection with
any proposed transfer or disposition of Stock, but, if the Company is otherwise
in registration on Form S-1, or S-2 at the time of demand, or if it has just
completed a registration at the time of demand, then not prior to ninety days
after the effective date of any such registration. If requested by such holder
to register or qualify any Stock, the Company shall promptly give written notice
of such request to all registered holders of Stock. Any holder of Stock
desiring to have any of its Stock included in such registration or qualification
shall, within 20 days after its receipt of such notice from the Company, notify
the Company of the number of shares of Stock which it desires to have so
included and the manner in which it proposes to dispose of such Stock. The
Company shall, as expeditiously as possible, endeavor in good faith to effect
any registration or qualification, to give any notification, to obtain any
governmental approval and to effect listing with any securities exchange on
which the Stock of the Company is then listed, which may be required to permit
each holder of Stock who has given the Company a timely request or notice
pursuant to this Section 3.3 to dispose of the Stock referred to in such request
or notice in the manner specified therein. The Company's obligations pursuant
to this Section 3.3 to effect registrations under the 1933 Act shall be limited
to two such registrations.
3.4 Piggy-Back Registration Rights. If the Company at any time, during
------------------------------
the period commencing with and including the effective date of the Company's
first offering of Common Stock or securities convertible into Common Stock
pursuant to a registration statement under the 1933 Act, and ending ten years
after such effective date, proposes to register, under the 1933 Act, or qualify
any of its Common Stock or securities convertible into Common Stock, other than
registrations solely for the purpose of any plan for the acquisition of such
shares by employees of the Company or registrations relating to a merger,
acquisition or other transaction of the type described in Rule 145 or any
comparable rule, on Form S-4 or any similar form (collectively "Excluded
Registrations"), it will each such time give written notice to all registered
holders of Stock of its intention to do so. Any holder of Stock desiring to
have any of its Stock included in such registration or qualification shall,
within 20 days after its receipt of such notice from the Company, notify the
Company of the number of shares of Stock which it desires to have so included
and the manner in which it proposes to dispose of such Stock. The Company will,
at its sole expense, use its best efforts to cause all such Stock, the holders
of which shall have requested the registration or qualification thereof, to be
registered or qualified to the extent requisite to permit the sale or other
disposition thereof in the manner described by such holder; provided, however,
that if in connection with any offering by the Company of Common Stock or
securities convertible into Common Stock pursuant to a registration under the
1933 Act (which is not an Excluded Registration), the managing underwriter shall
limit or eliminate the number of previously issued shares of the Company's
securities which may be included in any such registration statement because, in
its judgment, such action is necessary to
<PAGE>
effect an orderly public distribution, and (except as set out in the next
proviso) such limitation is imposed with respect to the Stock held by each
holder requesting inclusion pursuant to this Section 3.4 pro rata based upon the
respective amounts of Stock held by each such holder, and no outstanding
securities are included other than pursuant to such a right, then the Company
shall be obligated to include in such registration statement only such limited
portion of the Stock which it has been requested hereunder to include; provided
further that, notwithstanding the above, with respect to any such offering by
the Company on or before the third anniversary of the date hereof, New Shares
(as defined below) shall not be excluded from any such offering to the extent
the number of New Shares which the holders thereof have requested to have
registered do not exceed 50% of the number of previously issued shares of the
Company's securities which may be so included in any such registration (such
number of the New Shares to be allocated among the holders of New Shares pro
rata based upon the number of New Shares held by each holder) and the remaining
shares to be so registered shall be allocated among the holders of Stock
requesting inclusion pursuant to this Section 3.4 pro rata based upon the
respective amounts of Stock (excluding New Shares to be registered pursuant to
the previous clause) held by each such holder. "New Shares" means Class D
Preferred Stock and Class E Preferred Stock issued pursuant to the Class D and
Class E Purchase Agreement, and any Common Stock issued on conversion thereof or
upon conversion of any Common Stock issued upon conversion of such Class D
Preferred Stock or Class E Preferred Stock or as a dividend or distribution
thereon.
In the event that the Company in any registration under this Section 3.4
offers the holders of Stock the opportunity to sell such of the shares of Stock
which such holders propose to register to underwriters on a "firm commitment"
basis (as opposed to a "best efforts" basis), the holders shall, as a condition
to their participating in such registration, accept such offer to sell such of
the shares of Stock to such underwriters if the manager of the underwriters so
requires and shall enter into an agreement with such underwriter containing
conventional representations, warranties and indemnity provisions (provided that
such underwriting agreement shall not provide for indemnification or
contribution obligations on the part of the Stockholders greater than the
obligations of the Stockholders pursuant to Section 3.8), or, in the
alternative, agree not to sell such of the shares of Stock pursuant to such
registration within such reasonable period (not exceeding 120 days) as may be
specified by the manager of the underwriters to enable the underwriters to
complete their distributions and establish a satisfactory trading market for the
Company's Class A Common Stock. The holders of Stock shall comply with such
other reasonable requirements as may be imposed by the manager of the
underwriters to effect an orderly distribution of shares.
Should any holder of Stock decide not to have any shares of such Stock of
the Company then held by it included in such registration under this Section 3.4
or if some or all of its shares of Stock are excluded from registration as
provided herein, such holder agrees, upon the request of the manager of the
underwriters, not to sell any of such Stock within such reasonable period (not
exceeding 120 days) as may be specified by the manager of the underwriters to
enable the underwriters to complete their distributions and establish a
satisfactory trading market for the Company's Class A Common Stock.
3.5 Registration on Form S-3. Following the first offering of Class A
------------------------
Common Stock by the Company pursuant to a registration under the 1933 Act, the
Company shall use its
<PAGE>
best efforts to meet, as soon as possible, the eligibility requirements for a
secondary distribution of its Class A Common Stock under the 1933 Act on Form S-
3 (or any similar form promulgated by the Commission). To that end, the Company
shall register (whether or not required by law to do so) its Class A Common
Stock under the 1934 Act no later than 30 days prior to the end of the Company's
fiscal year following the effective date of the first registration of any
securities of the Company under the 1933 Act. If the effective date of the
public offering is less than 30 days prior to the end of the Company's fiscal
year, the registration under the 1934 Act shall occur prior to the end of such
fiscal year. After the Company is eligible for the registration of its Class A
Common Stock under the 1933 Act on Form S-3 (or similar form), the Company will,
upon written request of any holder or holders of shares of Stock having an
aggregate market value of not less than $1,000,000 and constituting greater than
4% of the outstanding shares of Stock (excluding, however, for purposes of
calculation of such percentage, any shares of Common Stock issued upon the
exercise of any 1984 Options, 1985 Options, 1987 Options, 1988 Options or 1988 E
Options) of the Company to register or qualify such Stock pursuant to this
Section 3.5, promptly give written notice of such request to all registered
holders of Stock, any holder of Stock desiring to have any of its Stock included
in such registration or qualification shall, within 20 days after its receipt of
such notice from the Company, notify the Company of the number of shares of
Stock which it desires to have so included and the manner in which it proposes
to dispose of such Stock. The Company shall, as expeditiously as possible,
endeavor in good faith to effect a registration under the 1933 Act on Form S-3
(or similar form) of all Stock referred to in a request or notice timely given
to the Company pursuant to this Section 3.5, and to effect any registration or
qualification of such Stock under any state law, and any listing of such Stock
with any securities exchange on which the Class A Common Stock of the Company is
then listed, which may be required to permit the sale or disposition of such
Stock in the manner specified in such request or notices. The Company shall not
be required to cause a registration statement to become effective pursuant to
this Section 3.5 prior to 90 days following the effective date of the most
recent registration by the Company under the 1933 Act, or more than twice during
any year.
3.6 Payment of Expenses. The Company shall bear the expense (excluding
-------------------
underwriting commissions, dealers' fees, brokers' fees and concessions
applicable to Stock) of two registrations pursuant to Section 3.3, and all
registrations pursuant to Sections 3.4 and 3.5, including all reasonable
expenses of the holders of Stock and fees and disbursements of their counsel,
provided that the Company shall be obligated hereunder to pay fees and
disbursements of counsel only to a single law firm representing the holders of
Stock. The Company shall not be required to undertake any registration in
addition to those for which it is to bear the expenses unless and until the
Company shall have received assurances satisfactory to it that the holders of
Stock to be registered will bear all expenses thereof (including fees and
disbursements of counsel).
3.7 Registrations to be Maintained; Only Class A Common Stock to be
---------------------------------------------------------------
Registered. The Company shall keep effective and maintain any registration,
- ----------
qualification, notification or approval specified in Sections 3.3 or 3.4 for
such period not exceeding 120 days, and in Section 3.5 for such period not
exceeding 180 days, as may be necessary for the holders of Stock to dispose
thereof, and from time to time shall amend or supplement the prospectus used in
connection therewith to the extent necessary in order to comply with applicable
law. The
<PAGE>
Company shall not be required pursuant to any provision of this Article III to
register or qualify any securities other than the Class A Common Stock of the
Company, and the Company may require as a condition of any such registration or
qualification that any Stock to be included in such registration or
qualification other than Class A Common Stock be converted to Class A Common
Stock no later than the effective date of any registration or qualification
effected pursuant to this Article III.
3.8 Indemnification. The Company hereby agrees to indemnify each holder
---------------
of Stock and each person, if any, who controls any such holder within the
meaning of applicable federal and state securities laws (the "Applicable
Securities Laws") against all losses, claims, damages, liabilities and expenses
(under the Applicable Securities Laws or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein complete or not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
holder or by any underwriter through which any offering is made pursuant to any
registration statement provided for under this Article III, expressly for use
therein. If the offering pursuant to any registration statement provided for
under this Article III is made through underwriters, the Company agrees to enter
into an underwriting agreement in customary form with such underwriters and to
indemnify such underwriters and each person who controls such underwriters
within the meaning of the Applicable Securities Laws to the same extent as
hereinabove provided with respect to the indemnification of the holders of
Stock, provided that such underwriters shall to the same extent indemnify the
Company and each holder of Stock included in such offering in connection with
information furnished by such underwriters expressly for use in the related
registration statement. In connection with any registration statement in which
a holder of Stock is participating, each such holder will furnish to the Company
in writing such information as shall reasonably be requested by the Company for
use in any such registration statement or prospectus and will indemnify the
Company, its directors and officers, each person, if any, who controls the
Company within the meaning of the Applicable Securities Laws, such underwriters
and each person who controls such underwriters within the meaning of the
Applicable Securities Laws, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus and necessary to make the
statements therein complete or not misleading, but only to the extent that such
untrue statement or omission is contained in information so furnished in writing
by such holder expressly for use therein; provided, that the indemnification by
any Stockholder under this Section 3.8 shall be limited to the amount of the
proceeds to the Stockholder from the public offering pursuant to such
registration statement; provided further that the indemnification and
contribution obligations of the Stockholders contained in any underwriting
agreement shall be no greater than those contained in this Section 3.8.
3.9 Rule 144 Requirements. At all times when the Company is subject to
---------------------
the reporting requirements of either Section 13 or Section 15(d) of the 1934
Act, it will file with the
<PAGE>
Commission such information as the Commission may require under either of said
Sections, and shall take all action as may be required as a condition to the
availability of Rule 144 under the 1933 Act (or any successor exemptive rule
hereinafter in effect) for sales of the Stock. The Company shall furnish to any
holder of the Stock, upon request, a written statement executed by the Company
as to the steps it has taken to comply with the current public information
requirement of Rule 144.
3.10 Action Under State Laws. The Company shall use its best efforts to
-----------------------
register or qualify the securities covered by a registration statement which
includes Stock under the securities or blue sky laws of such jurisdictions as
each selling holder of Stock shall reasonably request, and do any and all other
acts and things as may be necessary or advisable to enable such holder to
consummate the disposition of the securities in such jurisdiction, but in no
event shall the provisions of this Article III be deemed to require the Company
to register or qualify as a foreign corporation or as a broker or dealer or to
subject itself generally to service of process in any jurisdiction.
ARTICLE IV. OPTIONS.
4.1 Future Grant of Options.
-----------------------
(a) If, while there are any shares of Class D Preferred Stock
outstanding, the Company shall at any time propose to issue any additional
shares ("New Shares") of Common Stock at a price per share ("New Price") less
than $9.00 per share (as adjusted to reflect equitably any subdivision or
combination of shares or the paying of a stock dividend or any similar
adjustment or recapitalization involving the Common Stock) (such price per
share, as so adjusted, being referred to herein as the "Applicable Conversion
Value"), as then in effect, then each Stockholder then holding shares of Class D
Preferred Stock (or affiliate thereof) who purchases any of the New Shares (the
"Participating Purchaser") shall receive an option exercisable upon the closing
of the sale of the New Shares to require the Company to sell to such
Participating Purchaser a number of shares of Class A Common Stock of the
Company at an exercise price of $.01 per share, which number of shares shall
equal the number of New Shares issued to such Participating Purchaser less the
number of New Shares which the net aggregate consideration received by the
Company for the New Shares purchased by such Participating Purchaser would
purchase at the Applicable Conversion Value of the Class D Preferred Stock held
by such Participating Purchaser as in effect immediately prior to the issuance
of the New Shares; provided, however, that, if the cumulative purchase price
-------- -------
paid by any Participating Purchaser for all New Shares purchased by such
Participating Purchaser shall exceed the product obtained by multiplying the
number of shares of Class D Preferred Stock held by such Participating Purchaser
by $9.00, then such Purchaser shall have no rights pursuant to this Article IX
with respect to such excess; and provided, further, that if any Stockholder is
-------- -------
not offered the option to purchase New Shares in a number proportionate, as
compared to the total number of New Shares being offered, to the portion of the
aggregate number of shares of Class D Preferred Stock and Class E Preferred
Stock being acquired by such Stockholder pursuant to the Convertible
Subordinated Demand Notes described in Section 1.8(a), the Reorganization
Agreement and the Class D and Class E Preferred Stock Purchase Agreement dated
as of the date hereof among the Company and certain investors, then for purpose
of this Article IV, such
<PAGE>
Stockholder shall be deemed to be a Participating Purchaser and to have
purchased such number of New Shares as is so proportionate, irrespective of the
number of New Shares actually purchased by such Stockholder.
(b) The provisions of this Article IV shall terminate on August 31,
1990.
(c) The issuance of Class D Preferred Stock pursuant to the
Convertible Subordinated Demand Notes (described in Section 1.10(a) hereof)
and/or the Reorganization Agreement, the adjustments pursuant to subparagraph
(i)(e) or (ii)(e) of Paragraph D of Article IV of the Company's Certificate of
Incorporation, the issuance of any shares of Common Stock upon exercise of the
warrants issued pursuant to a certain Note and Warrant Purchase Agreement dated
as of October 16, 1987, among the Company and certain investors, the issuance of
Class D Preferred Stock on conversion of the Notes, the issuance of Merger
Common Stock by the Company, the issuance of Common Stock upon the conversion of
any Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock,
Class D Preferred Stock or Class E Preferred Stock, the issuance and exercise of
any options under any Stock Plan of the Company which has been approved by
stockholders of the Company within one year of adoption, the 1984 Options, the
1985 Options, the 1987 Options, the 1988 Options and the 1988 E Options and the
issuance of any shares of any class of Common Stock in exchange for a like
number of shares of any other class of Common Stock shall not be deemed an
issuance of additional shares of Common Stock and shall have no effect on the
options arising under this Article IV.
(d) For the purposes of Section 4.1(a) above and except as provided
in Section 4.1(c) above, the issuance of any warrants, options or other
subscription or purchase rights with respect to shares of Common Stock and the
issuance of any securities (other than Common Stock) convertible into shares of
Common Stock (or the issuance of any warrants, options or any rights with
respect to such convertible securities) shall be deemed an issuance at such time
of such Common Stock if the Net Consideration Per Share which may be received by
the Company for such Common Stock (as hereinafter determined) shall be less than
the Applicable Conversion Value at the time of such issuance and, except as
hereinafter provided, an option shall arise upon each such issuance in the
manner provided in paragraph (a) of this Section 4.1; provided, however, that
-------- -------
any option arising under this Section 4.1 with respect to warrants, options,
subscription or purchase rights or convertible securities shall remain
outstanding so long as such warrants, options, subscription or purchase rights
or convertible securities are outstanding, and shall become exercisable only
upon and to the extent of, the exercise or conversion of such warrants, options,
subscription or purchase rights or convertible securities. No further option
shall arise under this Section 4.1 upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise of any warrants, options or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any option shall
previously have arisen upon the issuance of any such warrants, options or other
rights or upon the issuance of any convertible securities (or upon the issuance
of any warrant, options or any rights therefor) as above provided. Any option
arising with respect to this paragraph (d) which relates to warrants, options or
other subscription or purchase rights or convertible securities with respect to
shares of Common Stock shall be terminated if, as, and when such warrants,
options or other subscription or purchase rights or convertible securities
<PAGE>
expire or are cancelled or redeemed without being exercised. For purposes of
this paragraph (d), the Net Consideration Per Share received by the Company
shall be determined as follows:
(A) "Net Consideration Per Share" shall mean the amount equal to
the total amount of consideration, if any, received by the Company for
the issuance of such warrants, options, subscriptions, or other purchase
rights or convertible securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or conversion
thereof, divided by the aggregate number of shares of Common Stock that
would be issued if all such warrants, options, subscriptions, or other
purchase rights or convertible securities were exercise or converted.
(B) The Net Consideration Per Share received by the Company
shall be determined in each instance as of the date of issuance of
warrants, options, subscriptions or other purchase rights, or convertible
securities without giving effect to any possible future price adjustments
or rate adjustment which may be applicable with respect to such warrants,
options, subscriptions or other purchase rights or convertible
securities. The occurrence of such a price adjustment or rate adjustment
shall be deemed to be the issuance of a new security subject to the
provisions of this Article IV.
4.2 Exercise of Option. All options arising under this Article IV shall
------------------
be exercisable by delivery of written notice to the Company, which notice shall
specify the number of shares of Common Stock that shall be sold by the Company.
The closing of any purchase and sale pursuant to this provision shall be held at
the same time and place as the closing of the sale of the New Shares except
that, with respect to options arising under this Article IV by reason of the
issuance of any warrants, options or other subscription or purchase rights with
respect to shares of Common Stock and the issuance of any securities convertible
into shares of Common Stock (or the issuance of any warrants, options or any
rights with respect to such convertible securities) the closing shall be held at
the same time and place as the closing of the exercise or conversion of such
warrants, options, subscription or purchase rights or convertible securities, as
described in Section 4.1(d), and the purchase price shall be paid by delivery at
such closing of a check in the full amount of such purchase price.
4.3 Reservation of Shares. The Company shall at all times reserve and
---------------------
keep available out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of effecting the exercise of the options arising
under Section 4.1, such number of shares of Class A Common Stock as shall from
time to time be sufficient to effect the exercise of all outstanding options
arising under Section 4.1, and if at any time the number of authorized but
unissued shares of Class A Common Stock shall not be sufficient to effect the
exercise of all then outstanding options arising under Section 4.1, the Company
shall take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Class A Common Stock
to such number of shares as shall be sufficient for such purpose.
<PAGE>
4.4 Notice of Option. In each case of an option arising under Section
----------------
4.1, the Company will furnish each Stockholder receiving such an option a
certificate showing such option, and stating in detail the facts upon which such
option is based.
ARTICLE V. MISCELLANEOUS.
5.1 Notices. All notices to a party hereunder shall be deemed to have
-------
been adequately given if delivered in person or mailed, certified mail, return
receipt requested, to such party at its address set forth below (or such other
address as it may from time to time designate in writing to the other parties
hereto).
The Company: Adra Systems, Inc.
59 Technology Drive
Lowell, Massachusetts 01851
With a copy to: William B. Simmons, Jr., Esq.
Testa, Hurwitz & Thibeault
53 State Street
Boston, Massachusetts 02109
The Stockholders: To their respective addresses
as shown on Exhibit A hereto
With copies to: John E. Beard, Esq.
Ropes & Gray
225 Franklin Street
Boston, Massachusetts 02110
David J. Schwartz, Esq.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
H. Kenneth Fish, Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
And to: Howard A. Shapiro, Esq.
Proskauer, Rose, Goetz & Mendelsohn
300 Park Avenue
New York, New York 10022
5.2 No Waiver; Amendments. No failure to exercise and no delay in
---------------------
exercising, on the part of any Stockholder, any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder
<PAGE>
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies provided by law. Any
term, covenant, agreement or condition of this Agreement may be amended and only
by a writing signed by the Company and by Stockholders then holding a majority
of the aggregate outstanding shares of Class A Preferred Stock, Common Stock
issued upon conversion of Class A Preferred Stock, Class B Preferred Stock,
Common Stock issued upon conversion of Class B Preferred Stock, Class C
Preferred Stock, Common Stock issued upon conversion of Class C Preferred Stock,
Class D Preferred Stock, Common Stock issued upon conversion of Class D
Preferred Stock, Class E Preferred Stock, Common Stock issued upon conversion of
Class E Preferred Stock, the Merger Common Stock and any Common Stock issued
upon conversion of any Common Stock described herein, all voting together as a
single class; provided, that amendment to Article IV hereof shall also require a
writing signed by a majority of the outstanding shares of Class D Preferred
Stock. For purposes of this Section 5.2, each share of any class of preferred
stock shall be deemed equivalent to the number of shares of Common Stock into
which such share of preferred stock could then be converted. No amendment shall
be made to this Section 5.2 without the written consent of the holders of all of
the Stock at the time outstanding. No waiver of any term or provision hereof
shall be effective unless made in the same manner as an amendment of such term
or provision.
5.3 Survival of Agreements, etc. All agreements, representations and
---------------------------
warranties contained herein or made in writing by or on behalf of the Company or
the Stockholders in connection with the transactions contemplated hereby shall
survive the execution and delivery of this Agreement, the closing contemplated
under the Reorganization Agreement and any investigation at any time made by or
on behalf of any Stockholder.
5.4 Construction. This Agreement shall be governed by and construed in
------------
accordance with the laws of The Commonwealth of Massachusetts. The description
headings of the several sections hereof are for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
5.5 Binding Effect and Benefits. This Agreement shall be binding upon and
---------------------------
shall inure to the benefit of the parties and their respective heirs, successors
and assigns, including assignees of the Stock (other than persons acquiring
shares of Stock (i) in an underwritten public offering or (ii) in a transaction
pursuant to Rule 144 under the 1933 Act after the Company's initial underwritten
public offering). It is expressly contemplated that, without limiting the
general right of any Stockholder to assign its rights herein, all of the rights
and obligations of a holder of Stock set forth in Article III hereof shall
devolve upon any subsequent holder of Stock originally issued to a Stockholder
without specific assignment and assumption thereof. The parties hereto
understand and agree that DSV Partners III and DSV Partners IV are limited
partnerships formed under the laws of the State of New Jersey, that the limited
partners of neither DSV Partners III nor DSV Partners IV will be liable for any
liabilities of either DSV Partners III or DSV Partners IV, as the case may be,
nor will they be required to perform any of the obligations of either DSV
Partners III or DSV Partners IV, as the case may be, pursuant to this Agreement
and that neither the Company, nor the shareholders or officers of the Company
will seek to enforce such liabilities and/or obligations or otherwise seek
relief with respect thereto against such limited partners.
<PAGE>
5.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original.
5.7 Severability of Provisions. Any provision of this Agreement which is
--------------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
[The remainder of this page is intentionally left blank].
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
ADRA SYSTEMS, INC. STOCKHOLDERS:
[CORPORATE SEAL]
By: /s/ Authorized Signatory
-------------------------
Title: President
MORGAN CAPITAL CORPORATION
By: J. P.MORGAN & CO.
INCORPORATED as agent
for Morgan Capital
Corporation
By: /s/ Authorized Signatory
------------------------
JOHN HANCOCK VENTURE CAPITAL
FUND LIMITED PARTNERSHIP
By: Its General Partner,
John Hancock Venture Capital
Management, Inc.
By: /s/ Authorized Signatory
------------------------
EVERGREEN I LIMITED PARTNERSHIP
By its general partner,
Back Bay Partners L.P.
By one of its general partners,
John Hancock Venture Capital
Management Inc.
By /s/ Authorized Signatory
------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
KOFFLER FAMILY GROWTH PORTFOLIO
By: /s/ Authorized Signatory
-----------------------------
BERKSHIRE PARTNERS II, L.P.
By: /s/ Authorized Signatory
-----------------------------
Title: Managing Gen. Partner
MORGAN, HOLLAND FUND, L.P.
By its general partner,
Morgan, Holland Partners
By: /s/ Authorized Signatory By: /s/ James F. Morgan
-------------------------------- -----------------------------
Title: Title: MGP
THE GOLDER THOMA FUND
By: /s/ Authorized Signatory
-----------------------------
Title: General Partner
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By its general partner
ARD Partners I, L.P.
By: /s/ Authorized Signatory
-----------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
NEW COURT PARTNERS
By its managing partner,
OneRock Associates
By: /s/ Authorized Signatory
----------------------------
Title
ARROW CAPITAL, N.V.
By: /s/ Authorized Signatory
----------------------------
Attorney-in Fact under P/O/A
dated 2/1/88
ARROW PARTNERS C.V.
By: /s/ Authorized Signatory
----------------------------
Attorney-in Fact under P/O/A
dated 2/1/88
ROTHSCHILD INC., as Agent
By: /s/ James J. O'Neill
----------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
VENTURE FOUNDERS 1983
LIMITED PARTNERSHIP
By its general partner,
Venture Management
Limited Partnership
By: /s/ Authorized Signatory
----------------------------
Title:
VENTURE FOUNDERS CAPITAL
LIMITED PARTNERSHIP
By its general partner,
Venture Founders Partners
Limited Partnership
By: /s/ Authorized Signatory
----------------------------
Title:
OXFORD VENTURE FUND II
LIMITED PARTNERSHIP
By its general partner
Oxford Partners II
By: /s/ Authorized Signatory
----------------------------
Title:
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By its general partner,
Oxford Partners III,
Limited Partnership
By: /s/ Authorized Signatory
----------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
DSV PARTNERS III L.P.
By: /s/ Authorized Signatory
------------------------
Title: General Partner
DSV PARTNERS IV L.P.
By: Authorized Signatory
------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
/s/ Richard J. Testa
--------------------------
Richard J. Testa
/s/ Richard N. Spann
--------------------------
Richard N. Spann
/s/ Frank A. Mason
--------------------------
Frank A. Mason
/s/ William T. Mason
--------------------------
William T. Mason
/s/ Thayer Francis, Jr.
--------------------------
Thayer Francis, Jr.
Merger Stockholders:
A.T. VENTURE INVESTMENTS, a division of
Ameritrust Corporation
By
By: /s/ Robert C. Salipante
---------------------------------
Title: Executive Vice President
ACCEL CAPITAL L.P.
By
By: /s/ Authorized Signatory
---------------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
ACCEL CAPITAL (INTERNATIONAL) L.P.
By
/s/ Authorized Signatory
-----------------------------
Title:
/s/ Frederick R. Adler
----------------------------------
Frederick R. Adler
ASEA-Harvest Partners I
By
By: /s/ Authorized Signatory
------------------------
Title:
BNP VENTURE CAPITAL CORPORATION
By
By: /s/ Authorized Signatory
------------------------
Title: President
BOHLEN CAPITAL CORP.
By
By: /s/ Authorized Signatory
------------------------
Title:
/s/ Mitchell Dann
----------------------------------
Mitchell Dann
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
ELLMORE C. PATTERSON PARTNERS
By
By: /s/ Authorized Signatory
------------------------
Title:
ELRON TECHNOLOGIES, INC.
By: /s/ Authorized Signatory
-----------------------------
Title: President
EUROPEAN DEVELOPMENT
CAPITAL CORP. N.V.
By
By: /s/ Authorized Signatory
------------------------
Title:
FAIRFIELD VENTURE CAPITAL
FUND L.P.
By
By: /s/ Authorized Signatory
------------------------
Title:
IAI VENTURE PARTNERS
By
By: /s/ Authorized Signatory
------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
MONTGOMERY BRIDGE FUND II, L.P.
By
By: /s/ Authorized Signatory
------------------------
Title:
MONTGOMERY BRIDGE INVESTMENTS
LIMITED
By
By: /s/ Authorized Signatory
------------------------
Title:
MONTGOMERY PRIVATE INVESTMENTS
PARTNERSHIP
By
By: /s/ Authorized Signatory
------------------------
Title:
NORDIC INVESTORS, LTD.
By
By: /s/ Authorized Signatory
------------------------
Title:
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
NORO CAPITAL LTD.
By
By: /s/ Authorized Signatory
------------------------
Title:
NORO VENTURE PARTNERS IV
By
By: /s/ Authorized Signatory
------------------------
Title:
IAI STOCK FUND, INC.
By
By: /s/ Authorized Signatory
------------------------
Title:
OVERSEAS VENTURE CAPITAL, LTD.
By
By: /s/ Authorized Signatory
------------------------
Title:
/s/ Arthur C. Patterson
----------------------------------
Arthur C. Patterson
/s/ Douglas R. Platt
----------------------------------
Douglas R. Platt
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
/s/ Yuval Almog
----------------------------------
Yuval Almog
PROCORDIA HARVEST PARTNERS I
By
By: /s/ Authorized Signatory
------------------------
Title:
/s/ Noel R. Rahn
----------------------------------
Noel R. Rahn
767 VCI VENTURES NV
By
By: /s/ Authorized Signatory
------------------------
Title:
SWARTZ FAMILY PARTNERSHIP
By
By: /s/ Authorized Signatory
------------------------
Title:
/s/ James R. Swartz
----------------------------------
James R. Swartz
/s/ Kenneth Thorson
----------------------------------
Kenneth Thorson
<PAGE>
[Registration Rights, Restricted Stock and
Stock Option Agreement Signature Pages]
VENAD II
By Adler & Company
By: /s/ Authorized Signatory
------------------------
Title:
VENAD III
By
By: /s/ Authorized Signatory
------------------------
Title:
VENAD IV
By
By: /s/ Authorized Signatory
------------------------
Title:
VENAD IV-A
By
By: /s/ Authorized Signatory
------------------------
Title:
/s/ Stephen P. Weisbrod
----------------------------------
Stephen P. Weisbrod
/s/ Carlos Zorea
----------------------------------
Carlos Zorea
<PAGE>
EXHIBIT A
---------
Stockholders Names and Addresses
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 1
TO
AMENDED AND RESTATED REGISTRATION RIGHTS,
RESTRICTED STOCK AND STOCK OPTION AGREEMENT
THIS AMENDMENT NO. 1 is dated as of June 26, 1991, among Adra Systems,
Inc., a Delaware corporation ("Company"), Adage GmbH, a German limited liability
company ("Adage"), National Computer Systems, Inc., a Minnesota corporation
("NCS") and those other parties listed as Stockholders on the signature pages
hereto (the "Stockholders").
WHEREAS, the Company and the Stockholders are parties to a certain Amended
and Restated Registration Rights, Restricted Stock and Stock Option Agreement,
dated as of October 11, 1988 (the "Agreement"); and
WHEREAS, pursuant to an asset purchase agreement (the "Asset Purchase
Agreement") dated the date hereof, the Company is purchasing 122,900 shares (the
"Purchased Shares") of the Company's Class D Convertible Preferred Stock, $1.00
par value (the "Class D Preferred Stock"); and
WHEREAS, as a condition to entering into the Asset Purchase Agreement,
Adage and NCS have requested and the Company desires to grant registration
rights with respect to the Purchased Shares to the same extent as such rights
were granted and are in effect with respect to other holders of the Company's
Class D Preferred Stock; and
WHEREAS, the Company and the Stockholders desire to amend the Agreement as
hereinafter set forth and Adage desires to become a party to the Agreement as
amended hereby;
NOW, THEREFORE, the parties agree as follows:
1. All capitalized terms used in the Agreement not otherwise defined
herein shall have the meaning given to them in the Agreement. For purposes of
any notice to be sent to Adage under the Agreement, notice shall be deemed given
when delivered in accordance with Section 7.3 of the Asset Purchase Agreement.
2. Section 1.10 of the Agreement is hereby amended by adding to the end
thereof the following:
"or (d) to Adage pursuant to the Asset Purchase Agreement."
3. Article I of the Agreement is hereby amended by adding the following
sections:
<PAGE>
-2-
"Section 1.29 `Adage' means Adage GmbH, a German limited liability company
or, upon transfer of the shares of Stock acquired by Adage to NCS as
contemplated by the Asset Purchase Agreement, NCS.
"Section 1.30 `Asset Purchase Agreement' means the Asset Purchase
Agreement, dated the date of Amendment No. 1 to this Agreement, among the
Company, Adage, NCS and Adra Computerhandels GmbH i. Cr.
"Section 1.31 `NCS' means National Computer Systems, Inc., a Minnesota
corporation."
4. By executing this Agreement, Adage and NCS each hereby becomes a party
to the Agreement and shall be bound by all of the obligations and shall be
entitled to all of the rights set forth therein, as amended by this Amendment
No. 1.
5. Except as amended by the provisions of this Amendment No. 1, the
Agreement shall remain in full force and effect.
6. This Amendment No. 1 shall become effective upon execution by the
Company, Adage, NCS and by Stockholders holding a majority of the aggregate
outstanding shares of Class A Preferred Stock, Class B Preferred Stock, Class C
Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and the Merger
Common Stock.
7. This Amendment No. 1 may be executed in any number of counterparts,
each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
ADRA SYSTEMS, INC.
[CORPORATE SEAL]
By: /s/ Authorized Signatory
-----------------------------------------
Title:
ADAGE GMBH
By: /s/ Authorized Signatory
-----------------------------------------
Title:
NATIONAL COMPUTER SYSTEMS, INC.
<PAGE>
-3-
By: /s/ Authorized Signatory
-----------------------------------------
Title:
STOCKHOLDERS
------------
DIGITAL EQUIPMENT CORPORATION
/s/ William T. Mason
--------------------------------------------
William T. Mason
/s/ Frank Mason
--------------------------------------------
Frank Mason
MORGAN, HOLLAND FUND, L.P.
By its general partner,
Morgan, Holland Partners
By: /s/ Authorized Signatory
----------------------------------------
Managing General Partner
NEW COURT PARTNERS
By its managing partner,
OneRock Associates
By: /s/ Authorized Signatory
----------------------------------------
ARROW CAPITAL, N.V.
By: /s/ Authorized Signatory
----------------------------------------
<PAGE>
-4-
ARROW PARTNERS C.V.
By: /s/ Authorized Signatory
----------------------------------------
ROTHSCHILD INC., as Agent
for Horizon Capital
By: /s/ Authorized Signatory
----------------------------------------
THE GOLDER THOMA FUND
By: /s/ Authorized Signatory
----------------------------------------
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By its general partner,
ARD Partners I, L.P.
By: /s/ Authorized Signatory
----------------------------------------
General Partner
VENTURE FOUNDERS 1983,
LIMITED PARTNERSHIP
By its general partner,
Venture Management Limited
Partnership
By: /s/ Authorized Signatory
-----------------------------------------
General Partner
<PAGE>
-5-
VENTURE FOUNDERS CAPITAL
LIMITED PARTNERSHIP
By its general partner,
Venture Founders Partners
Limited Partnership
By: /s/ Authorized Signatory
-----------------------------------------
OXFORD VENTURE FUND II,
LIMITED PARTNERSHIP
By its general partner,
Oxford Partners II,
Limited Partnership
By: /s/ Authorized Signatory
-----------------------------------------
Title:
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By its general partner,
Oxford Partners III,
Limited Partnership
By: /s/ Authorized Signatory
-----------------------------------------
Title:
EVERGREEN I LIMITED PARTNERSHIP
By its general partner,
Back Bay Partners, L.P.
by one of its general partners,
John Hancock Venture Capital
Management Inc.
<PAGE>
-6-
By: /s/ Authorized Signatory
-----------------------------------------
Title:
DSV PARTNERS III, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
Title:
DSV PARTNERS IV, L.P.
By DSV Management, Ltd.
its General Partner
By: /s/ Authorized Signatory
-----------------------------------------
Title:
BERKSHIRE PARTNERS, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
Title:
BERKSHIRE PARTNERS II, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
Title:
A T COMMERCIAL CORPORATION
By: /s/ Authorized Signatory
-----------------------------------------
Title:
ACCEL CAPITAL L.P.
<PAGE>
-7-
By: /s/ Authorized Signatory
-----------------------------------------
Title:
ACCEL CAPITAL (INTERNATIONAL) L.P.
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
ASEA-Harvest Partners I
By: /s/ Authorized Signatory
-----------------------------------------
Title:
BNP VENTURE CAPITAL CORPORATION
By: /s/ Authorized Signatory
-----------------------------------------
Title:
BOHLEN CAPITAL CORP.
By: /s/ Authorized Signatory
-----------------------------------------
Title:
ELLMORE C. PATTERSON PARTNERS
By: /s/ Authorized Signatory
-----------------------------------------
Title:
ELRON TECHNOLOGIES, INC.
<PAGE>
-8-
By: /s/ Authorized Signatory
-----------------------------------------
Title:
EUROPEAN DEVELOPMENT
CAPITAL CORP. N.V.
By: /s/ Authorized Signatory
-----------------------------------------
Title:
FAIRFIELD VENTURE CAPITAL
FUND, L.P.
By: Fairfield Venture Partners L.P.
Its General Partner
By: /s/ Authorized Signatory
-----------------------------------------
Title:
JOHN HANCOCK VENTURE CAPITAL
FUND, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
By: /s/ Authorized Signatory
-----------------------------------------
Title:
MONTGOMERY BRIDGE FUND II, L.P.
By: Montgomery Securities
Its General Partner
By: /s/ Authorized Signatory
-----------------------------------------
Title:
<PAGE>
-9-
MONTGOMERY BRIDGE INVESTMENTS
LIMITED
By: Montgomery Securities
Its General Manager
By: /s/ Authorized Signatory
-----------------------------------------
Title:
MONTGOMERY PRIVATE INVESTMENTS
PARTNERSHIP
By: Montgomery Securities
Its General Manager
By: /s/ Authorized Signatory
-----------------------------------------
Title:
NORDIC INVESTORS, LTD.
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
NORO CAPITAL LTD.
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
<PAGE>
-10-
NORO VENTURE PARTNERS IV
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
IAI VENTURE PARTNERS
By: Investment Advisers, Inc.
Its General Partner
By: /s/ Authorized Signatory
-----------------------------------------
Title:
IAI STOCK FUND, INC.
By: /s/ Authorized Signatory
-----------------------------------------
Title:
/s/ Stephen P. Weisbrod
--------------------------------------------
Stephen P. Weisbrod
/s/ Mitchell Dann
--------------------------------------------
Mitchell Dann
/s/ Arthur C. Patterson
--------------------------------------------
Arthur C. Patterson
/s/ Douglas R. Platt
--------------------------------------------
Douglas R. Platt
/s/ Yuval Almog
--------------------------------------------
Yuval Almog
<PAGE>
-11-
/s/ Noel R. Rahn
--------------------------------------------
Noel R. Rahn
/s/ Kenneth Thorson
--------------------------------------------
Kenneth Thorson
PROCORDIA HARVEST PARTNERS I
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
767 VCI VENTURES NV
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
SWARTZ FAMILY PARTNERSHIP
By: /s/ Authorized Signatory
-----------------------------------------
By: /s/ Authorized Signatory
-----------------------------------------
Title:
/s/ James R. Swartz
--------------------------------------------
James R. Swartz
<PAGE>
-12-
VENAD II
By: Adler & Company
By: /s/ Authorized Signatory
-----------------------------------------
Title:
VENAD III
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
VENAD IV
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
VENAD IV-A
By:
By: /s/ Authorized Signatory
-----------------------------------------
Title:
By: /s/ Frederick R. Adler
-----------------------------------------
Frederick R. Adler
By: /s/ Carlos Zorea
-----------------------------------------
Carlos Zorea
<PAGE>
EXHIBIT 10.9
AMENDMENT NO. 2
TO
AMENDED AND RESTATED REGISTRATION RIGHTS,
RESTRICTED STOCK AND STOCK OPTION AGREEMENT
THIS AMENDMENT NO. 2 is dated as of August 19, 1991, among Adra Systems,
Inc., a Delaware corporation ("Company"), Digital Equipment Corporation, a
Massachusetts corporation ("DEC") and those other parties listed as Stockholders
on the signature pages hereto (the "Stockholders").
WHEREAS, the Company and the Stockholders are parties to a certain Amended
and Restated Registration Rights, Restricted Stock and Stock Option Agreement,
dated as of October 11, 1988, as amended by Amendment No. 1, dated as of June
26, 1991 (the "Agreement"); and
WHEREAS, pursuant to a stock purchase agreement (the "Stock Purchase
Agreement") dated the date hereof, DEC is purchasing 400,000 shares (the
"Purchased Shares") of the Company's Class F Convertible Preferred Stock, $1.00
par value (the "Class F Preferred Stock"); and
WHEREAS, as a condition to entering into the Stock Purchase Agreement, DEC
has requested and the Company desires to grant registration rights with respect
to the Purchased Shares to the same extent as such rights were granted and are
in effect with respect to the holders of the Company's Class D Convertible
Preferred Stock; and
WHEREAS, the Company and the Stockholders desire to amend the Agreement as
hereinafter set forth and DEC desires to become a party to the Agreement as
amended hereby;
NOW, THEREFORE, the parties agree as follows:
1. All capitalized terms used in this Amendment No. 2 not otherwise
defined herein shall have the meaning given to them in the Agreement. For
purposes of any notice to be sent to DEC under the Agreement, notice shall be
deemed given when delivered in accordance with Section 8.01 of the Stock
Purchase Agreement.
2. Section 1.27 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"1.27 `Stock' means the Class A Preferred Stock, the Class B Preferred
Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E
Preferred Stock and the Class F Preferred Stock, any Common Stock issued on
conversion of any of the Class A Preferred Stock, the Class B Preferred Stock,
the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred
Stock or the Class F Preferred Stock, any Common Stock issued upon exercise of
any of the 1984 Options, the 1985 Options, the 1987 Options, the 1988 Options
<PAGE>
or the 1988 E Options, any Common Stock issued upon exercise of any Warrant
issued pursuant to a certain Note and Warrant Purchase Agreement among the
Company and certain investors dated as of October 16, 1987, any shares of Merger
Common Stock, and any equity security of the Company issued as a dividend or
distribution thereon or in exchange therefor or upon conversion thereof (whether
such stock is held by a Stockholder or its assignees, other than persons
acquiring shares of stock in an underwritten pubic offering), but not to other
stock of the same class or of any other class which is now or hereafter may be
outstanding."
3. Section 1.28 of the Agreement is hereby amended by adding to the end
thereof the following:
"and shall include Stockholders who become a party to this Agreement by
amendment hereto. DEC shall be a Stockholder for all purposes of this
Agreement."
4. Article I of the Agreement is hereby amended by adding the following
sections:
"Section 1.32 `DEC' means Digital Equipment Corporation, a
Massachusetts corporation.
"Section 1.33 `Class F Preferred Stock' means the Class F Convertible
Preferred Stock, $1.00 par value, of the Company issued pursuant to the Class F
Purchase Agreement.
"Section 1.34 `Class F Purchase Agreement' means the Class F Preferred
Stock Purchase Agreement, dated the date of Amendment No. 2 to this Agreement,
between the Company and DEC."
5. By executing this Amendment No. 2, DEC hereby becomes a party to the
Agreement and shall be bound by all of the obligations and shall be entitled to
all of the rights set forth therein, as amended by this Amendment No. 2. For
purposes of Section 3.2 of the Agreement, DEC corporate counsel shall be
acceptable to the Company.
6. Except as amended by the provisions of this Amendment No. 2, the
Agreement shall remain in full force and effect.
7. This Amendment No. 2 shall become effective upon execution by the
Company, DEC and by Stockholders holding a majority of the aggregate outstanding
shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred
Stock, Class D Preferred Stock, Class E Preferred Stock and the Merger Common
Stock.
8. This Amendment No. 2 may be executed in any number of counterparts,
each of which shall be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
ADRA SYSTEMS, INC.
<PAGE>
[CORPORATE SEAL]
By: /s/ Authorized Signatory
----------------------------
Title:
STOCKHOLDERS
------------
DIGITAL EQUIPMENT CORPORATION
By: /s/ Dave Copeland
----------------------------
Title:
/s/ William T. Mason
-------------------------------
William T. Mason
/s/ Frank Mason
-------------------------------
Frank Mason
MORGAN, HOLLAND FUND, L.P.
By its general partner,
Morgan, Holland Partners
By: /s/ James F. Morgan
----------------------------
Managing General Partner
NEW COURT PARTNERS
By its managing partner,
OneRock Associates
By: /s/ Gary E. Stiller
----------------------------
Managing Partner
<PAGE>
ARROW CAPITAL, N.V.
By: Rothschild Inc.
Under P/O/A dated 4/17/91
By: /s/ James J. O'Neill
----------------------------
Under P/O/A dated 5/31/91
ARROW PARTNERS C.V.
By: Rothschild Inc.
Under P/O/A dated 5/01/91
By: /s/ James J. O'Neill
----------------------------
Under P/O/A dated 5/31/91
ROTHSCHILD INC., as Agent
for Horizon Capital
By: /s/ James J. O'Neill
----------------------------
Senior Vice President
THE GOLDER THOMA FUND
By: /s/ Authorized Signatory
----------------------------
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By its general partner,
ARD Partners I, L.P.
By: /s/ Authorized Signatory
----------------------------
General Partner
VENTURE FOUNDERS 1983,
LIMITED PARTNERSHIP
By its general partner,
Venture Management Limited
Partnership
By: /s/ Edward Getchell
----------------------------
General Partner
VENTURE FOUNDERS CAPITAL
LIMITED PARTNERSHIP
<PAGE>
By its general partner,
Venture Founders Partners
Limited Partnership
By: /s/ Edward Getchell
----------------------------
OXFORD VENTURE FUND II,
LIMITED PARTNERSHIP
By its general partner,
Oxford Partners II,
Limited Partnership
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By its general partner,
Oxford Partners III,
Limited Partnership
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
EVERGREEN I LIMITED PARTNERSHIP
By its general partner,
Back Bay Partners, L.P.
by one of its general partners,
John Hancock Venture Capital
Management Inc.
By: /s/ Authorized Signatory
----------------------------
Title: Vice President & Treasurer
<PAGE>
DSV PARTNERS III, L.P.
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
DSV PARTNERS IV, L.P.
By DSV Management, Ltd.
its General Partner
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
BERKSHIRE PARTNERS, L.P.
By: /s/ Authorized Signatory
---------------------------
Title:
BERKSHIRE PARTNERS II, L.P.
By: /s/ Authorized Signatory
----------------------------
Title:
A T COMMERCIAL CORPORATION
By: /s/ DC Molten
------------------
Title: VP & Manager
ACCEL CAPITAL L.P.
By Accel Associates L.P.
Its General Partner
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
<PAGE>
ACCEL CAPITAL (INTERNATIONAL) L.P.
By Accel Associates (International) L.P.
Its General Partner
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
ASEA-Harvest Partners I
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
BNP VENTURE CAPITAL CORPORATION
By: /s/ Authorized Signatory
----------------------------
Title:
BOHLEN CAPITAL CORP.
By: /s/ Authorized Signatory
----------------------------
Title: President
ELLMORE C. PATTERSON PARTNERS
By: /s/ Authorized Signatory
----------------------------
Title:
ELRON TECHNOLOGIES, INC.
By: /s/ Authorized Signatory
----------------------------
Title:
<PAGE>
EUROPEAN DEVELOPMENT
CAPITAL CORP. N.V.
By: /s/ Authorized Signatory
----------------------------
Title:
FAIRFIELD VENTURE CAPITAL
FUND, L.P.
By: Fairfield Venture Partners
L.P.
Its General Partner
By: /s/ Authorized Signatory
----------------------------
Title:
JOHN HANCOCK VENTURE CAPITAL
FUND, L.P.
By: John Hancock Venture Capital
Management, Inc.
By: /s/ Authorized Signatory
----------------------------
Title: Vice President & Treasurer
MONTGOMERY BRIDGE FUND II, L.P.
By: Montgomery Securities
Its General Partner
By: /s/ Authorized Signatory
----------------------------
Title:
<PAGE>
MONTGOMERY BRIDGE INVESTMENTS
LIMITED
By: Montgomery Securities
Its General Manager
By: /s/ Authorized Signatory
----------------------------
Title:
MONTGOMERY PRIVATE INVESTMENTS
PARTNERSHIP
By: Montgomery Securities
Its General Manager
By: /s/ Authorized Signatory
----------------------------
Title:
NORDIC INVESTORS, LTD.
By:
By: /s/ Authorized Signatory
----------------------------
Title: Attorney-in-Fact
NORO CAPITAL LTD.
By:
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
NORO VENTURE PARTNERS IV
By:
By: /s/ Authorized Signatory
----------------------------
Title: General Partner
<PAGE>
IAI VENTURE PARTNERS
By: Investment Advisers, Inc.
Its General Partner
By: /s/ Authorized Signatory
----------------------------
Title:
IAI STOCK FUND, INC.
By: /s/ Authorized Signatory
----------------------------
Title:
/s/ Stephen P. Weisbrod
-------------------------------
Stephen P. Weisbrod
/s/ Mitchell Dann
-------------------------------
Mitchell Dann
/s/ Arthur C. Patterson
-------------------------------
Arthur C. Patterson
/s/ Douglas R. Platt
-------------------------------
Douglas R. Platt
/s/ Yuval Almog
-------------------------------
Yuval Almog
/s/ Noel R. Rahn
-------------------------------
Noel R. Rahn
/s/ Kenneth Thorson
-------------------------------
Kenneth Thorson
<PAGE>
/s/ Thayer Francis, Jr.
-------------------------------
Thayer Francis, Jr.
PROCORDIA HARVEST PARTNERS I
By:
By: /s/ Authorized Signatory
----------------------------
Title:
767 VCI VENTURES NV
By:
By: /s/ Authorized Signatory
----------------------------
Title: Attorney In Fact
SWARTZ FAMILY PARTNERSHIP
By:
By: /s/ Jameds R. Swartz
----------------------------
Title: General Partner
/s/ James R. Swartz
-------------------------------
James R. Swartz
VENAD II
By: Adler & Company
By: /s/ Mark Beaudoin, /s/ James Ratigan
-------------------------------------
Title:
VENAD III
By:
By: /s/ Mark Beaudoin, /s/ James Ratigan
-------------------------------------
Title:
<PAGE>
VENAD IV
By:
By: /s/ Mark Beaudoin, /s/ James Ratigan
-------------------------------------
Title:
VENAD IV-A
By:
By: /s/ Mark Beaudoin, /s/ James Ratigan
-------------------------------------
Title:
/s/ Frederick R. Adler
----------------------------------------
Frederick R. Adler
/s/ Carlos Zorea
----------------------------------------
Carlos Zorea
ADAGE GMBH
By: /s/ Authorized Signatory
------------------------------------
Title:
<PAGE>
EXHIBIT 10.10
-------------
MATRIXONE, INC.
AMENDMENT NO. 3
TO
AMENDED AND RESTATED REGISTRATION RIGHTS,
RESTRICTED STOCK AND STOCK OPTION AGREEMENT
THIS AMENDMENT NO. 3 (the "Amendment"), dated as of October 1, 1997 between
---------
MatrixOne, Inc., formerly called Adra Systems, Inc., a Delaware Corporation (the
"Company"), each of the investors listed on the Schedule of G Investors attached
-------
hereto (the "G Investors"). and those other parties listed as Stockholders on
-----------
the signature pages attached hereto (the "Stockholders").
------------
WHEREAS the Company and the Stockholders are parties to a certain Amended
and Restated Registration Rights, Restricted Stock and Stock Option Agreement,
dated as of October 11, 1988, as amended by Amendment No. 1, dated as of June
26, 1991 and as further amended by Amendment No. 2 dated as of August 19, 1991
(the "Agreement").
---------
WHEREAS pursuant to a stock purchase agreement (the "Class G Purchase
----------------
Agreement") dated the date hereof, the G Investors are purchasing 1,899,138
- ---------
shares ( the "Purchased Shares") of the Company's Class G Convertible Preferred
----------------
Stock, $1.00 par value (the "Class G Preferred Stock"); and
-----------------------
WHEREAS, as a condition to entering into the Class G Purchase Agreement, the
G Investors have requested and the Company desires to grant registration rights
with respect to the Purchased Shares; and
WHEREAS, the Company and the Stockholders desire to amend the Agreement as
hereinafter set forth and each of the G Investors desire to become a party to
the Agreement as amended hereby;
NOW THEREFORE, the parties agree as follows:
1. All capitalized terms used in this Amendment not otherwise defined
herein shall have the meaning given to them in the Agreement. For purposes of
any notice to be sent to any G Investor under the Agreement, notice shall be
deemed given when delivered in accordance with Section 7M of the Class G
Purchase Agreement.
2. By executing a counterpart to this Amendment, each G Investor is added
as a Stockholder under, and agrees to be bound by, the Agreement, as amended
hereby.
3. Amendments to Registration Agreement
------------------------------------
a. Section 1.27 is hereby amended and restated in its entirety as
follows:
<PAGE>
"1.27 'Stock' means: (i) the Class A Preferred Stock, the Class
B Preferred Stock, the Class C Preferred Stock, the Class D
Preferred Stock, the Class E Preferred Stock, the Class F
Preferred Stock, the Class G Preferred Stock; (ii) any Common
Stock issued on conversion of any of the Class A Preferred Stock,
Class B Preferred Stock, Class C Preferred Stock, Class D
Preferred Stock, Class E Preferred Stock, Class F Preferred Stock
and Class G Preferred Stock; (iii) Common Stock issued upon
exercise of any of the 1984 Options, the 1985 Options, the 1987
Options, the 1988 Options or the 1988 E Options; (iv) any Common
Stock issued upon exercise of any Warrant issued pursuant to a
certain Note and Warrant Purchase Agreement among the Company and
certain investors dated as of October 16, 1987; (v) any shares of
Merger Common Stock and any equity security of the Company issued
as a dividend or distribution thereon or in exchange therefor or
upon conversion thereof (whether such stock is held by a
Stockholder or its assignees, other than persons acquiring shares
of stock in an underwritten public offering), but not to other
stock of the same class or any other class which is now or
hereafter may be outstanding."
b. Section 1.28 of the Agreement is hereby amended by adding to the
end thereof the following:
"Each of William Blair Capital Partners V, L.P., Fairfield
Investors II, L.P., Gilde IT Fund, The Peter Lynch Foundation and
Gordon Hayes, Jr. shall be a Stockholder for all purposes of this
Agreement."
c. Article I of the Agreement is hereby amended by adding the
following Sections:
"Section 1.25.1 'Registrable Securities' means (i) any Class G
----------------------
Preferred Stock issued pursuant to the Class G Purchase Agreement
(ii) any Common Stock issued or issuablc with respect to the
securities referred to in clause (i) above or by way of a stock
dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other
reorganization but not to other stock of the same class or any
other class which is now or hereafter may be outstanding. As to
any particular Registrable Securities, such securities shall
cease to be Registrable Securities when they have been
distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the
Securities Act (or any similar rule then in force) or repurchased
by the Company or any Subsidiary. For purposes of this
-2-
<PAGE>
Agreement, a Person shall be deemed to be a holder of Registrable
Securities, and the Registrable Securities shall be deemed to be
in existence, whenever such Person has the right to acquire
directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such
acquisition has actually been effected, and such Person shall be
entitled to exercise the rights of a holder of Registrable
Securities hereunder."
"Section 1.16-1 'Qualified Public Offering' means the sale in an
-------------------------
underwritten public offering of shares of Common Stock (a "Public
------
Offering") either (i) for the period beginning on the date of the
--------
Purchase Agreement and ending on December 31, 1998 in which the
price paid for each such share by the public shall be at least
equal to 2.67 multiplied by the Initial Conversion Price
(appropriately adjusted to reflect stock splits, stock dividends,
combinations of shares and the like); or (ii) for the period
after December 31, 1998 in which the price paid for each such
share by the public shall be at least equal to 3.0 multiplied by
the Initial Conversion Price (appropriately adjusted to reflect
stock splits, stock dividends, combinations of shares and the
like).
"Section 1.35 'Initial Conversion Price' of the Class G
------------------------
Convertible Preferred Stock shall be equal to $5.80 per share.
"Section 1.36 'Class G Preferred Stock' means the Class G
-----------------------
Convertible Preferred Stock, $1.00 par value, of the Company
issued pursuant to the Class G Purchase Agreement.
"Section 1.37 'Class G Purchase Agreement' means the Class G
--------------------------
Convertible Preferred Stock Purchase Agreement, dated the date of
Amendment No. 3 of this Agreement, between the Company and
William Blair Capital Partners V, L.P. (the "William Blair"),
-------------
American Research & Development I, L.P., Private Equity
Investment Fund, L.P., Fairfield Investors II, L.P., Gilde IT
Fund, The Peter Lynch Foundation and Gordon Hayes, Jr.
(collectively the "G Investors")."
-----------
d. For the purposes of Section 3.2 of the Agreement, Kirkland &
Ellis shall be acceptable to the Company.
e. Section 3.3 of the Agreement is hereby amended and restated in
its entirety as follows:
-3-
<PAGE>
"3.3(a) Required Registrations. Any holder of Stock excluding
----------------------
any holder of Class G Preferred Stock, provided such holder,
together with any other holder exercising rights pursuant to this
Section3.3, holds at least 35% of the then outstanding shares of
Stock (excluding, however, for purposes of calculation of such
percentage, any shares of Common Stock issued upon the exercise
of any 1984 Option, any 1985 Option, any 1987 Option, any 1988
Option, and 1988 E Option or any Class G Preferred Stock), shall
have the right to require the Company to effect any necessary
registration or qualification in connection with any proposed
transfer or disposition of Stock, but, if the Company is
otherwise in registration on Form S-1, or S-2 at the time of
demand, or if it has just completed a registration at the time of
demand, then not prior to ninety days after the effective date of
any such registration. If requested by such holder to register
or qualify any Stock excluding any Class G Preferred Stock, the
Company shall promptly give written notice of such request to all
registered holders of Stock excluding any Class G Preferred
Stock. Any holder of Stock excluding any Class G Preferred Stock
desiring to have any of its Stock included in such registration
or qualification shall, within 20 days after its receipt of such
notice from the Company, notify the Company of the number of
shares of Stock which it desires to have so included and the
manner in which it proposes to dispose of such Stock. The
Company shall, as expeditiously as possible, endeavor in good
faith to effect any registration or qualification to give any
notification, to obtain any governmental approval and to effect
listing with any securities exchange on which the Stock of the
Company is then listed, which may be required to permit each
holder of Stock who has given the Company a timely request or
notice pursuant to this Section 3.3 to dispose of the Stock
referred to in such request or notice in the manner specified
therein. The Company's obligations pursuant to this Section 3.3
to effect registrations under the 1933 Act shall be limited to
two such registrations."
f. Article III of the Agreement is hereby amended by adding the
following Sections:
"3.3(b) Class G Required Registrations.
------------------------------
a. Requests for Registration. At any time, the holders of the
-------------------------
Registrable Securities may request registration under the
Securities Act of all or any portion of their Registrable
Securities on Form S-I or any similar long-form registration
("Long-Form Registrations"), as set forth in paragraph (b)
-----------------------
below. All registrations requested pursuant to this Section
3.3(b) are referred to herein as "Demand Registrations."
--------------------
Each request for a Demand Registration shall
-4-
<PAGE>
specify the approximate number of Registrable Securities
requested to be registered. Within ten days after receipt of
any such request, the Company shall give written notice of
such requested registration to all other holders of
Registrable Securities and shall include in such
registration all Registrable Securities with respect to
which the Company has received written requests for
inclusion therein within 15 days after the receipt of the
Company's notice.
b. Number of Long-Form Registrations. The holders of a
---------------------------------
majority of Registrable Securities, and after a Qualified
Public Offering 20% of the holders of Registrable
Securities, shall be entitled to request (i) four (4) Long-
Form Registrations in which the Company shall pay all
Registration Expenses ("Company-paid Long-Form
----------------------
Registrations"). A registration shall not count as one of
the permitted Long-Form Registrations until it has become
effective, and no Long-Form Registration shall count as one
of the permitted Long-Form Registrations unless the holders
of Registrable Securities are able to register and sell at
least 90% of the Registrable Securities requested to be
included in such registration; provided that in any event
the Company shall pay all Registration Expenses in
connection with any registration initiated as a Company-paid
Long-Form Registration whether or not it has become
effective and whether or not such registration has counted
as one of the permitted Company- paid Long-Form
Registrations.
c. Selection of Underwriters. The holders of a majority of the
-------------------------
Registrable Securities initially requesting a Long-Form
registration hereunder shall have the right to select the
investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which shall not
be unreasonably withheld.
(i) Other Registration Rights. Except as provided in this
-------------------------
Agreement, the Company shall not grant to any Persons
the right to request the Company to register any equity
securities of the Company, or any securities
convertible or exchangeable into or exercisable for
such securities, without the prior written consent of
the holders of at least a majority of the Registrable
Securities; provided that the Company may grant rights
to other Persons to (i) participate in Piggyback
Registrations so long as such rights are subordinate to
the rights of the holders of Registrable Securities
with respect to such Piggyback
-5-
<PAGE>
Registrations and (ii) request registrations so long as
the holders of Registrable Securities are entitled to
participate in any such registrations with such Persons
pro rata on the basis of the number of shares owned by
each such holder.
d. Priority on Demand Registrations. The Company shall not
--------------------------------
include in any Demand Registration on any securities which
are not Registrable Securities without the prior written
consent of the holders of at least a majority of the
Registrable Securities included in such registration except
as otherwise provided in Section 3.4. If a Demand
Registration is an underwritten offering and the managing
underwriters advise the Company in writing that in their
opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold
therein without adversely affecting the marketability of the
offering, the Company shall include in such registration
prior to the inclusion of any securities which are not
Registrable Securities, the number of Registrable Securities
requested to be included which in the opinion of such
underwriters can be sold without adversely affecting the
marketability of the offering, pro rata among the respective
holders thereof on the basis of the amount of Registrable
Securities owned by each such holder. Any Persons other
than holders of Registrable Securities who participate in
Demand Registrations which are not at the Company's expense
must pay their share of the Registration Expenses as
provided in Section 3.38 hereof.
e. Restrictions On Long-Form Registrations. The Company shall
---------------------------------------
not be obligated to effect any Long-Form Registration within
180 days after the effective date of a previous Long-Form
Registration or a previous registration in which the holders
of Registrable Securities were given piggyback rights
pursuant to Section 3.4 and in which there was no reduction
in the number of Registrable Securities requested to be
included. The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for
a Demand Registration if the Company and the holders of at
least a majority of the Registrable Securities agree that
such Demand Registration would reasonably be expected to
have a material adverse effect on any proposal or plan by
the Company or any of its Subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer,
reorganization or similar transaction;
-6-
<PAGE>
provided that in such event, the holders of Registrable
Securities initially requesting such Demand Registration
shall be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration shall not
count as one of the permitted Demand Registrations hereunder
and the Company shall pay all Registration Expenses in
connection with such registration.
"3.5 Registration on Forms S-2 and S-3. Following the first
---------------------------------
offering of Class A Common Stock by the Company pursuant to a
registration under the 1933 Act, the Company shall use its best
efforts to meet, as soon as possible, the eligibility
requirements for a secondary distribution of its Class A Common
Stock under the 1933 Act on Form S-2 or Form S-3 (or any similar
form promulgated by the Commission). To that end, the Company
shall register (whether or not required by law to do so) its
Class A Common Stock under the 1934 Act no later than 30 days
prior to the end of the Company's fiscal year following the
effective date of the first registration of any securities of the
Company under the 1933 Act. If the effective date of the public
offering is less than 30 days prior to the end of the Company's
fiscal year, the registration under the 1934 Act shall occur
prior to the end of such fiscal year. After the Company is
eligible for the registration of its Class A Common Stock under
the 1933 Act on Form S-2 or Form S-3 (or similar form), the
Company will, upon written request of (i) any holder or holders
of shares of Stock, excluding any holder of Class G Preferred
Stock, having an aggregate market value of not less than
$1,000,000 and constituting greater than 4% of the outstanding
shares of Stock (excluding, however, for purposes of calculation
of such percentage, any shares of Common Stock issued upon the
exercise of any 1984 Options, 1985 Options, 1987 Options, 1988
Options, 1988 E Options or Class G Preferred Stock) of the
Company to register or qualify such Stock pursuant to this
Section 3.5 or (ii) the holders of a majority of Registrable
Securities (and after a Qualified Public Offering 10% of the
holders of Registrable Securities), promptly give written notice
of such request to all registered holders of Stock, any holder of
Stock desiring to have any of its Stock included in such
registration or qualification shall, within 20 days after its
receipt of such notice from the Company, notify the Company of
the number of shares of Stock which it desires to have so
included and the manner in which it proposes to dispose of such
Stock. The Company shall, as expeditiously as possible, endeavor
in good faith to effect a registration under the 193.3 Act on
Form S-2 or Form S-3 (or similar form) of all Stock referred to
in a request or notice timely given to the Company pursuant to
this Section 3.5, and to effect any registration or qualification
of such Stock under any state law, and any listing of such Stock
with any securities exchange on which the Class A Common Stock
-7-
<PAGE>
of the Company is then listed, which may be required to permit
the sale or disposition of such Stock in the manner specified in
such request or notices. The Company shall not be required to
cause a registration statement to become effective pursuant to
Section 3.5 prior to 90 days following the effective date of the
most recent registration by the Company under the 1933 Act, or
more than twice during any year.
"3.6(b) Registration Expenses.
---------------------
a. All expenses incident to the Company's performance
of or compliance with Article III of this
Agreement, including without limitation all
registration and filing fees, fees and expenses of
compliance with securities or blue sky laws,
printing expenses, messenger and delivery
expenses, fees and disbursements of custodians,
and fees and disbursements of counsel for the
Company and all independent certified public
accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the
Company (all such expenses being herein called
"Registration Expenses"), shall be borne as
---------------------
provided in Article III of this Agreement, except
that the Company shall, in any event, pay its
internal expenses (including, without limitation,
all salaries and expenses of its officers and
employees performing legal or accounting duties),
the expense of any annual audit or quarterly
review, the expense of any liability insurance and
the expenses and fees for listing the securities
to be registered on each securities exchange on
which similar securities issued by the Company are
then listed or on the NASD automated quotation
system.
b. In connection with each Demand Registration and
each Piggyback Registration, the Company shall
reimburse the holders of Registrable Securities
included in such registration for the reasonable
fees and disbursements of one counsel chosen by
the holders of a majority of the Registrable
Securities included in such registration for the
purpose of rendering a legal opinion on behalf of
such holder in connection with any underwritten
Demand Registration or Piggyback Registration.
c. To the extent Registration Expenses are not
required to be paid by the Company, each holder of
securities included in
-8-
<PAGE>
any registration hereunder shall pay those
Registration Expenses allocable to the
registration of such holder's securities so
included, and any Registration Expenses not so
allocable shall be borne by all sellers of
securities included in such registration in
proportion to the aggregate selling price of the
securities to be so registered.
"3.7(b) Holdback Agreements.
-------------------
a. Each holder of Registrable Securities and each
holder of Stock shall not effect any public sale
or distribution (including sales pursuant to Rule
144) of equity securities of the Company, or any
securities convertible into or exchangeable or
exercisable for such securities, during the seven
days prior to and the 90-day (or, 180-day period
in the case of the Company's Initial Public
Offering) beginning on the effective date of any
underwritten Demand Registration or any
underwritten Piggyback Registration which
Registrable Securities are included (except as
part of such underwritten registration), unless
the underwriters managing the registered public
offering and William Blair otherwise agree.
b. The Company (i) shall not effect any public sale
or distribution of its equity securities, or any
securities convertible into or exchangeable or
exercisable for such securities, during the seven
days prior to and during the 90-day period (or,
180-day period in the case of the Company's
Initial Public Offering) beginning on the
effective date of any underwritten Demand
Registration or any underwritten Piggyback
Registration (except as part of such underwritten
registration or pursuant to registrations on Form
S-8 or any successor form), unless the
underwriters managing the registered public
offering and William Blair otherwise agree, and
(ii) shall use its best efforts to cause each
holder of at least 10% (on a fully-diluted basis)
of its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common
Stock, purchased from the Company at any time
after the date of this Agreement (other than in a
registered public offering) to agree not to effect
any public sale or distribution (including sales
pursuant to Rule 144) of any such securities
during such period (except as part of such
underwritten registration, if
-9-
<PAGE>
otherwise permitted), unless the underwriters
managing the registered public offering otherwise
agree.
g. Article IV of the Agreement is hereby deleted.
4. Severability. Whenever possible, each provision of this Amendment
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment is held to be prohibited
or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Amendment.
5. Counterparts. This Amendment may b e executed simultaneously in two
------------
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Amendment.
6. Governing Law. All issues and questions concerning the construction,
-------------
validity, interpretation and enforcement of this Amendment and the exhibits and
schedules hereto shall be governed by, and in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other
jurisdiction)that would cause the application of the laws of any other
jurisdiction other than the State of Delaware.
7. Effectiveness. Pursuant to Section 5.2 of the Agreement, this
-------------
Amendment shall become effective upon execution by the Company, the G Investors
and by Stockholders holding a majority of the aggregate outstanding shares of
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class
D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and the
Merger Common Stock voting together as a single class. The Agreement, as
amended hereby, is in all respects ratified and confirmed, and all of the rights
and powers created thereby and thereunder, as amended hereby and hereunder,
shall be and remain in full force and effect.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3 to
the Agreement on the date first written above.
MATRIXONE, INC.
By: /s/ William L. Fielder
------------------------------
William L. Fielder
Its: Senior Vice President
By: /s/ William T. Mason
------------------------------
William T. Mason
By: /s/ James F. Stenzel
------------------------------
James F. Stenzel
By: /s/ Peter D. Stoupas
------------------------------
Peter D. Stoupas
By: /s/ Frank A. Mason
------------------------------
Frank A. Mason
AMERICAN RESEACH &
DEVELOPMENT I, L.P.
By: /s/ Authorized Signatory
------------------------------
General Partner
PRIVATE EQUITY INVESTMENT
FUND, L.P.
Private Equity Investors, Inc.
By: /s/ Authorized Signatory
------------------------------
Title:_____________________________
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3 to
the Agreement on the date first written above.
MATRIXONE, INC.
By: /s/ Mark F. O'Connell
------------------------------
Mark F. O'Connell
Its: Chief Executive Officer
By: /s/ William T. Mason
------------------------------
William T. Mason
By: /s/ James F. Stenzel
------------------------------
James F. Stenzel
By: /s/ Peter D. Stoupas
------------------------------
Peter D. Stoupas
By: /s/ Frank A. Mason
------------------------------
Frank A. Mason
AMERICAN RESEACH &
DEVELOPMENT I, L.P.
By: ARD master, L.P.
By: ARD Partners USA, L.P.
By: /s/ authorized signature
------------------------------
General Partner
PRIVATE EQUITY INVESTMENT
FUND, L.P.
By: Private Equity Investors, Inc.
Title: /s/ authorized signature
---------------------------
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3 to
the Agreement on the date first written above.
MATRIXONE, INC.
By: /s/ James F. Morgan
------------------------
James F. Morgan
Its: Chairman
By: /s/ Mark F. O'Connell
------------------------
Mark F. O'Connell
Its: Chief Executive Officer
STOCKHOLDERS:
------------
WILLIAM BLAIR CAPITAL PARTNERS
V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
------------------------
Ellen Carnahan
Its: Managing Director
MORGAN, HOLLAND FUND, L.P.
By: Its General Partner,
Morgan, Holland Partners
By: /s/ authorized signature
------------------------
Managing General Partner
-13-
<PAGE>
NEW COURT PARTNERS
NEW COURT PARTNERS L.P., By
One Rock Associates
Managing Partner
By: /s/ Gregory O. Williams
------------------------
Gregory O. Williams
For the Managing Partner
DIGITAL EQUIPMENT CORPORATION
By: /s/ authorized signature
------------------------
Its: ________________________
/s/ William T. Mason
-----------------------------
William T. Mason
/s/ Frank Mason
-----------------------------
Frank Mason
-14-
<PAGE>
FAIRFIELD INVESTORS II, L.P.
By: /s/ Charles P. Stuckey
------------------------------
Title: ____________________________
GILDE IT FUND
By: /s/ authorized signature
------------------------------
Title: ____________________________
THE PETER LYNCH
FOUNDATION
By: /s/ Peter Lynch
------------------------------
Peter Lynch
By: /s/ Gordon Hayes, Jr.
------------------------------
Gordon Hayes, Jr.
WILLIAM BLAIR CAPITAL
PARTNERS V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
------------------------------
Ellen Carnahan
Its: Managing Director
COLLER CIP, L.P.
By: /s/ authorized signature
-----------------------------
ARROW PARTNERS, C.V.
By: /s/ authorized signature
------------------------------
-15-
<PAGE>
FAIRFIELD INVESTORS II, L.P.
By: /s/ authorized signature
------------------------
Title: ______________________
GILDE IT FUND
By: /s/ authorized signature
------------------------
Title: ______________________
THE PETER LYNCH
FOUNDATION
By: /s/ Peter Lynch
------------------------
Peter Lynch
By: /s/ authorized signature
------------------------
Fleet National Bank as Trustee for
Testa, Hurwitz & Thibeault Deferred
Earnings Trust F.B.O. Gordon H.
Hayes
WILLIAM BLAIR CAPITAL
PARTNERS V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
------------------------
Ellen Carnahan
Its: Managing Director
COLLER CIP, L.P.
By: /s/ authorized signature
------------------------
ARROW PARTNERS, C.V.
By: /s/ authorized signature
------------------------
-16-
<PAGE>
STOCKHOLDERS:
J.P. MORGAN CAPITAL CORPORATION
By: /s/ authorized signature
------------------------
By: /s/ authorized signature
------------------------
Title: Managing Director
PRIVATE EQUITY INVESTMENT
FUND, L.P.
By: /s/ Charles P. Stuckey
----------------------
LOMBARD ASSOCIATES
By: /s/ Charles P. Stuckey
----------------------
EVERGREEN I LIMITED PARTNERSHIP
By: Its General Partner, Back Bay
Partners L.P.
By: One of its General Partners, John
Hancock Venture Capital
Management, Inc.
By: /s/ authorized signature
------------------------
Title:
KOFFLER FAMILY GROWTH
PORTFOLIO
By: /s/ authorized signature
------------------------
Title
BERKSHIRE PARTNERS II, L.P.
By: /s/ authorized signature
------------------------
Title:
-17-
<PAGE>
THE GOLDER THOMA FUND
By: /s/ authorized signature
------------------------
Title:
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By: /s/ authorized signature
------------------------
Title:
VENTURE FOUNDERS 1983 LIMITED
PARTNERSHIP
By: Its General Partner, Venture
Management Limited Partnership
By: /s/ Edward Getchell
-------------------
Title: General Partner
VENTURE FOUNDERS CAPITAL
LIMITED PARTNERSHIP
By: Its General Partner, Venture
Founders Partners Limited
Partnership
By: /s/ Edward Getchell
-------------------
Title: General Partner
OXFORD VENTURE FUND II LIMITED
PARTNERSHIP
By: Its General Partner, Oxford
Partners II
By: /s/ authorized signature
------------------------
Title:
-18-
<PAGE>
OXFORD VENTURE FUND III, LIMITED
PARTNERSHIP
By: Its General Partner, Oxford Partners
III, Limited Partnership
By: /s/ authorized signature
-------------------------------
Title:
COLLER CIP, L.P.
By: /s/ authorized signature
-------------------------------
Title:
ARROW PARTNERS C. V.
By: /s/ John D. Miller
-------------------------------
Title: John D. Miller
Under P/O/A dated 5/20/97
ROTHSCHILD INC., as Agent
By: /s/ authorized signature
-------------------------------
Title: Secretary
DVS PARTNERS III L.P.
By: /s/ authorized signature
-------------------------------
Title: General Partner
DSV PARNTERS IV L.P.
By: /s/ authorized signature
-------------------------------
Title: DSV Management
General Partner
/s/ Richard J. Testa
-----------------------------------
Richard J. Testa
-19-
<PAGE>
/s/ Richard N. Spann
-----------------------------------
Richard N. Spann
/s/ Thayer Francis, Jr.
-----------------------------------
Thayer Francis, Jr.
MERGER STOCKHOLDERS:
A.T. COMMERCIAL CORPORATION
By: /s/ authorized signature
------------------------------
A.T. VENTURE INVESTMENTS, a
division of Ameriturst Corporation
By: /s/ authorized signature
------------------------------
By: /s/ authorized signature
------------------------------
Title:
ACCEL CAPITAL L.P.
By: /s/ authorized signature
------------------------------
By: /s/ authorized signature
------------------------------
Title:
ACCEL CAPITAL (INTERNATIONAL)
L.P.
By: /s/ authorized signature
------------------------------
By: /s/ authorized signature
------------------------------
Title:
/s/ Frederick R. Adler
-----------------------------------
Frederick R. Adler
-20-
<PAGE>
MORGAN, HOLLAND FUND, L.P.
By: Its General Partner
Morgan, Holland Partners
By: /s/ authorized signature
------------------------------
Managing General Partner
NEW COURT PARTNERS.
By: its Managing Partner,
One Rock Associates
By: /s/ authorized signature
------------------------------
Title:
OXFORD VENTURE FUND III
LIMITED
PARTNERSHIP
By: its General Partner, Oxford
Partners III, Limited Partnership
By: /s/ authorized signature
------------------------------
General Partner
OXFORD VENTURE FUND II
LIMITED
PARTNERSHIP
By: its General Partner, Oxford
Partners II
By: /s/ authorized signature
------------------------------
Partner
DSV PARTNERS IV L.P.
By: /s/ authorized signature
------------------------------
-21-
<PAGE>
EXHIBIT 10.11
MATRIXONE, INC.
AMENDMENT NO. 4
TO
AMENDED AND RESTATED REGISTRATION RIGHTS,
RESTRICTED STOCK AND STOCK OPTION AGREEMENT
THIS AMENDMENT NO. 4 (the "Amendment"), dated as of June 17, 1999 between
---------
MatrixOne, Inc., formerly called Adra Systems, Inc., a Delaware Corporation
(the "Company"), each of the investors listed on the Schedule of H Investors
-------
attached hereto (the "H Investors") , and those other parties listed as
-----------
Stockholders on the signature pages attached hereto (the "Stockholders").
------------
WHEREAS the Company and the Stockholders are parties to a certain Amended
and Restated Registration Rights, Restricted Stock and Stock Option Agreement,
dated as of October 11, 1988, as amended as follows: (i) by Amendment No. 1,
dated as of June 26, 1991; (ii) by Amendment No. 2 dated as of August 19, 1991
and (iii) as further amended by Amendment No. 3 dated as of October 1, 1997 (the
"Agreement").
---------
WHEREAS pursuant to a stock purchase agreement (the "Class H Purchase
----------------
Agreement") dated the date hereof, the H Investors are purchasing 937,500 shares
- ---------
( the "Purchased Shares") of the Company's Class H Convertible Preferred Stock,
----------------
$1.00 par value (the "Class H Preferred Stock"); and
-----------------------
WHEREAS, as a condition to entering into the Class H Purchase Agreement,
the H Investors have requested and the Company desires to grant registration
rights with respect to the Purchased Shares;
WHEREAS, the H Investors are parties to the Agreement pursuant to their
purchase of the Company's Class G Convertible Preferred Stock on October 1,
1997; and
WHEREAS, the Company, the Stockholders and the H Investors desire to amend
the Agreement as hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
1. All capitalized terms used in this Amendment not otherwise defined
herein shall have the meaning given to them in the Agreement. For purposes of
any notice to be sent to any H Investor under the Agreement, notice shall be
deemed given when delivered in accordance with the notice provisions of the
Class H Purchase Agreement.
2. Amendments to Registration Agreement.
------------------------------------
(a) Section 1.27 is hereby amended and restated in its entirety as
follows:
<PAGE>
-2-
"1.27 `Stock' means: (i) the Class A Preferred Stock, the Class
B Preferred Stock, the Class C Preferred Stock, the Class D
Preferred Stock, the Class E Preferred Stock, the Class F
Preferred Stock, the Class G Preferred Stock and the Class H
Preferred Stock; (ii) any Common Stock issued on conversion of
any of the Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock, Class D Preferred Stock, Class E
Preferred Stock, Class F Preferred Stock, Class G Preferred Stock
and Class H Preferred Stock; (iii) Common Stock issued upon
exercise of any of the 1984 Options, the 1985 Options, the 1987
Options, the 1988 Options or the 1988 E Options; (iv) any Common
Stock issued upon exercise of any Warrant issued pursuant to a
certain Note and Warrant Purchase Agreement among the Company and
certain investors dated as of October 16, 1987; (v) any shares of
Merger Common Stock and any equity security of the Company issued
as a dividend or distribution thereon or in exchange therefor or
upon conversion thereof (whether such stock is held by a
Stockholder or its assignees, other than persons acquiring shares
of stock in an underwritten public offering), but not to other
stock of the same class or any other class which is now or
hereafter may be outstanding."
(b) The following sections of the Agreement are hereby amended and
restated in their entirety as follows:
"Section 1.25.1 `Registrable Securities' means (i) any Class G
----------------------
Preferred Stock issued pursuant to the Class G Purchase
Agreement, (ii) any Class H Preferred Stock issued pursuant to
the Class H Purchase Agreement; (iii) any Common Stock issued or
issuable with respect to the securities referred to in clauses
(i) or (ii) above or by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization but not to other
stock of the same class or any other class which is now or
hereafter may be outstanding. As to any particular Registrable
Securities, such securities shall cease to be Registrable
Securities when they have been distributed to the public pursuant
to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance
with Rule 144 under the Securities Act (or any similar rule then
in force) or repurchased by the Company
<PAGE>
-3-
or any Subsidiary. For purposes of this Agreement, a Person shall
be deemed to be a holder of Registrable Securities, and the
Registrable Securities shall be deemed to be in existence,
whenever such Person has the right to acquire directly or
indirectly such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has
actually been effected, and such Person shall be entitled to
exercise the rights of a holder of Registrable Securities
hereunder."
"Section 1.16-1 'Qualified Public Offering' means the sale in
-------------------------
an underwritten public offering of shares of Common Stock (a
"Public Offering") in which the price paid for each such share by
---------------
the public shall be at least equal to 3.0 multiplied by the
Initial Conversion Price (appropriately adjusted to reflect stock
splits, stock dividends, combinations of shares and the like).
"Section 1.35 'Initial Conversion Price' of the Class G
------------------------
Convertible Preferred Stock shall be equal to $5.80 per share and
for the Class H Convertible Preferred Stock shall be equal to
$8.00 per share.
(c) Article I of the Agreement is hereby amended by adding the
following Sections:
"Section 1.38 'Class H Preferred Stock' means the Class H
-----------------------
Convertible Preferred Stock, $1.00 par value, of the Company
issued pursuant to the Class H Purchase Agreement.
"Section 1.39 'Class H Purchase Agreement' means the Class H
-------- ----------
Convertible Preferred Stock Purchase Agreement, dated the date of
Amendment No. 4 of this Agreement, between the Company, William
Blair and Gilde IT Fund (collectively the "H Investors")."
-----------
(d) Section 3.3 of the Agreement is hereby amended and restated in its
entirety as follows:
"3.3(a) Required Registrations. Any holder of Stock excluding
----------------------
any holder of Class G or Class H Preferred Stock, provided such
holder, together with any other holder
<PAGE>
-4-
exercising rights pursuant to this Section 3.3, holds at least
35% of the then outstanding shares of Stock (excluding, however,
for purposes of calculation of such percentage, any shares of
Common Stock issued upon the exercise of any 1984 Option, any
1985 Option, any 1987 Option, any 1988 Option, any 1988 E Option,
any Class G Preferred Stock or any Class H Preferred Stock),
shall have the right to require the Company to effect any
necessary registration or qualification in connection with any
proposed transfer or disposition of Stock, but, if the Company is
otherwise in registration on Form S-1, or S-2 at the time of
demand, or if it has just completed a registration at the time of
demand, then not prior to ninety days after the effective date of
any such registration. If requested by such holder to register or
qualify any Stock excluding any Class G or Class H Preferred
Stock, the Company shall promptly give written notice of such
request to all registered holders of Stock excluding any Class G
or Class H Preferred Stock. Any holder of Stock excluding any
Class G or Class H Preferred Stock desiring to have any of its
Stock included in such registration or qualification shall,
within 20 days after its receipt of such notice from the Company,
notify the Company of the number of shares of Stock which it
desires to have so included and the manner in which it proposes
to dispose of such Stock. The Company shall, as expeditiously as
possible, endeavor in good faith to effect any registration or
qualification, to give any notification, to obtain any
governmental approval and to effect listing with any securities
exchange on which the Stock of the Company is then listed, which
may be required to permit each holder of Stock who has given the
Company a timely request or notice pursuant to this Section 3.3
to dispose of the Stock referred to in such request or notice in
the manner specified therein. The Company's obligations pursuant
to this Section 3.3 to effect registrations under the 1933 Act
shall be limited to two such registrations."
(e) Article III of the Agreement is hereby amended by amending and
restating in their entirety the following Sections:
"3.3(b) Class G or Class H Required Registrations.
-----------------------------------------
(a) Requests for Registration. At any time, the holders of the
-------------------------
Registrable Securities may request registration under the
Securities Act of all or any
<PAGE>
-5-
portion of their Registrable Securities on Form S-1 or any
similar long-form registration ("Long-Form Registrations"),
-----------------------
as set forth in paragraph (b) below. All registrations
requested pursuant to this Section 3.3(b) are referred to
herein as "Demand Registrations." Each request for a Demand
--------------------
Registration shall specify the approximate number of
Registrable Securities requested to be registered. Within
ten days after receipt of any such request, the Company
shall give written notice of such requested registration to
all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with
respect to which the Company has received written requests
for inclusion therein within 15 days after the receipt of
the Company's notice.
(b) Number of Long-Form Registrations. The holders of a
---------------------------------
majority of Registrable Securities, and after a Qualified
Public Offering 20% of the holders of Registrable
Securities, shall be entitled to request (i) four (4) Long-
Form Registrations in which the Company shall pay all
Registration Expenses ("Company-paid Long-Form
----------------------
Registrations"). A registration shall not count as one of
-------------
the permitted Long-Form Registrations until it has become
effective, and no Long-Form Registration shall count as one
of the permitted Long-Form Registrations unless the holders
of Registrable Securities are able to register and sell at
least 90% of the Registrable Securities requested to be
included in such registration; provided that in any event
the Company shall pay all Registration Expenses in
connection with any registration initiated as a Company-paid
Long-Form Registration whether or not it has become
effective and whether or not such registration has counted
as one of the permitted Company-paid Long-Form
Registrations.
(c) Selection of Underwriters. The holders of a majority of the
-------------------------
Registrable Securities initially requesting a Long-Form
registration hereunder shall have the right to select the
investment banker(s) and manager(s) to administer the
offering, subject to the
<PAGE>
-6-
Company's approval which shall not be unreasonably withheld.
(i) Other Registration Rights. Except as provided in this
-------------------------
Agreement, the Company shall not grant to any Persons
the right to request the Company to register any equity
securities of the Company, or any securities
convertible or exchangeable into or exercisable for
such securities, without the prior written consent of
the holders of at least a majority of the Registrable
Securities; provided that the Company may grant rights
to other Persons to (i) participate in Piggyback
Registrations so long as such rights are subordinate to
the rights of the holders of Registrable Securities
with respect to such Piggyback Registrations and (ii)
request registrations so long as the holders of
Registrable Securities are entitled to participate in
any such registrations with such Persons pro rata on
the basis of the number of shares owned by each such
holder.
(d) Priority on Demand Registrations. The Company shall not
--------------------------------
include in any Demand Registration any securities which are
not Registrable Securities without the prior written consent
of the holders of at least a majority of the Registrable
Securities included in such registration except as otherwise
provided in Section 3.4. If a Demand Registration is an
underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of
Registrable Securities and, if permitted hereunder, other
securities requested to be included in such offering exceeds
the number of Registrable Securities and other securities,
if any, which can be sold therein without adversely
affecting the marketability of the offering, the Company
shall include in such registration prior to the inclusion of
any securities which are not Registrable Securities, the
number of Registrable Securities requested to be included
which in the opinion of such underwriters can be sold
without
<PAGE>
-7-
adversely affecting the marketability of the offering, pro
rata among the respective holders thereof on the basis of
the amount of Registrable Securities owned by each such
holder. Any Persons other than holders of Registrable
Securities who participate in Demand Registrations which are
not at the Company's expense must pay their share of the
Registration Expenses as provided in Section 3.38 hereof.
(e) Restrictions on Long-Form Registrations. The Company shall
---------------------------------------
not be obligated to effect any Long-Form Registration within
180 days after the effective date of a previous Long-Form
Registration or a previous registration in which the holders
of Registrable Securities were given piggyback rights
pursuant to Section 3.4 and in which there was no reduction
in the number of Registrable Securities requested to be
included. The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for
a Demand Registration if the Company and the holders of at
least a majority of the Registrable Securities agree that
such Demand Registration would reasonably be expected to
have a material adverse effect on any proposal or plan by
the Company or any of its Subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer,
reorganization or similar transaction; provided that in such
event, the holders of Registrable Securities initially
requesting such Demand Registration shall be entitled to
withdraw such request and, if such request is withdrawn,
such Demand Registration shall not count as one of the
permitted Demand Registrations hereunder and the Company
shall pay all Registration Expenses in connection with such
registration.
"3.5 Registration on Forms S-2 and S-3. Following the first
---------------------------------
offering of Class A Common Stock by the Company pursuant to a
registration under the 1933 Act, the Company shall use its best
efforts to meet, as soon as possible, the eligibility
requirements for a secondary distribution of its Class A Common
Stock under the 1933 Act on Form S-2 or
<PAGE>
-8-
Form S-3 (or any similar form promulgated by the Commission). To
that end, the Company shall register (whether or not required by
law to do so) its Class A Common Stock under the 1934 Act no
later than 30 days prior to the end of the Company's fiscal year
following the effective date of the first registration of any
securities of the Company under the 1933 Act. If the effective
date of the public offering is less than 30 days prior to the end
of the Company's fiscal year, the registration under the 1934 Act
shall occur prior to the end of such fiscal year. After the
Company is eligible for the registration of its Class A Common
Stock under the 1933 Act on Form S-2 or Form S-3 (or similar
form), the Company will, upon written request of (i) any holder
or holders of shares of Stock, excluding any holder of Class G
Preferred Stock or Class H Preferred Stock, having an aggregate
market value of not less than $1,000,000 and constituting greater
than 4% of the outstanding shares of Stock (excluding, however,
for purposes of calculation of such percentage, any shares of
Common Stock issued upon the exercise of any 1984 Options, 1985
Options, 1987 Options, 1988 Options, 1988 E Options, Class G
Preferred Stock or Class H Preferred Stock) of the Company to
register or qualify such Stock pursuant to this Section 3.5 or
(ii) the holders of a majority of Registrable Securities (and
after a Qualified Public Offering 10% of the holders of
Registrable Securities), promptly give written notice of such
request to all registered holders of Stock, any holder of Stock
desiring to have any of its Stock included in such registration
or qualification shall, within 20 days after its receipt of such
notice from the Company, notify the Company of the number of
shares of Stock which it desires to have so included and the
manner in which it proposes to dispose of such Stock. The Company
shall, as expeditiously as possible, endeavor in good faith to
effect a registration under the 1933 Act on Form S-2 or Form S-3
(or similar form) of all Stock referred to in a request or notice
timely given to the Company pursuant to this Section 3.5, and to
effect any registration or qualification of such Stock under any
state law, and any listing of such Stock with any securities
exchange on which the Class A Common Stock of the Company is then
listed, which may be required to permit the sale or disposition
of such Stock in the manner specified in such request or notices.
The Company shall not be required to cause a registration
statement to become
<PAGE>
-9-
effective pursuant to Section 3.5 prior to 90 days following the
effective date of the most recent registration by the Company
under the 1933 Act, or more than twice during any year.
"3.6(b) Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with Article III of this Agreement, including
without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws,
printing expenses, messenger and delivery expenses, fees and
disbursements of custodians, and fees and disbursements of
counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all
such expenses being herein called "Registration Expenses"),
---------------------
shall be borne as provided in Article III of this Agreement,
except that the Company shall, in any event, pay its
internal expenses (including, without limitation, all
salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any
annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing
the securities to be registered on each securities exchange
on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each
Piggyback Registration, the Company shall reimburse the
holders of Registrable Securities included in such
registration for the reasonable fees and disbursements of
one counsel chosen by the holders of a majority of the
Registrable Securities included in such registration for the
purpose of rendering a legal opinion on behalf of such
holder in connection with any underwritten Demand
Registration or Piggyback Registration.
(c) To the extent Registration Expenses are not required to be
paid by the Company, each holder of
<PAGE>
-10-
securities included in any registration hereunder shall pay
those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration
Expenses not so allocable shall be borne by all sellers of
securities included in such registration in proportion to
the aggregate selling price of the securities to be so
registered.
"3.7(b) Holdback Agreements.
--------
(a) Each holder of Registrable Securities and each holder of
Stock shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the
seven days prior to and the 90-day (or, 180-day period in
the case of the Company's Initial Public Offering) beginning
on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of
such underwritten registration), unless the underwriters
managing the registered public offering and William Blair
otherwise agree.
(b) The Company (i) shall not effect any public sale or
distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and during the
90-day period (or, 180-day period in the case of the
Company's Initial Public Offering) beginning on the
effective date of any underwritten Demand Registration or
any underwritten Piggyback Registration (except as part of
such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters
managing the registered public offering and William Blair
otherwise agree, and (ii) shall use its best efforts to
cause each holder of at least 10% (on a fully-diluted basis)
of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from
the Company at any time after the
<PAGE>
-11-
date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless
the underwriters managing the registered public offering
otherwise agree.
3. Severability. Whenever possible, each provision of this Amendment
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment is held to be prohibited
or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Amendment.
4. Counterparts. This Amendment may be executed simultaneously in two or
------------
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Amendment.
5. Governing Law. All issues and questions concerning the construction,
-------------
validity, interpretation and enforcement of this Amendment and the exhibits and
schedules hereto shall be governed by, and in accordance with, the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any other jurisdiction other
than the State of Delaware.
6. Effectiveness. Pursuant to Section 5.2 of the Agreement, this
-------------
Amendment shall become effective upon execution by the Company, the H Investors
and by Stockholders holding a majority of the aggregate outstanding shares of
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class
D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock, Class G
Preferred Stock and the Merger Common Stock voting together as a single class.
The Agreement, as amended hereby, is in all respects ratified and confirmed, and
all of the rights and powers created thereby and thereunder, as amended hereby
and hereunder, shall be and remain in full force and effect.
* * * * * *
<PAGE>
-12-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 4
to the Agreement on the date first written above.
MATRIXONE, INC.
By: /s/ Mark F. O'Connell
-----------------------------------
Mark F. O'Connell
Its: Chief Executive Officer
STOCKHOLDERS:
------------
/s/ William T. Mason
-----------------------------------
William T. Mason
/s/ Frank A. Mason
-----------------------------------
Frank A. Mason
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By: /s/ Authorized Signatory
-----------------------------------
General Partner
PRIVATE EQUITY INVESTMENT
FUND, L.P.
By: Private Equity Investors, Inc.
By: /s/ Authorized Signatory
-----------------------------------
Title: Managing Director
-----------------------------------
<PAGE>
-13-
FAIRFIELD INVESTORS II, L.P.
By: /s/ Authorized Signatory
-----------------------------------
Title: General Partner
-----------------------------------
GILDE IT FUND
By: /s/ Authorized Signatory
-----------------------------------
Title: Investment Director
-----------------------------------
THE LYNCH FOUNDATION
By: /s/ Peter Lynch
-----------------------------------
Peter Lynch
By: /s/ Gordon Hayes, Jr.
-----------------------------------
Gordon Hayes, Jr.
WILLIAM BLAIR CAPITAL
PARTNERS V, L.P.
By: William Blair Capital Management Company,
L.L.C., its General Partner
By: /s/ Ellen Carnahan
-----------------------------------
Ellen Carnahan
Its: Managing Director
COLLER CIP, L.P.
By: /s/ Christopher W. Cochrane
-----------------------------------
<PAGE>
-14-
BERKSHIRE PARTNERS II, L.P.
By: /s/ Authorized Signatory
-----------------------------------
DSV PARTNERS III, L.P.
By: /s/ Authorized Signatory
-----------------------------------
DSV PARTNERS IV, L.P.
By: /s/ Authorized Signatory
-----------------------------------
EVERGREEN I LIMITED PARTNERSHIP
By its General Partner,
Back Bay Partners L.P.
By one of its General Partners,
John Hancock Venture Capital Management
By: /s/ Authorized Signatory
-----------------------------------
KOFFLER FAMILY GROWTH
PORTFOLIO
By: /s/ Authorized Signatory
-----------------------------------
MORGAN, HOLLAND FUND, L.P.
By its General Partner,
Morgan, Holland Partners
By: /s/ Authorized Signatory
-----------------------------------
Managing General Partner
<PAGE>
-15-
OXFORD VENTURE FUND III, LIMITED
PARTNERSHIP
By its General Partner, Oxford Partners III,
Limited Partnership
By: /s/ Authorized Signatory
-----------------------------------
General Partner
OXFORD VENTURE FUND II LIMITED
PARTNERSHIP
By its General Partner,
Oxford Partners II
By: /s/ Authorized Signatory
-----------------------------------
Partner
LOMBARD ASSOCIATES
By: /s/ Authorized Signatory
-----------------------------------
THE GOLDER THOMA FUND
By: /s/ Authorized Signatory
-----------------------------------
VENTURE FOUNDERS 1983, LIMITED
PARTNERSHIP
By its General Partner,
Venture Management Limited Partnership
By: /s/ Edward Getchell
-----------------------------------
General Partner
<PAGE>
-16-
VENTURE FOUNDERS CAPITAL
LIMITED PARTNERSHIP
By its General Partner,
Venture Founders Partners Limited Partnership
By: /s/ Edward Getchell
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General Partner
/s/ Richard J. Testa
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Richard J. Testa
/s/ Richard N. Spann
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Richard N. Spann
/s/ Thayer Francis, Jr.
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Thayer Francis, Jr.
COMPAQ COMPUTER CORP.
By: /s/ Authorized Signatory
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Title:_____________________________
<PAGE>
EXHIBIT 10.12
MATRIXONE, INC.
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of June 17, 1999, between MatrixOne, Inc.,
formerly called Adra Systems, Inc., a Delaware corporation (the "Company"),
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William T. Mason, James F. Stenzel, Peter D. Stoupas and Frank A. Mason (the
"Founders"), each of the investors listed on the Schedule of Investors attached
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hereto (the "Investors"), each of the investors listed on the Schedule of G
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Investors attached hereto (the "G Investors"), each of the investors listed on
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the Schedule of H Investors attached hereto (the "H Investors") and each of the
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executives listed on the Schedule of Executives attached hereto (the
"Executives"). The Founders, the Investors, the G Investors, the H Investors
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and the Executives are collectively referred to as the "Stockholders" and
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individually as a "Stockholder." Capitalized terms used herein are defined in
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paragraph 7 hereof.
The H Investors shall purchase shares of the Company's Class H Convertible
Preferred Stock pursuant to a purchase agreement between the H Investors and the
Company dated as of the date hereof (the "Class H Purchase Agreement").
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The Company and the Stockholders desire to enter into this Agreement for
the purposes, among others, of (i) establishing the composition of the Company's
Board of Directors (the "Board"), (ii) assuring continuity in the management and
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ownership of the Company and (iii) limiting the manner and terms by which the
Stockholders' Preferred and Common Stock may be transferred. The execution and
delivery of this Agreement is a condition to the H Investors' purchase of the
Company's stock pursuant to the Class H Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Board of Directors.
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(a) From and after the date hereof and until the provisions of this
paragraph 1 cease to be effective, each holder of Stockholder Shares shall vote
all of such holder's Stockholder Shares which are voting shares and any other
voting securities of the Company over which such holder has voting control and
shall take all other necessary or desirable actions within such holder's control
(whether in such holder's capacity as a stockholder, director, member of a board
committee or officer of the Company or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), and
the Company shall take all necessary or desirable actions within its control
(including, without limitation, calling special board and stockholder meetings),
to:
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(i) subject to paragraph 1(g) below, establish the authorized number
of directors on the Board at six (6) directors when each of the following
individuals is elected to fill newly created directorships or vacancies;
(ii) elect the following individuals to the Board
(A) one representative designated by the Investors determined by
the affirmative vote of Investors holding the majority of the Class A, B, C, D
and F Convertible Preferred Stock of the Company (the "Old Preferred") held by
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all Investors (the "Investor Director"), provided that the right of any and all
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Investors to designate one representative to the Board pursuant to this
paragraph 1(a)(ii)(A) shall terminate and be of no force and effect in the event
that such Old Preferred be converted to Common Stock. Daniel Holland shall be
the initial nominated Investor Director until his replacement is nominated
pursuant to the terms hereof.
(B) one representative designated by the G Investors determined
affirmative vote of the G Investors holding two-thirds of the Stockholder Shares
held by all G Investors (the "G Investor Director"), provided that William Blair
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Capital Partners V, L.P. ("William Blair") shall designate the G Investor
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Director from and after the date hereof so long as William Blair is a holder of
Class G Convertible Preferred Stock ("G Preferred") and provided that the right
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of any and all G Investors to designate one representative to the Board
pursuant to this paragraph 1(a)(ii)(B) shall terminate and be of no force and
effect in the event that such G Preferred be converted to Common Stock. Ellen
Carnahan shall be the initial nominated G Investor Director until her
replacement is nominated pursuant to the terms hereof.
(C) the chief executive officer of the Company elected by the
Board (the "CEO Director").
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(D) three representatives designated by, and mutually acceptable
to, the Investors, the G Investors and the H Investors determined on the basis
of an annual vote of a majority of the Stockholder Shares held by all Investors
and a majority of the Stockholder Shares held by all G Investors and H Investors
provided that:
(1) two of such directors (the "Industry Directors") shall
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be individuals with considerable operating experience and stature in the
software industry. Charles Stuckey shall be one of the Industry Directors until
his replacement is nominated pursuant to the terms hereof, and the other
Industry Director shall be elected in the manner set forth above, it being
acknowledged that this position is vacant as of the date hereof; and
(2) one of such directors (the "Outside Director") shall not
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be required to meet the profile in (1) above. James F. Morgan shall be the
initial Outside Director until his replacement is nominated pursuant to the
terms hereof.
(3) the removal from the Board (with or without cause) of
any representative designated hereunder by the Investors, the G Investors or the
Investors, the
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G Investors and the H Investors voting together as described in subparagraph
(ii)(D), pursuant to subparagraphs (ii)(A), (B) or (D), respectively, shall be
at the Investors', the G Investors' or the Investors, the G Investors and the H
Investors voting together as described in subparagraph (ii)(D), written request,
respectively, but only upon such written request and under no other
circumstances (in each case, determined on the basis of a vote of the holders of
a majority of the Stockholder Shares held by such Persons), provided that the
removal from the Board (with or without cause) of any representative designated
hereunder pursuant to subparagraph (ii)D(1) shall be approved by all holders of
Stockholder Shares if so directed by the affirmative vote of a majority of the
Board at any time; and
(4) in the event that any representative designated
hereunder by the Investors, the G Investors or by the Investors, the G Investors
and the H Investors voting together as described in subparagraph (ii)(D) ceases
to serve as a member of the Board during his or her term of office, the
resulting vacancy on the Board shall be filled by a representative designated by
the Investors, the G Investors or the Investors, the G Investors and the H
Investors voting together as described in subparagraph (ii)(D), respectively, as
provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the Board
and any committee thereof.
(c) The rights of the Investors under this paragraph 1 shall terminate
at such time as the Investors and their Permitted Transferees (as defined in
paragraph 4d hereof) hold in the aggregate less than 50% of the Stockholder
Shares held by such Persons on October 1, 1997.
(d) The rights of the G Investors under this paragraph 1 shall
terminate at such time as the G Investors and their Permitted Transferees (as
defined in paragraph 4d hereof) hold in the aggregate less than 50% of the
Stockholder Shares held by such Persons on October 1, 1997.
(e) The rights of the H Investors under this paragraph 1 shall
terminate at such time as the H Investors and their Permitted Transferees (as
defined in Paragraph 4(d) hereof) hold in the aggregate less than 50% of the
Stockholder Shares held by such Persons on the date hereof.
(f) The provisions of this paragraph 1 shall terminate automatically
and be of no further force and effect upon a Qualified Public Offering (as
defined in paragraph 7 hereof).
(g) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the individual
previously holding such directorship shall be elected to such position, or if
such individual fails or declines to serve, the election of an individual to
such directorship shall be accomplished in accordance with the Company's Bylaws
and applicable law; provided that the Stockholders shall vote to remove such
individual if the party which failed to designate such directorship so directs.
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<PAGE>
(h) Notwithstanding anything to the contrary contained in this paragraph 1,
in the event the holder or holders of the Preferred Stock exercise their right
to elect a director or directors to the Board upon the occurrence of an Event of
Noncompliance under the Company's Restated Certificate of Incorporation, the
provisions of this paragraph 1 shall remain in effect; provided that the size of
the Board shall be increased by the number of directors who are elected by the
holders of the Preferred Stock in accordance with the Restated Certificate of
Incorporation.
(i) If the member of the Board nominated by the holders of the G Investor
is unable to attend a meeting of the Board, the Company shall permit a
representative of such holders to attend as an observer all meetings of its
Board.
2. Representations and Warranties. Each Stockholder represents and
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warrants that (i) such Stockholder is the record owner of the number of
Stockholder Shares set forth opposite its name on the Schedule of Investors,
Schedule of G Investors, Schedule of H Investors or Schedule of Executives, as
the case may be, attached hereto, (ii) this Agreement has been duly authorized,
executed and delivered by such Stockholder and constitutes the valid and binding
obligation of such Stockholder, enforceable in accordance with its terms, and
(iii) such Stockholder has not granted and is not a party to any proxy, voting
trust or other agreement which is inconsistent with, conflicts with or violates
any provision of this Agreement. No holder of Stockholder Shares shall grant
any proxy or become party to any voting trust or other agreement which is
inconsistent with, conflicts with or violates any provision of this Agreement.
3. Retention of Stockholder Shares. So long as the G Investors or H
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Investors hold 75% of the Class G Stockholder Shares or Class H Stockholder
Shares, respectively, held by such persons as of the date hereof, no Executive
shall sell, transfer, assign, pledge or otherwise dispose of any Stockholder
Shares held by such Executive on the date hereof or hereafter acquired, except
pursuant to a Sale of the Company or a Public Sale provided that nothing
contained in this paragraph 3 shall prohibit any Executive from transferring
Stockholder Shares as permitted by paragraph 4(d) hereof; and provided further
that the provisions of this paragraph 3 shall terminate and cease to be
effective upon the consummation of a Public Offering, an Approved Sale, a Sale
of the Company or when such Executive ceases to be employed by the Company or
any Subsidiary.
4. Restrictions on Transfer of Stockholder Shares.
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(a) Transfer of Stockholder Shares. No holder of Stockholder Shares shall
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sell, transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
any interest in his Stockholder Shares (a "Transfer"), except pursuant to the
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provisions of this paragraph 4 hereof, pursuant to a Public Sale or an Approved
Sale; provided that in no event shall any Transfer of Stockholder Shares
pursuant to this paragraph 4 be made for any consideration other than cash
payable upon consummation of such Transfer or in installments over time and no
Stockholder Shares may be pledged (except for a pledge of Stockholder Shares by
a transferee to secure indebtedness to the transferor thereof hereunder). No
Stockholder shall consummate any Transfer (other than a Public Sale or an
Approved Sale) until 30 days after the later of the delivery to the Company and
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<PAGE>
the other Stockholders of such Stockholder's Offer Notice or Sale Notice (if
any), unless the parties to the Transfer have been finally determined pursuant
to this paragraph 4 prior to the expiration of such 30-day period (the "Election
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Period").
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(b) First Offer Right. At least 30 days prior to making any Transfer of
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any Stockholder Shares (other than a Public Sale), the transferring Stockholder
(the "Transferring Stockholder") shall deliver a written notice (an "Offer
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Notice") to the Company and the other Stockholders, excluding the Founders (the
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"Other Stockholders"). The Offer Notice shall disclose in reasonable detail the
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proposed number of Stockholder Shares to be transferred, the proposed terms and
conditions of the Transfer and the identity of the prospective transferee(s) (if
known). First, the Company may elect to purchase all (but not less than all) of
the Stockholder Shares specified in the Offer Notice at the price and on the
terms specified therein by delivering written notice of such election to the
Transferring Stockholder and the Other Stockholders as soon as practical but in
any event within ten days after the delivery of the Offer Notice. If the
Company has not elected to purchase all of the Stockholder Shares within such
ten-day period, each Other Stockholder may elect to purchase all (but not less
than all) of his, her or its Pro Rata Share (as defined below) of the remaining
Stockholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Stockholder as soon as practical but in any event within 20 days
after delivery of the Offer Notice. Any Stockholder Shares not elected to be
purchased by the end of such 20-day period shall be reoffered for the ten-day
period prior to the expiration of the Election Period by the Transferring
Stockholder on a pro rata basis to the Other Stockholders who have elected to
purchase their Pro Rata Share and, if there are any such Stockholder Shares
remaining after such allocation, the Company shall have the right to purchase
such remaining Stockholder Shares. If the Company or any Other Stockholders
have elected to purchase Stockholder Shares from the Transferring Stockholder,
the transfer of such shares shall be consummated as soon as practical after the
delivery of the election notice(s) to the Transferring Stockholder, but in any
event within 15 days after the expiration of the Election Period. To the extent
that the Company and the Other Stockholders have not elected to purchase all of
the Stockholder Shares being offered, the Transferring Stockholder may, within
90 days after the expiration of the Election Period and subject to the
provisions of subparagraph (c) below, transfer such Stockholder Shares to one or
more third parties at a price no less than the price per share specified in the
Offer Notice and on other terms no more favorable to the transferees thereof
than offered to the Company and the Other Stockholders in the Offer Notice. Any
Stockholder Shares not transferred within such 90-day period shall be reoffered
to the Company and the Other Stockholders under this paragraph 4(b) prior to any
subsequent Transfer. The purchase price specified in any Offer Notice shall be
payable solely in cash at the closing of the transaction or in installments over
time. Each Stockholder's "Pro Rata Share" shall be based upon such
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Stockholder's proportionate ownership of all Stockholder Shares owned by
Stockholders other than the Transferring Stockholder.
(c) Participation Rights. At least 30 days prior to any Transfer of
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Stockholder Shares (other than a Public Sale, an Approved Sale or a Transfer to
the Company or the Other Stockholders pursuant to paragraph 4(b), the
Transferring Stockholder shall deliver a written notice (the "Sale Notice") to
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the Company and the other Stockholders, excluding the Founders (the "Other
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Stockholders"), specifying in reasonable detail the identity of the prospective
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<PAGE>
transferee(s), the number of shares to be transferred and the terms and
conditions of the Transfer (which notice may be the same notice and given at the
same time as the Offer Notice under paragraph 4(b)). The Other Stockholders may
elect to participate in the contemplated Transfer at the same price per share
and on the same terms by delivering written notice to the Transferring
Stockholder within 30 days after delivery of the Sale Notice. If any Other
Stockholders have elected to participate in such Transfer, the Transferring
Stockholder and such Other Stockholders shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
Stockholder Shares equal to the product of (i) the quotient determined by
dividing the percentage of Stockholder Shares owned by such Person by the
aggregate percentage of Stockholder Shares owned by the Transferring Stockholder
and the Other Stockholders participating in such sale and (ii) the number of
Stockholder Shares to be sold in the contemplated Transfer. For purposes of
this paragraph 4(c), the number of Stockholder Shares represented by shares of
Preferred Stock shall be the number of shares of Common Stock issuable upon
conversion of the Preferred Stock immediately preceding the consummation of the
Transfer.
For example, if the Sale Notice contemplated a sale of 100
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Stockholder Shares by the Transferring Stockholder, and if
the Transferring Stockholder at such time owns 30% of all
Stockholder Shares and if one Other Stockholder elects to
participate and owns 20% of all Stockholder Shares, the
Transferring Stockholder would be entitled to sell 60 shares
(30% divided by 50% x 100 shares) and the Other Stockholder
would be entitled to sell 40 shares (20% divided by 50% x
100 shares).
Each Transferring Stockholder shall use best efforts to obtain the agreement of
the prospective transferee(s) to the participation of the Other Stockholders in
any contemplated Transfer, and to the inclusion (in the case of the Investors)
of the Old Preferred in the contemplated Transfer and to the inclusion (in the
case of the G Investors or H Investors) of the Class G Preferred or Class H
Preferred in the contemplated Transfer, and no Transferring Stockholder shall
transfer any of its Stockholder Shares to any prospective transferee if such
prospective transferee(s) declines to allow the participation of the Other
Stockholders or the inclusion of the Preferred Stock. Each Stockholder
transferring Stockholder Shares pursuant to this paragraph 4(c) shall pay its
pro rata share (based on the number of Stockholder Shares to be sold) of the
expenses incurred by the Stockholders in connection with such transfer and shall
be obligated to join on a pro rata basis (based on the number of Stockholder
Shares to be sold) in any indemnification or other obligations that the
Transferring Stockholder agrees to provide in connection with such transfer
(other than any such obligations that relate specifically to a particular
Stockholder such as indemnification with respect to representations and
warranties given by a Stockholder regarding such Stockholder's title to and
ownership of Stockholder Shares; provided that no holder shall be obligated in
connection with such Transfer to agree to indemnify or hold harmless the
transferees with respect to an amount in excess of the net cash proceeds paid to
such holder in connection with such Transfer).
(d) Permitted Transfers. The restrictions set forth in this paragraph
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4 shall not apply with respect to any Transfer of Stockholder Shares by any
Stockholder (i) in the case of an
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<PAGE>
Executive or Founder, pursuant to applicable laws of descent and distribution or
among such Executive's or Founder's Family Group or (ii) in the case of an
Investor, a G Investor, or an H Investor among its Affiliates (collectively
referred to herein as "Permitted Transferees"); provided that the restrictions
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contained in this paragraph 4 shall continue to be applicable to the Stockholder
Shares after any such Transfer and provided further that the transferees of such
Stockholder Shares shall have agreed in writing to be bound by the provisions of
this Agreement affecting the Stockholder Shares so transferred. For purposes of
this Agreement, "Family Group" means an Executive's or Founder's spouse and
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descendants (whether natural or adopted) mother-in-law, father-in-law, brother-
in-law and/or sister-in-law, and the Executive's or Founder's father, mother,
brother or sister, niece or nephew or a trust established for the Executive or
Founder and/or one or more of the foregoing individuals and "Affiliate" of an
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Investor, a G Investor or an H Investor means any other Person, directly or
indirectly controlling, controlled by or under common control with such Investor
and any partner of an Investor which is a partnership.
Notwithstanding the foregoing, no party hereto shall avoid the
provisions of this Agreement by making one or more transfers to one or more
Permitted Transferees and then disposing of all or any portion of such party's
interest in any such Permitted Transferee.
(e) Termination of Restrictions. The restrictions set forth in this
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paragraph 4 shall continue with respect to each Stockholder Share until the
earlier of (i) the date on which such Stockholder Share has been transferred in
a Public Sale (or pursuant to paragraph 8 hereof), or (ii) the date on which
such Stockholder Share has been transferred pursuant to this paragraph 4 (other
than subparagraph 4(d)).
5. Legend. Each certificate evidencing Stockholder Shares and each
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certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares after such transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate are subject
to an Amended and Restated Stockholders Agreement dated as
of June [_ ], 1999 among the issuer of such securities (the
"Company") and certain of the Company's stockholders, as
amended and modified from time to time. A copy of such
Stockholders Agreement shall be furnished without charge by
the Company to the holder hereof upon written request."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding as of the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Stockholder Shares in accordance with this Agreement.
6. Transfer. Prior to transferring any Stockholder Shares (other
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than a Public Sale, an Approved Sale or a Sale of the Company) to any Person,
the holders of Stockholder Shares shall cause the prospective transferee to be
bound by this Agreement and to execute and
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<PAGE>
deliver to the Company and the other holders of Stockholder Shares a counterpart
of this Agreement.
7. Definitions.
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"Board" has the meaning set forth in the preamble.
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"Class G Stockholder Shares" means (i) any Common Stock purchased or
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otherwise acquired by any G Investor, (ii) any Class G Preferred Stock purchased
or otherwise acquired by any Stockholder, (iii) any capital stock or other
equity securities issued or issuable directly or indirectly upon conversion of
the Class G Preferred Stock, and (iv) any Common Stock issued or issuable with
respect to the securities referred to in clauses (i), (ii) and (iii) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular shares constituting Class G Stockholder Shares, such shares shall
cease to be Stockholder Shares when they have been (x) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them or (y) sold to the public through a broker, dealer or
market maker pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act.
"Class H Purchase Agreement" has the meaning set forth in the
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preamble.
"Class H Stockholder Shares" means (i) any Common Stock purchased or
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otherwise acquired by any H Investor, (ii) any Class H Preferred Stock purchased
or otherwise acquired by any Stockholder, (iii) any capital stock or other
equity securities issued or issuable directly or indirectly upon conversion of
the Class H Preferred Stock, and (iv) any Common Stock issued or issuable with
respect to the securities referred to in clauses (i), (ii) and (iii) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular shares constituting Class H Stockholder Shares, such shares shall
cease to be Stockholder Shares when they have been (x) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them or (y) sold to the public through a broker, dealer or
market maker pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act.
"Common Stock" means the Company's Class A Common Stock, par value
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$.01 per share.
"Company" has the meaning set forth in the preamble.
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"Executives" has the meaning set forth in the preamble.
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"G Investor Director" has the meaning set forth in paragraph
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1(a)(ii)(B).
"Independent Third Party" means any Person who, immediately prior to
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the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a
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<PAGE>
fully-diluted basis (a "5% Owner"), who is not controlling, controlled by or
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under common control with any such 5% Owner and who is not the spouse or
descendent (by birth or adoption) of any such 5% Owner or a trust for the
benefit of such 5% Owner and/or such other Persons.
"Industry Directors" has the meaning set forth in paragraph
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1(a)(ii)(D)(1).
"Initial Conversion Price" of the Class G Convertible Preferred Stock
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shall be equal to $5.80 per share and for the Class H Convertible Preferred
Stock shall be equal to $8.00 per shall (each as adjusted to reflect stock
splits, stock dividends, combinations of shares and the like).
"Investor Directors" has the meaning set forth in paragraph
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1(a)(ii)(A).
"Investors" has the meaning set forth in the preamble.
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"Outside Director" has the meaning set forth in paragraph
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1(a)(ii)(D)(2).
"Permitted Transferee" has the meaning set forth in paragraph 4(d)
--------------------
hereof.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Company's Class A Convertible Preferred
---------------
Stock, Class B Convertible Preferred Stock, Class C Convertible Preferred
Stock, Class D Convertible Preferred Stock, Class E Convertible Preferred
Stock, Class G Convertible Preferred Stock and Class H Convertible
Preferred Stock.
"Public Sale" means any sale of Stockholder Shares to the public
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pursuant to an offering registered under the Securities Act or sales
pursuant to the provisions of Rule 144 adopted under the Securities Act or
similar rule then in effect.
"Qualified Public Offering" means the sale in an underwritten public
-------------------------
offering of shares of Common Stock (a "Public Offering") in which the price
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paid for each such share by the public shall be at least equal to 3.0
multiplied by the Initial Conversion Price.
"Sale of the Company" means the sale of the Company to an Independent
-------------------
Third Party or group of Independent Third Parties pursuant to which such
party or parties acquire (i) capital stock of the Company possessing the
voting power under normal circumstances to elect a majority of the
Company's board of directors (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or substantially all
of the Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
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time to time.
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<PAGE>
"Stockholder Shares" means (i) any Common Stock purchased or otherwise
------------------
acquired by any Stockholder, (ii) any Preferred Stock purchased or
otherwise acquired by any Stockholder, (iii) any capital stock or other
equity securities issued or issuable directly or indirectly upon conversion
of the Preferred Stock, and (iv) any Common Stock issued or issuable with
respect to the securities referred to in clauses (i), (ii) and (iii) above
by way of stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization.
As to any particular shares constituting Stockholder Shares, such shares
shall cease to be Stockholder Shares when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (y) sold to the public through a
broker, dealer or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act.
"Stockholders" has the meaning set forth in the preamble.
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"Subsidiary" means, with respect to any Person, any corporation,
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limited liability company, partnership, association or other business
entity of which (i) if a corporation, a majority of the total voting power
of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the limited liability
company, partnership or other similar ownership interest thereof is at the
time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business
entity gains or losses or shall be or control the managing director or
general partner of such limited liability company, partnership, association
or other business entity.
"Transfer" has the meaning set forth in paragraph 4(a).
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8. Sale of the Company.
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(a) If the Board and the G Investor Director approve a Sale of the
Company (the "Approved Sale"), the holders of Stockholder Shares shall consent
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to and raise no objections against the Approved Sale of the Company, and if the
Approved Sale of the Company is structured as a sale of stock, the holders of
Stockholder Shares shall agree to sell their Stockholder Shares on the terms and
conditions approved by the Board and the G Investor Director provided, however,
that (i) the terms of such Approved Sale are no more favorable to the G
Investors or H Investors than to the holders of Stockholder Shares; and (ii)
such Approved Sale is to an Independent Third Party . If the provisions of this
paragraph 8(a) are met, the holders of Stockholder Shares shall take all
necessary and desirable actions in connection with the
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<PAGE>
consummation of the Approved Sale of the Company. The provisions of this Section
8 shall only apply after the occurrence of an Event of Noncompliance under the
Company's Restated Certificate of Incorporation and if a majority of the
Company's Board has been elected by the G Investors or H Investors in accordance
with Section 8B(ii) of the Company's Restated Certificate of Incorporation.
(b) The obligations of the holders of Stockholder Shares with respect
to the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, all of the
holders of Common Stock shall receive the same form and amount of consideration
per share of Common Stock, or if any holders of Common Stock are given an option
as to the form and amount of consideration to be received, all holders shall be
given the same option; and (ii) all holders of then currently exercisable rights
to acquire shares of Common Stock shall be given an opportunity to either (A)
exercise such rights prior to the consummation of the Approved Sale and
participate in such sale as holders of Common Stock or (B) upon the consummation
of the Approved Sale, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price per share of Common Stock of such
rights to acquire Common Stock by (2) the number of shares of Common Stock
represented by such rights.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if
any holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Stockholders and any other holders of Stockholder Shares (if any)
shall bear their pro-rata share (based upon the number of shares sold) of the
costs of any sale of Stockholder Shares pursuant to an Approved Sale to the
extent such costs are incurred for the benefit of all holders of Stockholder
Shares and are not otherwise paid by the Company or the acquiring party. Costs
incurred by Stockholders and the other holders of Stockholder Shares on their
own behalf shall not be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 8 shall terminate upon the
completion of a Qualified Public Offering.
9. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the
-11-
<PAGE>
Company shall not record such Transfer on its books or treat any purported
transferee of such Stockholder Shares as the owner of such shares for any
purpose.
10. Amendment and Waiver. Except as otherwise provided herein, no
--------------------
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company; the Founders and the
Investors holding a majority of Stockholder Shares held by the Founders and the
Investors as a group; the holders of 60% of the Class G Stockholder Shares; and
the holders of 60% of the Class H Stockholder Shares, respectively. The failure
of any party to enforce any of the provisions of this Agreement shall in no way
be construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
11. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
12. Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way, including, without limitation: (i) the Amended and Restated
Stockholders Agreement dated December 18, 1985 as amended by Amendment No.1 to
the Amended and Restated Stockholders Agreement dated October 11, 1988; (ii) the
Stockholders Agreement dated August 24, 1983 as amended by Amendment No. 1 to
Stockholders Agreement dated December 20, 1984; or (iii) the Amended and
Restated Stockholders Agreement dated October 1, 1997.
13. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
14. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
15. Remedies. The Company, the Investors, the G Investors and the H
--------
Investors shall be entitled to enforce their rights under this Agreement
specifically, to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other
-12-
<PAGE>
rights existing in their favor. The parties hereto agree and acknowledge that
money damages would not be an adequate remedy for any breach of the provisions
of this Agreement and that the Company, any Investor, any G Investor and any H
Investor may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
16. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
MatrixOne, Inc.
Two Executive Drive
Chelmsford, MA 01824
Maurice L. Castonguay
Chief Financial Officer
with copies (which shall not constitute notice) to:
--------------------------------------------------
Testa Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Gordon H. Hayes, Jr., Esq.
17. Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforceability of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
In furtherance of the foregoing, the internal law of the State of Delaware shall
control the interpretation and construction of this Agreement (and all schedules
and exhibits hereto), even though under that jurisdiction's choice of law or
conflict of law analysis, the substantive law of some other jurisdiction would
ordinarily apply.
18. Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief-executive office is located, the time
period shall automatically be extended to the business day immediately following
such Saturday, Sunday or legal holiday.
-13-
<PAGE>
19. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
MATRIXONE, INC.
By: /s/ Mark F. O'Connell
---------------------------------
Mark F. O'Connell
Its: Chief Executive Officer
FOUNDERS:
--------
/s/ William T. Mason
--------------------------------------
William T. Mason
/s/ James F. Stenzel
--------------------------------------
James F. Stenzel
/s/ Peter D. Stoupas
--------------------------------------
Peter D. Stoupas
/s/ Frank A. Mason
--------------------------------------
Frank A. Mason
H INVESTORS:
-----------
GILDE IT FUND
By: /s/ Authorized Signatory
------------------------------
Title: Investment Director
------------------------------
-15-
<PAGE>
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
---------------------------------
Ellen Carnahan
Its: Managing Director
G INVESTORS:
-----------
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By: /s/ Authorized Signatory
---------------------------------
Vice President
PRIVATE EQUITY INVESTMENT FUND, L.P.
By: Private Equity Investors, Inc.
By: /s/ Authorized Signatory
---------------------------------
Title: Managing Director
---------------------------------
FAIRFIELD INVESTORS II, L.P.
By: /s/ Authorized Signatory
----------------------------------
Title: General Partner
--------------------------------
-16-
<PAGE>
GILDE IT FUND
By: /s/ Authorized Signatory
-----------------------------------
Title: Investment Director
-----------------------------------
THE LYNCH FOUNDATION
By: /s/ Peter Lynch
-----------------------------------
Peter Lynch
By: /s/ Gordon H. Hayes, Jr.
-----------------------------------
Gordon H. Hayes, Jr.
WILLIAM BLAIR CAPITAL PARTNERS V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
----------------------------------
Ellen Carnahan
Its: Managing Director
-17-
<PAGE>
INVESTORS:
---------
AMERICAN RESEARCH &
DEVELOPMENT I, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
General Partner
COLLER CIP, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
BERKSHIRE PARTNERS II, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
DSV PARTNERS III, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
DSV PARTNERS IV, L.P.
By: /s/ Authorized Signatory
-----------------------------------------
EVERGREEN I LIMITED PARTNERSHIP
By its General Partner,
Back Bay Partners L.P.
By one of its General Partners, John Hancock
Venture Capital Management Inc.
By: /s/ Authorized Signatory
-----------------------------------------
-18-
<PAGE>
MORGAN, HOLLAND FUND, L.P.
By its General Partner,
Morgan, Holland Partners
By: /s/ Authorized Signatory
----------------------------------------
Managing General Partner
OXFORD VENTURE FUND III, LIMITED
PARTNERSHIP
By its General Partner,
Oxford Partners III, Limited Partnership
By: /s/ Authorized Signatory
----------------------------------------
General Partner
OXFORD VENTURE FUND II LIMITED
PARTNERSHIP
By its General Partner,
Oxford Partners II
By: /s/ Authorized Signatory
----------------------------------------
Partner
PRIVATE EQUITY INVESTMENT FUND, L.P.
By: /s/ Authorized Signatory
----------------------------------------
LOMBARD ASSOCIATES
By: /s/ Authorized Signatory
----------------------------------------
-19-
<PAGE>
THE GOLDER THOMA FUND
By: /s/ Authorized Signatory
--------------------------------------
VENTURE FOUNDERS 1983, LIMITED
PARTNERSHIP
By its General Partner,
Venture Management Limited Partnership
By: /s/ Edward Getchell
--------------------------------------
General Partner
VENTURE FOUNDERS CAPITAL LIMITED
PARTNERSHIP
By its General Partner,
Venture Founders Partners Limited Partnership
By: /s/ Edward Getchell
--------------------------------------
General Partner
/s/ Richard J. Testa
------------------------------------------
Richard J. Testa
/s/ Richard N. Spann
------------------------------------------
Richard N. Spann
/s/ Thayer Francis, Jr.
------------------------------------------
Thayer Francis, Jr.
-20-
<PAGE>
/s/ Mark O'Connell
-------------------------------
Mark O'Connell
/s/ Michael Segal
-------------------------------
Michael Segal
/s/ David McNelis
-------------------------------
David McNelis
/s/ Michael Adami Sampson
-------------------------------
Michael Adami-Sampson
/s/ Sam Zawaideh
-------------------------------
Sam Zawaideh
/s/ Paul Gilmartin
-------------------------------
Paul Gilmartin
/s/ David Tewksbury
-------------------------------
David Tewksbury
-21-
<PAGE>
SCHEDULE OF EXECUTIVES
----------------------
- ---------------------------------------------------------------------------
Mark O'Connell President & CEO
- ---------------------------------------------------------------------------
Michael Segal V.P. & General Manager Matrix
- ---------------------------------------------------------------------------
David McNelis V.P. Engineering Matrix
- ---------------------------------------------------------------------------
Michael Adami-Sampson V.P. Matrix Applications
- ---------------------------------------------------------------------------
Sam Zawaideh V.P. Matrix Professional Services
- ---------------------------------------------------------------------------
Paul Gilmartin V.P. Marketing
- ---------------------------------------------------------------------------
David Tewksbury V.P. Research
- ---------------------------------------------------------------------------
-22-
<PAGE>
SCHEDULE OF INVESTORS
---------------------
William T. Mason
James F. Stenzel
Peter D. Stoupas
Frank A. Mason
American Research & Development I, L.P.
Berkshire Partners II, L.P.
Coller CIP, L.P.
DSV Partners III, L.P.
DSV Partners IV, L.P.
Evergreen I Limited Partnership
Thayer Francis, Jr.
Koffler Family Growth Portfolio
Lombard Associates
Morgan, Holland Fund, L.P.
Oxford Venture Fund II, Limited Partnership
Oxford Venture Fund III, Limited Partnership
Private Equity Investment Fund, L.P.
Richard N. Spann
Richard J. Testa
The Golder Thoma Fund
Venture Founders Capital Limited Partnership
Venture Founders 1983, Limited Partnership
-23-
<PAGE>
SCHEDULE OF G INVESTORS
-----------------------
Name and Address Number of Stockholder Shares
- ---------------- ----------------------------
American Research & Development I, L.P. 43,103
30 Federal Street
Boston, MA 02110-2508
Attn: Hal Finelt
Private Equity Investment Fund, L.P. 51,724
Private Equity Investors, Inc.
115 East 62nd Street
New York, NY 10021
Attn: Charles Stetson
Fairfield Investors II, L.P. 34,483
115 East 62nd Street
New York, NY 10021
Attn: Charles Stetson
The Lynch Foundation 43,103
P.O. Box 1069
Marblehead, MA 01945
Attn: Peter Lynch
Gordon Hayes, Jr. 2,586
Testa, Hurwitz & Thibeault, LLP
125 High Street
High Street Tower
Boston, MA 02110
Gilde IT Fund 463,000
Erik Averink
Gilde Investment Management
Newtonlaan 91
P.O. Box 85067
Utrecht 3508AB
Netherlands
William Blair Capital Partners V, L.P. 1,261,139
227 West Monroe, Ste. 3400
Chicago, IL 60606
Attn: Ellen Carnahan
TOTAL 1,899,138
-24-
<PAGE>
SCHEDULE OF H INVESTORS
-----------------------
Name and Address Number of Stockholder Shares
- ---------------- ----------------------------
Gilde IT Fund 201,405
Erik Averink
Gilde Investment Management
Newtonlaan 91
P.O. Box 85067
Utrecht 3508AB
Netherlands
William Blair Capital Partners V, L.P. 548,595
227 West Monroe, Ste. 3400
Chicago, IL 60606
Attn: Ellen Carnahan
TOTAL 750,000
-25-
<PAGE>
EXHIBIT 10.13
TWO EXECUTIVE DRIVE - CHELMSFORD
LEASE
- dated March 2, 1994-
between Metropolitan Life Insurance Company and
Adra Systems, Inc.
<PAGE>
TWO EXECUTIVE DRIVE - CHELMSFORD
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I....................................................................................................... 1
- ---------
SUMMARY OF BASIC LEASE PROVISIONS............................................................................... 1
- ---------------------------------
1.1 BASIC DATA......................................................................................... 1
1.2 DEFINITIONS........................................................................................ 3
1.3 ENUMERATION OF EXHIBITS............................................................................ 4
ARTICLE II...................................................................................................... 5
- ----------
DESCRIPTION OF PREMISES AND APPURTENANT RIGHTS; RENTABLE AREA................................................... 5
- -------------------------------------------------------------
2.1 LOCATION OF PREMISES............................................................................... 5
2.2. APPURTENANT RIGHTS AND RESERVATIONS................................................................ 5
ARTICLE III..................................................................................................... 6
- -----------
TERM OF LEASE; CONSTRUCTION..................................................................................... 6
- ---------------------------
3.1 LEASE TERM, COMMENCEMENT DATE...................................................................... 6
3.2 RIGHT OF FIRST REFUSAL............................................................................. 7
3.3 EARLY TERMINATION.................................................................................. 7
3.4 LIMITATION OF RIGHTS............................................................................... 8
3.5 DELIVERY OF PREMISES............................................................................... 8
3.6 TENANT'S WORK...................................................................................... 8
3.7 COSTS OF TENANT'S WORK............................................................................. 9
3.8 TENANT'S ALLOWANCE................................................................................. 9
3.9 COMMON AREA CONSTRUCTION........................................................................... 10
ARTICLE IV...................................................................................................... 10
- ----------
RENT............................................................................................................ 10
- ----
4.1 RENT............................................................................................... 10
ARTICLE V....................................................................................................... 11
- ---------
USE OF PREMISES................................................................................................. 11
- ---------------
5.1 PERMITTED USE...................................................................................... 11
5.2 ALTERATIONS........................................................................................ 14
ARTICLE VI...................................................................................................... 14
- ----------
ASSIGNMENT AND SUBLETTING....................................................................................... 15
- -------------------------
6.1 PROHIBITION........................................................................................ 15
6.2 ACCEPTANCE OF RENT FROM TRANSFEREE................................................................. 17
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII.................................................................................................... 17
- -----------
RESPONSIBILITY FOR REPAIRS..................................................................................... 17
- --------------------------
7.1 REPAIRS........................................................................................... 17
ARTICLE VIII................................................................................................... 19
- ------------
SERVICES TO BE FURNISHED BY LANDLORD........................................................................... 19
- ------------------------------------
8.1 CLEANING SERVICES................................................................................. 19
8.2 OTHER SERVICES.................................................................................... 19
8.3 ADDITIONAL SERVICES............................................................................... 20
8.4 CAUSES BEYOND CONTROL OF THE LANDLORD............................................................. 20
ARTICLE IX..................................................................................................... 20
- ----------
REAL ESTATE AND OTHER TAXES; OTHER EXPENSES.................................................................... 20
- -------------------------------------------
9.1 LANDLORD TO PAY REAL ESTATE TAXES................................................................. 20
9.2 TENANT'S SHARE OF REAL ESTATE TAXES............................................................... 20
ARTICLE X...................................................................................................... 22
- ---------
OPERATING COSTS................................................................................................ 22
- ---------------
10.1 TENANT'S SHARE OF INCREASES IN OPERATING COSTS.................................................... 22
10.2 REVIEW OF BOOKS AND RECORDS....................................................................... 25
ARTICLE XI..................................................................................................... 25
- ----------
INDEMNITY...................................................................................................... 25
- ----------
11.1 TENANT'S INDEMNITY................................................................................ 25
11.2 TENANT'S RISK..................................................................................... 26
11.3 INJURY CAUSED BY THIRD PARTIES.................................................................... 26
ARTICLE XII.................................................................................................... 26
- -----------
THE LANDLORD'S ACCESS TO PREMISES.............................................................................. 26
- ---------------------------------
12.1 LANDLORD'S RIGHT OF ACCESS........................................................................ 26
ARTICLE XIII................................................................................................... 27
- ------------
CASUALTY....................................................................................................... 27
- --------
13.1 DEFINITION OF "SUBSTANTIAL DAMAGE"AND "PARTIAL DAMAGE"............................................ 27
13.2 PARTIAL DAMAGE TO THE BUILDING.................................................................... 27
13.3 SUBSTANTIAL DAMAGE TO THE BUILDING................................................................ 27
13.4 RESTORATION....................................................................................... 27
13.5 ABATEMENT OF RENT................................................................................. 28
13.6 MISCELLANEOUS..................................................................................... 28
ARTICLE XIV.................................................................................................... 29
- -----------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
EMINENT DOMAIN................................................................................................. 29
- --------------
14.1 RIGHTS OF TERMINATION FOR TAKING.................................................................. 29
14.2 PAYMENT OF AWARD.................................................................................. 29
14.3 ABATEMENT OF RENT................................................................................. 30
14.4 MISCELLANEOUS..................................................................................... 30
ARTICLE XV..................................................................................................... 30
- ----------
INSURANCE...................................................................................................... 30
- ---------
15.1 PUBLIC LIABILITY AND PROPERTY INSURANCE........................................................... 30
15.2 NON-SUBROGATION................................................................................... 31
15.3 EXTRA HAZARDOUS USE............................................................................... 31
15.4 PROPERTY INSURANCE................................................................................ 31
ARTICLE XVI.................................................................................................... 32
- -----------
DEFAULT........................................................................................................ 32
- -------
16.1 TENANT'S DEFAULT.................................................................................. 32
16.2 LANDLORD'S DEFAULT................................................................................ 34
ARTICLE XVII................................................................................................... 35
- ------------
MISCELLANEOUS PROVISIONS....................................................................................... 35
- ------------------------
17.1 WAIVER............................................................................................ 35
17.2 COVENANT OF QUIET ENJOYMENT....................................................................... 35
17.3 NO PERSONAL LIABILITY OF THE LANDLORD............................................................. 35
17.4 NOTICE TO MORTGAGEE AND GROUND LESSOR; OPPORTUNITY TO CURE........................................ 36
17.5 ASSIGNMENT OF RENTS............................................................................... 36
17.6 NO BROKERAGE...................................................................................... 37
17.7 INVALIDITY OF PARTICULAR PROVISIONS............................................................... 37
17.8 PROVISIONS BINDING, ETC........................................................................... 37
17.9 RECORDING......................................................................................... 37
17.10 NOTICES......................................................................................... 38
17.11 WHEN LEASE BECOMES BINDING...................................................................... 38
17.12 SECTION HEADINGS................................................................................ 38
17.13 RIGHTS OF MORTGAGEE............................................................................. 38
17.14 STATUS REPORT; MODIFICATION..................................................................... 40
17.15 SECURITY DEPOSIT................................................................................ 40
17.16 SELF-HELP....................................................................................... 41
17.17 RELIEF LIMITED.................................................................................. 41
17.18 HOLDING OVER.................................................................................... 42
17.19 CERTIFICATE..................................................................................... 42
</TABLE>
-iv-
<PAGE>
TWO EXECUTIVE DRIVE CHELMSFORD
LEASE
This instrument is an Indenture of Lease between Metropolitan Life
Insurance Company (the "Landlord") and Adra Systems, Inc., a Delaware
corporation (the "Tenant").
The parties to this instrument hereby agree with each other as follows:
Article I
---------
SUMMARY OF BASIC LEASE PROVISIONS
---------------------------------
1.1 BASIC DATA
Date: March 2, 1994
Landlord: Metropolitan Life Insurance Company
Present Mailing Address of Landlord: Real Estate Investments
One Financial Center
Boston, MA 02111-2634
Tenant: Adra Systems, Inc.
Present Mailing Address of Tenant: 59 Technology Drive, Lowell,
Massachusetts 01851 until the
Commencement Date and thereafter at the
Leased Premises.
Leased Premises: Premises consisting of 39,368 rentable
square feet of space on the third floor
and 2,929 rentable square feet of space
on the first floor, of the building
located at Two Executive Drive,
Chelmsford, Massachusetts, as shown on
Exhibit A and A-1.
Rentable Area: 42,297, representing 39,368 rentable
square feet on the third floor, and
2,929 rentable square feet on the first
floor of the Building.
Lease Term: 120 calendar months, (plus the partial
month, if any, immediately following the
Commencement Date).
Rent: Rent due and payable by the Tenant shall
be an amount equal to the sum of two
components, Base Rent and Base Operating
Costs and Taxes.
<PAGE>
-2-
First, Base Rent due and payable by
the Tenant shall be the following
amounts:
From and after the
Commencement Date during the
first ninety (90) days of the
Lease Term (the "Free Rent
Period"), at the rate of zero
dollars per calendar month;
Year 1 -Thereafter, during the
remainder of the first Year of
the Term, at the rate of
$12,336.63 per calendar month;
Year 2 - During the second
Year of the Term, at the rate
of $13,217.81 per calendar
month;
Year 3 During the third Year
of the Term, at the rate of
$14,099.00 per calendar month;
Year 4 - During the fourth
Year of the Term, at the rate
of $14,980.19 per calendar
month;
Year 5 - During the fifth Year
of the Term, at the rate of
$15,861.38 per month; and
Years 6-10 -During the sixth
through tenth Years of the
Term, at the rate of
$19,033.65 per calendar month;
Second, Base Operating Costs and
Taxes, from and after the
Commencement Date and throughout
the entire Lease Term, shall be at
the rate of $15,861.38.
Security Deposit: $12,336.63
Tenant's Parking Spaces: 184, unassigned.
Tenant's Proportionate Share: 36.02%
Escalation Basis for Operating Costs: An amount equal to the greater of:
(i) the actual Operating Costs for
the Building and the Lot, adjusted
to reflect full occupancy for
twelve months, for the first twelve
(12) calendar months of the Term of
the Lease, or (ii) $458,130.
Escalation Basis for Operating Costs: $70,297
<PAGE>
-3-
1.2 DEFINITIONS
As used in this Lease, the terms defined in this Section 1.2 shall have the
following meanings:
Building: as defined in Section 2.1.
--------
Building Manager means Lincoln Property Company, or such other managing
----------------
agent as may be designated by the Landlord.
Common Elements of the Property means all areas in, and elements of, the
-------------------------------------
Building other than those areas and elements leased, or available for
leasing, to individual tenants, including lobbies and stairways, elevators,
common areas and facilities, and common equipment in the Building, such as
common heating, air-conditioning, ventilating, electrical, plumbing and
mechanical systems, and all areas on the Lot available for the common use
and benefit of tenants in the Building, including parking areas, common
walkways and landscaped areas.
Delivery Notice: as defined in Section 3.5.
---------------
Environmental Laws: means any local, state or federal laws, regulations,
------------------
bylaws or ordinances, currently existing or hereinafter enacted or adopted,
which regulate or relate to the protection, preservation, remediation or
enhancement of the environment, including without limitation, the Resource
Conservation Recovery Act, 42 U.S.C., Section 6901 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., and the Massachusetts Oil and Hazardous
Release Prevention Act, M.G.L. ch.21E.
Hazardous Material: means "Oil" and "Hazardous Material," as such terms are
------------------
defined in M.G.L., ch.21E, 2, and any other substance, material or waste of
any kind which are regulated or becomes regulated under Environmental Laws.
Landlord's Demolition Work: as defined in Section 3.5.
--------------------------
Lease means this lease agreement including all of its Exhibits as executed
-----
and delivered, as amended from time to time pursuant to the terms hereof.
Lease Value: as defined in Section 16.1.
-----------
Lease Year: as defined in Section 10.1(c).
----------
Lot means the land area described in Exhibit B, subject to minor
---
adjustments by the Landlord from time to time during the Lease Term.
Monthly Base Operating Costs and Taxes: as defined in Section 1.1.
--------------------------------------
Operating Costs: as defined in Section 10.1(a).
---------------
<PAGE>
-4-
Operating Cost Excess: as defined in Section 10.1(b).
---------------------
Operation: as defined in Section 10.1(c)(1).
---------
Partial Lease Year: as defined in Section 10.1(c).
------------------
Partial Damage: as defined in Section 13.1.
--------------
Permitted Use: Business and professional offices, and maintenance and
-------------
repair of computer hardware components and ancillary shipping and receiving
including, without limitation, computer hardware and software components
and Tenant's furniture. equipment, personal property and office products
(as permitted by applicable law).
Premises: as defined in Section 2.1.
--------
Property: as defined in Section 10.1(c)(1).
--------
Rules and Regulations: as set forth in Exhibit C and as the same may be
---------------------
amended by the Landlord from time to time.
Substantial Damage: as defined in Section 13.1.
------------------
Taxes: as defined in Section 9.1.
-----
Tenant's Work: as defined in Section 3.6.
-------------
Year of the Term: means any twelve (12) calendar month period during the
----------------
Lease Term beginning on (a) any anniversary of the Commencement Date or if
the Commencement Date occurs on a date other than the first day of a
calendar month, the first day of the succeeding calendar month, and ending
on (b) the last day of the twelfth calendar month of such period.
1.3 ENUMERATION OF EXHIBITS
The following Exhibits attached to this Lease are hereby incorporated into
the Lease by reference:
Exhibit A: - Plan Showing the First Floor Premises
Exhibit A-1: - Plan Showing the Third Floor Premises
Exhibit B: - Description of the Lot
Exhibit C: - Rules and Regulations
Exhibit D: - Plans and Specifications for Tenant's Work
Exhibit E: - Sign Standards
Exhibit F: - Cleaning Schedule
Exhibit G: - Other Services of the Landlord
Exhibit H: - Clerk's Certificate
Exhibit I: - Common Area/Demolition Letter
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Exhibit J: - Restroom Work Letter
Article II
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DESCRIPTION OF PREMISES AND APPURTENANT RIGHTS; RENTABLE AREA
-------------------------------------------------------------
2.1 LOCATION OF PREMISES
The Landlord hereby leases to the Tenant, and the Tenant hereby accepts
from the Landlord, the premises (the "Premises") identified on Exhibits A and A-
1 in the Landlord's building (the "Building") located on land owned by the
Landlord on the Lot (the "Lot"), as shown on Exhibit B, Two Executive Drive,
Chelmsford, Massachusetts. Nothing in Exhibits A or A-1 shall be treated as a
representation that the Premises (other than the Rentable Area thereof described
in Section 1.1) shall be precisely of the dimensions or shapes as shown, it
being the intention of the parties only to show diagrammatically, rather than
precisely, on Exhibits A and A-1 the layout of the Premises.
2.2. APPURTENANT RIGHTS AND RESERVATIONS
The Tenant shall have, as appurtenant to the Premises, rights to use in
common with others entitled thereto:
(a) the common facilities included in the Building or Lot, including
common walkways, driveways, landscaped areas and grounds, common restrooms,
lobbies, hallways, ramps, stairways, loading docks, and elevators;
(b) the parking facility (including the visitor's parking area and
parking spaces reserved for the disabled), to the extent only of the number
of the Tenant's Parking Spaces, at locations which may from time to time be
designated by the Landlord. Use of the parking facility at times other than
between the hours of 8:00 AM and 6:00 PM, Monday through Friday, and 8:00
AM and 1:00 PM Saturdays (legal holidays excepted) shall be subject to the
right of the Landlord to restrict parking during snowplowing operations,
and during repair, maintenance and restriping work affecting the parking
area;
(c) the pipes, ducts, conduits, wires and appurtenant equipment
serving the Premises;
(d) if the Premises include less than the entire Rentable Area of any
floor, the common toilets in the central core area of such floor; and
(e) use of the cafeteria to be constructed in the Building by the
Landlord pursuant to Section 3.8.
Such rights shall always be subject to the Rules and Regulations set forth in
Exhibit C, as the may be amended by the Landlord from time to time and such
other reasonable rules and regulations from time to time established by the
Landlord by suitable notice, and to the right of
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the Landlord to designate and change from time to time areas and facilities so
to be used, provided that any such change does not unreasonably interfere with
Tenant's use of the Premises.
Not included in the Premises are the roof or ceiling, the floor and all
perimeter walls of the space identified in Exhibits A and A-1, except the inner
surfaces thereof and the perimeter doors and windows. The Tenant agrees that the
Landlord shall have the right to place in the Premises (but in such manner as
not unreasonably to interfere with the Tenant's use of the Premises) utility
lines, telecommunication lines, shafts, pipes and the like, for the use and
benefit of the Landlord and other tenants in the Building, and to replace and
maintain and repair such lines, pipes and the like, in, over and upon the
Premises. Such utility lines, pipes and the like, shall not be deemed part of
the Premises under this Lease.
Article III
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TERM OF LEASE; CONSTRUCTION
---------------------------
3.1 LEASE TERM, COMMENCEMENT DATE
The term of this Lease shall be the period specified in Section 1. 1 hereof
as the "Lease Term or "Term." If Section 1.1 provides for a fixed Commencement
Date, then the Commencement Date of the Term hereof shall be such date.
Otherwise, the Lease Term shall commence on the Commencement Date shall be, the
first to occur of:
(a) The date which is one hundred fifty (150) days after the date of
the Landlord's Delivery Notice;
(b) The date of Substantial Completion of Tenant's Work, as provided
in Section 3.6, below; or
(c) The date upon which the Tenant commences beneficial use of the
Premises (as distinguished from the conduct of construction work to be
performed by the Tenant in the Premises incident to preparing the Premises
for the Tenant's own use).
The Tenant shall, in all events, be treated as having commenced beneficial use
of the Premises when it begins to move into the Premises furniture and equipment
for its regular business operations.
As soon as may be convenient after the Commencement Date has been
determined, the Landlord will deliver to the Tenant a written declaration in
which the Commencement Date and specified term of this Lease shall be stated,
which shall be conclusive and binding upon the parties, unless a notice of
objection thereto is delivered by the Tenant to the Landlord within seven (7)
days.
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3.2 RIGHT OF FIRST REFUSAL
During the Term of this Lease the Tenant shall have a right of first
refusal with respect to any space or portion of any space available from time to
time for leasing in the Building as follows:
If the Landlord proposes to lease any space in the Building to any third
party upon terms and conditions specified in writing, and secures from a third
party a written expression of interest to lease space in the Building, the
Landlord, prior to proceeding with further negotiations with that third party,
shall give to the Tenant notice (the "Landlord's Offer Notice") offering to
lease the same space in the Building to the Tenant on the financial terms and
conditions at least as favorable as those given to that third party. If the
Tenant does not accept, in writing, the Landlord's offer to lease such space
within ten (10) business days of the giving of the Landlord's Offer Notice, the
Tenant's rights under this Section 3.2 shall terminate, and the Landlord shall
have the absolute right to lease such space to the third party who had expressed
interest in leasing such space at any time thereafter during the next nine (9)
months of the Lease Term. If the Landlord has not entered into a lease of such
space with that third party during such nine (9) month period, the Landlord
shall not thereafter offer to lease such space to any other parties, unless the
Landlord shall have again complied with the provisions of this Section 3.2.
If the Tenant accepts the Landlord's offer in accordance with the terms of
this Section 3.2, the Tenant agrees to enter into an Amendment to this Lease,
within thirty (30) days of receipt of Landlord's Offer Notice, including such
space within the Premises, adjusting the Rent, Rentable Area, Security Deposit,
Tenant's Proportionate Share and Tenant's Parking Spaces, and other pertinent
Lease provisions to reflect the inclusion of such space within the Premises, but
which is otherwise upon the terms and conditions of this Lease.
3.3 EARLY TERMINATION
The Tenant shall have the right to terminate this Lease effective as of any
day designated by the Tenant during the eighth Year of the Term, provided that
the Tenant shall have given the Landlord at least twelve (12) months' prior
notice (the "Termination Notice") of the Tenant's election to terminate this
Lease (i.e., the Termination Notice must be given prior to the end of the
seventh Year of the Term). The Termination Notice shall specify the exact date
during the eighth Year of the Term on which the termination of this Lease shall
take effect. Any purported election to terminate this Lease pursuant to the
provisions of this Section 3.3 not complying strictly with the foregoing, shall
be void and of no effect. If a complying Termination Notice is given, the date
specified therein as the effective date of the termination shall be the last day
of the Lease Term.
3.4 LIMITATION OF RIGHTS
The rights granted to the Tenant in Sections 3.2 and 3.3, may be exercised
only if the Tenant is not in default beyond any applicable cure period hereunder
at the time of exercise of the rights granted in each of Sections 3.2 and 3.3,
`and in the case of the right of first refusal, at all times thereafter until
the date of execution and delivery by the Tenant of an amendment to the
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Lease effecting the expansion. Time shall be of the essence with respect to
compliance by the Tenant with each of the time requirements under Sections 3.2
and 3.3. The Landlord, however, reserves the right, by notice to the Tenant, to
waive the condition that the Tenant not be in default beyond any applicable cure
period at any or all of the foregoing times and the condition that time is of
the essence.
3.5 DELIVERY OF PREMISES
The Landlord, promptly following the execution and delivery of this Lease,
shall at the Landlord's cost, use diligent efforts to perform such demolition
work and removal of debris (the "Landlord's Demolition Work") as is necessary to
return the Premises on the third floor of the Building to "shell" condition (in
substantially the same condition as the second floor of the Building and in
compliance with the requirements concerning demolition work set forth on Page 2
of Exhibit 1), and to complete Landlord's Demolition Work within thirty (30)
days of the date of this Lease, subject to Landlord's obligation to salvage
certain items for the Tenant's use as described in Section 3.7. Upon completion
of the Landlord's Demolition Work, the Landlord shall give notice (the "Delivery
Notice") to the Tenant of completion of the Landlord's Work, and upon receipt of
the Delivery Notice, the Tenant shall accept (i) the Premises on the first floor
of the Building in generally the same condition as the Premises on the first
floor of the Building are in on the date of this Lease, except that the Landlord
shall construct a demising wall separating the Premises from the remaining space
on the first floor of the Building; and (ii) the Premises on the third floor of
the Building in its shell condition. The Tenant's acceptance of the Premises
pursuant to this Section 3.5 is independent of, and shall have no bearing upon,
the Tenant's obligations to pay Rent or additional rent under this Lease. The
Tenant's obligations to pay Rent and additional rent shall accrue from and after
the Commencement Date as is provided in this Lease.
3.6 TENANT'S WORK
Tenant shall construct its leasehold improvements in the Premises in
accordance with the list of plans and specifications identified on Exhibit D.
The plans and specifications so identified have been initialed by the Landlord
and the Tenant and are hereby deemed to be incorporated by reference and made a
part of this Lease. All work to be performed by Tenant under this Lease shall be
defined by the plans and specifications and is referred to herein as "Tenant's
Work".
The Tenant shall obtain all necessary local and other governmental permits
and approvals to perform Tenant's Work in accordance with the approved plans and
specifications. The Landlord agrees to cooperate with, and assist, the Tenant to
the extent necessary to allow the Tenant to obtain all necessary local and other
governmental approvals that may be required to perform Tenant's Work. The
Tenant's Work shall be performed by a general contractor acceptable to the
Landlord under a written construction contract, providing for payment,
performance and lien bonds in the full amount of the contract sum. All heating,
ventilating and air conditioning work to be performed as part of the Tenant's
Work shall be performed by a trade contractor approved in writing by the
Landlord. The approval by Landlord of the general contractor and the heating,
ventilating and air conditioning trade contractor shall not impose
<PAGE>
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upon the Landlord any responsibility or liability whatsoever to the Tenant as a
result of, or arising out of, the defaults or other acts or omissions of the
general contractor or such trade contractor.
All of the Tenant's Work shall be done in strict compliance with, and
subject to, all of the provisions of Section 7.1 below and all changes and
additions shall be part of the Building, except such items as the parties agree
in writing shall be removed by the Tenant on termination of this Lease, or the
Landlord agrees that the Tenant may then elect to remove or leave.
Upon substantial completion of Tenant's Work (i.e., that all of Tenant's
Work shall have been completed except for such minor work, touchups and
adjustments as do not interfere with the Tenant's use and occupancy of the
Premises for the conduct of its business operations) and upon obtaining all
necessary permits and approvals to permit the lawful occupancy of the Premises,
including a certificate of occupancy ("Substantial Completion of Tenant's Work),
the Tenant shall deliver to the Landlord an architect's or engineer's
certificate of such completion and an original certificate of occupancy, and
only thereafter may the Tenant commence beneficial use and occupancy of the
Premises. Within thirty (30) days of Substantial Completion of Tenant's Work,
the Tenant shall furnish the Landlord with "as-built" drawings showing how and
where the Tenant's Work was actually installed and constructed.
3.7 COSTS OF TENANT'S WORK
All fees and costs of preparation of plans and specifications for the
Tenant's Work and other fees and costs of the Tenant's architect or engineer,
and all costs of permits, approvals, and insurance with respect to the Tenant's
Work, and all costs to furnish, install and construct the Tenant's Work and all
other associated costs incurred by the Tenant with respect to Tenant's Work
including costs of acquisition of fixtures and equipment, and moving expenses
shall be the sole responsibility of the Tenant, except to the extent otherwise
provided in Section 3.8 and except that following completion of the Landlord's
Demolition Work, the Landlord will make available (at no cost to the Tenant) all
"Donn" walls and doors, "Leibert" units and other items currently in the third
floor Premises which are identified by the parties and set forth on a mutually
acceptable list delivered to the Landlord prior to performance of Landlord's
Demolition Work, salvaged by the Landlord during the demolition of the second
and third floors of the Building, for use by the Tenant in completion of the
Tenant's Work.
3.8 TENANT'S ALLOWANCE
The Landlord hereby grants amount of $8,910 (the "Tenant's Allowance") for
use by the Tenant in performing the work identified on Exhibit J in the restroom
facilities in the Premises (the "Restroom Work") during the construction and
installation of the Tenant's Work. Upon completion of the Tenant's Work and
submission by the Tenant to the Landlord for approval of a request for
reimbursement for amounts incurred by the Tenant in performing the Restroom
Work, together with evidence satisfactory to the Landlord that such amounts have
been paid by the Tenant, the Landlord shall, provided the Tenant is not in
default hereunder, pay to the Tenant an amount equal to the approved
reimbursement amount or the Tenant's Allowance, whichever is less. If the full
amount of the Tenant's Allowance is not used in the construction and
installation
<PAGE>
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of the Restroom Work, the Tenant shall have no further right to use or apply the
Tenant's Allowance or any remaining portion of the Tenant's Allowance for any
purpose.
3.9 COMMON AREA CONSTRUCTION
The Landlord, at its sole expense, agrees to perform the following work in
the Building incidental to the leasing of the Premises by the Tenant:
(a) The Landlord shall use diligent efforts to paint, recarpet and
refurbish the lobby area of the Building, and to refurbish the common
restrooms and elevators in the Building and to perform such other
refurbishing work on items (i) which are Common Elements of the Property,
and (ii) which are identified in the letter attached as Exhibit I. The
Landlord will use diligent efforts to complete such work not later than the
date of Substantial Completion of Tenant's Work.
(b) Following the execution of this Lease, the Landlord will begin
design work for a food service facility for the Building in a location to
be determined by the Landlord. The Landlord will consult with the Tenant in
the process of developing plans and specifications for the food service
facility, but reserves the exclusive right to approve the final plans and
specifications for the food service facility. The Landlord shall use
diligent efforts to complete all construction work to have the food service
facility available for use by tenants in the Building within six (6) months
of the date of this Lease.
Article IV
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RENT
----
4.1 RENT
The Rent (specified in Section 1.1 hereof) and any additional rent or other
charges payable pursuant to this Lease shall be payable by the Tenant to the
Landlord at the Landlord's mailing address or such other place as the Landlord
may from time to time designate by notice to the Tenant without prior demand
therefor and without any offset or deduction whatsoever except as otherwise
specifically provided for in this Lease.
(a) The Rent shall be payable in advance on the first day of each and
every calendar month during the Lease Term, except as otherwise provided in
Subsection b) of this Section 4.1.
(b) The Rent for the first calendar month of the Lease Term is due
and payable at the time of execution and delivery of the Lease. If the
Commencement Date occurs on a day other than the first day of a calendar
month, the Tenant shall pay to the Landlord on the first day of the
succeeding calendar month a pro rata payment of Rent for the partial month
from the Commencement Date to the first day of the succeeding calendar
month. Such payment, together with the payment made by the Tenant upon
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execution and delivery of the Lease, shall constitute payment for the first
full calendar month of the Lease Term plus the partial month, if any,
immediately following the Commencement Date.
(c) Rent for any partial month shall be paid by the Tenant to the
Landlord at such rate on a pro rata basis. Other charges payable by the
Tenant on a monthly basis, as hereinafter provided, shall likewise be
prorated.
(d) Rent, additional rent and any other sums due hereunder not paid
within fifteen (15) days of the date due shall bear interest at the rate of
one percent (1%) per month or fraction thereof (or at any lesser maximum
legally permissible rate) from the due date until paid.
Other charges payable by the Tenant on a monthly basis, as hereinafter provided,
shall likewise be prorated, and the first payment on account thereof shall be
determined in similar fashion.
Article V
---------
USE OF PREMISES
---------------
5.1 PERMITTED USE
The Tenant agrees that the Premises shall be used and occupied by the
Tenant only for the purposes specified as the Permitted Use thereof in Section
1.2 of this Lease, and for no other purpose or purposes.
The Tenant further agrees to conform to the following provisions during the
entire Lease Term:
(a) The Tenant shall cause all freight to be delivered to or removed
from the Building and the Premises in accordance with the Rules and
Regulations established by the Landlord therefor;
(b) The Tenant will not place on the exterior of exterior walls
(including both interior and exterior surfaces of windows and doors) or on
any part of the Building outside the Premises, any signs, symbols,
advertisement or the like visible to public view outside of the Premises
without the prior consent of the Landlord, except for signs or lettering on
the entry doors to the Premises of the type commonly and customarily found
in first-class office buildings for the purpose of identifying and locating
the Premises. The Tenant agrees to submit for the Landlord's prior
approval, such approval not unreasonably to be withheld, a plan or sketch
of the sign to be placed on such entry doors. Without limitation, lettering
on windows is expressly prohibited. The Landlord agrees, however, to
maintain a tenant directory in the lobby of the Building in which will be
placed the Tenant's name and the location of the Premises in the Building.
The Landlord has established standards for exterior signs at the Building,
attached as Exhibit E, and if
<PAGE>
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any exterior signs are to be approved by the Landlord, the Tenant
understands that the exterior signs must conform to those standards;
(c) The Tenant, at its expense, shall comply with all rules, orders,
regulations and requirements of any Board of Fire Underwriters, or any
other body hereafter constituted exercising similar functions and governing
insurance rating bureaus; and shall not do or permit anything to be done in
or upon the Premises, or bring or keep anything therein, except as now or
hereafter permitted by any governmental authority, Board of Fire
Underwriters or any other similar body having jurisdiction, or insurance
rating bureau; and shall keep the Premises equipped with all safety
appliances or equipment required by any governmental authority, Board of
Fire Underwriters or other similar body or governing insurance rating
bureau by reason of the Tenant's particular use of the Premises or the
location of partitions, trade fixtures or other contents of the Premises;
and shall procure all licenses, permits or other approvals required because
of such use, it being understood that the foregoing provisions shall not be
construed to broaden in any way the Permitted Use of the Premises;
(d) The Tenant, at its expense, shall comply with all laws, rules,
orders, ordinances, bylaws, permit conditions and regulations of
governmental authorities now or hereafter in force and with any lawful
direction of any public official ("Legal Requirements"), in each case to
the extent the same are applicable to the Premises or the use and
maintenance thereof. If the Tenant receives notice of any violation of any
Legal Requirements applicable to the Premises or the use and maintenance
thereof, it shall give prompt notice thereof to the Landlord;
(e) The Landlord shall, at its expense, comply with all Legal
Requirements, in each case, to the extent the same are applicable to the
Common Elements of the Property to the end that the Common Elements of the
Property are not in violation of applicable Legal Requirements.
(f) The Tenant shall not place a load upon any floor of the Premises
exceeding the load which such floor was designed to carry or that which is
allowed by law, whichever is less. The Landlord reserves the right to limit
the weight of safes and other heavy objects and to designate their
position. The Tenant shall not move any safes or heavy objects in or out of
the Building without the Landlord's prior consent,
(g) The Tenant shall not commit or suffer to be committed any waste
upon the Premises or any public or private nuisance, or other act or thing
which may disturb the quiet enjoyment of any other tenant or occupant in
the Building, nor, without limiting the generality of the foregoing, shall
the Tenant make any unusual noises in the Building, cause or permit any
offensive odors (whether or not customary to the use of the Premises
permitted hereby, and the determination of the Landlord as to the offensive
character of odors shall be final) to be produced upon the Premises, or use
any apparatus, machinery or device in or about the Premises which shall
cause any damage to the Building or the Premises or any vibration outside
of the Premises;
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(h) The electricity furnished to the Premises (other than electricity
used in heating, ventilating and air-conditioning the Premises) shall be
separately metered. The Tenant shall pay directly to the supplier of
electricity, within thirty (30) days of invoice therefor, the entire cost
of such electricity consumed in the Premises, including that provided in
connection with the cleaning of the Premises. The Tenant shall not, except
for electrical connections contemplated as part of the approved plans and
specifications for the Tenant's Work identified on Exhibit D and except for
other instances in which the written consent of the Landlord shall have
been obtained, connect to the electrical distribution system any fixtures,
appliances or equipment which operate on a voltage in excess of 120, or
make any alteration or addition to the electrical system of the Premises;
(i) The Tenant shall continuously occupy the Premises during the
Lease Term, subject to temporary interruptions for causes beyond the
Tenant's reasonable control. If during the Lease Term, the Tenant desires
to vacate the Premises, the Tenant shall not be in default of its
obligation to "continuously occupy" the Premises if the Tenant (i) gives
the Building Manager prior notice of its intention to vacate the Premises,
(ii) keeps lights on in the Premises during normal business hours, and
(iii) make arrangements, satisfactory to the Building Manager, to provide
for periodic security inspections of the Premises. The Tenant shall comply
and shall cause its employees, agents and invitees to comply with the Rules
and Regulations of the Building set forth in Exhibit C and such changes
therein and other reasonable rules and regulations as the Landlord shall
from time to time establish for the proper regulation of the Building and
the Lot, provided that such additional rules and regulations shall be of
general application to all the tenants in the Building; and
(j) The Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept, used or disposed of in or about the Premises without
the prior written consent of the Landlord, and shall furnish to the
Landlord, on or before May 1 of each year during the Lease Term, a list of
all items of Hazardous Material then being used by the Tenant in the
Premises. From and after the date when the Tenant first enters the Premises
for any reason, throughout the Lease Term and thereafter so long as the
Tenant is in occupancy of any part of the Premises, the Tenant shall cause
its operations at the Premises to comply with all Environmental Laws. If
the presence of Hazardous Material in, on or about the Premises caused or
permitted by the Tenant or its agents, employees, contractors, invitees or
licensees results in contamination of the Premises, the Building, or the
Lot, or if any violation of Environmental Laws occurs arising out of, or
resulting from, the Tenant's operations at the Premises, then the Tenant
shall indemnify, and hold harmless the Landlord, the directors, officers,
agents and employees of the Landlord and those in privity of estate with
the Landlord, from and against any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses of any nature which arise
from and after the date when the Tenant first enters the Premises, but
solely to the extent that any loss or damage caused by such contamination
of the Premises, the Building or the Lot or such violation of Environmental
Laws is caused or permitted by the Tenant or its agents, employees,
contractors, invitees of licensees. This indemnification of the Landlord by
the Tenant includes, without limitation, legal and other professional fees
and
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all costs incurred in connection with any investigation of site conditions
and any cleanup, remediation, removal, treatment, detoxification or
restoration work required by any federal, state or local governmental
agency, official or authority because of the presence of Hazardous Material
in the Building, the soil or ground water under the Building or on or under
or about the Lot to the extent caused or permitted by the Tenant or its
agents, employees, contractors, invitees or licensees. If the presence of
any Hazardous Material in, on, under or about the Premises, the Building,
or the Lot caused or permitted by the Tenant or its agents, employees,
contractors, invitees or licensees results in any contamination, the Tenant
shall promptly inform the Landlord and take all actions at the Tenant's
sole expense, as are necessary to return the same to the condition existing
prior to the introduction of any such Hazardous Material, provided that
Landlord's written approval of such actions shall first be obtained.
In deciding whether to consent to any proposed assignment or sublease
pursuant to this Lease, the Landlord may consider among other factors the
following matters: (i) whether the proposed assignee's or subtenant's
anticipated use of the Premises involves the generation, storage, use, treatment
or disposal of Hazardous Material to a degree greater in quantity or extent or
more harmful or dangerous in nature than is permitted under the provisions of
this Section 5.10); (ii) whether the proposed assignee or subtenant has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Material contaminating a property
if the contamination resulted from the proposed assignee's or subtenant's
actions or use of the property in question and if so, the circumstances of the
same; and (iii) whether the proposed assignee or subtenant is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal or storage of a Hazardous Material and if so, the circumstances of
the same.
For purposes of this Section 5.10) and Article XI, the Premises shall also
be deemed to include all areas as to which the Tenant is granted appurtenant
rights hereunder.
5.2 ALTERATIONS
The Tenant's right to redecorate or make alterations, additions or
improvements to the Premises shall be as follows:
(a) The Tenant may redecorate the Premises (without any limitation on
the costs of redecoration), or make minor alterations, additions or
improvements upon or in the Premises (if the cost thereof is less than
$25,000 on any single occasion) without the Landlord's systems (e.g.,
Landlord's consent, provided (i) the work does not affect the Building's
system (e.g., electrical, HVAC, sprinkler, fire safety, plumbing, etc.) or
the exterior of the Building, (ii) the work does not in any way affect
structural elements of the Building or the structural integrity of the
Building, (iii) the Tenant shall give the Landlord at least ten (10) days'
prior notice of its intention to do such work and shall promptly respond to
Landlord's inquiries with respect to the work and (iv) the work shall be
performed in accordance with all other applicable provisions of the Lease.
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(b) The Tenant may make alterations, additions or improvements upon
or in the Premises if the cost thereof is $25,000 or greater, provided (i)
the work does not affect the Building's systems, other than the secondary
branches thereof located within the Premises, or affect the exterior of the
Building, or in any way affect the structural elements of the Building, or
in any way affect the structural integrity of the Building, (ii) the
Landlord shall have given its prior written consent to the performance of
such work, which consent shall not be unreasonably withheld or delayed, and
(iii) the work shall be performed in accordance with all other applicable
provisions of the Lease.
(c) The Tenant shall have no right to make any other alterations,
additions or improvements upon or to the Premises, except as provided in
Subsections (a) and (b), above. The Landlord may withhold its consent to
any request by the Tenant to make any other alterations, additions or
improvements in its sole and absolute discretion.
All alterations, additions and improvements made by the Tenant to the
Premises shall remain therein and, at the termination of the Lease, shall be
surrendered as a part thereof, except for trade fixtures and equipment (as
distinguished from leasehold improvements) installed during the Term of this
Lease at the Tenant's sole cost. Such trade fixtures and equipment may be
removed by the Tenant if the Tenant is not then in default hereunder and if such
removal shall not result in permanent damage to the Premises or the Building.
The Tenant shall remove such trade fixtures and equipment at the termination of
the Lease if requested to do so by the Landlord. The Tenant shall at its expense
promptly repair any and all damage to the Premises or the Building resulting
from any removal of such fixtures and equipment.
Any personal property which shall remain in the Building or on the Premises
after the expiration or earlier termination of the Lease shall conclusively be
deemed to have been abandoned by the Tenant, and either may be retained by the
Landlord as its own property or may be disposed of by sale, storage or otherwise
as the Landlord shall see fit, all at the Tenant's expense. Notwithstanding the
foregoing, the Tenant will, upon request of the Landlord after the expiration or
termination of the Term hereof, promptly remove from the Building any such
personal property, or if any part of such personal property shall be sold, the
Landlord may receive and retain the proceeds of such sale and apply the same, at
its option, against the expenses of sale, the costs of moving and storage, any
arrears of Rent, additional rent or other charges payable hereunder or any
damages to which the Landlord may be entitled.
Article VI
----------
ASSIGNMENT AND SUBLETTING
-------------------------
6.1 PROHIBITION
Notwithstanding, any other provisions of this Lease, the Tenant shall not
assign or otherwise transfer, voluntarily or involuntarily, this Lease or any
interest herein or sublet (which term, without limitation, shall include
granting of concessions, licenses and the like) or allow any other person to
occupy the whole or any part of the Premises, without, in each instance, the
prior written consent of the Landlord. Notwithstanding the foregoing, provided
the Tenant is not in
<PAGE>
-16-
default hereunder beyond applicable grace periods, no prior approval of the
Landlord shall be required for the subletting or assignment of all or a portion
of the Premises to any corporation or other entity which is a parent, affiliate
(including any entity into which the Tenant may be merged) or wholly-owned
subsidiary of the Tenant or the acquirer of more than 50% of the capital stock
of the Tenant or 50 % of the value of the assets of the Tenant (a "Related
Party"), except that no subletting or assignment to a Related Party shall be
made unless the Tenant shall have provided to the Landlord such information as
the Landlord shall reasonably require such as, but not limited to, satisfactory
evidence as to the relationship, as parent, affiliate or subsidiary of the
proposed subtenant or assignee, and evidence as to its legal existence and
corporate (or other) authority to enter into the sublease or assignment.
Should the Tenant propose to sublet the Premises or any portion thereof to
a non-Related Party, the Tenant shall give the Landlord notice of its intention
to sublet at least sixty (60) days prior to the proposed commencement date of
the sublease term, to which notice is attached a copy of the proposed sublease
and all agreements collateral thereto, and upon such notification, the parties
shall have the following rights.
(a) In the event the Landlord receives notice of Tenant's intention
to sublet, the Landlord shall have the right to recapture the space
included in the proposed sublease upon notice thereof to the Tenant given
within thirty (30) days of the Landlord's receipt of the Tenant's notice of
intention to sublet. If such recapture notice is given, it shall serve to
terminate this Lease with respect to that portion of the Premises included
in the proposed sublease as of the commencement date of the proposed
sublease or if the proposed sublease includes all of the Premises it shall
serve to terminate this Lease as of such date. If this Lease is terminated
with respect to a part of the Premises as provided in this Section 6.1(a),
the provisions in this Lease relating to Rent, Rentable Area, Tenant's
Parking Spaces and the Tenant's Proportionate Share shall be adjusted on
the basis of the proportion of Rentable Area retained by the Tenant to the
Rentable Area leased to the Tenant immediately preceding the termination
and Exhibits A and A-1 shall be appropriately modified, and this Lease as
so amended shall continue thereafter in full force.
(b) If the Landlord has not elected to recapture, as provided above,
and the Tenant is not then in default under this Lease beyond applicable
grace periods, the Landlord shall not unreasonably withhold or delay its
consent to allow the Tenant to sublet the Premises or any portion thereof
provided (i) the proposed subtenant is a reputable party of reasonable
financial worth considering the responsibilities involved and the Tenant
shall have provided the Landlord with reasonable proof thereof and the
nature, character and quality of the proposed subtenant's business
operations is suitable to the Landlord and not inconsistent with covenants
contained in other leases in the Building; (ii) the Premises will be used,
under the proposed sublease, in a manner consistent with the use of the
Premises under this Lease; and (iii) the Tenant endeavors in good faith to
market the Premises available for subleasing for a reasonable period of
time, at a rental rate not less than the then prevailing fair market rent
for comparable space as reasonably determined by the Landlord; however, if
the Tenant is unable to sublet the
<PAGE>
-17-
Premises available for subleasing at the fair market rate, the Tenant shall
thereafter be free to market such space at less than fair market rates.
(c) Any advertising or news releases relating to a proposed
subletting shall require Landlord's prior approval, which shall not
unreasonably be withheld.
In the event of any subletting, assignment or other transfer of the whole or any
part of the Premises where the rent reserved (`Sublease Rent") and other
payments provided for in the sublease or assignment exceed the rent reserved and
other payments provided hereunder or pro rata portion of such rent and other
payments, as the case may be, the Tenant shall pay to the Landlord on each Rent
payment date, as additional rent, the excess of (a) the monthly installment of
Sublease Rent and other payments provided for in the sublease or assignment over
(b) that reserved in this Lease for the applicable space, less (c) so much of
the Tenant's reasonable costs for brokerage commissions, legal fees, tenant
improvements, and any other direct costs incurred by the Tenant due and payable
in connection with the subletting, assignment or other transfer of the whole or
any part of the Premises as would be amortized each month over the term of such
subletting, assignment or other transfer. The term Sublease Rent as used in the
preceding sentence shall mean the total rent reserved under such sublease or
assignment.
In any case, assignment, other transfer or subletting, whether or not the
consent of the Landlord is required, the Tenant originally named herein shall
remain fully liable for Tenant obligations hereunder, including, without
limitation, the obligation to pay the rent and other amounts provided under this
Lease, and the Tenant also hereby agrees to pay as additional rent to the
Landlord, within fifteen (15) days of billing therefor, all legal and other fees
incurred by the Landlord in connection with reviewing and approving any such
assignment, other transfer or subletting. It shall be a condition of the
validity of any permitted assignment or other transfer or subletting hereunder
that the assignee or transferee or subtenant agree directly with the Landlord,
in form satisfactory to the Landlord, to be bound by all Tenant obligations
hereunder, including, without limitation, the obligation to pay rent and other
amounts provided for under this Lease and the covenant against further
assignment or other transfer or subletting.
6.2 ACCEPTANCE OF RENT FROM TRANSFEREE
The acceptance by the Landlord of the payment of Rent, additional rent or
other charges following an assignment, subletting or other transfer prohibited
by this Article VI shall not be deemed to be a consent by the Landlord to any
such assignment, subletting or other transfer, nor shall the same constitute a
waiver of any right or remedy of the Landlord.
Article VII
-----------
RESPONSIBILITY FOR REPAIRS
--------------------------
7.1 REPAIRS
From and after the date that possession of the Premises is delivered to the
Tenant and until the end of the Lease Term, the Tenant shall keep the Premises
and every part thereof in
<PAGE>
-18-
good order, condition and repair, reasonable wear and tear and damage by
unavoidable casualty only excepted; and the Tenant shall surrender the Premises
at the end of the Lease Term in such condition. Except as may be provided in
Articles XIII and XIV, the Landlord agrees to keep in good order, condition and
repair the Common Elements of the Property, except any condition caused by any
act, omission or neglect of the Tenant or any contractor of the Tenant or any
party for whose conduct the Tenant is responsible. Without limitation, the
Landlord shall not be responsible to make any improvements or repairs other than
as expressly provided in this Section, and the Landlord shall not be liable for
any failure to make such repairs unless the Tenant has given notice to the
Landlord of the need to make such repairs and the Landlord has failed to
commence to make such repairs within a reasonable time thereafter.
Whenever the Tenant shall make repairs, alterations, decorations,
additions, removals, or improvements (including the installation of any
equipment other than normal light business office equipment) in or to the
Premises:
(a) No material or equipment shall be incorporated in or added to the
Premises in connection with any such repair, alteration, decoration,
addition, removal or improvement which is subject to or claimed to be
subject to any lien, charge, mortgage, or other encumbrance of any kind
whatsoever or is subject to any security interest or any form of title
retention agreement without the prior written approval of the Landlord. The
Landlord's approval may be conditioned upon the Tenant providing the
Landlord with satisfactory assurances (which may include requiring an
agreement by the equipment lessor or other lien or title holder directly
with the Landlord) as to the removal of the material or equipment, and
repair or restoration of the Building at no cost to the Landlord. Any
mechanic's or materialmen's lien filed against the Premises or the Building
for work claimed to have been done for, or materials claimed to have been
furnished to the Tenant, shall be immediately discharged by the Tenant, at
the Tenant's expense, by filing the bond required by law or otherwise. If
the Tenant fails so to discharge any lien, the Landlord may do so at the
Tenant's expense and the Tenant shall reimburse the Landlord for all
expenses and costs incurred by the Landlord in so doing immediately after
rendition of a bill therefor by the Landlord to the Tenant.
(b) All installations or work done by or for the Tenant shall be at
its own expense and shall at all times comply with (i) laws, rules, orders
and regulations of governmental authorities having jurisdiction thereof;
(ii) orders, rules and regulations of any Board of Fire Underwriters, or
any other body hereafter constituted exercising similar functions, and
governing insurance rating bureaus; (iii) plans and specifications (which
shall be prepared by and at the expense of the Tenant) previously submitted
to and approved in writing by the Landlord. Whenever the Tenant shall
request approval by the Landlord or the Landlord's architect of plans,
drawings, specifications or otherwise with respect to alteration of the
Premises, subsequent remodeling thereof, installation of signs including
subsequent changes thereof, or the like, the Tenant specifically agrees
promptly to pay to the Landlord's architect (or reimburse the Landlord for
the payment the Landlord makes to the architect) for all charges involved
in the review (and rereview, if necessary) and approval or disapproval
thereof whether or not approval shall ultimately
<PAGE>
-19-
be given, except that, with respect to the Tenant's Work, the Tenant shall
only be obligated to pay an amount not to exceed $1,500 for the Landlord's
costs of review of the plans and specifications as they relate to
mechanical systems, if necessary, by a third-party engineer.
(c) The Tenant shall procure all necessary permits before undertaking
any work in the Premises and shall do all such work in a good and
workmanlike manner, employing materials of quality comparable to materials
used for Tenant's Work and shall defend, save harmless, exonerate and
indemnify the Landlord from all injury, loss or damage to any person or
property occasioned by such work. The Tenant shall cause contractors
employed by the Tenant to carry and maintain in force during the
continuance of any work being performed for the Tenant Worker's
Compensation Insurance in accordance with statutory requirements and
Commercial General Liability Insurance and Automobile Liability Insurance
covering such contractors on or about the Premises in amounts reasonably
acceptable to the Landlord and to submit certificates evidencing such
coverage to the Landlord prior to the commencement of such work.
(d) The Tenant shall not, at any time prior to or during the Lease
Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises, whether in connection with
any repair work or the making of any alteration, improvements or additions
or otherwise, if the Landlord shall have first given notice (the "Conflict
Notice") to the Tenant prior to the time of the employment of any such
contractor, mechanic or laborer of the existence of a potential labor
conflict, and if such employment will interfere or cause any conflict with
other contractors, mechanics, or laborers engaged in the construction,
maintenance or operation of the Building by the Landlord, or others. In the
event of any such interference or conflict, provided the Landlord shall
have given the prior Conflict Notice, the Tenant, upon demand of the
Landlord, shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately.
Article VIII
------------
SERVICES TO BE FURNISHED BY LANDLORD
------------------------------------
8.1 CLEANING SERVICES
The Landlord shall cause cleaning services to be provided to the Premises
as described in Exhibit F.
8.2 OTHER SERVICES
The Landlord shall cause other services to be furnished to the Tenant as
set forth in Exhibit G.
<PAGE>
-20-
8.3 ADDITIONAL SERVICES
Upon reasonable advance notice from the Tenant, the Landlord will endeavor
to furnish additional heat, air-conditioning or other services to the Premises
on days and at times other than as provided in Exhibits F and G, and the Tenant
shall on demand and as additional rent pay to the Landlord, on account thereof,
a reasonable charge for such additional services equal to the Landlord's good
faith estimate of the additional costs incurred by the Landlord on account
thereof.
8.4 CAUSES BEYOND CONTROL OF THE LANDLORD
The Landlord shall in no event be liable for failure to perform any of its
obligations under this Lease when prevented from doing so by causes beyond its
reasonable control, including, without limitation, labor dispute, casualty,
accident, order or regulation of or by any governmental authority, or failure of
supply, or inability by the exercise of reasonable diligence to obtain supplies,
parts or employees necessary to furnish services required under this Lease, or
because of war or other emergency, or for any cause due to any act, neglect or
default of the Tenant or the Tenant's servants, contractors, agents, employees,
licensees or any person claiming by, through or under the Tenant, but not
including the negligent acts or omissions of the Landlord, and the period of any
delay resulting therefrom shall not be counted in determining the time during
which action to be taken by the Landlord hereunder shall be completed, and such
time shall be extended by the period of such delay. In no event shall the
Landlord ever be liable to the Tenant for any indirect or consequential damages
under the provisions of this Section 8.4 or any other provision of this Lease.
Article IX
----------
REAL ESTATE AND OTHER TAXES; OTHER EXPENSES
-------------------------------------------
9.1 LANDLORD TO PAY REAL ESTATE TAXES
The Landlord shall be responsible for the payment, before the same becomes
delinquent, of all general and special taxes, including assessments for local
improvements, and other governmental charges which may be lawfully charged,
assessed or imposed (herein collectively called the "Taxes") upon the Building
and the Lot. However, if authorities having jurisdiction assess real estate
taxes, assessments or other chares which the Landlord considers excessive, the
Landlord may defer compliance therewith to the same extent permitted by the laws
of the jurisdiction in which the same are located, so long as the validity or
amount thereof is contested by the Landlord in good faith, and so long as the
Tenant's occupancy of the Premises is not disturbed.
9.2 TENANT'S SHARE OF REAL ESTATE TAXES
With reference to the Taxes described in Section 9.1, it is agreed as
follows:
<PAGE>
-21-
(a) If the Taxes assessed against the Building and Lot during any tax
year after the fiscal 1994 tax year during the Lease Term shall be greater
than the Escalation Basis for Taxes (as defined in Section 1. 1), then, for
each such year during the term hereof, the Tenant shall pay to the
Landlord, the Tenant's Proportionate Share of such excess. Such payment
shall be due and payable within thirty (30) days after the presentation by
the Landlord of a copy of the bill rendered to the Landlord with respect to
such Taxes, except that, if any mortgagee holding a mortgage on the
Building so requests, such excess shall be paid on a monthly basis in
advance, such payments to be based on the amounts that the mortgagee
requires the Landlord to pay. For the recovery of such amounts, the
Landlord shall have the remedies provided hereunder for nonpayment of Rent.
(b) An equitable adjustment shall be made in such figures with respect
to the first and last years of the term hereof in the event that they shall
not coincide with the tax year; and an equitable adjustment shall be made
in the event of any change in the method or system of taxation from that
which is now applicable, including the dates and period for which such
taxes are levied, or otherwise. Where the applicable tax bill is not
available prior to the end of the term hereof, then the aforesaid
adjustment shall be made, tentatively, on the basis of the last year's
taxes, and the amount due shall be treated as an addition to the rent for
the last month of the Lease Term; and final adjustment shall be made
between the Landlord and the Tenant promptly after the Landlord shall have
received the tax bill for such period.
If any Taxes, with respect to which the Tenant shall have paid the
Tenant's Proportionate Share, shall be adjusted to take into account any
abatement or refund, the Tenant shall been titled to a credit against
rental obligations hereunder, in an amount equal to the difference between
the Tax payment made by the Tenant based upon the originally assessed Taxes
and the Tax payment due from the Tenant based upon the abated Taxes, less
the Tenant's Proportionate Share of any costs or expenses, including
attorney's fees of the Landlord, of securing such abatement or refund.
(c) If some method or type of taxation or assessment shall replace in
whole or in part, the current method of assessment of real estate taxes, or
the type thereof, the Tenant agrees that the Tenant shall pay the Tenant's
equitable share of the same computed in a fashion consistent with the
method of computation herein provided, to the end that the Tenant's cost on
account thereof shall be, to the maximum extent practicable, the same as
the Tenant would bear under the foregoing paragraphs.
(d) If a tax (other than a net income tax) is assessed on account of
the rents or other charges payable by the Tenant to the Landlord under this
Lease, the Tenant agrees to pay the same within ten (10) days after billing
therefor, unless applicable law prohibits the payment of such tax by the
Tenant. The Tenant's obligation to make payment of the same shall be
applicable irrespective of the party to which the tax is assessed.
<PAGE>
-22-
Article X
---------
OPERATING COSTS
---------------
10.1 TENANT'S SHARE OF INCREASES IN OPERATING COSTS
(a) The annual rent payable by the Tenant shall be adjusted for
increases or decreases in operating costs, adjusted to reflect full
occupancy for twelve months ("Operating Costs"). The amounts of such
Operating Costs escalation payments shall, except as otherwise provided
below, be determined by:
(i) Comparing the Escalation Basis for Operating Costs with the
Operating Costs of the "Lease Year;"
(ii) Computing the Tenant's share on the basis of the
Tenant's Proportionate Share of the difference.
(b) Operating Costs escalation payments shall be payable by the Tenant
as follows:
(i) No Operating Costs escalation payment shall be due or
payable by the Tenant until January 1, 1996;
(ii) If Operating Costs for calendar year 1995 exceed the
Escalation Basis for Operating Costs, the Tenant shall pay,
as Additional Rent, the Tenant's Proportionate Share of such
excess, commencing on January 1, 1996. During 1996, the
Tenant shall pay to the Landlord pro rata monthly
installments on account of such excess. If the determination
of such excess is not made until after January 1, 1996, upon
notification to the Tenant of the amount of such excess, the
Tenant shall be responsible for making such pro rate monthly
installments retroactively to January 1, 1996; and
(iii) If the Operating Costs for any Lease Year after calendar
year 1995 exceed the Escalation Basis for Operating Costs or
if the Operating Costs for any partial Lease Year exceed the
corresponding fraction of the Escalation Basis for Operating
Costs, the Tenant shall pay, as Additional Rent, the
Tenant's Proportionate Share of such excess (such amount,
together with the corresponding excess amount calculated
under clause (ii), immediately above, being referred to
hereinafter as "Operating Cost Excess").
Within ninety (90) days of the end of 1995 and each Lease Year thereafter,
the Landlord will present to the Tenant a statement by a certified public
accountant summarizing Operating Costs for such year, and, in the case of
the statement presented to the Tenant
<PAGE>
-23-
for 1995, the Landlord will also present to the Tenant a statement by a
certified public accountant summarizing the Escalation Basis for Operating
Costs. In Lease Years subsequent to 1995, the Tenant shall pay to the
Landlord pro rata monthly installments on account of projected Operating
Cost Excess for the Lease Year, calculated by the Landlord on the basis of
the most recent Operating Costs data or budget available, with an
adjustment made after the close of the Lease Year to account for actual
Operating Costs for such Lease Year. If the total of such monthly
installments in any Lease Year is greater than the actual Operating Cost
Excess for such Lease Year, the Tenant shall be entitled to a credit
against the Tenant's rental obligations hereunder in the amount of such
difference. If the total of such monthly installments is less than the
actual Operating Cost Excess for such Lease. Year, the Tenant shall pay to
the Landlord the amount of such difference promptly upon billing therefor.
(c) For the purposes of this Article "Escalation Basis for Operating
Costs" shall have the meaning given in Section 1.1; "Lease Year" shall mean
any fiscal year from January 1 to December 3 1, except that the first Lease
Year during the Lease Term shall commence on the Commencement Date and end
on the next following December 31 and the last Lease Year during the Lease
Term shall end on the date this Lease terminates (each of such first and
last Lease Years are referred to in the immediately preceding paragraph b)
as a "Partial Lease Year"); and `Operating Costs" shall include:
(1) All expense. incurred by the Landlord or its agents which
shall be directly related to employment of day and night
supervisors, janitors, handymen, carpenters, engineers,
firemen, mechanics, electricians, plumbers, lobby and
elevator attendants, guards, porters, cleaners,
secretaries and other personnel (including
(5) Insurance premiums for the Property;
(6) Costs for electricity, steam and other utilities
required in the Operation of the Property;
(7) Water and sewer use charges for the Property;
(8) The costs of snowplowing and removal and landscaping
for the Property;
(9) Amounts paid to independent contractors for
services, materials and supplies furnished for the
Operation of the Property;
(10) The amounts paid to subsidize the operation of any
cafeteria or restaurants in the Building up to but
not exceeding $10,000 per year; and
<PAGE>
-24-
(11) All other reasonable expenses incurred in connection
with the Operation of the Property.
Operating Costs shall be computed on an accrual basis and shall
be determined in accordance with generally accepted accounting principles
consistently applied. They may be incurred directly or by way of
reimbursement, and shall include taxes applicable thereto. The following
shall be excluded from Operating Costs:
(1) The cost of correcting defects, except that conditions
(not occasioned by construction defects) resulting from
ordinary wear and tear shall not be deemed defects for
this purpose;
(2) Salaries of officers and executives of the Landlord not
connected with the Operation of the Property;
(3) The initial cost of tools and equipment used in the
Operation of the Property;
(4) Depreciation;
(5) Expenses relating to tenants' alterations;
(6) Interest on indebtedness;
(7) Expenses for which the Landlord, by the terms of this Lease
or any other lease, makes a separate charge;
(8) Real estate taxes;
(9) The cost of any electric current furnished to the Building
tenants;
(10) The cost of any services or systems for that portion of the
Building occupied by the Landlord or affiliates of the
Landlord (exclusive of space occupied by the Landlord or
affiliates of the Landlord in connection with the Operation
of the Building) and which are not provided generally to
other tenants in the Building;
(11) Leasing fees or commissions; and
(12) All other items which under generally accepted accounting
principles as consistently applied in the real estate
industry for first-class office buildings are properly
classified as capital expenditures except, as otherwise
provided above and except: (A) if any capital improvement
results in reduced operating costs (e.g., an energy saving
improvement), then with respect to the Lease Year in which
the improvement is made and each subsequent Lease Year, the
amount of such reduction shall be added to
<PAGE>
-25-
reasonably estimated Operating Costs for such Lease Year;
and (B) an annual charge-off shall be included in Operating
Costs for expenditures for alterations to the Building or
the Lot required to be made by federal, state or local
laws, regulations, codes or ordinances. Annual charge-off
is defined as and shall be determined by amortizing the
cost of such alterations over the number of years of useful
life of the alterations, together with interest on the
unamortized amount. The useful life shall be determined by
the Landlord's accountants in accordance with generally
accepted accounting principles and practices in effect at
the time of the alteration.
All Operating Costs shall be reduced by the amount (net of
collection costs) of any insurance, reimbursement, discount or
allowance received by the Landlord in connection with such costs.
10.2 REVIEW OF BOOKS AND RECORDS
Upon reasonable prior notice to the Landlord given within six (6)
months of presentation by the Landlord to the Tenant of the certified statement
of Operating Costs for any year, the Tenant shall have the right to review with
the Building Manager at the Building Manager's office during normal business
hours, the records of Operating Costs for such year. The making of such request
and review shall not, however, constitute grounds for any delay by the Tenant in
making its payment of any Operating Costs Excess.
Article XI
----------
INDEMNITY
---------
11.1 TENANT'S INDEMNITY
To the maximum extent permitted by law, the Tenant shall indemnify and
hold harmless the Landlord, the directors, officers, agents and employees of the
Landlord and those in privity of estate with the Landlord, from and against all
claims, expenses or liability of whatever nature (a) arising from any default,
act, omission or negligence of the Tenant, or the Tenant's contractors,
licensees, agents, servants or employees, or the failure of the Tenant or such
persons to comply with any law, rule, order, regulation or lawful direction now
or hereafter in force of any public authority, in each case to the extent the
same are related, directly or indirectly, to the Premises or the Building, or
the Tenant's use thereof; or (b) arising directly or indirectly from any
accident, injury or damage, however caused, to any person or property on or
about the Premises; or (c) arising, directly or indirectly, out of default or
breach by the Tenant under any of the terms, conditions or covenants of this
Lease or in connection with any equipment or installations to be maintained or
repaired by the Tenant; or (d) arising directly or indirectly, from any
accident, injury or damage to any person or property occurring outside the
Premises but within the Building, or on the Lot where such accident, injury or
damage results, ,m is claimed to have resulted from, any act, omission or
negligence on the part of the Tenant, or the Tenant's
<PAGE>
-26-
contractors, licensees, agents, servants, employees or customers or anyone
claiming by or through the Tenant; provided, however, that in no event shall the
Tenant be obligated under this Section 11.1 to indemnify the Landlord, the
directors, officers, agents and employees of the Landlord, or those in privity
of estate with the Landlord, to the extent that such claim, expense or liability
results from any omission, fault, negligence or other misconduct of the Landlord
or the officers, agents or employees of the Landlord on or about the Premises or
the Building.
This indemnity and hold harmless agreement and the indemnity set forth in
Section 5.10) shall include indemnity against all expenses and liabilities
incurred in or in connection with any such claim or proceeding brought thereon,
and the defense thereof with counsel acceptable to the Landlord or counsel
selected by an insurance company which has accepted liability for any such
claim. The Landlord's and the Tenant's respective obligations and rights under
this Section 11.1 and the provisions of Section 5.10) shall survive the
expiration or earlier termination of this Lease.
11.2 TENANT'S RISK
The Tenant agrees to use and occupy the Premises and to use such other
portions of the Building and the Lot as the Tenant is herein given the right to
use at the Tenant's sole risk; and to the fullest extent permitted by law the
Landlord shall have no responsibility or liability for any loss of or damage to
furnishings, fixtures, equipment or other personal property of the Tenant, or of
those claiming by, through or under the Tenant, except to the extent caused by
the negligence of the Landlord, its agents, employees or contractors, subject
however to the ,provisions of Section 15.2.
11.3 INJURY CAUSED BY THIRD PARTIES
The Tenant agrees that the Landlord shall not be responsible or liable to
the Tenant, or to those claiming by, through or under the Tenant, for any loss
or damage resulting to the Tenant or those claiming by, through or under the
Tenant, or its or their property, that may be occasioned by or through the acts
or omissions of persons occupying adjoining premises or any part of the premises
adjacent to or connecting with the Premises or in any part of the Building, or
for any loss or damage from the breaking, bursting, crossing, stopping or
leaking of electric cables and wires, and water, gas, sewer or steam pipes or
like matters, except to the extent caused by the negligence of the Landlord, its
agents, employees or contractors, subject however to the provisions of Section
15.2.
Article XII
-----------
THE LANDLORD'S ACCESS TO PREMISES
---------------------------------
12.1 LANDLORD'S RIGHT OF ACCESS
The Landlord shall have the right to enter the Premises at all reasonable
hours and upon reasonable prior notice to the Tenant (except that no notice
shall be required in an emergency) for the purpose of inspecting or of making
repairs, alterations or additions to the Premises or the
<PAGE>
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Building and shall have the right, but not the obligation, to inspect the
Premises and the manner of use, storage, treatment, handling and disposal of
Hazardous Material for compliance with the provisions of this Lease and
Environmental Laws, and the Landlord shall also have the right to make access
available at all reasonable hours and upon reasonable prior notice to the
Tenant, to prospective or existing mortgagees or purchasers of any part of the
Building. To assure access by the Landlord to the Premises, the Tenant shall
provide the Landlord with duplicate copies of all keys used by the Tenant in
providing access to the Premises.
For a period commencing twelve (12) months prior to the expiration of the
Lease Term, the Landlord may have reasonable access to the Premises at all
reasonable hours and upon reasonable prior notice to the Tenant for the purpose
of exhibiting the same to prospective tenants.
Article XIII
------------
CASUALTY
--------
13.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND "PARTIAL DAMAGE"
The term "substantial damage", as used herein, shall refer to damage which
is of such a character that in the Landlord's reasonable opinion the same
cannot, in ordinary course, be expected to be repaired within 120 calendar days
from the time that such repair work would commence. Any damage which is not
"substantial damage" is "partial damage."
13.2 PARTIAL DAMAGE TO THE BUILDING
If during the Lease Term there shall be partial damage to the Building by
fire or other casualty and if such damage shall materially interfere with the
Tenant's use of the Premises as contemplated by this Lease, the Landlord shall
promptly notify the Tenant of the Landlord's reasonable estimate of the period
of time necessary to. repair or restore the Premises (the "Estimated Time to
Repair") and proceed to restore the Building, common areas or facilities to
substantially the condition in which it was immediately prior to the occurrence
of such damage.
13.3 SUBSTANTIAL DAMAGE TO THE BUILDING
If during the Lease Term there shall be substantial damage to the Building
by fire or other casualty and if such damage shall materially interfere with the
Tenant's use of the Premises as contemplated by this Lease, the Landlord shall
promptly restore the Building, to the extent reasonably necessary to enable the
Tenant's use of the Premises, unless the Landlord, within forty-five (45) days
("Landlord's Termination Period") after the occurrence of such damage, shall
give notice to the Tenant of the Landlord's election to terminate this Lease.
The Landlord shall have the right to make such election in the event of
substantial damage to the Building whether or not such damage materially
interferes with the Tenant's use of the Premises.
13.4 RESTORATION
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If the Landlord does not elect to terminate this Lease as provided in
Section 13.3 above, the Landlord shall notify the Tenant thereof promptly
following the Landlord's Termination Period, and include with that notice the
Estimated Time to Repair, as provided above. If the Estimated Time to Repair
the Premises exceeds six (6) months, the Tenant shall have the right to
terminate this Lease during the twenty (20) day period ("Tenant's Termination
Period") immediately following receipt of the Landlord's notice, unless the
Landlord offers to the Tenant to provide within 90 days comparable space in the
Building at the same rent, terms and conditions provided for the balance of the
Term and if the Tenant, in its sole discretion, is satisfied with the comparable
space, and in that event Landlord agrees to reimburse the Tenant for the
Tenant's reasonable actual out-of-pocket expenses incurred by the Tenant to
relocate the Tenant's furniture, fixtures and equipment from the Premises to the
substitute premises. If the Landlord or Tenant shall give such notice of
termination, then this Lease shall terminate as of the date of such notice with
the same force and effect as if such date were the date originally established
as the expiration date hereof. If neither the Landlord nor the Tenant elect to
terminate this Lease within the time periods specified herein,: the Landlord
shall proceed to repair and restore the Premises in accordance with this Article
XIII.
If the Landlord shall have given a Notice of the Estimated Time to Repair
pursuant to this Section 13.2 or Section 13.4, and has not completed repair or
restoration work to an extent reasonably necessary to enable the Tenant to use
the Premises for its business operations by the expiration of a period equal to
125 % of the Estimated Time to Repair (beginning, in the case of repair or
restoration of Partial Damage, on the date that the notice of Estimated Time to
Repair is given, and in the case of Substantial Damage, on the earlier of the
date when restoration or repair is commenced or the date which is the first day
following the expiration of the Landlord's Termination Period and, if
applicable, the Tenant's Termination Period), plus, in either case, any period
of delay in completing the restoration work attributable to causes beyond the
Landlord's control, as set forth in Section 8.4, then, the Tenant may terminate
this Lease by notice to the Landlord, provided such notice is given within
fifteen (15) days of such date, and provided further that substantial completion
of such repair or restoration work has not occurred at the time of giving such
notice. Such termination shall take effect as if such date were the date
originally established as the date of expiration of this Lease.
13.5 ABATEMENT OF RENT
If during the Lease Term the Building shall be damaged by fire or casualty
and if such damage shall materially interfere with the Tenant's use of the
Premises as contemplated by this Lease, a just proportion of the Rent and other
charges payable by the Tenant hereunder shall abate proportionately for the
period in which, by reason of such damage, there is such interference with the
Tenant's use of the Premises.
13.6 MISCELLANEOUS
In no event shall the Landlord have any obligation to make any repairs or
perform any restoration work under this Article XIII if prevented from doing so
by reason of any cause beyond its reasonable control, including without
limitation, the requirements of any applicable
<PAGE>
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laws, codes, ordinances, rules or regulations. All such repairs shall be made by
the Landlord at its expense, but the Landlord shall not be obligated to expend
for such repair any amount in excess of the net insurance proceeds actually
received by the Landlord by reason of such damage. Further, the Landlord shall
not be obligated to make any repairs or perform any restoration work to any
fixtures in or portions of the Premises or the Building which are not the
property of the Landlord.
Article XIV
-----------
EMINENT DOMAIN
--------------
14.1 RIGHTS OF TERMINATION FOR TAKING
If the Premises, or such portion thereof as to render the balance (if
reconstructed to the maximum extent practicable in the circumstances) physically
unsuitable for the Tenant's purposes, shall be taken by condemnation or right of
eminent: domain (including a temporary taking in excess of 180 days), the
Landlord or the Tenant shall have the right to terminate this Lease by notice to
the other of its desire to do so, provided that such notice is given not later
than thirty (30) days after the Tenant has been deprived of possession.
Further, if so much of the Building (which may include the Premises) or the
Lot shall be so taken or condemned or shall receive any direct or consequential
damage by reason of anything done pursuant to public or quasi-public authority
such that continued operation of the same would, in the Landlord's reasonable
opinion, be uneconomical, the Landlord shall have the right to terminate this
Lease by giving notice to the Tenant of the Landlord's desire so to do not later
than thirty (30) days after the effective date of such taking.
Should any part of the Premises be so taken or condemned or receive such
damage and should this Lease be not terminated in accordance with the foregoing
provisions, the Landlord shall promptly after the determination of the
Landlord's award on account thereof, expend so much as may be necessary of the
net amount which may be awarded to the Landlord in such condemnation proceedings
in restoring the Premises to an architectural unit that is reasonably suitable
to the uses of the Tenant permitted hereunder. Should the net amount so awarded
to the Landlord be insufficient to cover the cost of so restoring the Premises,
in the reasonable estimate of the Landlord, the Landlord may, but shall have no
obligation to, supply the amount of such insufficiency and restore the Premises
to such an architectural unit, with reasonable diligence, or may terminate this
Lease by giving notice to the Tenant not later than a reasonable time after the
Landlord has determined the estimated cost of such restoration.
14.2 PAYMENT OF AWARD
The Landlord shall have and hereby reserves and excepts, and the Tenant
hereby grants and assigns to the Landlord, all rights to recover for damages to
the Building and the Lot and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of such taking or damage,
as aforesaid, except to the extent expressly otherwise provided in this Section
14.2. The Tenant covenants to deliver such further assignments and assurances
eof as
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the Landlord may from time to time request, hereby irrevocably designating and
appointing the Landlord as its attorney-in-fact to execute and deliver in the
Tenant's name and behalf all such further assignments and assurances thereof.
The Tenant reserves the right to prosecute in any condemnation proceedings a
claim for the unamortized (based upon an amortization period equal to the Term
of this Lease) value of the Tenant's Work (other than the Restroom Work) and the
value of any of the Tenant's usual trade fixtures installed in the Premises by
the Tenant at the Tenant's expense, and for relocation expenses, provided that
such action shall not affect the amount of compensation otherwise recoverable
hereunder by the Landlord from the taking authority.
14.3 ABATEMENT OF RENT
In the event of any such taking of the Premises, the Rent and other
charges, or a fair and just proportion thereof, according to the nature and
extent of the damage sustained, shall be suspended or abated, as appropriate and
equitable in the circumstances.
14.4 MISCELLANEOUS
In no event shall the Landlord have any obligation to make any repairs
under this Article XIV if prevented from doing so by reason of any cause beyond
its reasonable control, including requirements of any applicable laws, codes,
ordinances, permit conditions, rules or regulations. Further, the Landlord
shall not be obligated to make any repairs to any portions of the Premises or
the Building which were constructed or installed by or for some party other than
the Landlord or which were not the property of the Landlord.
Article XV
----------
INSURANCE
15.1 PUBLIC LIABILITY AND PROPERTY INSURANCE
The Tenant agrees to maintain in full force from the date upon which the
Tenant first enters the Premises for any reason, throughout the Lease Term, and
thereafter so long as the Tenant is in occupancy of any part of the Premises, a
policy of commercial general liability insurance, including the so-called
broadening endorsement (i.e., broad form) written on an occurrence basis and
including contractual liability coverage to cover any liabilities assumed under
this Lease, insuring against all claims for injury to or death of persons or
damage to property on or about the Premises or arising out of the use of the
Premises and under which the Landlord, and such other persons as are in privity
of estate with the Landlord (as may be set forth in a notice given from time to
time by the Landlord) and the Tenant are named as insureds, as their respective
interests appear, each with the same effect as if separately insured. The
minimum limits of liability of not less than $5,000,000 in the event of personal
injury to any number of persons or damage to property arising out of any one
occurrence. The Landlord shall have the right from time to time to increase
such minimum limits upon notice to the Tenant, provided that any such increase
shall provide for coverage in amounts similar to like coverage being carried on
like property in the greater metropolitan area north of Boston.
<PAGE>
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The Tenant shall also maintain in full force and effect from the date upon
which the Tenant first enters the Premises for any reason, throughout the Lease
Term and thereafter so long as the Tenant is in occupancy of any part of the
Premises, property insurance covering the Tenant's furnishings, fixtures,
equipment or other personal property of the Tenant written on an "All Risk"
basis for full replacement cost, and such other insurance as the Landlord may,
from time to time, reasonably require. Without limiting the provisions of
Section 11.2, if the Tenant fails to take out or maintain any policy of
insurance required by this Article XV to be taken out and maintained, such
failure shall be complete defense to any claim asserted by the Tenant against
the Landlord by reason of any loss sustained by the Tenant that would have been
covered by such policy.
15.2 NON-SUBROGATION
Insofar as, and to the extent that, the following provision may be
effective without invalidating or making it impossible to secure insurance
coverage obtainable from responsible insurance companies doing business in the
locality in which the Premises are located (even though extra premium may result
therefrom), the Landlord and the Tenant mutually agree for themselves and for
anyone claiming by, through or under the Tenant that, with respect to any hazard
which is covered by insurance then being carried by them, respectively, the one
carrying such insurance and suffering such loss releases the other of and from
any and all claims with respect to such loss; and they further mutually agree
that their respective insurance companies shall have no right of subrogation
against the other on account thereof. In the event that extra premium is
payable by either party as a result of this provision, the other party shall
reimburse the party paying such premium the amount of such extra premium. If,
at the request of one party, this release and non-subrogation provision is
waived, then the obligation of reimbursement shall cease for such period of time
as such waiver shall be effective. If the release of either party provided
above shall contravene any law with respect to exculpatory agreements, the
liability of the party for whose benefit such release was intended shall remain
but shall be secondary to that of the other party's insurer.
15.3 EXTRA HAZARDOUS USE
The Tenant covenants and agrees that the Tenant will not do or permit
anything to be done in or upon the Premises, or bring in anything or keep
anything therein, which would invalidate or be in conflict with insurance
coverage maintained by or for the Landlord with respect to the Building or which
would increase the rate of insurance on the Premises or on the Building above
the standard rate applicable to the Premises or the Building for the use to
which the Tenant has agreed to devote the Premises; and the Tenant further
agrees that, in the event that the Tenant shall do any of the foregoing, the
Tenant will, at Landlord's election, cease such activity or promptly pay to the
Landlord, on demand, any such increase resulting therefrom, which shall be due
and payable as additional rent hereunder.
15.4 PROPERTY INSURANCE
The Landlord shall, during the term of the Lease, carry and maintain in
force insurance coverage with respect to the Building insuring the same against
loss or damage by fire and other
<PAGE>
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hazards including within so-called "All-Risk" coverage in an amount not less
than full replacement value of the Building (exclusive of excavation and
foundation costs and the costs of subsurface tanks, conduits and similar
subsurface items), and subject to a deductible amount not exceeding $10,000.
Article XVI
-----------
DEFAULT
-------
16.1 TENANT'S DEFAULT
If:
(a) The Tenant shall fail to pay the Rent or other charges on or
before the date on which the same becomes due and payable and the same
continues for five (5) days after notice ("Default Notice") from the
Landlord of such default, except that if the Tenant shall have failed to
pay Rent or other charges due hereunder and shall have received a Default
Notice from the Landlord, the Tenant shall not be entitled to notice from
the Landlord with respect to further failures to pay Rent or other charges
on or before the date on which the same become due and payable occurring
during the succeeding twelve (12) month period, or
(b) The Tenant shall fail to perform or observe any other term or
condition contained in this Lease within thirty (30) days after notice from
the Landlord thereof, unless such default is of such a nature that it
cannot be cured within such thirty (30) day period, in which case no event
of default shall occur unless the Tenant shall not commence to cure such
failure promptly within such ten day period and thereafter continuously and
diligently complete the curing of the same, or
(c) The Tenant shall abandon the Leased Premises except as provided in
Section 5.1(i), above, or
(d) If the Tenant's interest in this Lease shall devolve upon or pass
to any person, whether by operation of law or otherwise, except as
expressly permitted under Article VI,
(e) Except as otherwise provided by applicable law, if the estate
hereby created shall be taken on execution or by other process of law, or
if the Tenant shall be judicially declared bankrupt or insolvent according
to law, or if any assignment shall be made of the property of the Tenant
for the benefit of creditors, or if a receiver, guardian, conservator,
trustee in involuntary bankruptcy or other similar officer shall be
appointed to take charge of all or any substantial part of the Tenant's
property by a court of competent jurisdiction, or if a petition shall be
filed for the reorganization of the Tenant under any provisions of law now
or hereafter enacted, and such proceeding is not dismissed within forty-
five (45) days after it is begun, or if the Tenant shall file a petition
<PAGE>
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for such reorganization, or for arrangements under any provisions of such
laws providing a plan for a debtor to settle, satisfy or extend the time
for the payment of debts,
then, and in any of such cases (notwithstanding any instance of a former breach
of covenant or waiver of the benefit hereof or consent in a former instance),
the Landlord may, without prejudice to any remedies which might otherwise be
available for arrears of rent or preceding breach of covenant, immediately or at
any time thereafter while such failure continues, terminate this Lease by giving
notice to the Tenant. The Tenant hereby acknowledges that the foregoing default
notice provisions are in lieu of, and in substitution for, any statutory notice
to terminate, vacate or quit the Premises. The Tenant covenants and agrees,
notwithstanding such termination of this Lease, to pay and be liable for, on the
days originally fixed herein for the payment thereof, amounts equal to the
several installments of Rent, additional rent and other charges reserved as they
would, under the terms of this Lease, become due if this Lease had not been
terminated, and to pay within fifteen (15) days of such termination an amount
equal to the Rent, additional rent and other charges that would have been due
and payable but for any rent concession (such as free rent, reduced rent and the
like), together with the unamortized value of any leasehold improvements
constructed or " installed in the Premises at the Landlord's cost, if any, but,
in the event the Premises or any part thereof shall be re-let by the Landlord,
the Tenant shall be entitled to a credit in the net amount of rent received by
the Landlord in reletting, after deduction of all of the Landlord's expenses
incurred in reletting the Premises (including, without limitation, remodeling
costs, attorneys' fees, brokerage fees and the like), and in collecting the rent
in connection therewith, in the following manner:
Amounts received by the Landlord after reletting and for the remainder of
what would have been the Lease Term had the Tenant fully complied with the terms
of this Lease (and no other special event allowing termination had occurred),
shall first be applied against the Landlord's expenses, until the same are
recovered, and until such recovery the Tenant shall pay, as of each day when a
payment would fall due under this Lease, the amount which the Tenant is
obligated to pay under the terms of this Lease (the Tenant's liability prior to
any such reletting and such recovery not in any way to be diminished as a result
of the fact that such reletting might be for a rent higher than the rent
provided for in this Lease); when and if such expenses have been completely
recovered, the amounts received from reletting by the Landlord as have not
previously been applied shall be credited against the Tenant's obligations as of
each day when a payment would fall due under this Lease, and only the net amount
thereof shall be payable by the Tenant. If the Landlord re-lets the whole or
any part of the Premises from time to time, such reletting may be at such rental
rates and upon such conditions, which may include free rent periods and other
concessions, as the Landlord in its sole discretion may determine. The Landlord
shall in no event be liable for refusal or failure to re-let the whole or any
part of the Premises, or in the event of any reletting the failure to collect
any rent due upon such reletting, and no such failures or refusals shall operate
to relieve the Tenant from any liability hereunder.
As an alternative, at the election of the Landlord made any time after such
termination, the Tenant shall pay within fifteen (15) days of billing therefor
to the Landlord as liquidated damages, in addition to any amounts which were due
prior to the date of such termination and whether or not the Landlord has
received payment pursuant to the provisions of the preceding
<PAGE>
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paragraphs of this Section 16.1, such a sum as at the time of such election
represents (i) the amount equal to the Rent that would have been due and payable
but for any rent concessions (such as free rent, reduced rent and the like)
provided in this Lease, (ii) the amount of the excess, if any, of the then value
(the "Lease Value") of the total Rent, additional rent and other benefits which
would have accrued to the Landlord under this Lease for the remainder of what
would have been the Lease Term if the Lease terms had been fully complied with
by the Tenant (and no other special event allowing termination had occurred)
over the aggregate projected market rental value of the Premises, estimated as
of the date of such election, as a single lump sum, for the balance of such
period plus, (iii) an amount equal to the Rent, additional rent and other
charges due during the six months next following the date of such termination,
or if the period from the date of termination through the last day of what would
have been the Lease Term (if the Lease terms had been fully complied with and a
termination had not occurred) is less than six months, an amount equal to the
Rent, additional rent and other charges due during such period. Notwithstanding
the foregoing, the Tenant shall not be required to make any payments pursuant to
clause (iii) of the immediately preceding sentence if, within fifteen (15) days
after the date of termination, the Tenant pays to the Landlord all Rent,
additional rent and other charges payable to the Landlord hereunder through the
date of such termination, and thereafter makes all payments due the Landlord
under this Section 16.1 on or before the date when the same become due.
Nothing herein contained shall be construed as limiting or precluding the
recovery by the Landlord against the Tenant of any sums or damages to which, in
addition to the damages particularly provided above, the Landlord may lawfully
be entitled by reason of any default hereunder on the part of the Tenant. The
Landlord agrees to use reasonable efforts to mitigate its damages upon any
default hereunder on the part of the Tenant. Further, if this Lease is
guaranteed on behalf of the Tenant, all of the foregoing provisions with respect
to bankruptcy, etc. of the Tenant shall be treated as reading "the Tenant or the
guarantor" hereof and shall, accordingly, apply fully to any such guarantor.
Unless prohibited by applicable law, the Tenant agrees to pay to the
Landlord the amount of all legal fees and expenses incurred by the Landlord
arising out of or resulting from any act or omission by the Tenant with respect
to this Lease or the Premises, including without limitation, any breach by the
Tenant of its obligations hereunder.
16.2 LANDLORD'S DEFAULT
The Landlord shall in no event be in default in the performance of any of
the Landlord's obligations hereunder unless and until the Landlord shall have
failed to perform such obligations within thirty (30) days, or such additional
time as is reasonably required to correct any such default, after notice by the
Tenant to the Landlord properly specifying wherein the Landlord has failed to
perform any such obligation.
Further, if the holder of a mortgage which includes the Premises notifies
the Tenant that such holder has taken over the Landlord's rights under this
Lease, the Tenant shall not assert any right to deduct the cost of repairs or
any monetary claims against the Landlord theretofore
<PAGE>
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accrued from rent thereafter due and payable, but shall took solely to the
Landlord and not such holder for satisfaction of such claim.
Article XVII
------------
MISCELLANEOUS PROVISIONS
------------------------
17.1 WAIVER
Failure on the part of the Landlord or the Tenant to complain of any action
or non-action on the part of the other, no matter how frequently the same may
occur or how long the same may continue, shall never be a waiver by the Landlord
or the Tenant of its rights hereunder. Further, no waiver at any time of any of
the provisions hereof by the Landlord or the Tenant shall be construed as a
waiver of any of the other provisions hereof, and a waiver at any time of any of
the provisions hereof shall not be construed as a waiver at any subsequent time
of the same provisions. The consent or approval of the Landlord or the Tenant
to or of any action by the other requiring such consent or approval shall not be
construed to waive or render unnecessary the Landlord's or the Tenant's consent
or approval to or of any subsequent similar act by the other. No option or
right granted to the Tenant to renew this Lease or to extend the Lease Term
shall be considered to give the Tenant any further option or right to renew or
extend.
17.2 COVENANT OF QUIET ENJOYMENT
Subject to the terms and provisions of this Lease and on payment of the
rent and compliance with all of the terms and provisions of this Lease, the
Tenant shall lawfully, peaceably and quietly have, hold, occupy and enjoy the
Premises during the Lease Term, without hindrance or ejection by the Landlord or
by any persons lawfully claiming under the Landlord; the foregoing covenant of
quiet enjoyment is in lieu of any other covenant, express or implied.
17.3 NO PERSONAL LIABILITY OF THE LANDLORD
The Tenant agrees to look solely to the Landlord's then equity interest in
the Building at the time owned, or in which the Landlord holds an interest as
ground lessee, for recovery of any judgment from the Landlord; it being
specifically agreed that neither the Landlord (whether the Landlord be an
individual, partnership, firm, corporation, trustee or other fiduciary) nor any
of the partners constituting the Landlord, nor any beneficiary of any trust of
which any person holding the Landlord's interest is trustee nor any successor in
interest to any of the foregoing shall ever be personally liable for any such
judgment, or for the payment of any monetary obligation to the Tenant. The
covenants of the Landlord contained in this Lease shall be binding upon the
Landlord and the Landlord's successors only with respect to breaches occurring
during the Landlord's and the Landlord's successors' respective periods of
ownership of the Landlord's interest hereunder.
<PAGE>
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17.4 NOTICE TO MORTGAGEE AND GROUND LESSOR; OPPORTUNITY TO CURE
After receiving notice from any person, firm or other entity that it holds
a mortgage which includes the Premises as part of the mortgaged premises, or
that it is the ground lessor under a lease with the Landlord, as ground lessee,
which includes the Premises as a part of the demised premises, no notice from
the Tenant to the Landlord shall be effective unless and until a copy of the
same is given to such holder or ground lessor, and the curing of any of the
Landlord's defaults by such holder or ground lessor shall be treated as
performance by the Landlord. Accordingly, no act or failure to act on the part
of the Landlord which would entitle the Tenant under the terms of this Lease, or
by law, to be relieved of the Tenant's obligations hereunder or to terminate
this Lease, shall result in a release or termination of such obligations or a
termination of this Lease unless (i) the Tenant shall have been notified in
advance of the existence of a firm or other entity that holds a mortgage which
includes the Premises or of a ground lessor, and (ii) the Tenant shall have
first given written notice of the Landlord's act or failure to act to such
holder or ground lessor, if any, specifying the act or failure to act on the
part of the Landlord which could or would give basis to the Tenant's rights; and
(iii) such holder or ground lessor, after receipt of such notice, has failed or
refused to correct or cure the condition complained of within a reasonable time
thereafter, but nothing contained in this paragraph shall be deemed to impose
any obligation on any such holder or ground lessor to correct or cure any such
condition. "Reasonable time" as used above means and includes a reasonable time
to obtain possession of the Lot and Building if any such holder or ground lessor
elects to do so and a reasonable time to correct or cure the condition if such
condition is determined to exist.
17.5 ASSIGNMENT OF RENTS
With reference to any assignment by the Landlord of the Landlord's interest
in this Lease, or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to the holder of a mortgage or a ground
lessor on property which includes the Premises, the Tenant agrees:
(a) That the execution thereof by the Landlord, and the acceptance
thereof by the holder of such mortgage or ground lessor, shall never be
treated as an assumption by such holder or ground lessor of any of the
obligations of the Landlord hereunder, unless such holder or ground lessor
shall, by notice sent to the Tenant, specifically make such election; and
(b) That, except as aforesaid, such holder or ground lessor shall be
treated as having assumed the Landlord's obligations hereunder only upon
foreclosure of such holder's mortgage and the taking of possession of the
Premises, or, in the case of a ground lessor, the assumption of the
Landlord's position hereunder by such ground lessor. In no event shall the
acquisition of title to the Building and the land on which the same is
located by a purchaser which, simultaneously therewith, leases the entire
Building or such land back to the seller thereof be treated as an
assumption by operation of law or otherwise, of the Landlord's obligations
hereunder, but the Tenant shall look solely to such seller-lessee, and its
successors from time to time in title, for performance
<PAGE>
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of the Landlord's obligations hereunder. In any such event, this Lease
shall be subject and subordinate to the lease to such purchaser-lessor. For
all purposes, such seller-lessee, and its successors in title, shall be the
Landlord hereunder unless and until the Landlord's position shall have been
assumed by such purchaser-lessor.
17.6 NO BROKERAGE
The Landlord and the Tenant warrant and represent to the other that each
has dealt with no brokers other than Leggat, McCall, Grubb & Ellis, Inc. and
Dobroth & Fryer in connection with the consummation of this Lease, and, in the
event of any brokerage claims, other than claims by Leggat, McCall, Grubb &
Ellis, Inc. and Dobroth & Fryer against the Landlord or the Tenant predicated
upon prior dealings with the Tenant or the Landlord, as the case may be, the
Landlord and the Tenant each agree to defend the same and indemnify the other
against any such claim based upon a violation of the foregoing representations
and warranties by either party.
17.7 INVALIDITY OF PARTICULAR PROVISIONS
If any term or provision of this Lease, or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and be enforceable to the fullest extent permitted by
law.
17.8 PROVISIONS BINDING, ETC.
Except as herein otherwise expressly provided, the terms hereof shall be
binding upon and shall inure to the benefit of the successors and assigns,
respectively, of the Landlord and Tenant and, if the Tenant shall be an
individual, upon and to his heirs, executors, administrators, legal
representatives, successors and assigns. Each term and each provision of this
Lease to be performed by the Tenant shall be construed to be both a covenant and
a condition. The. reference contained to successors and assigns of the Tenant
is not intended to constitute a consent to assignment by the Tenant, but has
reference only to those instances in which the Landlord may later give consent
to a particular assignment as required by those provisions of Article VI hereof.
If the Tenant be several persons, natural or corporate, the liability of such
persons for compliance with the obligations of the Tenant under this Lease shall
be joint and several. In all instances where the Tenant is required under this
Lease to pay any sum or do any act at or by a particular time it is agreed that
time is of the essence.
17.9 RECORDING
The Tenant agrees not to record this Lease, but each party hereto agrees,
on the request of the other, to execute, acknowledge and deliver a Notice of
Lease reasonably satisfactory in form to the Landlord's attorneys.
In no event shall such document set forth the Rent or other charges payable
by the Tenant under this Lease; and any such document shall expressly state that
it is executed pursuant to the
<PAGE>
-38-
provisions contained in this Lease, and is not intended to vary the terms and
conditions of this Lease. In the event of termination of this Lease, the Tenant
agrees to execute a recordable instrument setting forth the fact of and date of
such termination and hereby irrevocably designates and appoints the Landlord as
its attorney-in-fact to execute in the name of the Tenant and to record such
instrument.
17.10 NOTICES
Whenever, by the terms of this Lease, notice shall or may be given either
to the Landlord or to the Tenant, such notice shall be in writing and shall be
sent by registered or certified mail, postage prepaid or by so-called "express"
mail (such as Federal Express or U.S. Postal Service Express Mail):
If intended for the Landlord, addressed to the Landlord at the address
set forth on the first page of this Lease, or to such other address or
addresses as may from time to time hereafter be designated by the
Landlord by like notice.
If intended for the Tenant, addressed to the Tenant at the address set
forth on the first page of this Lease, or to such other address or
addresses as may from time to time hereafter be designated by the
Tenant by like notice.
All such notices shall be effective when deposited in the :United States
mail within the Continental United States or when received by the "express" mail
carrier, as the case may be.
17.11 WHEN LEASE BECOMES BINDING
Employees or agents of the Landlord have no authority to make or agree to
make a lease or any other agreement or undertaking in connection herewith. The
submission of this document for examination and negotiation does not constitute
an offer to lease, or a reservation of, or option for, the Premises, and this
document shall become effective and binding only upon the execution and delivery
hereof by both the Landlord and the Tenant. All negotiations, consideration,
representations and understandings between the Landlord and the Tenant are
incorporated herein and may be modified or altered only by written agreement
between the Landlord and the Tenant, and no act or omission of any employee or
agent of the Landlord shall alter, change or modify any of the provisions
hereof.
17.12 SECTION HEADINGS
The section headings throughout this instrument are for convenience and
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or meaning
of the provisions of this Lease. In addition, if any provision of this Lease
shall conflict with any provision of any Exhibit to this Lease, the provisions
of this Lease shall control.
17.13 RIGHTS OF MORTGAGEE
<PAGE>
-39-
(a) If any holder of a mortgage or holder of a ground lease of
property which includes the Premises, originally given to an institutional
lender, and executed and recorded subsequent to the date of this Lease,
shall so elect, the interest of the Tenant hereunder shall be subordinate
to the rights of such holder, provided that such holder shall agree to
recognize in writing the right of the Tenant to use and occupy the Premises
upon the payment of rent and other charges payable by the Tenant under this
Lease, and the performance by the Tenant of the Tenant's obligations
hereunder (but without any assumption by such holder of the Landlord's
obligations under this Lease); or
(b) If any holder of a mortgage or holder of a ground lease of
property which includes the Premises, originally given to an institutional
lender, and executed and recorded prior to the date of this Lease, shall so
elect, this Lease, and the rights of the Tenant hereunder, shall be
superior in right to the rights of such holder, with the same force and
effect as if this Lease had been executed and delivered, and recorded, or a
statutory notice hereof recorded, prior to the execution, delivery and
recording of any such mortgage.
The election of any such holder as to Subsection (a) above shall be
exercised by notice to the Tenant, in the same fashion as notices under
this Lease are given by the Landlord to the Tenant, and, if such notice is
given, such subordination shall be effective with reference to advances
then or thereafter made by such holder under such mortgage or in connection
with such ground lease financing. Any election as to Subsection (b) above
shall become effective upon either notice from such holder to the Tenant in
the same fashion as notices from the Landlord to the Tenant are to be given
hereunder or by the recording in the appropriate registry or recorder's
office of an instrument, in which such holder subordinates its rights under
such mortgage or ground lease to this Lease.
(c) The covenant and agreement contained in this Lease with respect to
the rights, powers and benefits of any such holder constitute a continuing
offer to any person, corporation or other entity, which by accepting or
requiring, an assignment of this Lease or by entry or foreclosure assumes
the obligations herein set forth with respect to such holder; every such
holder is hereby constituted a party to this Lease and an obligee hereunder
to the same extent as though its name was written hereon as such; and such
holder shall at its written election be entitled to enforce such provisions
in its own name.
(d) If in connection with obtaining financing for the Building, a
bank, insurance company, pension trust or other institutional lender shall
request reasonable modifications in this Lease as a condition to such
financing, the Tenant will not unreasonably withhold, delay or condition
its consent thereto, provided that such modifications do not (i) increase
the monetary obligations of the Tenant or (ii) materially increase the
other obligations of the Tenant hereunder or materially adversely affect
the Tenant or the leasehold interest hereby created.
(e) Provided the Tenant shall have been notified in advance of the
existence of a firm or other entity that holds a mortgage which includes
the Premises or of a ground
<PAGE>
-40-
lessor, no assignment of this Lease and no agreement to make or accept
any surrender, termination or cancellation of this Lease and no agreement
to modify so as to reduce the rent, change the term, or otherwise
materially change the rights of the Landlord under this Lease, or to
relieve the Tenant of any obligations or liability under this Lease,
shall be valid unless consented to in writing by the Landlord's
mortgagees of record, if any.
(f) The Tenant agrees on request of the Landlord to execute and
deliver from time to time any agreement which may reasonably be deemed
necessary to implement the provisions of this Section 17.13.
17.14 STATUS REPORT; MODIFICATION
Recognizing that the Landlord or the Tenant may find it necessary to
establish to third parties, such as accountants, banks, mortgagees or the like,
the then current status of performance hereunder (such as, but not limited to, a
so-called estoppel certificate executed and acknowledged by the Tenant, in form
satisfactory to the Landlord, (i) stating that this Lease is then in full force
and effect and has not been modified or, if modified, setting forth the specific
nature of all modifications, and (ii) setting forth the date to which the Rent
and any additional rent or other charges has been paid, and (iii) stating
whether or not, to the best knowledge of the Tenant, the Landlord is in default
under this Lease, and if the Landlord is in default, setting forth the specific
nature of all such defaults), the Tenant, on the request of the Landlord made
from time to time, will promptly and in any event within twenty-one (21) days of
a written request therefor furnish a statement or certification of the status '
of any matter pertaining to this Lease; and the Landlord, on request of the
Tenant made from time to time will promptly and in any event within twenty-one
(21) days of a written request therefor, furnish a statement or certification of
the status of any matter pertaining to this Lease. Without limiting the
generality of the foregoing, the Tenant specifically agrees, promptly upon the
commencement of the Lease Term, to acknowledge to the Landlord satisfaction of
any requirements with respect to construction of leasehold improvements except
for such matters as the Tenant may set forth specifically in such statement.
Further, the Tenant agrees that it will respond to the Landlord in connection
with, or provide to the Landlord promptly and in any event within twenty-one
(21) days of a written request therefor, requests for information, agreements or
instruments collateral or relating to this Lease, such as but not limited to
requests for information regarding the merger, consolidation or other
restructuring of the Tenant, and executing and delivering agreements in
connection with amending, extending or renewing the Lease. 'Me Tenant
acknowledges that any statement delivered pursuant to this Section 17.14 may be
relied upon by any purchaser or owner of the Building or the Lot or any part
thereof, or the Landlord's interest in the Building or the Lot or any ground or
underlying lease, or by any mortgagee, or by any assignee of any mortgagee, or
by any lessee under any ground or underlying lease.
17.15 SECURITY DEPOSIT
If, in Section 1.1 hereof a Security Deposit is specified, the Tenant
agrees that the same will be paid upon execution and delivery of this Lease, and
that the Landlord shall hold the same, throughout the Lease Term, as security
for the performance by the Tenant of all obligations on
<PAGE>
-41-
the part of the Tenant to be kept and performed. The Landlord shall have the
right from time to time without prejudice to any other remedy the Landlord may
have on account thereof, to apply the Security Deposit, or any part thereof, to
the Landlord's damages arising from any default on the part of the Tenant. Upon
such application the amount so applied shall be paid by the Tenant to the
Landlord upon demand in order that the security deposit may at all times be
equal to the amount set forth in Section 1.1. The Tenant not then being in
default, the Landlord shall return the deposit, or so much thereof as shall not
have theretofore been applied in accordance with the terms of this Section
17.15, to the Tenant following the expiration or earlier termination of the
Lease Term and surrender of possession of the Premises by the Tenant to the
Landlord at such time. The Landlord shall, unless otherwise required by law,
have no obligation to pay interest on the deposit, shall maintain the Security
Deposit in a separate account and shall not comminute the Security Deposit with
the Landlord's other funds. If the Landlord conveys the Landlord's interest
under this Lease, the deposit, or any part thereof not previously applied, shall
be turned over by the Landlord to the Landlord's grantee, and, when so turned
over, the Tenant agrees to look solely to such grantee for proper application of
the deposit in accordance with the terms of this Section 17.15, and the return
thereof in accordance herewith. The Tenant agrees that the Tenant will not
assign, encumber or pledge, attempt to assign, encumber or pledge the moneys
deposited herein as security, and that neither the Landlord, nor its successors
and assigns, shall be bound by any such assignment, encumbrance or pledge,
attempted assignment, attempted pledge, or attempted encumbrance.
The holder of a mortgage of property which includes the Premises shall
not be responsible to the Tenant for the return or application of any such
deposit, whether or not it succeeds to the position of the Landlord hereunder,
unless such deposit shall have been received in hand by such holder.
For the purposes of Sections 17.4, 17.5, 17.13, 17.14, and this Section
17.15, the term "mortgage" includes a mortgage on a leasehold interest of the
Landlord (but not one on the Tenant's leasehold interest).
17.16 SELF-HELP
The Landlord shall have the right, but shall not be required, to pay such
sums or do any act which requires the expenditure of moneys which may be
necessary or appropriate by reason of the failure or neglect of the Tenant to
perform any of the provisions of this Lease, and in the event of the exercise of
such right by the Landlord, the Tenant agrees to pay to the Landlord forthwith
upon demand the cost of performing the same, plus an administrative charge
(covering overhead and profit) not to exceed 10% of such cost; and if the Tenant
shall default in such payment, the Landlord shall have the same rights and
remedies as the Landlord has hereunder for the failure of the Tenant to pay the
Rent.
17.17 RELIEF LIMITED
Whenever the Tenant shall claim under any provision of this Lease, that
the Landlord has unreasonably withheld or delayed its consent to some request of
the Tenant, the Tenant shall have no claim for damages by reason of such alleged
withholding or delay, and the Tenant's sole
<PAGE>
-42-
remedy therefor shall be declaratory or injunctive relief or submittal of the
claim to mediation, as is provided below, but in any event without the recovery
of damages. The parties agree that any such claim may be submitted for mediation
in accordance with the Building Owners and Management Association Alternative
Dispute Resolution Guidelines and Rules or any other mutually agreeable dispute
resolution procedure.
17.18 HOLDING OVER
Any holding over by the Tenant after the expiration of the Lease Term
without the written consent of the Landlord shall be treated as a tenancy at
sufferance at a rental rate equal to 150% of the Rent specified herein (prorated
on a daily basis) and shall otherwise be on the terms and conditions set forth
in this Lease, so far as applicable.
Any holding over by the Tenant after the expiration of the Lease Term
with the written consent of the Landlord shall be on a month-to-month basis,
terminable by either party on thirty (30) days' notice and shall be at the same
Rent specified herein and shall otherwise be on the terms and conditions set
forth herein, so far as applicable.
17.19 CERTIFICATE
Each of the persons executing this instrument on behalf: of the Tenant,
hereby covenant and warrant that the Tenant is a duly existing and valid
corporation and that the Tenant is qualified to do business in Massachusetts.
Further, the Tenant shall deliver to the Landlord, at the time of execution of
this Lease, a Clerk's or Secretary's Certificate in the form attached hereto as
Exhibit H (or other suitable form satisfactory to counsel for the Landlord), as
to the due authorization of the execution of this Lease and incumbency of the
signing officer.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed, under seal, as of the Date set forth in Section 1.1.
LANDLORD:
Metropolitan Life Insurance Company
By: /s/ John F. Coehn
-------------------------------------------
Its Assistant Vice President
hereunto duly authorized
TENANT:
Adra Systems, Inc.
By: /s/ W. L. Fiedler
-------------------------------------------
Its Vice President Finance & Administration
<PAGE>
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hereunto duly authorized
<PAGE>
EXHIBIT A
Plan Showing the First Floor Premises
-------------------------------------
A-1
<PAGE>
EXHIBIT A-1
Plan Showing the Third Floor Premises
-------------------------------------
A-2
<PAGE>
EXHIBIT B
Description of the Lot
----------------------
The real property affected by the instrument of which this Exhibit B forms
a part consists of those certain parcels of land with all buildings, structures
and improvements now or hereafter situated thereon located in Chelmsford and
Lowell, Middlesex County, Massachusetts more particularly described as follows:
PARCEL 1
- --------
A certain parcel of land with all buildings, structures and improvements
now or hereafter situated thereon, located in the City of Lowell, Massachusetts
and the Town of Chelmsford, Massachusetts, being shown as Parcel "B" on a
"Compiled Plan of Land in Chelmsford and Lowell, Massachusetts', prepared
for ,',Interstate Executive Center Associates, c/o Dobroth & Fryer. Scale
1" = 100', dated October 23, 1984, by Robert M. Gill Associates, Inc., Civil
Engineers and Surveyors, recorded at Plan Book 147, Plan No. 50, Middlesex North
Registry of Deeds, said parcel containing 8.53 acres, more or less.
PARCEL 2
- --------
A certain parcel of land with all buildings, structures and improvements
now or hereafter situated thereon located in the Town of Chelmsford,
Massachusetts, being shown as Parcel "C" on the Plan first below referred to and
located on the easterly side of Delmore Drive, more fully described as follows:
Beginning at the northwesterly corner of the premises, on the easterly
side of Delmore Drive and the Southwesterly corner of land now or
formerly of SEATON;
thence north 76(degrees) 43' 33" east, 100.00 feet to a point;
thence south 10(degrees) 57' 42" east, 40.03 feet to a point;
thence south 13(degrees) 53' 47" east, 24.85 feet to a point;
thence south 72(degrees) 02' 31" west, 100.00 feet to a point;
thence north 13(degrees) 53' 47" west, 34.70 feet to a point;
thence north 11(degrees) 11' 55" west, 38.34 feet to the point of
beginning.
Said parcel containing 6,882 square feet, more or less and being shown on a
plan recorded at the Middlesex North Registry of Deeds, Plan Book 147, Plan No.
50.
B-1
<PAGE>
The within premises are conveyed together with the benefit of those certain
easements set forth in a Declaration of Easements dated January 17, 1984,
recorded with said Deeds, Book 2690, Page 464 and as shown on a Plan entitled
"Plan of Land in Chelmsford and Lowell prepared for Interstate Executive Center
Assoc. c/o Dobroth Fryer" dated December 30, 1983 and recorded with said Deeds
in Plan Book 142, Plan 45, including without limitation, an Access Way Easement
and Drainage Easement, Parking Easement B and a Drainage Easement located on
Parcel A.
B-2
<PAGE>
EXHIBIT C
Rules and Regulations
---------------------
The Tenant shall observe faithfully, and comply with, and shall not permit
the violation of, the Rules and Regulations set forth in this Exhibit C and such
additional Rules and Regulations as Landlord may, from time to time, adopt. All
of the terms, covenants and conditions of this Exhibit C shall be deemed part of
this Lease as though fully set forth in the body of this Lease. In case Tenant
disputes the reasonableness of any additional Rules and Regulations hereafter
adopted by Landlord. the Tenant's right to dispute the reasonableness of any
additional Rule or Regulation shall be deemed waived unless asserted by service
of a notice upon the Landlord within ten (10) days after the date upon which the
Landlord shall give notice to the Tenant of the adoption of any such additional
Rule or Regulation.
The Tenant agrees:
1. The sidewalks, plazas, entrances, lobbies, corridors, elevators, fire
exits and stairways of the Building shall not be encumbered or obstructed by any
tenant or its agents, employees, licensees or invitees, or be used for any
purpose other than ingress to and egress from the tenant's premises.
2. All deliveries to and' removals from the Building of furniture,
equipment and supplies shall be by way of the rear door and during such hours as
may be prescribed by the Landlord. All incoming and outgoing shipments must be
moved directly, by the delivery or pick up agent, from the delivery entrance.
Building operating personnel are not authorized to receipt for shipments to or
from the building. Furniture, equipment and supplies. and other packages,
materials and items requiring the use of a hand truck or other type of wheeled
transporter, shall be moved in or out of the Building or between floors of the
Building only upon the elevator or elevators designated by the Landlord for that
purpose and then only during such hours and in such manner as may be prescribed
by the Landlord and any damage to the Building or any part thereof caused by the
moving in or out of the Building or between floors of the Building of said
materials shall be repaired by the Landlord at the expense of the tenant
responsible therefor. No tenant shall move or permit to be moved into or out of
the Building or the Premises any furniture, furnishings, equipment or other
property (excluding, only routine deliveries to and from the Premises of
supplies, packages and the like) without having first notified in advance the
Landlord or the Building Manager. Notwithstanding the foregoing, the Landlord
hereby acknowledges and agrees to the Tenant's use of common areas and
facilities on the first floor of the Building for shipping and receiving, and to
the Tenant's use of the elevator between the first and third floors during the
Tenant's business hours, so long as the Tenant's shipping and receiving
activities do not unreasonably interfere with or impede these common areas and
facilities.
3. No tenant shall obtain or accept for use in its premises. food or
beverage dispensers or vending machines of any kind without the written consent
of the Landlord, except to the extent approved by the Landlord.
C-1
<PAGE>
4. If a tenant's premises become infested with vermin due to tenants own
misuse of the premises, such tenant, at its sole cost and expense, shall cause
its premises to be exterminated by such exterminators as shall be approved by
the Landlord at such times and to such extent as the Landlord deems necessary to
exterminate the vermin.
5. No animals or birds, bicycles or other vehicles shall be allowed in the
corridors, lobbies, elevators, or elsewhere in the Building
6. Canvassing, soliciting and peddling in the Building, is prohibited and
each tenant shall cooperate to prevent the same.
7. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweeping, rubbish, rags or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures by Tenant, its servants.
employees, agents, visitors or licensees, shall be borne by Tenant.
8. Each tenant shall, at its expense, provide artificial light for the
------
employees of Landlord while doing janitor's service or other cleaning and in
making repairs or alterations in said Premises. Subject to the provisions of
Article XV of this Lease, Landlord shall be in no way responsible to any tenant
for loss of property from the Premises. however occurring, or for damage done to
the furniture or other effects of any tenant by Landlord's agents, other
janitors, cleaners, employees or contractors doing work in the Premises.
9. Typical floors are designed to carry live loads not exceeding fifty
(50) pounds per square foot. Safes and other especially heavy items shall not
be located in the Premises without Landlord's prior written approval.
10. Tenant may request heating or air-conditioning during other periods in
addition to normal working hours by submitting its request in writing! to the
Building Manager's office no later than 2:00 PM of the preceding workday (Monday
through Friday) on forms available from the Building Manager. The request shall
clearly state the start and stop hours of the "off-hour" service. Tenant shall
submit to the Building Manager a list of personnel who are authorized to make
such requests. Chares for "off-hour" services shall be paid, as additional
rent, by the Tenant. Such charges shall be fair and reasonable and reflect the
additional operating and administrative costs involved as estimated in good
faith by the Landlord and the necessity of having maintenance personnel on duty
for a full shift regardless of the actual time the equipment is in use. If two
or more tenants originate such requests, charges shall be prorated for hours of
simultaneous operation.
11. Each tenant shall be responsible for all persons under the Tenant's
control authorized to have access to the Building and shall be liable to
Landlord for all of their acts while in the Building or on the Lot. Landlord
may require all persons given access to the Building during non-business hours
to sign a register on entering and leaving the Building.
12. No curtains, blinds, shades or screens other than those furnished by
Landlord shall be attached to, hung in or used in connection with, any window or
door of the Premises, without
C-2
<PAGE>
the prior written consent of Landlord. Such curtain, blinds, shades, screens or
other fixtures must be of a quality type, design and color, and attached in the
manner approved by Landlord.
13. Tenants may be requested to assign from among their employees
personnel to perform specific tasks required in connection with the emergency
evacuation of the Building.
14. The Landlord reserves the right at any time to change, rescind or
waive any one or more of these Rules and Regulations, and to make such other and
further reasonable rules and regulations as its judgment may from time to time
be necessary for the safety, care, convenience or cleanliness of the Building or
for the preservation of comfort or good order therein. The Landlord shall not
be liable to any tenant for violation of the same by any ocher tenant, its
agents, employees, licensees or invitees.
15. Any tenant may submit requests to the Building Manager for "special
services" ("special services". means services which are in addition to those
services required to be provided by the Landlord at the Landlord's cost under
the Lease, and include such services as arranging for the construction or
installation of tenant improvements). If the Landlord chooses to undertake any
special services requested by any tenant, the tenant agrees to pay to the
Landlord, promptly upon billing, the full cost of the work performed or services
rendered plus an administrative charge equal to ten percent (10%) of such cost
to cover the Landlord's cost of overhead, supervision and coordination of the
special services.
16. Smoking is not permitted in the lobbies, elevators or other common
areas of the Building.
C-3
<PAGE>
EXHIBIT D
Plans and Specifications for Tenant's Work
------------------------------------------
Plans prepared by Wilson Architectural Services for Adra Systems, Inc.
- -- Tenant Work for Building at Two Executive Drive, Chelmsford, First and Third
Floors, dated January 13, 1993, consisting of three sheets.
D-1
<PAGE>
EXHIBIT E
Sign Standards
--------------
Tenant shall have the right, subject to the Landlord's approval not to be
unreasonably withheld or delayed, to exterior "signs" in conformance with
standards and requirements as follows
1. Building Sign. The Tenant, at its expense, may install a Building sin
-------------
consisting of the Tenant`s logo and/or letters to spell out, as a maximum, the
corporate name of the tenant; such logo and/or letters to be individually
affixed to the exterior of the building in a location and manner acceptable co
the Landlord. The logo and individual letters (i) shall be no more d= two feet
high nor more than two and a half inches deep, (ii) shall not be internally
illuminated or illuminated by lights bracketed off the building, and (iii) shall
be fabricated of no. 304 (18-8 alloy) stainless steel with a stain finish, grain
to be horizontal; the minimum thickness of faces to be 18-gauge and sides to be
22-gauge. The design, location. and proposed installation must be approved in
writing, by the Landlord prior to installation.
2. Street Sign. Where the Tenant is a major tenant (tenant of at least
-----------
20.000 square feet) of the building, the Tenant, at its expense, may request
that the Landlord include on either one or both faces of the street address sign
located at the entrance of the building site lettering to spell out. as a
maximum, the corporate name of the Tenant. The background field area for
lettering so requested is limited to a maximum size of 4 inches high by 7"
inches long on the signs of multi-tenanted buildings. on the signs of
single-tenanted buildings the maximum background field area is 17 inches high by
72 inches long, and in addition to the corporate name may also include lettering
to identify a subdivision or special use group of the Tenant pertinent to the
building. The individual letters on these signs shall be adhesive backed vinyl
with a maximum height of 6 inches; they may be at the Tenant's option in the log
typeface of Tenant's corporate graphic standards, or helvitica medium. Unless
otherwise approved in writing by the Landlord, the color of the letters shall be
black. The Tenant is responsible for graphic layout and for the Landlord's costs
of providing and installing the lettering.
3. Traffic Directory Signs. Where the Tenant is the sole tenant of the
-----------------------
entire building, the Tenant, at its expense and with the prior written approval
of the Landlord, may install within the bounds of the leased building sire
vehicular and/or pedestrian directory sins. Such signs shall be identical in
design and construction. The sign face shall be rectilinear and shall nor have
an area exceeding 20 inches high by 28 inches wide. The mounting height of such
signs shall nor exceed the mounting height of the other traffic control signs in
the vicinity of the Building.
4. Flag Pole. Where the Tenant is the sole tenant of the entire building.
---------
the Tenant, at its expense. and subject to prior written approval of the
Landlord. may install within the bounds of the leased building site a ground-
mounted pole for purposes of "flying" an American, a State or a corporate flag.
The pole design, location, and proposed installation must be approved in writing
by the Landlord prior to installation.
E-1
<PAGE>
General requirements pertaining to all exterior signs, including interior
signs that are intended to be seen or visible from the exterior, are as follows:
A. Any sin and the installation thereof shall comply with all applicable
laws and ordinances, and the Tenant, at its expense, shall have obtained all
necessary permits and licenses therefor;
B. The location, size, design, materials used, and colors of any sign,
including flagpole, flags, banners, balloons, and/or any other type of
attention-getting, device is subject to the Landlord's written approval prior to
installation;
C. Prior to the Tenant's vacation of the Premises. in whole or in part,
the Tenant, at its expense, will remove or cause to be removed (i) the Building
Sign and restore the facade of the Building to the condition It was in prior to
the time the Building Sign was affixed thereto, and (ii) all other exterior
signs requested and/or installed by the Tenant. unless specifically exempted by
the Landlord, and restore the area(s) of such sign(s) to match surrounding
conditions;
D. Landlord shall have the right to prohibit any advertising or
identifying sign by the Tenant which, in the landlord's judgment. tends to
impair the reputation of the Building and the building site, and upon written
notice from the Landlord. the Tenant shall immediately discontinue such
advertising or identifying sign, and, at its expense, shall restore the area of
such sign to its pre-existing condition;
E. Landlord reserves the right to relocate existing signs and/or install
such other signs on the Building or the Lot, as Landlord may deem necessary,
appropriate or useful in identifying tenants in the Building or in Landlord's
conduct of the business of operating the Building.
E-2
<PAGE>
EXHIBIT F
Cleaning Schedule
-----------------
CLEANING
- --------
A. Office Area
Nightly: (Monday through Friday, holidays excepted.)
-------
1. Empty wastepaper baskets, ashtrays and refuse receptacles.
2. Dust sweep hard surface flooring with specially treated cloth. Carpet
sweep carpeted areas and rugs.
4. Hand dust and wipe clean with treated cloths all horizontal surfaces,
including furniture, desk equipment, telephones, windowsills, heat
pump tops within normal reach.
5. Clean and sanitize all drinking fountains.
Weekly:
------
1. Remove finger marks from stairway, elevator and utility closet doors
and light switches.
2. Vacuum carpeted areas and rugs, and shampoo carpeted areas and rugs as
needed.
Bi-Monthly:
----------
1. Wash and wax resilient tile floors (6 times a year).
Quarterly:
---------
1. Do high dusting not reached in daily cleaning to include:
a. Pictures, frames, charts, graphs and similar wall hangings;
b. All vertical surfaces, such as walls, partitions and doors not
reached in nightly cleaning.
B. Lavatories
Nightly:
-------
1. Sweep and wash floors with approved germicidal detergent solution.
F-1
<PAGE>
2. Wash and polish all mirrors, powder shelves, dispensers, and
receptacles, bright work, flushometers, piping and toilet seat hinges.
3. Wash both sides of toilet seats, wash basins. bowls, and urinals with
approved germicidal detergent solution.
4. Remove finger marks and smudges from toilet partitions, ventilating
Drills and tile walls.
5. Empty and clean towel and sanitary disposal receptacles; remove waste
to disposal areas.
6. Replenish paper towel, toilet tissue. soap and sanitary napkin
dispensers.
Monthly:
-------
1. Wash partitions and tile walls.
2. Wash all waste receptacles with approved germicidal solution.
C. Window Washing
Quarterly:
---------
1. Wash all exterior window glass, inside and outside surfaces, unless
weather does not permit the safe use of exterior window washing
equipment.
NOTE: Cleaning service of increased frequency other than that specified
above for tenant-occupied areas shall be requested by the tenant
through the Building Manager's office at Tenant's expense.
F-2
<PAGE>
EXHIBIT G
---------
Other Services of the Landlord
------------------------------
The Landlord shall furnish elevator service during Building Hours.
The Landlord shall maintain the access roadways and drives and the parking
areas and landscaping immediately adjacent to the Building in which the demised
premises are located.
The Landlord shall furnish hot water and water for ordinary cleaning,
toilet, lavatory and drinking purposes. If the Tenant uses or consumes water
for any other purpose, it shall reimburse the Landlord therefor, and for any
related sewer charge, as reasonably estimated by the Landlord or, at its
election, metered. In the latter event, the Tenant shall pay the cost of the
meter and its installation and maintenance. Such reimbursement shall be made as
and when bills are rendered. All water piping and equipment beyond Building
Standard shall be installed and maintained by the Landlord at the Tenant's
expense.
The Landlord shall furnish Building Standard heat or air-conditioning as
reasonably required for the comfortable occupancy of the Premises (subject to
applicable Governmental regulation of heating and air-conditioning during the
hours of 8:00 AM to 6:00 PM Mondays through Fridays and 8:00 AM to 1:00 PM on
Saturdays; Massachusetts legal holidays excepted.
G-1
<PAGE>
EXHIBIT H
Clerk's Certificate
-------------------
1, [name of clerk], Clerk of [name of corporation], hereby certify that
------------- -------------------
the following is a true copy of a resolution of the board of directors of this
corporation adopted at a meeting duly called and held on [date] a quorum being
----
present and acting throughout, and that such resolution has not been revoked,
amended or modified and is in full force and effect:
VOTED: That the President [or other officer] be and is hereby
authorized, singly, to execute and deliver on behalf of this
corporation a lease between Metropolitan Life Insurance Company,
as landlord, and this corporation, as tenant, for
approximately _____ rentable square feet of office space in the
landlord's building, located at Two Executive Drive, Chelmsford.
Massachusetts, upon such terms and conditions as the signing
officer shall determine to be necessary or appropriate. The
signature of the President [or refer to other officer as
applicable] thereon shall conclusively evidence its approval by
this vote.
This is to certify further that as of the date hereof ____________________
is the President [or refer to other officer as applicable] of this corporation.
_________________________________
Clerk
Dated: __________________________, 19__
[SEAL]
G-2
<PAGE>
EXHIBIT I
Common Area/Demolition Letter
-----------------------------
January 13, 1994
Mr. John Garrison
MetLife
One Financial Center, 43/rd/ Floor
Boston, MA 02111-2659
Dear John:
this letter summarizes the refurbishment and repairs Adra believes is necessary
for Metropolitan Life to complete in the "common areas" at 2 Executive Drive:
. Repair broken window in Atrium lobby
. Repair blistering plaster in several places on 3/rd/ door Atrium lobby
area
. Replace stained ceiling tiles in Adra's lobby area
. Replace common area lighting and exit signs where necessary
. The glass front to the fire extinguisher across from the restroom on the
3/rd/ floor is broken
. Some of the parking lot curbing is out of place and needs alignment
. There is a leak in the back door near the loading dock
. The carpeting in the common areas (hallways, stairways, lobby,
elevators) needs replacing
. The elevators need refurbishing
. Collars are needed on the sprinkler heads in the 3/rd/ floor atrium area
. The parking lot and walkways need to be relined
. The common areas need repainting
. The exterior lighting outside the main entrance needs
repair/replacement. some of the light fixtures are badly dented, chipped
and some are not functioning.
. Trim in common area (stair, railings, etc.) needs refurbishing
. Planters in lobby need refreshing, new plants, etc.
. Lobby floor needs resealing
. Shipping/receiving area needs refurbishing
H-1
<PAGE>
We would appreciate knowing the type and color of the carpeting and wall colors
Met will be using in the common areas so we can coordinate our color schemes
with yours if possible.
The following is a list of the materials we would like to keep from your
demolition:
. 2 ceiling mounted projection screens and controls
. Wire mold in/around building. Landlord to demo and stage in area
. 3-door glass bulletin board
. Speakers in ceiling for emergency/paging
. Doors/frames and existing hardware
. Fire extinguishers
. Some of the ceiling demountable vinyl wall panels to be reused
. Any existing downlights or special lighting
. Any existing special overhead speakers
We assume that the demolition of the 3/rd/ floor will include the following
tasks:
. Demo all walls, carpet, ceiling as highlighted on the existing
conditions drawing
. Remove 18 self contained air conditioning units. 2 units to be
reinstalled
. Remove all voice/data cabling throughout the 3/rd/ floor
. Penetrations in floor to be filled
Please let me know if you have any questions and/or problems with these items.
Sincerely,
William L. Fiedler
Vice President
Finance & Administration
H-2
<PAGE>
EXHIBIT J
Restroom Work Letter
--------------------
January 13, 1994
Mr. John Garrison
MetLife
One Financial Center, 43/rd/ Floor
Boston, MA 02111-2659
Subject: ADA Requirements For Two Executive Drive, Third Floor
Dear John:
The following is a list of requirements needed for ADA compliance of the
third floor of Two Executive Drive:
<TABLE>
<S> <C> <C>
. Horn Strobes for ADA compliance 14 @ $ 68.50 = $1,010.00
. Automatic Door Opener for Restrooms 2 @ $1,400.00 = $2,800.00
. Replace One Sink and Counter in Each Restroom 2 @ $1,000.00 = $2,000.00
. Relocate Grab Bar to Meet ADA (two in each restroom) 4 @ $ 100.00 = $ 400.00
. Replace Stall Door Twist Latch with Lever 2 @ $ 100.00 = $ 200.00
. Relocate Toilet in each Restroom from 15.5" to 18" center 2 @ $1,000.00 = $2,000.00*
line from side wall
. Expand Width of Access Toilet Stall from 58" to 60" 2 @ $ 250.00 = $ 500.00*
. TOTAL = $8,910.00
</TABLE>
______________
* Estimate
Sincerely,
William L. Fiedler
Vice President
Finance & Administration
I-1
<PAGE>
NOTICE OF LEASE
---------------
Notice is hereby given, pursuant to Massachusetts General Laws,
Chapter 183, Section 4, of the following Lease.
Landlord: Metropolitan Life Insurance Company, a New York
corporation.
Tenant: Adra Systems, Inc., A Delaware corporation.
Date of Execution: March 2, 1994
Description of Premises: 42,297 rentable square feet of space, consisting
of 39,368 rentable square feet of space which is
located on the third floor and 2,929 rentable
square feet of space which is located on the first
floor of the building located at Two Executive
Drive, Chelmsford, Massachusetts, on a lot of land
described on Schedule A, attached hereto.
Term: 120 calendar months, plus the partial month, if
any, immediately following the Commencement Date.
Date of Commencement: Estimated to be August 15, 1994 or such other date
as is set forth in a Memorandum between the
parties to be recorded hereafter.
Rights of Renewal or
Extension: None
Rights of Expansion: Tenant has right of first refusal with respect to
any space available in the Building as described
in Section 3.2 of the Lease.
This Notice of Lease is executed pursuant to the provisions of the Lease,
and is not intended to vary the terms of the Lease.
Executed this 14/th/ day of March, 1994.
LANDLORD: Metropolitan Life Insurance Company
By: /s/ John F. Coehn
-----------------------------------
Title: Assistant Vice President
TENANT: Adra Systems, Inc.
By: /s/ W. L. Fiedler
------------------
Title: Vice President
Finance & Administration
<PAGE>
-2-
STATE OF NEW YORK
____________________, ss. March __, 1994
Then personally appeared the above-named _____________________________,
_____________________________ of Metropolitan Life Insurance Company, and
acknowledged the foregoing instrument to be the free act and deed of
Metropolitan Life Insurance Company, before me,
_____________________________________________
Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss. March 9, 1994
Then personally appeared the above-named W.L. Fiedler, Vice President of Adra
Systems, Inc., and acknowledged the foregoing instrument to be the free act and
deed of Adra Systems, Inc., before me,
/s/ Kathleen M. Riccardi
_____________________________________________
Notary Public
My Commission Expires: 4-21-2000
<PAGE>
SCHEDULE A
Legal Description
-----------------
- --------------------------------------------------------------------------------
The real property affected by the instrument of which this Schedule A forms
a part consists of those certain parcels of land with all buildings, structures
and improvements now or hereafter situated thereon located in Chelmsford and
Lowell, Middlesex County, Massachusetts more particularly described as follows:
PARCEL 1
- --------
A certain parcel of land with all buildings, structures and improvements
now or hereafter situated thereon, located in the City of Lowell, Massachusetts
and the Town of Chelmsford, Massachusetts, being shown as Parcel "B: on a
"Compiled Plan of Land in Chelmsford and Lowell, Massachusetts", prepared for
Interstate Executive Center Associates, c/o Debroth & Fryer. Scale 1" = 100',
dated October 23, 1984, by Robert M. Gill and Associates, Inc., Civil Engineers
and Surveyors, recorded at Plan Book 147, Plan No. 50, Middlesex North Registry
of Deeds, said parcel containing 8.53 acres, more or less.
PARCEL 2
- --------
A certain parcel of land with all buildings, structures and improvements
now or hereafter situated thereon located in the Town of Chelmsford,
Massachusetts, being shown as Parcel "C" on the Plan first below referred to and
located on the easterly side of Delmore Drive, more fully described as follows:
Beginning at the northwesterly corner of the premises, on the easterly side
of Delmore Drive and the Southwesterly corner of land now or formerly of
SEATON;
thence north 76(degrees) 43' 33" east, 100.00 feet to a point;
thence south 10(degrees) 57' 42" east, 40.03 feet to a point;
thence south 13(degrees) 53' 47" east, 24.85 feet to a point;
thence south 72(degrees) 02' 31" west, 100.00 feet to a point;
thence north 13(degrees) 53' 47" west, 34.70 feet to a point;
thence north 11(degrees) 11' 55" west, 38.34 feet to the point of
beginning.
Said parcel containing 6,882 square feet, more or less and being shown on a
plan recorded at the Middlesex North Registry of Deeds, Plan Book 147, Plan No.
50.
The within premises are conveyed together with the benefit of those certain
easements set forth in a Declaration of Easements dated January 17, 1984,
recorded with said Deeds, Book 2690, Page 464 and as shown on a Plan entitled
"Plan of Land in Chelmsford and Lowell prepared for
<PAGE>
-2-
Interstate Executive Center Assoc. c/o Debroth Fryer" dated December 30, 1983
and recorded with said Deeds in Plan Book 142, Plan 45, including without
limitation, an Access Way Easement and Drainage Easement, Parking Easement B and
a Drainage Easement located on Parcel A.
<PAGE>
EXHIBIT 10.14
LOAN AND SECURITY AGREEMENT
$7,000,000 WORKING CAPITAL LINE
($1,000,000 EQUIPMENT LINE SUBLIMIT)
PROVIDED BY
SILICON VALLEY BANK
TO
MATRIXONE, INC.
DECEMBER 29, 1998
<PAGE>
-2-
This LOAN AND SECURITY AGREEMENT is entered into as of December 29, 1998,
by and between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with
a loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, MA 02481, doing business under the name Silicon Valley
East ("Bank"), and MATRIXONE, INC., a Delaware corporation with its principal
place of business at Two Executive Drive, Chelmsford, MA 01824 ("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing, but not including that portion of the Accounts that relates to sales,
use or property taxes.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Person's managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
<PAGE>
-3-
"Borrowers Books" means all of Borrowers books and records including,
without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to EIGHTY percent (80%) of
Eligible Accounts as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code as the same may
be amended from time to time.
"Collateral' means the property described on Exhibit A attached
---------
hereto.
"Committed Revolving Line" means a credit extension of up to SEVEN
MILLION AND NO/100THS Dollars ($7,000,000).
"Committed Equipment Sublimit" means a credit extension of up to ONE
MILLION AND NO/100THS Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work
<PAGE>
-4-
thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held.
"Credit Extension" means each Advance, Equipment Advance or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
including all Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than one
year from the date of determination, plus to the extent not already included
therein, all outstanding Credit Extensions made under this Agreement, but
excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrowers representations
and warranties to Bank set forth in Section 5.4. Unless otherwise agreed to by
Bank in writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date, except as approved in writing by Bank;
(c) Accounts with respect to an account debtor, including Affiliates,
whose total obligations to Borrower exceed twenty-five percent (25%) of all
Accounts, to the extent such obligations exceed the aforementioned percentage,
except as approved in writing by Bank and except for Accounts covered by
insurance complying with Section 6.6(b);
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States and Canada except for
Eligible Foreign Accounts;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof,
(f) Accounts with respect to which Borrower is liable to the account
debtor, but only to the extent of any amounts owing to the account debtor
(sometimes referred to as "contra" accounts, e.g. accounts payable, customer
deposits, credit accounts etc.);
<PAGE>
-5-
(g) Accounts generated by demonstration or promotional equipment, or
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an Affiliate,
officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines, in
accordance with its standard commercial practices, to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and Canada and that are: (1) covered by credit insurance in form and
amount, and by an insurer satisfactory to Bank less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by one or
more letters of credit either advised or negotiated through Bank or in favor of
Bank as beneficiary, in an amount and of a tenor, and issued by a financial
institution, acceptable to Bank; or (3) that Bank approves on a case-by-case
basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.2.
"Equipment Availability End Date" has the meaning set forth in Section
2.1.2.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under
<PAGE>
-6-
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extension generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
relief.
"Intellectual Property Assets" means:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
(g) All Borrower's Books relating to the foregoing and any and all
proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
<PAGE>
-7-
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired;
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means June 1, 2002.
"Negotiable Collateral" means all of Borrowers present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications.
"Payment Date" means the first calendar day of each month commencing
on the first such date after the Closing Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
<PAGE>
-8-
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens
(f) Other Indebtedness not exceeding FIVE HUNDRED THOUSAND AND
NO/100THS Dollars ($500,000) in the aggregate outstanding at any time.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poors Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank; and
(c) Investments in wholly owned subsidiaries of Borrower formed after
the Closing Date of up to no more than $750,000 per subsidiary and $1,250,000 in
the aggregate.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings and as to which adequate reserves are maintained on Borrowers Books
in accordance with GAAP, provided the same have no priority over any of Bank's
--------
security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower
or any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary pursuant
to an operating lease in the ordinary course of business (including proceeds
thereof and accessions thereto) incurred solely for the purpose of financing the
lease of such Equipment (including Liens pursuant to leases permitted pursuant
to Section 7.1 and Liens arising from UCC financing statements regarding leases
permitted by this Agreement);
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (d) above, provided that any extension, renewal or
--------
replacement Lien shall be limited to the property
<PAGE>
-9-
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase;
(f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8; and
(g) Easements, reservations, rights of way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate of interest available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means December 28, 1999.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, a corporation,
partnership, company, association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth' means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
-----
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
<PAGE>
-10-
"Total Liabilities" means as of any applicable date, all obligations
that should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all Indebtedness,
but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and service mark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not
--------------------------
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/"includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions. Borrower promises to pay to the order of
-----------------
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
------------------
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the principal amount of outstanding Equipment
Advances. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any time
during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
---------
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2. 1.1
and other
<PAGE>
-11-
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable
2.1.2 Equipment Advances.
------------------
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through June 29, 1999 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Equipment Advance" and collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the lesser of (i) the Committed
Equipment Sublimit or (ii) the Borrowing Base minus the principal amount of
outstanding Advances. To evidence the Equipment Advance or Equipment Advances,
Borrower shall deliver to Bank, at the time of each Equipment Advance request,
an invoice for the equipment to be purchased or financed. The Equipment Advances
shall not be used to purchase or finance Equipment purchased more than ninety
(90) days prior to the Equipment Advance request, except with respect to the
first Equipment Advance request, which request may include Equipment purchased
after May 31, 1998. Equipment Advances shall not exceed ONE HUNDRED
Percent(100%)of the invoice amount of such equipment approved from time to time
by Bank, excluding taxes, shipping, warranty charges, freight discounts and
installation expense.
(b) Interest shall accrue from the date of each Equipment
Advance, on the average daily balance thereof, at a per annum rate equal to ONE
(1.0) percentage point above the Prime Rate and shall be payable monthly in
arrears for each month through the month in which the Equipment Availability End
Date falls. Any Equipment Advances that are outstanding on the Equipment
Availability End Date will be payable in THIRTY SIX (36) equal monthly
installments of principal, plus all accrued interest, on the Payment Date of
each month beginning JULY 1, 1999 and ending on the Maturity Date. Borrower may
repay or prepay Equipment Advances together with all interest, fees and
expenses, at any time or from time to time, in whole or in part, prior to the
Maturity Date, without any fee or penalty. Equipment Advances, once repaid, may
not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Equipment Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice(s) for the Equipment to be financed.
2.2 Over-advances. If, at any time or for any reason, the amount of
-------------
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
<PAGE>
-12-
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.3(b), any
-------------
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to ONE HALF (0.50) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
------------
after the occurrence of an Event of Default, at a rate equal to four (4)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
--------
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number 700442770 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed. Under no
circumstances will the interest charged pursuant to this Agreement exceed the
maximum rate permitted by law.
2.4 Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00 noon
Pacific time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to
Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
<PAGE>
-13-
2.5 Fees. Borrower shall pay to Bank the following:
----
(a) Facility Fee. A Facility Fee equal to FIFTEEN THOUSAND AND
------------
NO/100THS Dollars ($15,000), which fee shall be due on the Closing Date and
shall be fully earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
----------------------------------------
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts
pursuant to Section 6.3(ii) of this Agreement, and for each appraisal of
Collateral and financial analysis and examination of Borrower performed from
time to time by Bank or its agents:
(c) Bank Expenses. Upon demand from Bank, including, without
-------------
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or
----------------
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
----
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default.
<PAGE>
-14-
Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension. The obligation
------------------------------------------------
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with respect to
charter, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1 or UCC-3);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(f) Certificate of Foreign Qualification (if applicable); and
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
---------------------------------------------
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b), unless such Credit Extension is
effected without instructions from Borrower.
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt
<PAGE>
-15-
performance by Borrower of each of its covenants and duties under the Loan
Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof. Borrower acknowledges that Bank may
place a "hold" on any Deposit Account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrowers usual business hours, to inspect Borrowers Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
-------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
----------------------------------
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the failure to be so qualified could be
reasonably likely to have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could be reasonably likely to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered in all material respects to the account
debtor or to the account debtor agent for immediate shipment to and
unconditional acceptance by the account debtor (except for inspect and return
rights or warranty rights provided by Borrower in the ordinary course of
business). Borrower has not received notice of actual or imminent Insolvency
Proceeding of any
<PAGE>
-16-
account debtor whose accounts are included in any Borrowing Base Certificate as
an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could be reasonably likely to have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Bank's security
interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 Solvency. Borrower is able to pay its debts (including trade
--------
debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrowers failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied in all material respects with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could be reasonably likely to have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance, other than office
<PAGE>
-17-
products used in the ordinary course of business, other than in accordance with
applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities where the failure
so to do could be reasonably likely to have a material adverse effect on
Borrower's ability to operate its business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading in light of the circumstances under which they were
made.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could be reasonably likely to have a Material Adverse
Effect. Borrower shall use commercially reasonable efforts to maintain, and
shall cause each of its Subsidiaries to use commercially reasonable efforts to
maintain, to the extent consistent with prudent management of Borrower's
business, in force all licenses, approvals and agreements, the loss of which
could be reasonably likely to have a Material Adverse Effect.
<PAGE>
-18-
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could be reasonably likely to have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates. (i) Borrower shall
-------------------------------------------
deliver to Bank:
(a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Bank;
(b) as soon as available, but in any event within ninety (90)
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-
Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could reasonably be likely to result in damages or costs to Borrower or any
Subsidiary of One Hundred Fifty Thousand Dollars ($150,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
(f) (i) prior to any Credit Extensions at a time when no Credit
Extensions are outstanding, (ii) within thirty (30) days after the last day of
each month in which any Credit Extensions are outstanding, and (iii) within
thirty (30) days after the fifteenth day of each month in which total
outstanding Credit Extensions exceed sixty percent (60%) of the Borrowing Base,
a Borrowing Base Certificate signed by a Responsible Officer in substantially
the form of Exhibit C hereto, together with aged listings of accounts
---------
receivable.
(g) within thirty (30) days after the last day of each month,
with the monthly financial statements, and within thirty (30) days after the
fifteenth day of each month in which total outstanding Credit Extensions exceed
sixty percent (60%) of the Borrowing Base, a Compliance Certificate signed by a
Responsible Officer in substantially the form of Exhibit D hereto.
---------
<PAGE>
-19-
(ii) Bank shall have a right from time to time hereafter, upon
reasonable prior notice, to audit Borrower's Accounts at Borrower's expense,
provided that such audits will be conducted no more often than once every twelve
(12) months unless an Event of Default has occurred and is continuing.
6.4 Inventory Returns. Borrower shall keep all Inventory in good and
-----------------
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
reasonably satisfactory to Bank indicating that Borrower or a Subsidiary has
made such payments or deposits; provided that Borrower or a Subsidiary need not
make any payment if the amount or validity of such payment is (i) contested in
good faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
<PAGE>
-20-
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain a ratio of Quick Assets to
-----------
Current Liabilities (exclusive of deferred revenues), (i) as of the last day of
the calendar quarters ending September 30, 1998 and June 30, 1999, of at least
1.5 to 1.0, (ii) as of the last day of the calendar quarters ending December 31,
1998 and March 31, 1999, of at least 1.25 to 1.0, and (iii) intra-quarterly, as
of the last day of each calendar month, of at least 1.0 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain a Tangible Net
------------------
Worth, (i) as of the last day of the calendar quarter ending September 30, 1998,
of not less than SEVEN MILLION FIVE HUNDRED THOUSAND Dollars ($7,500,000), (ii)
as of the last day of the calendar quarters ending December 31, 1998 and March
31, 1999, of not less than SIX MILLION Dollars ($6,000,000), and (iii) as of the
last day of the calendar quarter ending June 30, 1999, of not less than SIX
MILLION FIVE HUNDRED THOUSAND Dollars ($6,500,000).
6.10 Liquidity. Borrower shall maintain, as of the last calendar day
---------
of each month, minimum Liquidity of at least TWO MILLION FIVE HUNDRED THOUSAND
Dollars ($2,500,000). Liquidity is defined as (i) cash on hand and cash
equivalents plus the Borrowing Base (without limit for purposes of this
calculation), less (ii) total outstanding Credit Extensions.
6.11 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following without Bank's prior written consent,
which consent shall be withheld or given in Bank's sole discretion, except with
respect to Section 7.2, where Bank's consent may not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of nonexclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business, (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business, or (iv) of worn-out
or obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business
-------------------------------------------------------
Locations. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a material change in Borrower's ownership or any three (3) of the
persons holding the positions of CEO, CFO, VP-Marketing, VP-Engineering and VP-
Customer Support as of the Closing Date cease to be employees of Borrower and
replacements
<PAGE>
-21-
reasonably satisfactory to Bank are not made within ninety (90) days from the
date such employees cease to be employees. Borrower will not, without at least
thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations; provided that
Borrower need not give Bank such notice with respect to sales offices with
equipment having a value, either per office or in the aggregate, that is
immaterial, and from which no invoices are billed or collected.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock other than payments in an aggregate amount not to exceed $200,000 made for
the repurchase of stock effected in connection with the termination of
employees.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrowers business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.9 Intellectual Property Agreements. Borrower shall not permit the
--------------------------------
inclusion in any material contract to which it becomes a party of any provisions
that would be reasonably likely to prevent the creation of a security interest
in Borrowers rights and interests in any property included within the definition
of the Intellectual Property Assets acquired under such contracts, except to the
extent that such provisions are necessary or in the best interests of Borrower
in Borrower's exercise of its reasonable business judgment.
7.10 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent; provided, that with
<PAGE>
-22-
respect to amendments that do not adversely affect Bank, Bank's consent shall
not be unreasonably withheld or delayed.
7.11 Collateral. Store the Collateral with a bailee, warehouseman,
----------
or similar party unless Bank has received a pledge of any warehouse receipt
covering such Collateral. Except for Collateral sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Collateral only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" or a company
----------
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply in all material respects with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could be reasonably likely
to have a Material Adverse Effect or a material adverse effect on the Collateral
or the priority of Bank's Lien on the Collateral; or permit any of its
Subsidiaries to do any of the foregoing.
7.13 Negative Pledge of Intellectual Property. Without Bank's prior
----------------------------------------
written consent which consent shall not be unreasonably withheld, sell,
transfer, assign, mortgage, pledge, lease, grant a security interest in, or
encumber any of Borrower's Intellectual Property Assets; provided, however, that
Bank hereby acknowledges that Borrower shall have the right to encumber its
Intellectual Property Assets in connection with sales or licenses of same to
customers in the ordinary course of business, including by way of example and
without limitation, the right to escrow its software in various circumstances on
behalf of Borrower's customers in the ordinary course of business, in
circumstances not constituting a Material Adverse Effect.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
---------------
Obligations.
8.2 Covenant Default.
----------------
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.6, 6.7, 6.8, 6.9 or 6. 1 0 or violates any of the covenants contained in
Article 7 of this Agreement, or
<PAGE>
-23-
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse
-----------------------
change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations, or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower is not able to pay its debts (including
----------
trade debts) as they mature, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within 30 days (provided that no Advances will be made
prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
----------------
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Fifty
Thousand Dollars ($150,000) or that could be reasonably likely to have a
Material Adverse Effect;
<PAGE>
-24-
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower, which is not covered by
insurance, and shall remain unsatisfied and unstayed for a period of thirty (30)
days (provided that no Credit Extensions will be made prior to the satisfaction
or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrowers premises, Borrower hereby grants Bank a license to
enter such premises and to occupy the same, without charge in order to exercise
any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;
<PAGE>
-25-
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a nonexclusive, royalty-free
license or other right, for the purpose of exercising Bank's rights hereunder,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrowers true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrowers name on any checks or other forms of payment or security that may come
into Bank's possession; (c) sign Borrowers name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 4.2, with
respect to the preservation of Bank's interests in the Collateral, regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrowers
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
<PAGE>
-26-
9.3 Accounts Collection. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable interest rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices and does not act with gross negligence or willful
misconduct, (i) Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof, (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever, and (ii) all risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrowers part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in
<PAGE>
-27-
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by a recognized overnight delivery service, by certified mail,
postage prepaid, return receipt requested, or by telefacsimile to Borrower or to
Bank, as the case may be, at its addresses set forth below; provided, however,
that the effectiveness of any of the provisions of this Agreement shall not
require notice to Borrower's legal counsel:
If to Borrower: MatrixOne, Inc.
Two Executive Drive
Chelmsford, MA 01824
Attn: Lisa Mastrangelo
FAX: (978) 452-6820
With a copy to: Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: Gordon H. Hayes, Jr., Esq.
FAX: (617) 248-7100
If to Bank: Silicon Valley Bank
40 William Street
Wellesley, m A 02481
Attn: Andrew Tsao
FAX: (781) 431-9906
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
-----------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. EACH OF BORROWER AND BANK ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK OR
BORROWER CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS,
BORROWER AND BANK EACH ACCEPT JURISDICTION OF THE COURTS AND VENUE IN SANTA
CLARA COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS ORA NY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
<PAGE>
-28-
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successor and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of Borrower to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank's obligations,
rights and benefits hereunder, and Bank shall provide Borrower with prompt
notice of any such event.
12.2 Indemnification. Borrower shall indemnify, defend, protect and
---------------
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
part in connection with the transactions contemplated by the Loan Documents; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by the
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys' fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated except by a writing signed by Borrower and Bank. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses,
<PAGE>
-29-
costs and liabilities described in Section 12.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.
12.8 Effectiveness. This Agreement shall become effective only when
-------------
it shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
MATRIXONE, INC. SILICON VAKKET BANK, doing business as
SILICON VALLEY EAST
By: /s/ Mark O'Connell By: /s/ Andrew H. Tsao
------------------------------- -----------------------------------
Mark O'Connell, President & CEO Andrew H. Tsao, VP
SILICON VALLEY BANK
By: /s/ Authorized Signatory
--------------------------
Title: Authorized Signatory
------------------------
(Signed in Santa Clara County,California)
<PAGE>
-30-
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired; and
(f) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.
Notwithstanding the foregoing, the Collateral shall not be deemed to
include any of Borrower's Intellectual Property Assets.
<PAGE>
-31-
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
-------------------------------------------
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
----------------------------------------------------
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_________________________
FAX #: (408)_______________ TIME: ____________________
FROM:___________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
_______________________________________________________________________________
AUTHORIZED SIGNATURE
FROM ACCOUNT #______________________TO ACCOUNT #___________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $_________________
PRINCIPAL PAYMENT (ONLY) $_________________
INTEREST PAYMENT (ONLY) $_________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________
OTHER INSTRUCTIONS:
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of December 29, 1998, as may be amended from time to time,
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Advance Request; provided,
however, that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- -------------------------------------
Authorized Requestor
__________________________________
Authorized Signature (Bank)
Phone #___________________________
- --------------------------------------------------------------------------------
<PAGE>
-32-
EXHIBIT C
---------
BORROWING BASE CERTIFICATE
--------------------------
<TABLE>
<CAPTION>
Borrower: MatrixOne, Inc. Bank: Silicon Valley Bank
Two Executive Drive 3003 Tasman Drive
Chelmsford, MA 01824 Santa Clara, CA 95054
Commitment Amount: $7,000,000
ACCOUNTS RECEIVABLE
<S> <C> <C> <C>
1. Accounts Receivable Book Value as of ________ $________
2. Additions (please explain on reverse) $________
3. TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days $________
5. Balance of 50% over 90 day accounts $________
6. Concentration Limits $________
7. Ineligible Foreign Accounts $________
8. Governmental Accounts $________
9. Contra Accounts $________
10. Promotion or Demo Accounts $________
11. Intercompany/Employee Accounts $________
12. Other (Please explain on reverse) $________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
14. Eligible Accounts (#3 - #13) $________
15. LOAN VALUE OF ACCOUNTS (80% OF #14) $________
BALANCES
16. Maximum Loan Amount $7,000,000
17. Total Funds Available (Lesser of #16 or #15) $________
18. Present balance owing on Line of Credit $________
19. Outstanding under Sublimits (Equipment Line - $1,000,000) $________
20. RESERVE POSITIVE (#17 minus #18 and #19) $________
</TABLE>
The undersigned represents and warrants that the foregoing is true,
complete and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement dated as of December 29, 1998, as may be amended
from time to time, between the undersigned and Silicon Valley Bank.
COMMENTS: ---------------------------------------
BANK USE ONLY
Rec'd By:______________________________
Date:__________________________________
Reviewed By:___________________________
Compliance Status: Yes / No
---------------------------------------
____________________________________
By:_________________________________
Authorized Signer
<PAGE>
-33-
EXHIBIT D
---------
COMPLIANCE CERTIFICATE
----------------------
Borrower: MatrixOne, Inc. Bank: Silicon Valley Bank
Two Executive Drive 3003 Tasman Drive
Chelmsford, MA 01824 Santa Clara, CA 95054
The undersigned authorized officer of MATRIXONE, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
dated as of December 29, 1998 between Borrower and Bank, as may be amended from
time to time (the "Agreement"), (i) Borrower is in complete compliance for the
period ending ________________ of all required conditions and terms except as
noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true, accurate and complete in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principals (GAAP) and are
consistent from one period to the next except as explained in an accompanying
letter or footnotes. The Officer further expressly acknowledges Borrower may
not request any borrowings at any time or date of determination that Borrower is
not in compliance with any of the terms of the Agreement, and that such
compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "`Complies"
column
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Borrowing Base Certificate and A/R Monthly within 30 days and semi-monthly within 30 Yes No
Agings days+
A/R Audit Initial and Annual Yes No
+ semi-monthly reporting required only when total outstanding advances exceed 60% of borrowing base.
Financial Covenants Required Actual Complies
- ------------------- -------- ------ --------
Maintain on a quarterly Basis:
Minimum Quick Ratio - 9/30/98 and 1.5:1.0 _________:1.0 Yes No
6/30/99
Minimum Quick Ratio - 12/31/98 and 1.25:1.0 _________:1.0 Yes No
3/31/99
Minimum TNW - 9/30/98 $7,500,000 $___________ Yes No
Minimum TNW - 12/31/98 and 3/31/99 $6,000,000 $___________ Yes No
Minimum TNW - 6/30/99 $6,500,000 $___________ Yes No
Maintain on a Monthly Basis -
Intraquarterly
Minimum Quick Ratio 1.0:1.0 _________:1.0 Yes No
Minimum Liquidity $2,500,000 $___________ Yes No
Comments Regarding Exceptions:
-----------------------------------------------
Sincerely, BANK USE ONLY
Rec'd By:______________________________
- ----------------------------------- Date:__________________________________
Signature Reviewed By:___________________________
Compliance Status: Yes / No
- ----------------------------------- --------------------------------------------------
Title
- -----------------------------------
Date
</TABLE>
<PAGE>
EXHIBIT 10.15
MATRIXONE, INC.
EMPLOYMENT AGREEMENT
This Agreement is executed as of this 14th day of April, 1998, by and
between James F. Morgan (the "Executive") and MatrixOne, Inc., a Delaware
corporation with a principal place of business at Two Executive Drive,
Chelmsford, MA 01824 (the "Company").
WHEREAS, the Company acknowledges the value and importance of past
contributions and future service on the part of the Executive, and believes it
to be to in the best interests of the Company and its stockholders to enter into
this Agreement and to provide for Executive's continued service to the Company
as hereinafter provided;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. Position and Responsibilities. From the date first set forth above
-----------------------------
through January 2, 2000 (the "Employment Term"), the Executive agrees to
continue to serve the Company as set forth herein:
(A) Initial Employment Period. From the date first set forth above
-------------------------
through June 30, 1998 (the "Initial Employment Period"), the Executive
agrees to serve and the Company agrees to retain the Executive as Corporate
Adviser of the Company. During the Initial Employment Period, the Executive
shall report directly to the Chief Executive Officer ("CEO"), and agrees to
devote one hundred percent (100%) of his business time, attention and
services to the Company's business.
(B) Part-Time Employment Period. From July 1, 1998 through January 2,
---------------------------
2000 (the "Part-Time Employment Period"), the Executive agrees to serve,
and the Company agrees to retain the Executive, as Corporate Adviser of the
-----------------
Company. During the Part-Time Employment Period, the Executive shall
perform such duties and undertake such projects as the CEO of the Company
may instruct and agrees to devote such amount of his professional time,
attention and services to the Company's business as the CEO may reasonably
request. It is expressly understood and agreed to that, because of the
distance between the Executive's home and the office headquarters of the
Company, during the Part-Time Employment Period the Executive shall perform
substantially all of his employment responsibilities off-site from the
Company's principal offices, and he may do so during the Initial Employment
Period to the extent authorized by the CEO. In addition, business
activities that the Executive wishes to engage in on his own time can be
undertaken at Executive's discretion during the Part-Time Employment
Period, subject to the restrictions
<PAGE>
-2-
of the Employee Secrecy, Non-Competition and Invention Agreement executed
by the Executive as of October 2, 1996 (the "Employee Secrecy Agreement").
2. Compensation: Salary, Bonuses and Other Benefits. During the term of
------------------------------------------------
this Agreement, the Company shall pay the Executive the following compensation,
including the following salary, bonus and other fringe benefits:
(A) Salary. In consideration of the services to be rendered
------
hereunder, the Company will pay to the Executive a monthly salary of
$13,750 during the Initial Employment Period and a monthly salary of $6,000
during the Part-Time Employment Period. The Executive's salary shall be
payable in conformity with the Company's customary practices for executive
compensation as such practices shall be established or modified from time
to time. Salary payments shall be subject to all applicable federal and
state withholding, payroll and other taxes, and may be increased from time
to time in conformity with the Company's customary practices for employee
compensation as such practices shall be established from time to time.
(B) Sale of the Adra Systems, Inc. Subsidiary Bonus. The Company
-----------------------------------------------
shall pay the Executive a bonus equal to one percent (1%) of the Net Cash
Proceeds (as such term is defined in Article Fourth, Paragraph E, Section
11 of the Company's charter) from a sale of the Adra Systems, Inc.
subsidiary if such sale is closed on or before December 31, 1998. If such
sale is closed after December 31, 1998 but before July 1, 1999, the Company
shall pay the Executive a bonus equal to one-half of one percent (.5%) of
the Net Cash Proceeds from such sale. All such bonus payments shall be
subject to all applicable federal, state and local withholding, payroll and
other taxes as required by law, and shall be paid by the Company within
thirty (30) days following the closing date of such sale.
(C) Fringe Benefits. The Executive will be entitled to be reimbursed
---------------
for all of his reasonable business-related travel expenses. The Executive
will also be entitled to participate on the same basis with all other
management employees in the Company's standard benefits package generally
available for all other officers and employees of the Company, with respect
to group health, disability and life insurance programs. The Executive
acknowledges, however, that the benefits (including without limitation
health care, life insurance, Section 401(k) Plan, and all other benefits of
any kind) available to him during the Part-Time Employment Period may
differ from those available during the Initial Employment Period by virtue
of his part-time employment status.
3. Stock Options. The Executive, together with the Company, is a party to
-------------
a certain Incentive Stock Option Agreement, dated September 30, 1996 (the
"Incentive Stock Option Agreement") for the grant of an option to purchase
250,000 shares (the "Options") of Common Stock of the Company at the price of
$2.00 per share under the 1996 Stock Plan of the Company. Individual members of
the Board of Directors of the Company have expressed their willingness to
consider, at the conclusion of the Employment Period, certain modifications to
the Options as follows:
<PAGE>
-3-
(A) upon the conclusion of the Employment Period, all Options not yet
exercisable would immediately become exercisable; and
(B) sixty (60) days following the last day of the Employment Period, any
Options that had not yet been exercised by the Executive would be converted
from incentive stock options to non-qualified stock options, exercisable
until September 30, 2006.
Any such arrangements or future modifications would be subject to taxation,
accounting, legal and other equitable concerns. In particular, if at the time
of such amendment the change(s) effected by such action would constitute a re-
grant of the Options for financial reporting purposes, the exercise price of
such Options would be set at the fair market value at the time of grant, such
that the Company would not incur a compensation-related charge to its income
statement. In addition, the foregoing is a statement of intent only, and does
not reflect any type of commitment on the part of the Company, the individual
directors of the Company, or the Board of Directors. The foregoing expression
of intent shall under no circumstances be deemed to be an amendment or
modification of the Options or of the terms and conditions of the Incentive
Stock Option Agreement as of this time.
4. Term. The term of this Agreement shall commence on the date first
----
above written and shall terminate on the earliest to occur of (i) January 2,
2000, (ii) the death or physical incapacity of the Executive, (iii) the
occurrence of any of the circumstances described in Section 5 hereof, or (iv) a
Change of Control, as defined herein, of the Company. For the purposes of this
Agreement, the Executive shall be deemed to have suffered physical incapacity if
the Executive is unable to perform his duties hereunder for any 90 work days out
of any 365-day period. For purposes of this section, physical incapacity shall
be defined as such term is defined under the Company's standard disability
insurance policy in effect from time to time for management employees of the
Company.
For purposes of this Agreement, a Change of Control shall be deemed to have
taken place if: (A) a change occurs in 50% of the presently existing members of
the Board (the "Incumbent Board"), except as approved by the Incumbent Board;
(B) any reorganization, merger or sale of all or substantially all of the assets
(other than a sale of the Adra Systems, Inc. subsidiary) of the Corporation
unless the Corporation's stockholders control (directly or indirectly) 60% or
more of the resulting entity and at least 50% of the resulting Board of
Directors is comprised of members of the Incumbent Board; or (C) a complete
liquidation or dissolution approved by the stockholders of the Corporation.
5. Termination. The Executive's term of employment under this Agreement
-----------
may be terminated pursuant to clause (iii) of the first sentence of Section 4 as
follows:
(A) At the Executive's Option: The Executive may terminate his
-------------------------
employment, with or without cause, at any time upon at least thirty (30)
days' advance written notice to the Company. In the event of termination at
the Executive's option, the Executive shall be entitled to no severance,
salary continuation, or other termination benefits after the expiration of
the thirty-day period referred to above.
<PAGE>
-4-
(B) At the election of the Company for Cause. The Company may,
----------------------------------------
immediately and unilaterally, terminate the Executive's employment
hereunder "for cause" at any time during the term of this Agreement without
any prior written notice to the Executive. Termination of the Executive's
employment by the Company shall constitute a termination "for cause" under
this Section 5(B) if such termination is for one or more of the following
causes, as found by the Board of Directors of the Company by a resolution
duly adopted by a majority of its members, excluding the Executive:
(i) the willful engaging by the Executive in misconduct which is
materially injurious to the Corporation, monetarily or otherwise;
(ii) disloyalty, gross negligence, dishonesty, breach of fiduciary
duty or breach of the terms of this Agreement;
(iii) the commission by the Executive of an act of fraud,
embezzlement or willful disregard of the rules or policies of the
Corporation; or the commission by the Executive of any other action with
the intent to injure materially the Corporation;
(iv) the conviction by the Executive of a felony; or
(v) the willful commission of an act which constitutes unfair
competition with the Corporation or which induces any customer of the
Corporation to breach a contract with the Corporation.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Corporation.
In the event of a termination "for cause" pursuant to the provisions
of clauses (i) through (v) above, inclusive, the Executive shall be
entitled to no salary continuation, bonuses, severance or other termination
benefits of any kind except as required by law.
6. Employee Secrecy, Non-Competition and Invention Agreement. Executive
---------------------------------------------------------
acknowledges that he is subject to the terms and conditions of the Employee
Secrecy Agreement. A material breach of the terms and conditions of the
Employee Secrecy Agreement shall be deemed a material breach of this Agreement.
7. Governing Law. This Agreement, the employment relationship
-------------
contemplated herein and any claim arising from such relationship, whether or not
arising under this Agreement, shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts and this Agreement
shall be deemed to be performable in Massachusetts.
<PAGE>
-5-
8. Severability. In case any one or more of the provisions contained in
------------
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed and reformed to the maximum extent permitted by law.
9. Waivers and Modifications. This Agreement may be modified, and the
-------------------------
rights, remedies and obligations contained in any provision hereof may be
waived, only in accordance with this Section 9. No waiver by either party of
any breach by the other or any provision hereof shall be deemed to be a waiver
of any later or other breach thereof or as a waiver of any other provision of
this Agreement. This Agreement sets forth all of the terms of the
understandings between the parties with reference to the subject matter set
forth herein and may not be waived, changed, discharged or terminated orally or
by any course of dealing between the parties, but only by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
10. Assignment. The Executive acknowledges that the services to be
----------
rendered by him hereunder are unique and personal in nature. Accordingly, the
Executive may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Company.
11. Notices. All notices hereunder shall be in writing and shall be
-------
delivered in person or by overnight delivery service or mailed by certified or
registered mail, return receipt requested, addressed as follows:
If to the Company, to: MatrixOne, Inc.
Two Executive Drive
Chelmsford, MA 01824
Attention: Mark O'Connell
If to the Executive, at the Executive's address set forth on the signature
page hereto.
12. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13. Section Headings. The descriptive section headings herein have been
----------------
inserted for convenience only and shall not be deemed to define, limit, or
otherwise affect the construction of any provision hereof.
14. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the parties relating to the subject matter hereof and, with the exception of
the Employee Secrecy Agreement and the Incentive Stock Option Agreement,
supersedes and cancels all agreements, written or oral, made prior to the date
hereof between the Executive and the Company relating to employment, salary,
bonus, or other compensation of any description, equity participation,
<PAGE>
-6-
pension, post-retirement benefits, severance or other remuneration, including
without limitation the Executive Severance Agreement, dated as of November 5,
1996, executed between the Company and the Executive (collectively, the
"Superseded Agreements"). Executive waives any rights or claims he may have or
which may have arisen under any and all of the Superseded Agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-7-
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written as an instrument under seal.
MATRIXONE, INC.: EXECUTIVE:
/s/ Mark F. O'Connell /s/ James F. Morgan
- ----------------------- -------------------------------
James F. Morgan
By: Mark F. O'Connell James F. Morgan
------------------ -------------------------------
Signature
Title: CEO
---------------
20 Elmwood Road
-------------------------------
Street Address
Marblehead, MA 01945
-------------------------------
City State Zip Code
<PAGE>
EXHIBIT 10.16
December 10, 1998
Mr. Maurice L. Castonguay
30 Hunter Lane
Canton, MA 02021
Dear Moe:
I am very pleased to extend an offer to you for the position of Vice
President of Finance & Administration and Chief Financial Officer reporting to
me.
Your starting base salary will be $14,583.33 per month, which is equivalent
to $175,000 per year. Additionally, you will be eligible to participate in the
FY `99 Executive Bonus Program. This is valued at up to $35,000.
The Company has agreed to guarantee payment of the full $35,000 FY '99
bonus on July 1999 provided you have active employment status at the time of
payment. The Bonus will still be payable to you in full in the event you are
not in active employment if there has been a "Change of Control," as defined
hereunder, prior to June 30, 1999. Future bonus payments will be contingent
upon successfully meeting mutually agreed objectives, satisfactory performance
and an active employment status at the time of scheduled payment.
Upon your date of hire, you will be granted Incentive Stock Options to
purchase 100,000 shares of MatrixOne common stock. The current fair market
value of the stock has been determined to be $2.00 per share. These options
will begin vesting upon your date of hire. These options vest quarterly in 16
equal installments over a four-year period. Regardless of any other Company
benefit, all unvested options will become fully vested upon a "Change of
Control" of MatrixOne.
In addition, you will receive a one-year severance package at target
compensation (base salary plus target bonus), including all customary Executive
benefits, in the event of a Change of Control. If you are not removed from
office following a Change of Control, you will have the ability to voluntarily
terminate your employment for "good reason" within 18 months of the Change of
Control, as defined herein and receive the lump-sum payment for the one-year
severance package on your last day of employment.
Enclosed is information that outlines the benefits that are offered at
MatrixOne, Inc. In addition to the benefits outlined there, you will become a
participant in the Executive Benefit Program entitled Section 105. This program
will reimburse you for any expenses that would normally not be covered at 100%
under regular plan limits (i.e., orthodontia, co-payments, etc.).
As a condition of employment, you will be required to sign MatrixOne's
Employee Secrecy, Invention and Non-Competition Agreement. You must also
represent to the Company that your employment by the Company shall not cause you
to use, distribute, or in any other way disclose any confidential or proprietary
information or material from your former employer or any third party.
<PAGE>
-2-
You will also be required to provide documentation to verify your
employment eligibility in the United States. Enclosed please find a list of
acceptable documents you will need to have with you on the first day of
employment.
For purposes of this Agreement, a "Change of Control" shall occur only in
the event of the occurrence of one or more of the following:
(a) Beneficial Ownership: Any "person" as such term is used in Sections
13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company), is or becomes the
"beneficial owner" (as define din Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities;
(b) Merger or Consolidation: The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than: (i) A merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than a
majority of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) A merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquired more than 50%
of the combined voting power of the Company's then outstanding
securities; or
(c) Liquidation or Sale of Assets: The stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets.
For purposes of this Agreement, "Good Reason" means, without your written
consent, the occurrence within 18 months after a Change of Control of any of the
following circumstances:
(a) The assignment to the Employee of any duties inconsistent with the
highest position in the Company that the Employee held at any time
during the 90-day period immediately preceding the initiation of the
discussions leading to the Change of Control of the Company, or a
significant adverse alteration in the nature or status of the
Employee's responsibilities or the conditions of the Employee's
employment from those in effect at any time during the 90-day period
immediately preceding such Change in Control. For purposes of this
provision, the mere occurrence of any event that would constitute a
Change of Control would constitute Good Reason.
<PAGE>
-3-
(b) A reduction in your annual base salary as in effect at the date of
this agreement or increased during the term of your employment;
(c) The failure by the Company to continue any benefit or compensation
plan including bonus plans, investment or retirement plan, life
insurance plan, health-and-accident plan or disability plan,
applicable to you at the time of the Change of Control (or plans or
self-insurance providing you with substantially similar benefits), the
taking of any action by the Company which would adversely affect your
participation in or which would materially reduce your benefits under
any of such plans or deprive you of any material fringe benefit you
enjoyed at the time of the Change of Control, or the failure by the
Company to provide you with the number of paid vacation days to which
you are then entitled in accordance with the Company's normal vacation
policy in effect immediately prior to the Change of Control;
(d) Any requirement by the Company or any person in control of the Company
that the location at which you perform your principal duties for the
Company be outside a radius of 50 miles from the location at which you
performed such duties immediately prior to a change in control;
(e) The failure of the Company to obtain an agreement from any successor
to assume and agree to perform the Agreement, as contemplated herein.
I am very excited about the future of MatrixOne, Inc. and I look forward to
working with you.
You agree, in consideration of the various rights and benefits afforded to
you hereunder, that for a one-year period following your last day of employment
with the Company (however such employment ceases), that you will not be employed
by or offer consulting or other services to Parametric Technology Corporation or
Inso Corporation or any affiliate of either of such corporations (unless either
of such corporations acquires the Company).
Sincerely,
/s/ Mark F. O'Connell
Mark F. O'Connell
President & CEO
cc: Mary de St. Croix
Offer accepted by: /s/ Maurice L. Castonguay January 11, 1999
-------------------------- ----------------
Signature Start Date
<PAGE>
Exhibit 10.18
Matrix One
EMPLOYMENT AGREEMENT
--------------------
The undersigned:
The private company with limited liability to be incorporated: MxONE B.V., to be
----------
seated and with its place of business at Utrecht, The Netherlands, hereinafter
referred to as "the Company", in this respect represented by its incorporator
Matrix One, Inc., with registered office in Chelmsford, Massachusetts (United
States of America), which company is represented by: Mark F. O'Connell,
President & CEO;
and,
HANS RUIGROK, residing, at Jan Toebacklaan 10, (1401 CW) Bussum, The
- ------------
Netherlands, hereinafter to be referred to as "the Employee",
Whereas;
- --------
1. As per July 15, 1998 the Employee will be appointed as Vice President
European Sales and as such as member of the Board of statutory managing
directors ("statutair directeur") of the Company;
2. The Employee will also be appointed as per July 15, 1998 as:
Corporate Secretary of MatrixOne, Limited (United Kingdom)
Gernat of MatrixOne Sarl (France)
Geschaftshfuher of MatrixOne GmbH (Germany); and
Managing Director of MxOne B.V. (The Netherlands)
3. The parties wish to set forth their respective rights and obligations in
this agreement;
declare to have agreed as follows:
- -------
1.0 Function
--------
1.1 The Employee enters into the employment of the Company as Vice President
European Sales and statutory managing director starting on July 15, 1998
and reporting to the President and CEO of Matrix One, Inc., at present Mark
F. O'Connell.
<PAGE>
1.2 As per July 15, 1998 the Employee will also be appointed:
. Corporate Secretary of MatrixOne, Limited (United Kingdom)
. Gernat of MatrixOne Sarl (France)
. Geschaftshfuher of MatrixOne GmbH (Germany); and
. Managing Director of MxOne B.V. (The Netherlands)
in which capacity the Employee will be responsible for all sales related
activity and general day-to-day business activity reporting to the
President and CEO of Matrix One, Inc., at present Mark F. O'Connell.
1.3 The Employee will divide his working, time equally among the Dutch, French,
U.K. and German companies as mentioned in articles 1.1 and 1.2. The
respective companies will provide the Employee with an office and adequate
secretarial assistance.
2.0 Rights and obligations
----------------------
2.1 As general and statutory managing director of the Company the Employee has
all rights and obligations as laid down in the Articles of Association of
the Company and any and all instructions that may be adopted by the
Company. The Employee shall furthermore have such duties as may be
assigned from time to time by the Company.
2.2 The Employee shall further the interests of Company to the utmost of his
powers, skill and ability.
3.0 Duration of the employment
--------------------------
3.1 This agreement is entered into for an indefinite period of time but may be
terminated by either party with observance of a notice period of three
months.
3.2 This agreement shall terminate in any event, without notice being required,
on the first day of the month following the month in which the Employee
reaches the age of 65 years.
3.3 On the termination of the employment, howsoever arising, the Employee shall
be deemed ipso facto to have resigned from all offices, including the
functions as mentioned in article 1.1 and 1.2 and including membership of
the Board of Statutory Managing Directors that he holds with the Company or
any Associated Company and hereby appoints the Company his attorney to
execute all documents in his name and on his behalf to give effect to such
resignation.
<PAGE>
3.4 The Company will be entitled, if in its opinion the interests of the
Company make such desirable, to suspend the Employee with immediate effect
during a period of time not exceeding 3 months, except in case of extension
of that term till the end of the employment, in Case notice of termination
of the employment has been given during that period.
4.0 Salary and fringe benefits
--------------------------
4.1 The Employee shall receive a salary before taxes (gross, in Dutch: "bruto
salaris") of NLG 270,000. (Euro 122,520.66) = per year, payable in arrears
of twelve equal installments. This salary includes an 8% holiday
allowance. The salary is subject to an annual review by the General
Meeting of Shareholders of the Company.
4.2 The salary will be paid by the Company. The Company will pass on
separately the French, U.K. and German subsidiaries as mentioned in article
1.2 such part of the salary as can be attributed to the services of the
Employee for those companies. As of the commencement of this agreement NLG
200,000 .(Euro 90,756.04) will be attributable to the Company, NLG 25,000
.(Euro 11,344.50) will be attributable to MatrixOne Limited, NLG 25,000
.(Euro 11,344.5) will be attributable to MatrixOne Sarl and NLG 20,000
.(Euro 9,075.60) will be attributable to MatrixOne GmbH. For this purpose
this agreement will also be signed on behalf of the French, U.K. and German
companies in Appendix 2.
Additional costs and foreign taxes involved with salary-payments outside
the Netherlands will be accounted to the Employee.
4.3 The Company shall provide the Employee with a reimbursement for out of
pocket expenses up to an amount that can be paid net under Dutch tax law,
with a maximum of NLG 600. (Euro272.26) = net per month.
4.4 The Employee will be eligible to participate in a commission program each
year. The current annualized commission payments upon attainment of the
Company's revenue objectives shall total NLG 180,000.(Euro 81,680.43)=
gross per fiscal year (July 1 to June 30). This amount will be attributed
to the French, U.K. and German companies, and the Company will be
reimbursed by those companies for these portions, on the basis of the
allocation as prescribed in Article 4.2. As of the commencement of this
agreement NLG 133,333 .(Euro 60,503.88) will be attributable to the
Company, NLG 16,667 .(Euro 7,563.15) will be attributable to MatrixOne
Limited, NLG 16,667 .(Euro 7,563.15) will be attributable to MatrixOne Sarl
and NLG 13,333 .(Euro 6,050.25) will be attributable to MatrixOne GmbH.
<PAGE>
For this purpose this agreement is also signed by the three companies.
Commission payments will be paid as a percentage against revenue and paid
monthly as revenue is recognized by the Company. These commissions will
not be subsequent to the holiday allowance. Whereas the revenue objectives
for the company will fluctuate from year to year, the objectives for the
commission will be defined on or before July 1 of each year and attached
hereto as Appendix 1.
As from July 15, 1998 to November 15, 1998, instead of flexible
commissions, a fixed non-recoverable advance will be paid to the Employee
of NLG 60,000.(Euro 27,226.8 1) = gross total (100 % of 4/12th's of annual
commissions) paid in monthly installments of NLG 15,000.(Euro 6,806.70)=
gross. This payment is farther defined in Appendix 1.
4.5 As of July 15, 1998 the Employee will be eligible, upon approval of the
MatrixOne Inc. Board of Directors, to buy 92,000 stock options at a price
of US $ 2.00= per option on shares in MatrixOne Inc. The stock options may
only be exercised by the Employee and under the conditions as set forth in
the Matrix One option scheme that will be provided to the Employee
separately.
4.6 The Employee shall be entitled to a vacation of 25 working days per year.
The Employee shall not carry forward any unused part of his vacation
entitlement past the first quarter of the subsequent year. Any vacation
not taken within the first quarter of the subsequent year is forfeited and
shall not be compensated. The Employee in taking his vacation shall take
into account the interests of the Company.
5.0 Expenses and car
----------------
5.1 Reasonable expenses, made by the Employee while business wise performing
his functions, shall be reimbursed by the Company upon submittal of
supporting vouchers, insofar these cost are not covered by the allowance as
mentioned in article 4.3.
5.2 The Company will provide the Employee with a mobile phone, in order to
enable the Employee to perform his functions. This phone will at all times
remain the absolute property of the Company. Employee may only use this
phone for business purposes. Taxes due as a result of use for (deemed)
private purposes are for the account of the Employee. The costs regarding
calls made by use of the private telephone of the Employee for business
purposes shall be reimbursed by the Company insofar those costs are
reasonable and the reimbursements will not be considered wage of tax
purposes.
5.3 The Company will provide the Employee with a laptop, NEC Versa 5060 or
similarly equipped machine, in order to enable the Employee to perform his
<PAGE>
functions. This laptop will at all times remain the absolute property of
the Company.
5.4 The Company will lease a suitable car for the Employee, in order to enable
the Employee to perform his functions. The lease price for this car will
be NLG 2,800.(Euro 1,270.58) = per month. The lease agreement, in which
fuel and/or gas is not included, will be based upon 40,000 kilometers per
year. The Employee is allowed to use the car for private purposes up to a
maximum of 10,000 kilometers per year. The Company will compensate the
Employee for fuel and/or gas for the kilometers the Employee used the car
while business wise performing, after receipt by the Company of the
bills/accounts in question.
5.5 The allowances and goods (mobile phone, lap top and car) mentioned in
article 5.2, 5.3 and 5.4 will be withdrawn 'in the following events:
(i) suspension as of the day of such suspension;
(ii) summary dismissal as of the day of such dismissal;
(iii) termination of the agreement by the Employee or the Company as of
the day that notice was given;
(iv) illness of the Employee for a period longer than 6 (six) months; at
all times without the right of compensation.
6.0 Insurances
----------
6.1 The Employee will take care of his own illness costs insurance. The
Company will reimburse the Employee for these costs up to a maximum of 50%
of the total gross cost per month,
7.0 Pension
-------
7.1 The Company and the Employee will enter into a Pension agreement
separately. The contribution of the Company to the premium will be 12% of
the salary as mentioned in article 4.1 or such lower amount as acceptable
for the Dutch tax authorities in the case the 12% contribution will not be
accepted by the Dutch tax authorities. Two third of the premium will be
for the Company's account and one third for the Employee's account.
7.2 The Employee at free can take part in the collective Employee Saving
Arrangements (in Dutch: "premiespaar- en spaarloonregeling) that the
Company will enter into.
<PAGE>
8.0 Incapacity to work
------------------
8.1 In case of incapacity to work of the Employee, as defined in the Sickness
Insurance Act ("Ziektewet"), the Employee is entitled to wages according to
the Dutch Civil Code ("Burcelijk Wetboek"), Article 7:629.
The Employee shall be bound to observe the regulations in the Dutch Civil
Code, the Sickness Insurance Act and the Industrial Disability Insurance
Act ("Wet op de Arbeidsongeschiktheidsverzekering") as well as other
relevant legislation. If and for as long the Employee fails to observe
this legislation and the Company's instructions, the Company shall be
authorized to suspend payment during incapacity. Within a reasonable
period after the suspension has arisen that the Employee violates the
instructions, the Company shall inform the Employee in writing of the
suspension and the grounds for it.
8.2 The Employee shall not be entitled to the wages as mentioned under Article
8.1 if the illness was intentionally caused by himself or if it is the
result of a defect about which he provided false information during the
medical examination prior to his appointment.
8.3 The Employee will take care of his own supplementary disability insurance
(in Dutch: "WAO-gat"-verzekering). The premium is for the Company's
account.
9.0 Duty of secrecy
---------------
9.1 The Employee shall, both during the term of this Agreement and after this
Agreement has been terminated for whatever reason, refrain from disclosing
in any manner to whomsoever (including to other members of the Company's or
any of its associated companies' staff, unless such staff members must be
informed in connection with their work for the Company or any of its
associated companies and in such event only upon the expressed
authorization of the Company) any information of a confidential nature
concerning the Company or any of its associated companies which has become
known to the Employee as a result of his employment with the Company and
with respect to which information the Employee knew or should have known
the confidential nature.
9.2 In the event the Employee breaches the obligations pursuant to Article 9.1,
the Employee shall, and it has been determined that a breach has occurred,
forfeit to the Company liquidated damages for each breach thereof,
amounting to three times the Employee's most recent monthly salary before
taxes, without prejudice to the Company's rights to claim actual damages
instead of liquidated damages.
<PAGE>
10.0 Documents
---------
10.1 The Employee shall not have or keep in his private possession any documents
or correspondence or copies thereof in any manner whatsoever, that are
available to the Employee as a result of his employment, except in so far
as and for as long as necessary for the performance of his work for the
Company. In any event the Employee shall, promptly and without the need
for any request to be made in this regard, return to the Company any and
all such documents, correspondence or copies thereof at the termination of
the employment or at the retirement of the Employee for whatever reason
from active duty.
11.0 Non-competition during employment and no additional occupation
--------------------------------------------------------------
11.1 The Employee shall during the term of this Agreement not be engaged or
involved in any manner whether for payment or for his own account in
activities in a field similar to or otherwise competing with that of the
Company or any of its associated companies.
11.2 The Employee shall refrain from accepting compensation or payment for
activities or occupations other than pursuant to this Agreement without the
prior written consent of the Company.
12.0 Non-competition
---------------
12.1 The Employee shall during the ten-n of this Agreement and during a term of
one year after this Agreement has terminated not be engaged or involved in
any manner, directly or indirectly, whether for the account of the Employee
or for the account of others, in any enterprise carrying on activities in a
field similar to or otherwise competing with, the Company or any of its
associated companies nor act as intermediary in whatever manner directly or
indirectly, nor have, directly or indirectly, any contact with clients or
potential clients of the Company.
12.2 In the event the Employee shall breach the obligations as expressed in
Article 12.1, the Employee shall forfeit liquidated damages for every such
breach to the extent of four time the Employee's most recent monthly salary
before taxes, plus US$ 5,000. = for each day such breach continues after
notice of the discovery thereof has been given by the Company, without
prejudice to the Company's right to claim actual damages instead of
liquidated damages.
13.0 Inventions
----------
13.1 If at any time during the course of the Employment the Employee should
either alone or jointly make, invent or discover any know-how, invention,
formula,
<PAGE>
process, improvement, copyright, mask work right, topography right, design,
plan, drawing or device, hereinafter referred to as: "(the/a) Right", which
relates to or is useful in connection with any process, product or activity
carries on, made or then dealt in by the Company, its subsidiaries or any
associated company ("an Invention") he shall forthwith communicate such
details thereof to the Board in writing as the Board may direct. All
inventions shall be regarded at any time and for all purposes as made by
the Employee for and on behalf of the Company in addition to article 7 of
the "Auteurswet" (copy right law).
13.2 The Employee shall put all Inventions, including these which are not
eligible for a Right, which he may make by himself or in collaboration with
others during the time of his Employment (within or outside working hours)
for now and as of the day of new inventions at the disposal of the Company.
13.3 With respect to such invention the Employee shall:
(i) treat all relevant information confidentially in compliance with
article 9 hereof;
(ii) keep full and accurate records thereof which records shall be the
property of the Company;
(iii) sign relevant Rights applications and any other documents which the
Company may propose for the Netherlands and for all other countries
to protect such inventions and render any reasonable assistance to
the Company or its proxies or counselors when drafting such
applications or documents;
(iv) sign from time to time at the request and at the expense of the
Company, without any additional remuneration in excess of what he is
entitled to hereunder, all transfer deeds or other documents
required for the transfer and granting to the Company of the
inventions and the Right and the Right applications in respect of
such inventions on behalf of the protection of the rights and
interests of the Company;
(v) act as witness in actions and law suits in respect of such
inventions;
(vi) refrain from applying for a right in respect thereof, even if the
Company wished to keep such inventions a secret or decides for
whatever reason not to apply for a Right.
The Company shall pay to the Employee a reasonable hourly allowance for all
time actually spent on activities hereinbefore specified at the request of
the
<PAGE>
Company in so far as such work is done after termination of the Employee's
employment.
13.4 The Company shall have no liability to account to the Employee for any
revenue or profit derived or resulting from any invention belonging to the
Company.
14.0 No gifts
--------
14.1 The Employee shall, without the prior consent of the Company during the
term of this Agreement, not accept or stipulate in connection with the
performance of the duties of the Employee any commission, favour,
compensation, or gifts in whatever form, in any manner, directly or
indirectly, from customers, suppliers or other third parties.
14.2 The provision of this Article 14 does not apply to the customary business
gifts of small value.
15.0 Moving
------
15.1 If so requested by the Company the Employee is willing to work at any
location of the Company or affiliated companies, including locations abroad
if and sofar necessary for the proper discharge and fulfillment of his
duties, within reasonable limits and all in consensus between the Employee
and the Company.
16.0 Alterations
-----------
16.1 Alterations in this Employment Agreement can only be made in writing and as
far as the Company is concerned only after a decision to that effect by the
competed body of the Company.
17.0 Applicable law
--------------
17.1 This Agreement is governed by the law of The Netherlands.
17.2 All disputes arising in connection with this Agreement or further
agreements resulting therefrom shall be submitted in first instance to the
exclusive jurisdiction of the Amsterdam District Court.
Thus agreed and executed at Chelmsford, MA on July 15, 1998.
/s/ Hans Ruigrok
__________________________________ --------------------------------------
MxONE B.V. Hans Ruigrok
/s/ Mark F. O'Connell
__________________________________ -------------------------------------
MatrixOne, Inc. Mark F. O'Connell
<PAGE>
Appendix 2
In conjunction with the employment agreement established between Mr. Hans
Ruigrok and MatrixOne, Inc., the incorporator of MxONE B.V., on July 15, Mr.
Ruigrok will be appointed as Vice President European Sales and as such as member
of the Board of statutory managing directors ("statutair directeur") of the
MxONE B.V.;
The Employee will also be appointed as per July 15, 1998 as:
. Corporate Secretary of MatrixOne, Limited (United Kingdom)
. Gernat of MatrixOne Sarl (France)
. Geschaftshfuher of MatrixOne GmbH (Germany); and
As referenced in Article 4.1 the salary will be paid by MxONE B.V., which will
pass on separately the French, U.K. and German subsidiaries as mentioned in
Article 1.2 such part of the salary as can be attributed to the services of the
Employee for those companies. As of the commencement of this agreement, NLG
25,000 (Euro 11,344.50) will be attributable to MatrixOne Limited, NLG 25,000
(Euro 11,344.50) will be attributable to MatrixOne Sarl and NLG 20,000 (Euro
9,075.60) will be attributable to MatrixOne GmbH.
Additional costs and foreign taxes involved with salary-payments outside the
Netherlands will be accounted to the Employee.
As referenced in Article 4.4 the Employee will be eligible to participate in a
commission program each year upon attainment of the Company's revenue
objectives. This amount will be attributed to the French, U.K. and German
companies, and the Company will be reimbursed by those companies for these
portions. As of the commencement of this agreement, NLG 16,667 (Euro 7,563.15)
will be attributable to MatrixOne Limited, NLG 16,667 (Euro 7,563.15) will be
attributable to MatrixOne Sarl and NLG 13,333 (Euro 6,050.25) will be
attributable to MatrixOne GmbH.
Thus agreed and executed at Chelmsford, MA on July 15, 1998.
/s/ Hans Ruigrok
__________________________________ --------------------------------------
MxONE B.V. Hans Ruigrok
/s/ Mark F. O'Connell
__________________________________ --------------------------------------
MatrixOne, Inc. Mark F. O'Connell
__________________________________ ______________________________________
MatrixOne GmbH. Klaus Eberlein
<PAGE>
__________________________________ ______________________________________
MatrixOne, Sarl. Frederic Baudasse
__________________________________ ______________________________________
MatrixOne, Ltd. Paul Chapman
<PAGE>
Hans Ruigrok
ATTACHMENT A
------------
FY99 MatrixOne Vice President, European Sales
Territory, Goal and Quota Assignment Form
- --------------------------------------------------------------------------------
Section 1: Annualized Compensation
============================================================
Software Services Total
------------------------------------------------------------
Base Salary N/A N/A $135,000
Commission Target $72,000 $18,000 $ 90,000
Bonus Target $60,000 N/A $ 60,000
Total Compensation $132,000 $18,000 $285,000
--------------------- ---------- ---------- -----------
Paid in NLG, approx. conversion rate is $1 = 2 NLG
============================================================
________________________________________________________________________________
Section 2: Territory Assignment
All of Europe, the Middle East and Africa.
________________________________________________________________________________
Section 3: Revenue Quota Assignment for Fiscal Year 1999
================================================================================
Product Type Q1 (15%) Q2 (25%) Q3 (27%) Q4 (33%) Total
- --------------------------------------------------------------------------------
Software $1,875,000 $3,125,000 $3,375,000 $4,125,000 $12,500,000
Service $712,839 $985,724 $1,280,953 $1,520,484 $4,500,000
================================================================================
________________________________________________________________________________
Section 4: Software Incentive Target Structure:
Incentive for achieving 0-100% of quota is paid as a % of goal. Incentive
for achieving 101%+ of quota is paid as a commission rate against the net
value of the sale.
<TABLE>
<CAPTION>
==================================================================================================
Quota Attainment Incentive Approximate Commission Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1/st/ Incentive rate for 0-50%: .67% of goal amount .39% of net sales amount
2/nd/ Incentive Rate for 51-100%: 1.33% of goal amount .77% of net sales amount
Over 101%: 1.15% of net sales amount 1.15% of net sales amount
==================================================================================================
</TABLE>
________________________________________________________________________________
Section 5: Service Incentive Target Structure:
Incentive for selling service components is paid as a commission rate
against the net value of the sale:
===================================================
Service Sales .40% of net sales amount
===================================================
________________________________________________________________________________
Section 6: Special Incentive Bonus
================================================================================
<PAGE>
Bonus Value Payable Upon
- --------------------------------------------------------------------------------
Year End Achievement $60,000 Booking $12.0M in software revenue by the
close of Q4-FY99 earns a $60,000 bonus.
________________________________________________________________________________
Section 7: Presidents Club:
To be eligible participants must achieve 100% of the assigned software quota.
________________________________________________________________________________
Section 8: Acknowledgements
I have read, reviewed and accept the above assignment and the conditions of the
FY99 MatrixOne, Inc. Vice President, European Sales Compensation Plan.
------------------------------------------------
/s/ Hans Ruigrok /s/ Mark F. O'Connell
- --------------------------------------- ---------------------------------------
Hans Ruigrok Date Mark F. O'Connell Date
Vice President, European Sales President & CEO
/s/ Christine R. Myers 3/11/99 /s/ Mary de Ste. Croix 3/11/99
- --------------------------------------- ---------------------------------------
Christine R. Myers Date Mary de Ste. Croix Date
Manager, Compensation & Benefits Vice President, Human Resources
<PAGE>
Exhibit 10.19
MATRIXONE
December 7, 1999
Brian Gallagher
10613 Deerpath Road
Woodstock, IL 60098 Mailed via overnight to: LoonLand Trading Co.,
207 Front Street
Manacqua, WI 54543
Attn: Brian Gallagher
Dear Brian:
I am pleased to extend an offer to you for the position of Vice President of
Sales, the Americas, reporting to me. As a member of the executive staff and as
a corporate officer of the company, you will be in a position to leverage your
experience to help establish MatrixOne as the leader in our industry.
Your starting base salary will be $14,583.33 per month which is equivalent to
$175,00 per year. As Vice President of Sales, the Americas, you will also
participate in the Matrix One Sales Compensation Plan. On-target compensation
will be $350,000 based on a $175K base and a $175K variable. For the first six
months of employment, your on target earnings will be paid/guaranteed.
Over-achievement of quota during this time will be incremental to your
compensation plan. You and I will determine the appropriate quota upon your
arrival on July 1.
You will be eligible to receive a significant stock ownership position with
MatrixOne. Upon approval of the Board of Directors you will receive stock
options in the amount of 100,000 shares. These options will begin vesting upon
your date of hire. The options will vest quarterly and will be 100% vested at
the completion of a four-year period.
In addition to the above, please note that this offer also includes a six-month
severance based upon on-target earnings. Health insurance and other standard
benefits would apply during this period.
Enclosed is information that outlines the benefits that are offered at
MatrixOne, Inc. In addition to the benefits outlined, you will become a
participant in the Executive Benefit Program entitled Section 105. This program
will reimburse you for any expenses that would normally not be covered at 100%
under regular plan limits (i.e. orthodontia, co-payments, etc.).
<PAGE>
As a condition of employment, you will be required to sign MatrixOne's Employee
Secrecy, Invention and Non-Competition Agreement. You must also represent to
the Company that your employment by the Company shall not cause you to use,
distribute, or in any way other way disclose any confidential or proprietary
information or material from your former employer or any third party.
You will also be required to provide documentation to verify your employment
eligibility in the United States. Enclosed please find a list of acceptable
documents you will need to have with you on your first day of employment.
Brian, I am very excited about your joining the executive team, and I look
forward to your contribution in helping to establish MatrixOne as the industry
leader.
Sincerely,
/s/ Mark F. O'Connell
- ----------------------------
Mark F. O'Connell
President & CEO
cc: Human Resources
Offer Accepted By: /s/ Brian M. Gallagher 6/4/99
--------------------------------------
Signature Date
July 1, 1999 or before
--------------------------------------
Start Date
<PAGE>
Exhibit 10.20
MATRIXONE
December 5, 1997
Mr. Stephen P. Dunn
10 Starr Avenue West
Andover, MA 01810
Dear Steve:
I am very pleased to extend an offer to you for the position of Vice
President of Alliances reporting to me.
Your starting base salary will be $10,416.67 per month, which is equivalent
to $125,000 per year. You will be eligible to participate in a calendar year
bonus plan valued at $35,000. This bonus plan will be structured around your
ability to meet quarterly objectives. The bonus will be paid out in quarterly
($6,250) and annual installments ($10,000). Mutually agreeable objectives will
be set for you shortly after you commence employment with MatrixOne, Inc.
Upon approval of the Board of Directors, you will also be eligible to
receive a stock option in the amount of 45,000 shares. The next board meeting is
scheduled for early January, I do not foresee any issue surrounding approval of
your option. After approval of the board, this option will begin vesting upon
your date of hire. In the event of a change of control of MatrixOne, these
options will immediately become 100% vested.
Enclosed is a brief overview of some of the comprehensive benefits that are
offered at MatrixOne, Inc. In addition to the benefits outlined here, you will
become a participant in the executive benefit program entitled Section 105. This
program will reimburse you for any expenses that would normally not be covered
at 100% under regular plan limits (i.e. orthodontia, co-payments, etc.).
As a condition of employment, you will be required to sign MatrixOne's
Employee Secrecy, Invention and Non-Competition Agreement. You must also
represent to the Company that your employment by the Company by shall not cause
you to use, distribute, or in any other way disclose any confidential or
proprietary information or material from your former employer or any third
party. In addition, you are obligated not discuss the terms and conditions of
this offer with anyone other than myself or a representative from the Human
Resources Department.
You will also be required to provide documentation to verify your
employment eligibility in the United States. Enclosed please find a list of
acceptable documents you will need to have with you on your first day of
employment.
<PAGE>
I am very excited about the future of MatrixOne, Inc. and look forward to
you joining our team. This offer is contingent upon an acceptance in writing by
Monday, December 8, 1997.
Sincerely,
/s/ Mark F. O'Connell
- -----------------------------
Mark F. O'Connell
President & CEO
Enclosure
Offer accepted by: /s/ Stephen P. Dunn 12/11/97
------------------------------- --------
Signature Date Start Date
<PAGE>
EXHIBIT 21.1
MatrixOne Subsidiaries
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Name
----
Subsidiary Incorporation & Location
- ------------------------ ----------
Germany MatrixOne Information Systems GmbH
Fraunhoferstrasse 7
D-85737 Ismaning
Germany
PH: +49 (0) 89-960948-0
FX: +49 (0) 89-960948-99
- -------------------------------------------------------------------------------
France MatrixOne SARL
Espace Technologique de Saint-Aubin
Immeuble Apollo
SAINT-AUBIN,
91195 GIF sur Yvette Cedex
France
PH: +33-1-69-33-1970
FX: +33-1-69-41-8293
- -------------------------------------------------------------------------------
United Kingdom MatrixOne Limited
Knyvett House, The Causeway
Staines
Middlesex TW18 3BA
United Kingdom
PH: +44 (0) 1784 898055
FX: +44 (0) 1784 898510
- -------------------------------------------------------------------------------
Netherlands MxOne B.V.
Amsteldijk 166
NL-1079 LH Amsterdam
The Netherlands
PH: +31 203010 930
FX: +31 203010 939
- -------------------------------------------------------------------------------
Austria MatrixOne GmbH
Matthaus-Much-StraBe 7
A-5310 Mondsee
Austria
PH: +43 6232 7710-0
FX: +43 6232 7710-77
- -------------------------------------------------------------------------------
Italy MatrixOne S.r.l.
Via Ludovico di Breme 53/1
20156 Milano
Italy
PH: +39 - 0238093201
FX: +39 - 0238093202
- -------------------------------------------------------------------------------
Japan MatrixOne K.K.
Worldwide Center 3F
1-13 Sanbancho
Chiyoda-ku
Tokyo 102-0075
Japan
PH: +81-3-5210-0011
FX: +81-3-5210-0013
- -------------------------------------------------------------------------------
Canada MatrixOne, Inc.
(Not a separate legal entity) 190 Robert Speck Parkway
(Included in the North America) Suite 118
Mississauga, ON L4Z 3K3
PH: (905) 275-2517
FX: (905) 273-6659
- -------------------------------------------------------------------------------
Delaware (U.S.) Adra Systems, Inc.
Two Executive Drive
Chelmsford, MA 01824
PH: (978) 322-2000
FX: (978) 452-6820
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
December 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED OCTOBER 2,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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17,015
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