<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GIGA INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8732 06-1422860
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATED OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
ONE LONGWATER CIRCLE, NORWELL, MASSACHUSETTS 02061 (781) 982-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GIDEON I. GARTNER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GIGA INFORMATION GROUP, INC.
ONE LONGWATER CIRCLE
NORWELL, MASSACHUSETTS 02061 (781) 982-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
GERALD S. BACKMAN, P.C. ALEXANDER D. LYNCH, ESQ.
WEIL, GOTSHAL & MANGES LLP LUCI STALLER ALTMAN, ESQ.
767 FIFTH AVENUE BROBECK, PHLEGER & HARRISON LLP
NEW YORK, NEW YORK 10153-0119 1633 BROADWAY, 47TH FLOOR
(212) 310-8000 NEW YORK, NEW YORK 10019
(212) 581-1600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 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 number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.001 per share................................................. $46,000,000 $13,570
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 15, 1998
SHARES
[LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $0.001 per share
(the 'Common Stock'), offered hereby are being sold by Giga Information Group,
Inc., a Delaware corporation (together with its subsidiaries, 'Giga' or the
'Company'). Prior to this offering (the 'Offering'), there has been no public
market for the Common Stock. It is currently anticipated that the initial public
offering price will be between $ and $ per share. See
'Underwriting' for a discussion of the factors to be considered in determining
the initial public offering price.
The Company has applied for inclusion of the Common Stock on the Nasdaq
National Market under the symbol 'GIGX.'
------------------------
SEE 'RISK FACTORS' ON PAGES 7 THROUGH 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................... $ $ $
Total(3)........................ $ $ $
</TABLE>
(1) See 'Underwriting' for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option exercisable within 30
days of the date hereof, to purchase up to an aggregate of additional
shares of Common Stock, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See 'Underwriting.'
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc.,
Arlington, Virginia, or in book entry form through the book entry facilities of
the Depositary Trust Company, on or about , 1998.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is , 1998
<PAGE>
[PHOTO DEPICTING THE COMPANY'S GIGAWEB USER INTERFACE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
'UNDERWRITING.'
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Company's
Consolidated Financial Statements (the 'Consolidated Financial Statements') and
notes thereto appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to 'Giga' or the 'Company' are
to Giga Information Group, Inc., a Delaware corporation, and its direct and
indirect subsidiaries. Unless otherwise indicated, the information contained in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) reflects the automatic conversion of all outstanding shares of the
Company's Series A, Series B, Series C and Series D Preferred Stock (the
'Convertible Preferred Stock') into an aggregate of 4,686,784 shares of Common
Stock upon the closing of the Offering (the 'Preferred Conversion'), (iii)
reflects the repayment (the 'Bridge Repayment') of convertible promissory notes
in the aggregate principal amount of $10.0 million (the 'Bridge Notes') issued
in April 1998, (iv) reflects the filing by the Company, prior to the closing of
the Offering, of an amended and restated certificate of incorporation (the
'Restated Certificate'), (v) reflects a one-for-three reverse stock split of the
Common Stock (the 'Reverse Stock Split') to be effected prior to the closing of
this Offering and (vi) has been adjusted to reflect a four-for-one stock split
of the Common Stock effected as a stock dividend in November 1995 (the 'Stock
Split').
THE COMPANY
The Company provides objective analyses and advice relating to developments
and trends in the computing, telecommunications and related industries
(collectively, the 'Information Technology' or 'IT' industries) to assist its
customers in making technology-related decisions. IT is critical to the
competitiveness and long-term viability of a wide range of organizations. The
Company believes information overload, confusion and anxiety exists among IT
decision-makers. As a result, an increasing number of organizations are turning
to Continuous Information Service ('CIS') providers to monitor and analyze IT
developments and to identify trends to support such organization's IT
decision-making needs.
Giga was founded by Gideon I. Gartner, who in 1979 founded Gartner Group,
Inc., a CIS provider. Building on his extensive experience and success in the
CIS industry, Mr. Gartner formed Giga with the objective of creating a new
approach toward addressing the CIS needs of users and vendors of IT products and
services. Giga has developed a range of innovative Continuous Information
Services, as well as an effective, electronic information delivery mechanism,
designed to provide integrated IT analyses and advice.
Foremost among these innovations is the Company's unified advisory service
('Advisory Service'), through which IT research and analysis is offered to
customers as a single service intended to encompass the variety of IT coverage
offered by other CIS providers through multiple and fragmented services. This
original research and advice is provided by a staff of experienced industry
analysts. To complement Giga's analysts, the Company provides its Advisory
Service customers with access to an extensive network of external IT
practitioners ('ExperNet'). These practitioners have current experience in
diversified segments of the IT industry, which the Company believes cannot be
efficiently covered by the traditional CIS approach.
The Company also provides 'Continuous Advisory Consulting' services, a
valuable complement to Giga's Advisory Service inquiry process, which enable
customers to request more in-depth analysis targeted at the application of
technology to their specific situation. Continuous Advisory Consulting services,
which are provided on an on-going basis, may include assessments of strategic
technology planning, implementation issues surrounding a major technology
migration, or a vendor's marketing plan.
The Company has also introduced its 'IT Practice Services,' which integrate
the results of documented surveys of the successful operating practices and
techniques of IT professionals ('best practices') with strategic consulting, to
allow customers to leverage the proven practices of their peers. Each IT
Practice Service is designed to address issues faced by an executive in a
specific job function within an organization. For example, the Company's 'Year
2000 Practices' is designed for the executive in charge of an organization's
year 2000 activities.
The Company organizes and sponsors a range of events on significant IT
industry issues and trends, and produces publications based on conference topics
or current IT issues (collectively, 'Events and Publications'). For example, the
Company hosts its flagship annual conference, GigaWorld IT Forum, at which
Giga's analysts present and update their most important research findings and
recommendations and meet one-on-one in advisory sessions with clients.
3
<PAGE>
Giga has designed its innovative Advisory Service model to capitalize on
the capabilities of the Internet. Advisory Service research is accessed and
customized through the Company's intelligent, Internet-based information
delivery interface ('GigaWeb'). GigaWeb is designed to make it easy and
efficient for a customer to navigate through the full spectrum of Giga's
original research and third party content, together with access to human
expertise. In addition, the Company maintains an authoring environment and
advanced client interface designed for electronic delivery and encourages
collaboration among analysts and clients, which is facilitated through the
Internet.
Giga's objective is to become the leading third generation CIS provider,
offering a significant price/performance advantage over its competitors. Key
elements of the Company's strategy are to (i) utilize and enhance its
price/performance advantage to increase the range of companies which can afford
CIS products, (ii) leverage its existing customer base by providing non-advisory
additional services such as IT Practice Services and Continuous Advisory
Consulting, (iii) increase the number of Advisory Service subscribers within an
organization and (iv) expand its worldwide distribution both domestically and
internationally.
The Company's executive offices are located at One Longwater Circle,
Norwell, Massachusetts 02061 and its telephone number is (781) 982-9500.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby........................ shares
Common Stock to be outstanding after the
Offering......................................... shares(1)
Use of Proceeds.................................... To repay indebtedness, and for capital expenditures,
working capital and other general corporate purposes. See
'Use of Proceeds.'
Proposed Nasdaq National Market symbol............. GIGX
</TABLE>
- ------------------
(1) Based on shares outstanding as of March 31, 1998. Excludes (i) 1,316,197
shares of Common Stock issuable upon exercise of options outstanding as of
March 31, 1998, with a weighted average exercise price of $2.43 per share;
(ii) 873,273 shares of Common Stock reserved for issuance, as of March 31,
1998, under the Company's stock plans; (iii) 166,666, 35,959, and 654,432
shares of Common Stock issuable upon exercise of warrants outstanding as of
March 31, 1998, with exercise prices of $3.00, $13.875 and $13.50 per
share, respectively; and (iv) excludes 35,330 shares of Common Stock issued
by the Company to employees after March 31, 1998. See 'Management--Executive
Compensation' and 'Description of Capital Stock.'
------------------------
GigaTel(Registered) is a registered trademark of the Company. The Company
has several trademarks including, the GiGa Giga Information Group (and
design)(Trademark), Giga Advisory Service(Trademark), GigaWeb(Trademark),
Gigabots(Trademark), GigaNotes(Trademark), GigaWorld IT Forum(Trademark),
IntraGiga(Trademark), IdeaBytes(Trademark) and ExperNet(Trademark). All other
trademarks or trade names referred to in this Prospectus are the property of
their respective owners.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Words such as 'expects,' 'anticipates,' 'intends,' 'plans,' 'believes,' 'seeks,'
'estimates' and variations of such words and similar expressions are intended to
identify such forward-looking statements. These forward-looking statements are
based on current expectations, estimates and projections about the Company's
business, and beliefs and assumptions made by management, all of which involve
risks and uncertainties. Prospective investors are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth under the caption 'Risk Factors,' which could
cause actual results to differ materially from those indicated by such
forward-looking statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES(1) COMPANY
------------------------- -----------------------------------------------------------------------
YEAR JANUARY 1 MARCH 17 YEAR ENDED THREE MONTHS ENDED
ENDED TO TO DECEMBER 31, MARCH 31,
DECEMBER 31, APRIL 5, DECEMBER 31, -------------------------- ---------------------------
1994 1995 1995 1996 1997 1997 1998
------------ --------- ------------ ------------ ----------- ---------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Continuous information
services.................. $ -- $ -- $ -- $ 3,149 $ 14,600 $ 2,570 $ 6,804
Other services.............. 7,366 1,833 5,517 6,043 4,715 1,276 1,693
Publications................ 800 283 1,442 946 344 180 55
------------ --------- ------------ ------------ ----------- ---------- --------------
Total revenues............ 8,166 2,116 6,959 10,138 19,659 4,026 8,552
Costs and expenses:
Cost of services............ 5,143 1,182 4,707 12,336 12,477 3,202 4,391
Cost of publications........ 446 240 346 790 174 75 71
Sales and marketing......... 1,438 167 1,016 6,706 19,617 4,158 5,781
Research and development.... -- -- 348 1,789 1,975 659 339
General and
administrative............ 4,027 1,047 5,760 9,739 6,419 1,061 1,339
Depreciation and
amortization.............. 2,943 215 1,387 2,391 2,810 634 385
------------ --------- ------------ ------------ ----------- ---------- --------------
Total costs and expenses.. 13,997 2,851 13,564 33,751 43,472 9,789 12,306
------------ --------- ------------ ------------ ----------- ---------- --------------
Loss from continuing
operations, net of taxes.... (4,663) (503) (5,366) (22,702) (23,130) (5,689) (3,807)
Income (loss) from
discontinued operations, net
of taxes.................... (1,870) 651 1,644 (2,688) 1,313 -- --
Net income (loss)............. (6,533) 148 (3,722) (25,390) (21,817) (5,689) (3,807)
Historical results per common
share-basic and diluted:
Loss from continuing
operations................ (11.16) (1.80)
Income from discontinued
operations................ -- --
Income from disposal of
discontinued operations... 0.63 --
Net loss.................... (10.53) (1.80)
Historical weighted average
number of common shares
outstanding:................ 2,072,837 2,115,837
Pro forma results per common
share-basic and diluted:
Loss from continuing
operations................ (3.42) (0.56)
Income from discontinued
operations................ -- --
Income from disposal of
discontinued operations... 0.19 --
Net loss.................... (3.23) (0.56)
Pro forma weighted average
number of common shares
outstanding:................ 6,759,621 6,802,621
<CAPTION>
MARCH 31, 1998
-----------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(2) ADJUSTED(2)(3)
----------- ---------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash
equivalents....................................................................... $ 1,753 $ 3,753 $
Working capital (deficit).............................................................. (13,821) (11,821)
Total assets........................................................................... 15,673 17,673
Deferred revenues...................................................................... 19,458 19,458 19,458
Long-term debt, less current portion................................................... 848 848 848
Total stockholders' equity............................................................. (12,750) (10,750)
</TABLE>
- ------------------
(1) Financial data included herein contains results of certain predecessor
companies acquired by the Company in 1995. For a description of the
predecessor companies and an explanation of the comparative periods
(Footnotes continued on next page)
5
<PAGE>
(Footnotes continued from previous page)
presented herein, see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Organization of the Company and
Financial Statement Presentation.'
(2) Presented on a pro forma basis to give effect to the Series D Financing (as
defined herein) and the Preferred Conversion. See 'Certain Transactions'
and Note 20 to the Consolidated Financial Statements.
(3) Adjusted to give effect to the sale by the Company of shares of Common
Stock offered hereby at an assumed initial public offering price of
$ per share and the application of the estimated net proceeds
therefrom. See 'Use of Proceeds' and 'Capitalization.'
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus contains certain statements of a
forward-looking nature all of which involve risks and uncertainties and actual
events or results may differ materially from the results discussed in such
forward-looking statements.
LIMITED OPERATING HISTORY; PRIOR LOSSES AND ANTICIPATION OF FUTURE LOSSES
The Company was incorporated on March 17, 1995, and in April 1996
introduced the Advisory Service, its principal service offering and its first
Continuous Information Service, and GigaWeb, the Company's Internet-based system
for delivering information, analyses and advice to its customers. The Company
has been marketing its Continuous Information Services for only a limited period
of time, and the Company's future success will depend, in large part, on its
ability to successfully market and enhance these services.
Since its inception, the Company has incurred substantial costs to develop
its Continuous Information Services, establish its GigaWeb system, build a
management team and recruit, employ and train research analysts, sales personnel
and support staff for its business. As a consequence, the Company has incurred
substantial operating losses since its inception and, at March 31, 1998, had an
accumulated deficit of $54.7 million. The Company expects to incur significant
losses through at least fiscal 1998 as the Company expands and develops its
services and products. The magnitude and duration of the Company's losses will
depend on a number of factors both within and outside of the Company's control,
including the Company's ability to successfully market its Continuous
Information Services, customer acceptance of the Company's single-service model,
the Company's ability to attract and retain qualified research analysts, sales
personnel and management personnel on a timely basis and the related costs of
such efforts, the response of competitors to the Company's services and
products, the ability of the Company to develop and market new services and
products, and the continued acceptance by customers of subscription agreements
providing for advance payments rather than equal monthly installments or some
other payment model. In addition, the Company has significantly increased its
operating expenses and expects to continue such increases in the future
primarily to expand its staff of research analysts and sales and support
personnel and to further develop and enhance its services and its GigaWeb
system. As a result, the Company may not be readily able to reduce or adjust
expenses in the event that it does not generate planned revenues or if its
revenues decrease. There can be no assurance when or if the Company will begin
to generate revenue that is sufficient to achieve profitability, to maintain
profitability on a quarterly or annual basis or to sustain or increase its
revenue growth in future periods. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
The Company's success will depend, in part, upon its ability to hire,
train, motivate and retain a significant number of highly-skilled and
experienced employees, particularly management, research analysts and sales
personnel. The Company has experienced in the past, and may experience in the
future, high levels of turnover of its personnel, particularly sales and
marketing personnel. The Company has also experienced, and expects to continue
to experience, intense competition for professional personnel with, among
others, producers of IT services and products, management consulting firms and
systems integrators. Many of these firms have substantially greater financial
resources than the Company to attract and compensate qualified personnel. In
addition, some of the Company's competitors require that their employees enter
into non-competition agreements, the terms of which could prohibit such
individuals for a period of time from working for the Company. There can be no
assurance that the Company will be successful in attracting a sufficient number
of highly-skilled employees in the future, or that it will be successful in
training, motivating and retaining the employees it is able to hire, and any
inability to do so would have a material adverse effect on the Company's
business, financial condition and results of operations.
7
<PAGE>
DEPENDENCE ON SALES AND RENEWALS OF SUBSCRIPTION-BASED SERVICES; NEED TO
ANTICIPATE CHANGING MARKET NEEDS
The Company offers its Continuous Information Services on a subscription
basis from which the Company derived 74% and 79% of total revenues for the year
ended December 31, 1997 and the three months ended March 31, 1998, respectively.
Accordingly, the Company's prospects will depend on its ability to enter into a
significant number of contracts for subscriptions to its services and to achieve
and sustain high renewal rates, and no assurance can be given that it will be
successful in doing so. The Company's ability to secure subscriptions and
subscription renewals is dependent upon, among other things, its ability to
deliver, through its Continuous Information Services, consistently high quality
and timely analysis and advice with respect to issues, developments and trends
in the IT industry that clients view as important. To deliver valuable analysis
and advice on a sustained basis, the Company must, among other things, recruit
and retain a large and growing number of highly talented professionals in a very
competitive job market, understand and anticipate market trends so as to keep
its analysis focused on the changing needs of its customers, and deliver
services and products of sufficiently high quality on a timely basis to
withstand competition. There can be no assurance that the Company will be able
to achieve and sustain high subscription renewal rates or that the Company's
employees will be able to achieve desired sales productivity levels. Any
material decline in subscriptions and subscription renewal rates or the
inability of the Company's employees to achieve desired sales productivity
levels would have a material adverse effect on the Company's business, financial
condition and results of operations. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations.'
ABILITY TO MANAGE GROWTH
The Company's planned expansion is expected to place a significant strain
on the Company's financial, operational and managerial resources. To manage its
expansion, the Company must continue to implement and improve its operations and
financial systems and increase, train and manage its personnel. There can be no
assurance that the Company's systems, procedures or controls currently in place
will be adequate to support the Company's operations or that the Company will be
able to implement additional systems successfully and in a timely manner if
required. If the Company continues to grow, it will be required to expand its
research staff, expand its sales and marketing force, recruit additional key
management personnel, improve its operational and financial systems and train,
motivate and manage additional employees. There can be no assurance that the
Company will be able to manage these changes successfully. Any inability of the
Company to manage its growth successfully could have a material adverse effect
on the Company's business, financial condition and results of operations.
SUBSTANTIAL FUTURE CAPITAL NEEDS; RISKS OF WORKING CAPITAL DEFICIENCY
The Company's business has significant fixed costs, primarily attributable
to the costs associated with producing research to implement its single-service
strategy, which provides for coverage of many of the IT sectors and contemplates
broad direct distribution worldwide. The Company has spent substantial amounts
to date and expects capital and operating expenditures to increase due to
numerous factors, including the Company's ability to successfully market its
Continuous Information Services, the Company's ability to enter into contracts
for the sale of its services and to achieve and sustain acceptable renewal
rates, its ability to attract and retain qualified employees, including research
and sales personnel, on a timely basis and the related costs of such efforts,
the response of competitors to the Company's services, the Company's ability to
develop and market new services and products, the further advancement of the
GigaWeb system, the Company's expansion of its international operations, and the
continued acceptance by customers of annual membership agreements providing for
advance payments rather than equal monthly installments or some other payment
model. The Company anticipates funding its ongoing working capital needs
principally through the net proceeds to the Company from the Offering. However,
in the event that the Company encounters difficulties in collecting accounts
receivable, experiences low or reduced subscription renewal rates or otherwise
has revenues that are lower than planned, the Company might require additional
working capital and there can be no assurance that such capital would be
available to the Company on terms that are acceptable, if at all. If adequate
funds are not available, the Company may be required to reduce its fixed costs
and delay, scale back or eliminate certain of its services or products, any of
which could have a material adverse effect on the Company's business, financial
8
<PAGE>
condition and results of operations. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations.'
DEPENDENCE ON KEY PERSONNEL
The extent of the Company's success will depend in large part upon the
continued services of its executive officers and key employees, including its
founder, Chairman of the Board of Directors and Chief Executive Officer, Gideon
I. Gartner. Mr. Gartner, in particular, is well known in the IT community and
his reputation in the Continuous Information Services industry and his network
of contacts have been instrumental in establishing and building the Company's
business and in obtaining financing for the Company. The loss of the services of
either Mr. Gartner or one or more of the Company's other key personnel would
have a material adverse effect on the Company. There are no employment contracts
currently in force with key employees.
SIGNIFICANT COMPETITION
The Company competes in the market for IT services and products directly
with other independent providers of Continuous Information Services, including
Gartner Group, Inc., META Group, Inc. and Forrester Research Inc., and the
internal planning, research and marketing staffs of corporations and IT vendors.
The Company also competes with other information providers, including market
research firms, 'Big Six' accounting firms, consulting firms and systems
integrators. Many of the Company's direct and indirect competitors have
substantially greater financial, information gathering and marketing resources
than the Company. Some of the Company's direct and indirect competitors also
have established research organizations with greater market recognition and
experience in the IT industry. There can be no assurance that the Company will
be successful in establishing a competitive research organization. Delays,
difficulty in developing and achieving market acceptance of Giga's Continuous
Information Services, or customer dissatisfaction would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, new competitors could seek to compete in one or more market
segments addressed by the Company's services and products. There can be no
assurance that the Company's current or potential competitors will not develop
services and products comparable or superior to those developed by the Company
or respond more quickly to new or emerging industry trends or changing customer
requirements. There can be no assurance that the Company will be able to
continue to compete successfully against existing or new competitors. In
addition, any pricing pressures, reduced margins or loss of market share
resulting from increased competition could have a material adverse effect on the
Company's business, financial condition and results of operations. See
'Business--Competition.'
RISKS ASSOCIATED WITH THE DEVELOPMENT OF NEW SERVICES AND PRODUCTS
The Company's future success will depend in part on its ability to
anticipate emerging market trends and to develop or acquire new services,
features and products that address the changing information, analysis, and
advice needs of IT users, vendors and investors. The process of internally
researching, developing, launching and gaining client acceptance of a new
service or product, or assimilating and marketing an acquired service or
product, is inherently risky and costly. Delays or failures during development
or implementation, or lack of market acceptance of these services and products,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The future success of the Company's
Continuous Information Services will depend in part on the Company's ability to
expand the breadth and depth of its services through the addition of internal
analysts and consultants, content from third party sources and external
practitioners. The Company's continued ability to differentiate itself through
its Internet-based GigaWeb system will depend on its ability to continue to add
features and functionality to GigaWeb. In addition, the Company has limited
internal resources dedicated to its Web site development and relies on third
parties, including consultants and software developers, for the design,
development and testing of its GigaWeb system and other delivery mechanisms. Any
technical or other related problems or deficiencies in GigaWeb in the areas of
reliability, performance and salability could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company has had limited experience introducing new services and products and
there can be no assurance that its efforts to introduce new, or to assimilate
acquired, services or products, will be successful. If the Company is unable,
for technical or other reasons, to develop and introduce new services or
products or to make enhancements to existing services and products in a timely
manner in response to changing market conditions or customer requirements, or if
its Continuous Information Services or other service offerings
9
<PAGE>
do not achieve market acceptance, the Company's business, financial condition
and results of operations would be materially adversely affected. See
'Business--Products and Services.'
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY
The Company's operating results may fluctuate significantly in the future
due to various factors, including the level and timing of new subscriptions and
renewals of subscriptions to Continuous Information Services, the timing and
amount of new business generated by the Company, the mix of domestic versus
international business, the timing of the development, introduction and
marketing of new services and products, the timing of the hiring of research
analysts and sales people, changes in the spending patterns of the Company's
target clients, the Company's accounts receivable collection experience, changes
in market demand for IT research and analysis, foreign currency exchange rate
fluctuations, competitive conditions in the industry and general economic
conditions. A high percentage of the Company's operating expenses is based
primarily on sales forecasts and the Company may be unable to adjust spending in
a timely manner to compensate for any unexpected shortfalls in revenues. Any
significant shortfall in revenues in relation to the Company's expectations
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, a significant portion of the
Company's renewals and subscriptions are placed during the fourth quarter,
particularly the last month of such quarter, due primarily to customers'
purchasing patterns and the timing of certain sales performance quota cutoffs.
Due to the Company's limited operating history, and as a result of its revenue
growth, seasonal trends in the Company's results of operations have not clearly
emerged. However, the Company believes that its future operating results may
follow a pattern of seasonal fluctuation. Accordingly, the Company believes that
period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an indication of future results of
operations. Due to the foregoing factors, it is likely that in future quarters
the Company's operating results will be below the expectations of public market
analysts and investors. Such an event would have a material adverse effect on
the price of the Company's Common Stock. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
UNCERTAINTIES RELATING TO PROPRIETARY RIGHTS
The Company's success and its ability to compete effectively is dependent
in part upon its proprietary rights. The Company relies on a combination of
copyright, trademark and trade secret laws, employee and third-party
nondisclosure agreements and contractual provisions and other methods to protect
its proprietary rights. There can be no assurance that the measures taken by the
Company to protect its proprietary rights will be adequate to enforce its
proprietary rights, prevent misappropriation or that others will not obtain
similar or superior proprietary rights.
The Company believes that its trademarks are important to its success and
its competitive position. The Company has certain common law trademarks, a U.S.
federal trademark registration and several U.S. federal trademark applications
pending, some of which involve a derivation of the first two letters of the name
Gideon Gartner (e.g. GiGa). The word 'Giga' is commonly used in the IT field to
denote 109 power or a very large amount, and the Company may be unable to obtain
registrations for its trademarks in the U.S. or in other countries for that or
other reasons, and its rights to its trademarks may be narrow in scope.
Registrations for trademarks in the U.S. provide no protection for such
trademarks in other countries. The Company has received initial Office Actions
from the United States Patent and Trademark Office (the 'PTO') indicating that
certain of its applications for U.S. federal trademark registrations for the
GiGa Giga Information Group (and design)(Trademark) trademark have been refused
based on the PTO's citation of other Giga-formative trademarks covered by
pending Federal applications and a registration held by third parties. The
Company plans to respond to this initial refusal, but there can be no assurance
that it will obtain a favorable decision from the PTO Examiner or that one of
these third parties will not successfully oppose registration or use. The
Company is aware of a Benelux trademark registration for the trademark GIGA
MEDIA, the application for which was filed in the Benelux in advance of the
Company's application to register the GiGa Giga Information Group (and
design)(Trademark) trademark with the PTO and the equivalent office in the
Benelux. The Company is also aware that the owner of the Benelux trademark has
filed a lawsuit in the Netherlands against the Company alleging tradename
infringement, and requesting a court order requiring the Company to use an
alternative tradename to Giga Information Group. There can be no assurance that
the tradename infringement lawsuit pending against the Company will result in a
decision that is
10
<PAGE>
favorable to the Company. In addition, there can be no assurance that other
parties (i) do not have superior rights to certain of the Company's trademarks,
(ii) will not oppose the Company's applications for registrations, (iii) will
not seek and obtain cancellation of any of the Company's trademark registrations
and (iv) will not allege that the Company's use of its trademarks infringes such
third parties trademarks. Failure by the Company to establish its rights to use
its trademarks, to overcome the PTO or other country's trademark office's
refusal of certain of its applications, or any loss of its rights to use its
trademarks, could result in damages payable to third parties, the loss of its
rights to prohibit others from using confusingly similar trademarks, the need to
invest substantial resources in building brand identity for a new trademark, and
the loss of market awareness and revenues to the Company.
DEPENDENCE ON THE INTERNET INFRASTRUCTURE
The Company's success will depend, in large part, upon the continued
operation of the Internet infrastructure, such as a reliable network backbone
with the necessary speed, data capacity and security, for providing reliable
GigaWeb access. To the extent that the Internet continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users, there can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed on it or that the performance
or reliability of the Internet will not be adversely affected. Furthermore, the
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and such outages and delays could
adversely affect the customer's ability to access GigaWeb. Moreover, critical
issues concerning the commercial use and government regulation of the Internet
(including security, taxation cost, ease of use and access, intellectual
property ownership, data privacy and other legal liability issues) remain
unresolved and could materially and adversely impact both the growth of the
Internet and the Company's business, financial condition and results of
operations.
RISK OF SYSTEM FAILURE
The Company's Internet-based, information delivery interface, GigaWeb,
resides on a computer system located at the Company's headquarters. The
continuing and uninterrupted performance of GigaWeb is critical to the success
of the Company's business. Any system failure or capacity constraint that causes
interruptions in the Company's ability to service its customers could reduce
customer satisfaction and, if sustained or repeated, would reduce the
attractiveness of the Company's products and could have a material adverse
effect on the Company's business, results of operations and financial condition.
RISKS RELATED TO CONTENT
As a publisher and distributor of original analyses and licensed
third-party content, the Company faces potential liability for defamation,
negligence, copyright and trademark infringement. Third party content includes
information created or provided by information service organizations, ExperNet
practitioners, and consultants retained by the Company and may be delivered in
writing, via the Internet or in print, or verbally to clients. There can be no
assurance that the Company will not be involved in litigation, which can be
expensive and time consuming, as a result of the creation and/or dissemination
of such content. Any such litigation, whether or not resulting in a judgment
requiring the payment of monetary damages, could have a material adverse affect
on the Company's business, financial condition, and results of operations.
IMPACT OF THE YEAR 2000 ISSUE
The Company has commenced efforts to ensure that the computer systems and
applications upon which it relies for internal operations and external
communications with clients and others will function properly beyond 1999. The
Company presently believes that the computer systems and programs upon which it
relies for its internal operations and external communications, and which the
Company presently expects to use following December 31, 1999, are, or will be,
Year 2000 compliant. There can be no assurance, however, that further assessment
of the Company's internal systems and applications will not reveal that
additional efforts to assure Year 2000 compliance are necessary, and such
efforts may be costly and may divert the Company's resources from product
development or infrastructure improvement programs. Further, there can be no
assurance that the systems operated by other companies upon which the Company
relies will be Year 2000 compliant on a timely basis. The Company's business,
financial condition or results of operations could be materially adversely
affected by the failure of the Company's internal systems and applications to
properly operate or manage data beyond 1999.
11
<PAGE>
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Certain of the Company's operations are located outside of the United
States and the Company plans to expand its international operations. The Company
believes there are certain risks inherent in international operation, including
changes in demand resulting from fluctuations in interest and exchange rates,
changes in trade policies, regulatory requirements, difficulties in staffing and
managing foreign sales operations and higher levels of taxation on foreign
income than domestic income. Expansion into new geographic territories requires
considerable management and financial resources and may negatively impact the
Company's near-term results of operations. Most of the Company's international
revenues are expected to be denominated in foreign currencies. Consequently, a
decrease in the value of a relevant foreign currency in relation to the United
States dollar, or an adverse development in any one of the foregoing factors,
could have a material adverse effect on the Company's business, financial
condition or results of operations. The Company does not currently hedge its
exposure to foreign currency fluctuations. The Company had revenues from
international operations of $3.2 million in 1996, $2.4 million in 1997 and
$700,000 in the period ended March 31, 1998.
CONTROL BY MANAGEMENT
Upon the closing of the Offering, Mr. Gartner will beneficially own
approximately % of the outstanding Common Stock ( % assuming the exercise
of the Underwriters' over-allotment option) and Mr. Gartner, together with the
Company's other executive officers and directors, including entities affiliated
with them, will beneficially own approximately % of the outstanding Common
Stock ( % assuming the exercise of the Underwriters' over-allotment option).
As a result, these stockholders will be able to exercise control over matters
requiring stockholder approval, including the election of directors and the
approval of significant corporate matters such as transactions which may lead to
a change of control of the Company. The effects of such control could be to
delay or prevent a change of control of the Company unless the terms are
approved by such stockholders, which could adversely affect the market price of
the Company's Common Stock. See 'Management' and 'Principal Stockholders.'
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that, following the Offering, an active
trading market for the Common Stock will develop or be sustained or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined through
negotiations between the Company and the Representatives of the Underwriters and
will not necessarily reflect the market price of the Common Stock after the
Offering. See 'Underwriting' for a discussion of the factors to be considered in
determining the initial public offering price. The stock market in recent years
has experienced extreme price and volume fluctuations that have particularly
affected market prices of many growth-oriented companies in industries similar
or related to that of the Company and that have often been unrelated or
disproportionate to the operating performance of such companies. The market
price of the Common Stock could also be subject to significant fluctuations in
response to, and may be adversely affected by, variations in quarterly results,
changes in earnings estimates or other actions by analysts and earnings or other
announcements of the Company's customers or competitors as well as other
factors.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of the Common
Stock. Additional dilution will occur upon exercise or conversion of outstanding
stock options or warrants. See 'Dilution' and 'Shares Eligible for Future Sale.'
SHARES ELIGIBLE FOR FUTURE SALE
The shares offered hereby will be eligible for sale in the
public market immediately following the effective date of the Registration
Statement; shares will become eligible for sale in the public market
90 days after the effective date of the Registration Statement; and the
remaining outstanding shares will become eligible for sale in the public market
at various dates beginning 180 days after the effective date of the Registration
Statement, approximately of which will be deemed 'restricted securities'
under the Securities Act of 1933, as amended (the 'Securities Act'), and, as
such, will be subject to restrictions on the timing, manner and volume of sales
of such shares. Holders of shares (including shares
12
<PAGE>
issuable upon exercise of warrants) have contractual rights to request to have
their shares registered with the Securities and Exchange Commission (the
'Commission') for resale to the public beginning June 30, 1998. In addition,
within 180 days after the effective date of the Registration Statement, the
Company intends to file a registration statement covering the shares of Common
Stock issued or reserved for issuance under the Company's 1995 Stock
Option/Stock Issuance Plan, as amended (the '1995 Stock Plan'), 1996 Stock
Option Plan (the '1996 Option Plan') and 1997 Director Option Plan (the
'Director Plan'), and upon such filing any shares subsequently issued under such
plans will be eligible for sale in the public market, subject to Rule 144
compliance in the case of affiliates of the Company. See 'Shares Eligible for
Future Sale' and 'Description of Capital Stock.'
The Company and its executive officers, directors and stockholders have
agreed that, subject to certain limited exceptions, for a period ending 180 days
after the consummation of the Offering, without the prior written consent of
Friedman, Billings, Ramsey & Co., Inc., they will not, directly or indirectly,
offer, pledge, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise sell, dispose of, make any short sale of, loan or grant
any rights with respect to any shares of Common Stock or any options or warrants
to purchase any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock. The stockholders who
have agreed to these restrictions will hold in the aggregate shares
of Common Stock, representing approximately % of the shares of Common
Stock outstanding immediately after the consummation of the Offering. See
'Underwriting' and 'Shares Eligible for Future Sale.'
The sale of a substantial number of shares held by existing stockholders,
whether pursuant to a subsequent public offering or otherwise, or the perception
that such sales could occur, could adversely affect the market price of the
Common Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities. See 'Shares Eligible for
Future Sale' and 'Underwriting.'
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Restated Certificate will be filed upon the closing of the Offering,
pursuant to which the Company's Board of Directors (the 'Board of Directors')
will have the authority to issue up to 5,000,000 shares of Preferred Stock and
to determine the price, rights, conversion ratios, preferences and privileges of
those shares without any further vote or action by the Company's stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of such Preferred Stock. Any
such issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company and could negatively impact the voting power or other
rights of the holders of Common Stock. In addition, such Preferred Stock may
have other rights, including economic rights senior to the Common Stock, and, as
a result, the issuance thereof could have a material adverse effect on the
market value of the Common Stock. The Restated Certificate will provide for a
classified Board of Directors and will permit a member of the Board of Directors
to be removed for cause only upon the affirmative vote of holders of a majority,
or without cause only upon the affirmative vote of at least two-thirds, of the
shares of capital stock of the Company entitled to vote. Furthermore, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law that prohibit the Company 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 first becomes an
'interested stockholder,' unless the business combination is approved in a
prescribed manner. The application of Section 203 could also have the effect of
delaying or preventing a change of control of the Company. Certain other
provisions of the Restated Certificate may have the effect of delaying or
preventing changes of control or management of the Company, which could
adversely affect the market price of the Company's Common Stock. See
'Description of Capital Stock--Delaware Law and Certain Charter and By-Law
Provisions.'
13
<PAGE>
USE OF PROCEEDS
The net proceeds to Giga from the sale of the shares of Common
Stock offered hereby are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company and assuming an initial public offering price of $ per
share.
A portion of the net proceeds of the Offering will be used to repay in full
(the 'Bridge Repayment') the Bridge Notes in the aggregate principal amount of
$10 millon issued in April 1998, which notes accrue interest at the rate of 12%
per annum. The proceeds of the issuance of the Bridge Notes were used for
general corporate purposes, including the repayment in full of the remaining
$1.2 million aggregate principal amount of convertible notes, of which a note in
the principal amount of $200,000 was held by a director and former officer. See
'Underwriting' and Notes 11 and 20 to the Consolidated Financial Statements. The
balance of the proceeds will be used for general corporate purposes, including
capital expenditures and working capital. Pending such use, the net proceeds
will be invested in short-term, investment-grade, interest-bearing obligations.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Board of Directors after taking into account various factors including the
Company's financial condition, operating results, current and anticipated cash
needs and plans for expansion.
14
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
to give effect to the Series D Financing and the Preferred Conversion and (iii)
the pro forma capitalization of the Company as adjusted to give effect to (A)
the sale of shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $ per share after
deducting the underwriting discount and estimated offering expenses payable by
the Company and (B) the Bridge Repayment. This information should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(1)
-------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Long term debt, less current portion.................................... $ 848 $ 848 $ 848
-------- ------------ --------------
Stockholders' Equity:
Convertible Preferred Stock........................................... 12 -- --
Preferred Stock, $.001 par value; 5,000,000 shares authorized; none
issued or outstanding on an actual, pro forma or pro forma as
adjusted basis..................................................... -- -- --
Common Stock, $.001 par value, 50,000,000 shares authorized (actual);
60,000,000 shares authorized (pro forma and pro forma as adjusted);
2,124,142 shares issued and outstanding (actual);
6,810,926 shares issued and outstanding (pro forma);
shares issued and outstanding (pro forma as
adjusted)(2)....................................................... 6 18
Additional paid-in capital............................................ 42,584 44,584
Deferred Compensation................................................. (1,229) (1,229) (1,229)
Accumulated deficit................................................... (54,736) (54,736) (54,736)
Cumulative translation adjustments.................................... 613 613 613
-------- ------------ --------------
Total stockholders' equity......................................... (12,750) (10,750)
-------- ------------ --------------
Total capitalization............................................... $(11,902) $ (9,902) $
-------- ------------ --------------
-------- ------------ --------------
</TABLE>
- ------------------
(1) Based on shares outstanding as of March 31, 1998. Excludes (i) 1,316,197
shares of Common Stock issuable upon exercise of options outstanding as of
March 31, 1998, with a weighted average exercise price of $2.43 per share;
(ii) 873,273 shares of Common Stock reserved for issuance, as of March 31,
1998 under the Company's stock plans; (iii) 166,666, 35,959 and 654,432
shares of Common Stock issuable upon exercise of warrants outstanding as of
March 31, 1998, with exercise prices of $3.00, $13.875 and $13.50 per share,
respectively; and (iv) 35,330 shares of Common Stock issued by the Company
to employees after March 31, 1998. See 'Management--Executive Compensation'
and 'Description of Capital Stock.'
15
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company at March
31, 1998, was $( ) million or $( ) per share. Pro forma net
tangible book value per share represents the amount of total assets, excluding
intangibles, less total liabilities as of March 31, 1998, divided by the number
of shares of Common Stock outstanding on a pro forma basis after giving effect
to the Series D Financing and the Preferred Conversion. After giving effect to
the receipt of the net proceeds from the sale of the shares of Common
Stock offered by the Company hereby and after deducting the estimated
underwriting discount and offering expenses to be paid by the Company, the pro
forma net tangible book value of the Company at March 31, 1998 would have been
$ million or $ per share. This represents an immediate
increase in net tangible book value of $ per share of Common Stock to
existing stockholders and an immediate dilution of approximately $ per
share to new investors purchasing shares in the Offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Proposed initial public offering price per share........................ $
Pro forma net tangible book deficit per share before the Offering..... $( )
Increase per share attributable to new investors......................
-------
Pro forma net tangible book value per share after the Offering..........
----------
Dilution per share to new investors..................................... $
----------
----------
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by the
existing stockholders and by the investors purchasing shares of Common Stock
offered hereby (at an assumed initial public offering price of $ per
share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................. % $ % $
New investors.......................................... % $ % $
--------- ------- -------- -------
Total............................................. 100.0% $ 100.0%
--------- ------- -------- -------
--------- ------- -------- -------
</TABLE>
The foregoing assumes no exercise of any outstanding stock options or
warrants to purchase shares of Common Stock. As of March 31, 1998, there were
outstanding (i) 1,316,197 shares of Common Stock issuable upon exercise of
options at a weighted average exercise price of $2.43 per share, (ii) 166,666,
35,959, and 654,432 shares of Common Stock issuable upon exercise of warrants
with exercise prices of $3.00, $13.875 and $13.50 per share, respectively. After
March 31, 1998, 35,330 shares of Common Stock were issued by the Company to
employees. In addition, as of March 31, 1998, 873,273 shares of Common Stock
were reserved for future issuance pursuant to the Company's stock plans. To the
extent that the outstanding options and warrants are exercised at prices lower
than the initial public offering price, there will be further dilution to new
investors. See 'Management--Executive Compensation,' 'Certain Transactions' and
'Description of Capital Stock.'
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
Consolidated Financial Statements of the Company and the combined financial
statements of BIS Strategic Decisions, Inc. and its five foreign affiliates
(collectively, 'BIS' or the 'Predecessor Companies'). For the period January 1
to December 15, 1993, the operations comprising BIS were those of wholly-owned
subsidiaries of NYNEX Corporation ('NYNEX'). For the period December 16 to
December 31, 1993, the year ended December 31, 1994 and the period January 1 to
April 5, 1995, the operations of BIS were those of wholly-owned subsidiaries of
Friday Holdings, L.P. ('Friday Holdings'). Because of the impact to the
statements of operations of the revaluation of the assets and liabilities in
connection with the acquisitions and the application of different accounting
methods, the results of operations of BIS for the periods under NYNEX and Friday
Holdings ownership are not comparable with each other or with those reported by
the Company.
The Consolidated Financial Statements of the Company as of December 31,
1996 and 1997 and for the period from March 17, 1995 to December 31, 1995 and
the years ended December 31, 1996 and 1997 included elsewhere in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants. The
consolidated financial statements of the Company as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998 included elsewhere in this
Prospectus are unaudited, however, in the opinion of management, such unaudited
data include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information included therein. The
results of operations for the period March 17, 1995 to December 31, 1995 and the
three months ended March 31, 1997 and 1998 are not necessarily indicative of the
results for an entire fiscal year or any other interim period. The combined
financial statements of the Predecessor Companies for the period January 1, 1995
to April 5, 1995 included elsewhere in this Prospectus have been audited by
Coopers & Lybrand L.L.P. The combined financial statements of BIS as of December
31, 1993 and 1994 and for the periods January 1, 1993 to December 15, 1993 and
December 16, 1993 to December 31, 1993 and for the year ended December 31, 1994
are derived from unaudited combined financial statements not included in this
Prospectus, however, in the opinion of management, such unaudited data include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information included therein. The selected historical
financial data should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations,' and the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
17
<PAGE>
<TABLE>
<CAPTION>
COMPANY
----------------------
PREDECESSOR COMPANIES YEAR
---------------------------------------------------- PRO FORMA ENDED
JANUARY 1 DECEMBER 16 YEAR JANUARY 1 YEAR MARCH 17 DECEMBER
TO TO ENDED TO ENDED TO 31,
DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, DECEMBER 31, DECEMBER 31, --------
1993 1993 1994 1995 1995(1) 1995 1996
------------ ------------ ------------ ---------- ------------ ------------ --------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Continuous information
services.................... $ -- $ -- $ -- $ -- $ -- $ -- $ 3,149
Other services................ 5,815 91 7,366 1,833 8,543 5,517 6,043
Publications.................. 1,311 51 800 283 1,725 1,442 946
------------ ------------ ------------ ---------- ------------ ------------ --------
Total revenues.............. 7,126 142 8,166 2,116 10,268 6,959 10,138
------------ ------------ ------------ ---------- ------------ ------------ --------
Costs and expenses:
Cost of services.............. 4,268 267 5,143 1,182 7,172 4,707 12,336
Cost of publications.......... 726 64 446 240 586 346 790
Sales and marketing........... 1,448 92 1,438 167 972 1,016 6,706
Research and development...... -- -- -- -- 348 348 1,789
General and administrative.... 3,431 140 4,027 1,047 6,934 5,760 9,739
Depreciation and
amortization................ 613 32 2,943 215 1,964 1,387 2,391
------------ ------------ ------------ ---------- ------------ ------------ --------
Total costs and expenses.... 10,486 595 13,997 2,851 17,976 13,564 33,751
------------ ------------ ------------ ---------- ------------ ------------ --------
Operating loss................ (3,360) (453) (5,831) (735) (7,708) (6,605) (23,613)
Interest income................. 100 7 96 23 274 246 515
Interest expense................ (38) (4) (26) (4) (134) (100) (95)
------------ ------------ ------------ ---------- ------------ ------------ --------
Loss from continuing
operations before income
taxes (benefit)............. (3,298) (450) (5,761) (716) (7,568) (6,459) (23,193)
Income tax benefit (charge)..... (1,035) -- (1,098) (213) (1,311) (1,093) (491)
------------ ------------ ------------ ---------- ------------ ------------ --------
Loss from continuing
operations.................. (2,263) (450) (4,663) (503) (6,257) (5,366) (22,702)
------------ ------------ ------------ ---------- ------------ ------------ --------
Discontinued operations:
Income (loss) from the
discontinued BIS market
research business (net of
tax effect)................. 2,972 44 (1,469) 597 2,097 1,490 (79)
Income (loss) from the
discontinued Shrapnel
business (net of tax
effect)..................... 70 (12) (401) 54 154 154 (134)
Income (loss) on disposal of
discontinued BIS market
research business (net of
tax effect)................. -- -- -- -- -- -- (2,315)
Income (loss) on disposal of
discontinued Shrapnel
business (net of tax
effect)..................... -- -- -- -- -- -- (160)
------------ ------------ ------------ ---------- ------------ ------------ --------
Income (loss) from
discontinued operations..... 3,042 32 (1,870) 651 2,251 1,644 (2,688)
------------ ------------ ------------ ---------- ------------ ------------ --------
Net income (loss)............. $ 779 $ (418) $ (6,533) $ 148 $ (4,006) $ (3,722) $(25,390)
------------ ------------ ------------ ---------- ------------ ------------ --------
------------ ------------ ------------ ---------- ------------ ------------ --------
Historical results per common
and common equivalent share:
Loss from continuing
operations................
Income (loss) from
discontinued operations...
Income (loss) from disposal
of discontinued
operations................
Net income (loss)...........
Historical weighted average
common and common equivalent
shares outstanding............
Pro forma results per common and
common equivalent share:
Loss from continuing
operations................
Income (loss) from
discontinued operations...
Income (loss) from disposal
of discontinued
operations................
Net income (loss)...........
Pro forma weighted average
common and common equivalent
shares outstanding............
<CAPTION>
COMPANY
-----------------------------------
Year
Ended
December THREE MONTHS ENDED
31, MARCH 31,
---------- ------------------------
1997 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Continuous information
services.................... $ 14,600 $ 2,570 $ 6,804
Other services................ 4,715 1,276 1,693
Publications.................. 344 180 55
---------- ---------- ----------
Total revenues.............. 19,659 4,026 8,552
---------- ---------- ----------
Costs and expenses:
Cost of services.............. 12,477 3,202 4,391
Cost of publications.......... 174 75 71
Sales and marketing........... 19,617 4,158 5,781
Research and development...... 1,975 659 339
General and administrative.... 6,419 1,061 1,339
Depreciation and
amortization................ 2,810 634 385
---------- ---------- ----------
Total costs and expenses.... 43,472 9,789 12,306
---------- ---------- ----------
Operating loss................ (23,813) (5,763) (3,754)
Interest income................. 277 98 37
Interest expense................ (235) (17) (86)
---------- ---------- ----------
Loss from continuing
operations before income
taxes (benefit)............. (23,771) (5,682) (3,803)
Income tax benefit (charge)..... (641) 7 4
---------- ---------- ----------
Loss from continuing
operations.................. (23,130) (5,689) (3,807)
---------- ---------- ----------
Discontinued operations:
Income (loss) from the
discontinued BIS market
research business (net of
tax effect)................. -- -- --
Income (loss) from the
discontinued Shrapnel
business (net of tax
effect)..................... -- -- --
Income (loss) on disposal of
discontinued BIS market
research business (net of
tax effect)................. 1,101 -- --
Income (loss) on disposal of
discontinued Shrapnel
business (net of tax
effect)..................... 212 --
---------- ---------- ----------
Income (loss) from
discontinued operations..... 1,313 -- --
---------- ---------- ----------
Net income (loss)............. $ (21,817) $ (5,689) $ (3,807)
---------- ---------- ----------
---------- ---------- ----------
Historical results per common
and common equivalent share:
Loss from continuing
operations................ (11.16) (1.80)
Income (loss) from
discontinued operations... -- --
Income (loss) from disposal
of discontinued
operations................ 0.63 --
Net income (loss)........... (10.53) (1.80)
Historical weighted average
common and common equivalent
shares outstanding............ 2,072,837 2,115,837
Pro forma results per common and
common equivalent share:
Loss from continuing
operations................ (3.42) (0.56)
Income (loss) from
discontinued operations... -- --
Income (loss) from disposal
of discontinued
operations................ 0.19 --
Net income (loss)........... (3.23) (0.56)
Pro forma weighted average
common and common equivalent
shares outstanding............ 6,759,621 6,802,621
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES COMPANY
-------------------------- ---------------------------------------
DECEMBER 31, DECEMBER 31,
-------------------------- ---------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 2,639 $ 1,693 $ 16,876 $8,286 $ 3,539
Working capital (deficit)............................ 1,905 (1,503) 11,549 113 (10,196)
Total assets......................................... 10,181 7,509 24,833 19,679 23,023
Deferred revenues.................................... 762 1,232 2,201 6,832 20,604
Long term debt, less current portion................. -- -- 1,437 1,511 937
Total stockholders' equity........................... 6,942 2,017 14,972 1,659 (9,090)
<CAPTION>
COMPANY
-----------
MARCH 31,
1998
------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 1,753
Working capital (deficit).............................................. (13,821)
Total assets........................................................... 15,673
Deferred revenues...................................................... 19,458
Long term debt, less current portion................................... 848
Total stockholders' equity............................................. (12,750)
</TABLE>
- ------------------
(1) The pro forma results reflect the results of operations as if the
acquisitions of BIS and ExperNet had occurred on January 1, 1995. See Note 3
to the Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ORGANIZATION OF THE COMPANY AND FINANCIAL STATEMENT PRESENTATION
The Company was organized on March 17, 1995. In April 1995, the Company
acquired BIS as part of its strategic plan to accelerate the development of its
Continuous Information Services business and to obtain the marketing, sales and
other corporate infrastructures and certain personnel of BIS. In July 1995, the
Company acquired a majority equity interest in ExperNet Corporation ('ExperNet
Corporation'), which was owned by Gideon I. Gartner and David L. Gilmour, each
at the time, a director and officer of the Company, and, in December 1995,
acquired the remaining equity interest.
This Prospectus includes the financial statements of BIS, as the
predecessor to the Company, through the period ended April 5, 1995, the date of
acquisition by the Company. The period January 1 to December 15, 1993 is shown
separately for the Predecessor Companies because of a prior acquisition by an
unrelated entity on December 16, 1993. The periods covered by the financial
statements of the Company commence on March 17, 1995, the date of its
incorporation, and include the results of operations of BIS from April 5, 1995
and the results of operations of ExperNet Corporation from July 6, 1995, their
respective dates of acquisition. Results of operations of ExperNet Corporation
are not included in results of Predecessor Companies, which are solely the
results of BIS. The acquisition of BIS was accounted for under the purchase
method; accordingly, acquired assets were recorded at their estimated fair
values and related goodwill of approximately $3.1 million was also recorded and
was amortized over two years. The acquisition of ExperNet Corporation was also
accounted for as a purchase with the related goodwill of approximately $1.4
million amortized over five years. During 1997, the unamortized portion of the
goodwill relating to the ExperNet acquisition was written off, resulting in a
charge to amortization expense of $1,025,000.
In June 1996, the Company discontinued the BIS market research business.
Results of operations from the discontinued BIS market research business are
reflected as discontinued operations in the Company's financial statements. The
Company continues to generate revenues from the events businesses acquired as
part of the acquisition of BIS, which are reflected in the statements of
operations as Other Services. As a result of the discontinuance of the BIS
market research business, Giga recorded a charge, net of taxes, of approximately
$2.3 million in the year ended December 31, 1996. The Company entered into
agreements with two unrelated parties which have assumed responsibility for
fulfillment of the Company's obligations to former BIS customers in exchange for
a share of the deferred revenues recorded by Giga with respect to such
customers. In 1997, the Company recorded a gain of approximately $1.1 million
comprised mainly of a reversal of the provision for future lease commitments and
related expenses for two facilities in England and the provision which was
established for refunds to potentially dissatisfied customers. The Company does
not consider the historical results of BIS operations which have been
discontinued to be meaningful or indicative of the Company's future results of
operations.
In December 1996, the Company discontinued its econometric forecasting
business based in Australia in anticipation of selling the business to local
management. The Company recorded a provision of $160,000 in 1996 for anticipated
operating losses prior to the completion of the sale by the Company. In August
1997, the operations were sold to local management for approximately $293,000
and a gain of approximately $202,000, net of taxes was recorded and is reflected
in disposal of discontinued operations. Results of operations from the
discontinued econometric forecasting business are included among Discontinued
Operations in the Company's financial statements.
OVERVIEW
Giga provides objective analyses and advice relating to developments and
trends in the IT industries to assist its customers in making technology-related
decisions. The Company's four principal products and services are (i) Advisory
Service, (ii) IT Practice Services, (iii) Continuous Advisory Consulting and
(iv) Events and Publications. The Company provides its services primarily
through GigaWeb, its intelligent Internet-based information delivery interface.
The Company introduced its Advisory Service and GigaWeb in April 1996. In
July 1996, the Company introduced its IT Practice Services. Advisory Consulting
was introduced in September 1997. The Company's
20
<PAGE>
Events and Publications product line was acquired with the acquisition of BIS in
April 1995. The Company expects that revenues from its Continuous Information
Services will continue to increase as a percentage of its total revenues.
For financial reporting purposes, revenues from (i) Advisory Service, IT
Practice Services and Continuous Advisory Consulting are aggregated into
Continuous Information Services, (ii) Events and other services, principally
consulting, are aggregated into Other Services and (iii) Publications are listed
separately.
The Company's Continuous Information Services are typically sold through
annual contracts that generally provide for payment at the commencement of the
contract period. Amounts received in advance of services provided are reflected
in the Company's financial statements as deferred revenues and are recognized
monthly on a pro rata basis over the term of the contract. Revenues from Other
Services are recognized as follows: events as they occur and consulting as such
services are performed. Revenues from Publications are recognized when
publications are delivered.
The Company believes that a leading measure of the volume of its CIS
business is the annualized value ('Annualized Value') of its Continuous
Information Services agreements in effect at a given point in time. The Company
calculates Annualized Value each month as the cumulative annualized subscription
value payable under the agreements without regard to commencement date, duration
or risk of cancellation. The Company also measures its performance on the basis
of Net Annualized Value Increase ('NAVI') which is calculated on the basis of
new agreements plus upgrades, net of downgrades and cancellations. The sum of
all past NAVI equals Annualized Value. Historically, a substantial portion of
NAVI for a given year is generated by the Company in the last two calendar
quarters, and particularly in the last month of the last quarter. The following
table sets forth the Annualized Value and NAVI for the years ended December 31,
1996 and 1997 and the three months ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
UNAUDITED
---------------------------------------
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- ------------------
1996 1997 1997 1998
------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning Annualized Value............................................. $ -- $ 9,339 $ 9,339 $26,619
Net Annualized Value Increase.......................................... 9,339 17,280 2,384 2,878
------ ------- ------- -------
Ending Annualized Value................................................ $9,339 $26,619 $11,723 $29,497
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
A majority of the Company's annual contracts renew automatically unless the
customer cancels the subscription. The Company's experience is that a
substantial portion of customers renew expiring contracts for an equal or
greater level of total CIS fees each year. As of March 31, 1998, approximately
66% of Giga's customers had renewed one or more contracts for Giga's services in
the past twelve months. The Company believes that a direct comparison of its
renewal rates and the renewal rates of its major competitors may not be
meaningful due in part to the Company's limited operating history and its
Advisory Service model (the focus of which is a unified, integrated approach
with fewer contracts/services per customer), in contrast to the multiple-service
model of the Company's major competitors.
The Company anticipates that Annualized Value, at a point in time, will be
a reliable indicator of the minimum next twelve months' CIS revenues. However,
the Company's current renewal rate is not necessarily indicative of the rate of
retention of the Company's revenue base, and Annualized Value at any given time
may not be indicative of future revenues or cash flows, especially if the rate
of renewal of existing agreements or the timing of new agreements were to
significantly change during the following 12 months compared to historical
experience. There can be no assurance that the Company will be able to sustain
or increase its current renewal rate or that Annualized Value will continue to
grow.
The Company's operating expenses consist of cost of services, cost of
publications, selling and marketing, research and development, general and
administrative, and depreciation and amortization. Cost of services consists
primarily of the direct costs associated with the delivery of the Company's
Continuous Information Services and other services including personnel expenses
for analysts and other personnel, direct expenses for events and conferences,
and royalties to third party information providers. Cost of publications
consists of expenses to create, print and distribute publications. Sales and
marketing expenses include personnel expenses,
21
<PAGE>
promotional expenses, and sales commissions. Sales commissions are typically
deferred when paid and expensed as the related revenue is recognized. Research
and development expenses consist of personnel, consulting and other expenses to
develop, enhance and operate GigaWeb. General and administrative expenses are
primarily personnel costs and fees for professional services supporting the
administrative functions of the Company.
Since its inception, the Company has incurred substantial costs to develop
its Continuous Information Services, establish its GigaWeb system, build a
management team and recruit, employ and train research analysts, sales personnel
and support staff for its business. The Company expects to incur significant
losses through at least fiscal 1998 as the Company expands and develops its
services and products.
The Company has incurred substantial tax loss carryforwards since
inception, and acquired tax loss carryforwards with its acquisition of BIS, all
of which aggregate to approximately $51.8 million at March 31, 1998. Due to the
magnitude of these existing tax loss carryforwards, the continuing anticipated
losses through at least 1998 and the substantial uncertainties associated with
its business, the Company is unable to conclude that it is more likely than not
that the deferred tax associated with these tax loss carryforwards will be
realized. Accordingly, this deferred tax asset has been fully reserved. This
valuation allowance will be reduced and the deferred tax asset will be
recognized when and if it becomes more likely than not that the deferred tax
asset will be realized.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
total revenues for the periods indicated.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS
------------ YEAR ENDED ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
DECEMBER 31, -------------- -------------
1995 1996 1997 1997 1998
------------ ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous information services .............................. -- 31% 74% 64% 79%
Other services................................................ 83% 60 24 32 20
Publications.................................................. 17 9 2 4 1
------ ----- ----- ----- ----
Total revenues.............................................. 100 100 100 100 100
------ ----- ----- ----- ----
Costs and expenses:
Cost of services.............................................. 70 122 63 80 51
Cost of publications.......................................... 6 8 1 2 1
Sales and marketing........................................... 9 66 100 103 68
Research and development...................................... 3 18 10 16 4
General and administrative.................................... 68 96 33 26 16
Depreciation and amortization................................. 19 24 14 16 5
------ ----- ----- ----- ----
Total costs and expenses.................................... 175 333 221 243 144
------ ----- ----- ----- ----
Loss from operations.......................................... (75) (233) (121) (143) (44)
Interest income (expense), net.................................. 1 4 0 2 (1)
------ ----- ----- ----- ----
Loss from continuing operations before income taxes........... (74) (229) (121) (141) (45)
Income tax (benefit) charge..................................... (13) (5) (3) 0 0
------ ----- ----- ----- ----
Loss from continuing operations............................... (61) (224) (118) (141) (45)
Income (loss) from discontinued operations.................... 22 (27) 7 -- --
------ ----- ----- ----- ----
Net loss...................................................... (39)% (250)% (111)% (141)% (45)%
------ ----- ----- ----- ----
------ ----- ----- ----- ----
</TABLE>
In general, the decreases in the various operating expenses as a percentage
of total revenues are primarily due to leveraging those expenses over increased
revenues derived from a growing customer base.
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenues. Total revenues increased 112% to $8.6 million for the three
months ended March 31,1998 from $4.0 million for the same period in 1997. The
increase in total revenues was primarily due to the increase in revenues from
Continuous Information Services.
Revenues from Continuous Information Services increased 165% to $6.8
million for the three months ended March 31, 1998 from $2.6 million for the same
period in 1997. This increase in revenues was primarily due to growing market
acceptance of Giga's services and continued expansion of the Company's sales
force.
22
<PAGE>
Revenues from Other Services increased 33% to $1.7 million for the three
months ended March 31, 1998 from $1.3 million for the same period in 1997. The
increase was primarily due to higher revenues from the planned expansion of the
Company's events and conferences activities net of a decrease in consulting
revenues associated with the phase-out of certain consulting activities.
Revenues from Publications decreased 69% to $55,000 for the three months
ended March 31, 1998 from $180,000 for the same period in 1997. The decrease was
due to a de-emphasis on this business activity.
Cost of services. Cost of services increased 37% to $4.4 million for the
three months ended March 31, 1998 from $3.2 million for the same period in 1997.
The increase in costs was primarily due to the expansion of the analyst staff
and other expenses associated with providing Continuous Information Services.
Cost of publications. Cost of publications decreased 5% to $71,000 for the
three months ended March 31, 1998 from $75,000 for the same period in 1997. The
decrease was primarily attributable to a continued reduction in the number of
publications produced.
Sales and marketing. Sales and marketing expenses increased 39% to $5.8
million for the three months ended March 31, 1998 from $4.2 million for the same
period in 1997. The increase was principally due to the continued expansion of
the Company's direct sales organization and higher sales commission expense from
increased revenues.
Research and development. Research and development expenses decreased 49%
to $339,000 for the three months ended March 31, 1998 from $659,000 for the same
three-month period in 1997. The decrease was primarily due to the completion of
the development of the basic functionality of GigaWeb in 1997.
General and administrative. General and administrative expenses increased
26% to $1.3 million for the three months ended March 31, 1998 from $1.1 million
for the same period in 1997. The increase in expense was primarily due to
enhancements to infrastructure such as internal systems, additional personnel
and other items to support the Company's growth.
Depreciation and amortization. Depreciation and amortization expense
decreased 39% to $385,000 for the three months ended March 31, 1998 from
$634,000 for the same period in 1997. The decrease was primarily due to the
Company's practice in 1997 to rent, instead of purchase, computer equipment.
Interest income and expense. Interest income decreased to $37,000 for the
three months ended March 31, 1998 from $98,000 for the same period in 1997 due
to lower cash balances available for investment. Interest expense increased to
$86,000 from $17,000 for the same period in 1997 due to a long-term equipment
financing loan agreement entered into by the Company in June 1997.
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND 1995 (PRO FORMA)
For purposes of the following discussion, the results for the year ended
December 31, 1995 are presented on a pro forma basis to reflect (i) the
operations of the Predecessor Companies from January 1, 1995 to April 5, 1995,
(ii) the operations of the Company from March 17, 1995 to December 31, 1995 and
(iii) the operations of ExperNet and the amortization of goodwill incurred in
connection with the acquisition of the Predecessor Companies as though such
acquisitions occurred on January 1, 1995. The results of the BIS market research
business and the Australian econometric forecasting operation have been shown as
discontinued operations. The Company's activities from March 17, 1995 to April
5, 1995 were principally devoted to the acquisition of the Predecessor
Companies.
Revenues. Total revenues increased 94% to $19.7 million in 1997 from $10.1
million in 1996 and were essentially unchanged in 1996 from $10.3 million in
1995. These changes in total revenues were primarily due to increased revenues
from Continuous Information Services, offset by decreased revenues from Other
Services.
Revenues from Continuous Information Services increased 364% to $14.6
million in 1997 from $3.2 million in 1996. The Company began marketing its
Continuous Information Services in April 1996. The increase in revenues was
primarily due to growing market acceptance of Giga's services and continued
expansion of the Company's sales force.
Revenues from Other Services decreased 22% to $4.7 million in 1997 from
$6.0 million in 1996 and 29% in 1996 from $8.5 million in 1995. The decrease in
such revenues in 1997 was principally due to a planned phase-
23
<PAGE>
out of BIS's consulting business offset by increased revenues from the Company's
events and conferences. The decrease in revenues in 1996 compared to 1995 was
primarily due to the decrease in certain consulting activities.
Revenues from Publications decreased 64% to $344,000 in 1997 from $946,000
in 1996 and 45% in 1996 from $1.7 million in 1995. The decreases were primarily
due to a de-emphasis on this business activity.
Cost of services. Cost of services decreased 1% to $12.5 million in 1997
from $12.3 million in 1996 and increased 72% in 1996 from $7.2 million in 1995.
The cost decrease in 1997 was primarily due to decreased expenses for the legacy
BIS consulting business being phased-out, offset by increased expenses to
provide Continuous Information Services to the Company's growing customer base.
The cost increase in 1996 was due to the Company's substantial investment to
build its research organization and retain consultants for the Company's
Continuous Information Services.
Cost of publications. Cost of publications decreased 78% to $174,000 from
$790,000 in 1996 and increased 35% in 1996 from $586,000 in 1995. The decrease
in 1997 was principally due to a planned decrease in the number of publications.
The increase in 1996 was primarily due to a change in the mix of publications
sold.
Sales and marketing. Sales and marketing expenses increased 193% to $19.6
million in 1997 from $6.7 million in 1996 and 590% in 1996 from $972,000 in
1995. The increase in 1997 was primarily due to the expansion of the Company's
sales organization to sell its Continuous Information Services and higher sales
commission expense from increased revenues. The increase in 1996 was principally
attributable to the increased investment in marketing programs and expansion of
the Company's sales force in connection with the introduction of its Continuous
Information Services in April 1996.
Research and development. Research and development increased 10% to $2.0
million in 1997 from $1.8 million in 1996 and 414% in 1996 from $348,000 in
1995. The increase in 1997 was primarily due to the continued enhancement of
GigaWeb to meet evolving market needs. The increase in 1996 was due to the
investment required for the development of GigaWeb and ExperNet.
General and administrative. General and administrative expenses decreased
34% to $6.4 million in 1997 from $9.7 million in 1996 and increased 40% in 1996
from $7.0 million in 1995. The decrease in 1997 from 1996, and the increase in
1996 over 1995, was primarily due to one-time expenses in 1996 for internal
systems, facilities, personnel, and other items to build the infrastructure to
support the expansion of the Company's operations.
Depreciation and amortization. Depreciation and amortization expenses
increased 18% to $2.8 million in 1997 from $2.4 million in 1996 and 22% in 1996
from 2.0 million in 1995. The increase in 1997 was due primarily to the
write-off of the remaining amount of unamortized goodwill associated with the
ExperNet acquisition offset by the Company's practice in 1997 to rent rather
than purchase computer equipment.
Interest income and expense. Interest income was earned on cash balances,
in excess of then current operating needs, from the Company's equity financing
during 1996 and 1997. Interest expense is primarily from long-term debt for
equipment financing and acquisitions and varies with the outstanding balance.
Discontinued operations. In June 1996, the Company discontinued its BIS
market research business and, as a result, recorded a charge of approximately
$2.3 million, net of taxes, in the year ended December 31, 1996. In 1997, the
Company recorded income, net of taxes, of $1.1 million from the settlement of a
liability relating to a long-term, foreign lease and the renewal of a provision
established for refunds to potentially dissatisfied customers that had been part
of the aforementioned charge.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations primarily
through the private placement of equity securities and borrowings under
promissory notes. The Company has received aggregate net proceeds of $43.4
million from the private placement of equity securities and recently borrowed
$10.0 million under the Bridge Notes. At March 31, 1998, the Company had cash
and cash equivalents of $1.8 million. See Notes 11, 13 and 20 to the
Consolidated Financial Statements.
During 1997 and the three months ended March 31, 1998, the Company's
capital expenditures totaled approximately $559,000 and $261,000, respectively,
primarily for computer equipment. The Company expects
24
<PAGE>
that additional purchases of computer equipment will be made as the Company's
employee base and customer base grow. As of March 31, 1998, the Company had no
material commitments for capital expenditures.
Net cash used by continuing operations was approximately $17.7 million and
$14.5 million for the years ended December 31, 1996 and 1997, respectively, and
approximately $1.3 million for the three months ended March 31, 1998. Net cash
used by investing activities of approximately $206,000 for the year ended
December 31, 1997 and approximately $251,000 for the three months ended March
31, 1998 were primarily due to purchases of computer equipment. Cash provided
from financing activities of approximately $17.7 million for the period March
17, 1995 to December 31, 1995 and approximately $11.6 million and $11.7 million
for the years ended December 31, 1996 and 1997, respectively, were primarily
generated by the issuance of the Common Stock and Preferred Stock as previously
described. Cash used by financing activities for the three months ended March
31, 1998 of $231,000 was principally used to repay long-term debt.
In April 1998, the Company issued the Bridge Notes in the aggregate
principal amount of $10.0 million and warrants to purchase an aggregate of
166,666 shares of Common Stock at an exercise price of $3.00 per share. The
outstanding principal amount of, and any unpaid accrued interest on, the Bridge
Notes is due and payable upon completion of the Offering. In April 1998 and May
1998, the Company issued an aggregate of $2.0 million of Series D Preferred
Stock. See 'Certain Transactions' and Note 20 to the Consolidated Financial
Statements for additional information concerning these transactions. The Company
believes that the net proceeds from the Offering, together with its existing
cash and cash equivalents and cash generated from operations, will be sufficient
to fund the Company's cash needs for at least the next twelve months.
The Company has spent substantial amounts to date and expects capital and
operating expenditures to increase due to numerous factors, including the
Company's plans to increase marketing efforts for its Continuous Information
Services, the expected costs to attract and retain qualified employees,
including research and sales personnel, on a timely basis and the related costs
of such efforts, the response of competitors to the Company's services, the
Company's plans to develop and market new services and products, the further
enhancement of the GigaWeb system and the Company's expansion of its
international operations, and the continued acceptance by customers of annual
membership agreements providing for advance payments rather than equal monthly
installments or some other payment model. The Company anticipates funding its
ongoing working capital needs principally through the net proceeds to the
Company from the Offering. However, in the event that the Company encounters
difficulties in collecting accounts receivable, experiences low or reduced
subscription renewal rates or otherwise has revenues that are lower than
planned, the Company might require additional working capital and there can be
no assurance that such capital would be available to the Company on terms that
are acceptable, if at all. If adequate funds are not available, the Company may
be required to reduce its fixed costs and delay, scale back or eliminate certain
of its services, any of which could have a material adverse effect in the
Company's business, financial condition and results of operations. See 'Risk
Factors--Substantial Future Capital Needs; Risks of Working Capital Deficiency.'
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. The Company has
commenced efforts to ensure that the computer systems and applications upon
which it relies for internal operations and external communications, and
presently expects to use following December 31, 1999, are or will be year 2000
compliant. While uncertainty exists concerning the potential effects associated
with such compliance, the Company does not believe that year 2000 compliance
will result in a material adverse effect on its business, financial condition
and results of operations.
25
<PAGE>
BUSINESS
GENERAL
The Company provides objective analyses and advice relating to developments
and trends in the computing, telecommunications, and related industries
(collectively, the 'Information Technology' or 'IT' industries) to assist its
customers in making technology-related decisions. IT is critical to the
competitiveness and long-term viability of a wide range of organizations. The
Company believes information overload, confusion, and anxiety exists among IT
decision-makers. As a result, an increasing number of organizations are turning
to Continuous Information Service ('CIS') providers to monitor and analyze IT
developments and to identify trends to support such organizations' IT
decision-making needs. The Company's Continuous Information Services are
available to customers for an annual subcription fee billed and payable in
advance, which entitles members to (i) access all the Company's advisory service
information and analyses, (ii) inquiry privileges and (iii) participate in
briefings, a conference and teleconferences.
CIS MARKET
The CIS industry emerged in the 1960's in response to the complexity and
growth in the IT market. In the early stages of the CIS industry's development,
CIS providers primarily produced quantitative analyses of IT industry trends to
assist vendors with product planning and formulation of marketing and business
strategies. The IT industry continued to rapidly evolve and increasingly became
characterized by short product life cycles, highly complex, distributed
computing and telecommunications architectures and IT systems made up of
hardware and software from a wide variety of vendors. As a result,
decision-making by users of IT products and services became increasingly
complicated, straining the analytic resources within organizations. In response
to this opportunity, a second generation of CIS providers emerged by the 1980's,
offering analytical and decision-support information to users, in addition to
the quantitative information offered to vendors. These second generation
providers continued to be characterized by multiple information service
offerings, each of which focused on a specific aspect of the IT industry, such
as mainframes, personal computers, operating systems, application development
tools or relational databases. Over time, as IT became more complex, the number
of such services proliferated.
In the 1990's, the continuous expansion of technological choices has made
IT operations even more complex and diverse, particularly with the migration
from legacy mainframe systems to distributed client-server and other
architectures and the emergence of the Internet, together with advanced
telecommunications offerings. As a result, organizations are increasingly
turning to outside consultants for support. In addition to users and vendors, an
emerging segment of the CIS market includes business managers, who require
increased awareness of IT issues to heighten sensitivity to systems
opportunities, and small businesses, which are becoming more reliant on
technology.
The Company believes that the multiple-service model is not well positioned
to effectively address the critical and evolving IT needs of modern
organizations. Due to the complexity and interrelationships among the various
aspects of IT, the Company believes organizations require integrated advice that
is not limited to the boundaries of the second generation model. In addition,
since IT solutions also often require practical, hands-on experience, CIS
providers must complement the strategy-oriented consultative skills of many of
today's industry analysts with pragmatic real-world advice. Due to increasing
time and budget pressures, customers must also be able to quickly and
efficiently search through the voluminous resources and published content of CIS
providers to locate the particular analyses and expertise they require.
THE GIGA SOLUTION
Giga was founded by Gideon I. Gartner, who in 1979 founded Gartner Group,
Inc. Building on his extensive experience and success in the CIS industry, Mr.
Gartner formed Giga with the objective of creating a new approach toward
addressing the CIS needs of IT users and vendors. Giga has developed a range of
innovative Continuous Information Services, as well as an effective, electronic
information delivery mechanism, designed to provide integrated IT analyses and
advice.
26
<PAGE>
Foremost among these innovations is the Company's unified Advisory Service,
in which IT research and analysis is offered to customers as a single service
intended to encompass the variety of IT coverage offered by other CIS providers
through multiple and fragmented services. The Company believes that its Advisory
Service (i) delivers the comprehensive viewpoint required by customers, (ii)
offers a price/performance advantage over the second generation model since the
payment of one subscription fee provides access to all advisory research and
(iii) becomes increasingly cost effective over time as new advisory research is
added without increased subscription fees.
Giga's service approach was developed in response to the needs of the CIS
market. The Company's unified Advisory Service produces internal benefits which
the Company believes allows it to better service its customers, including (i)
flexibility of resource allocation, (ii) an orientation toward internal
collaboration and (iii) the development of experienced generalists, who are able
to diagnose broad client challenges and communicate effectively with clients.
The process is also designed to be objective, by virtue of several features
built into Giga's methodologies, such as a requirement that analysts articulate
balanced opinions. In addition, research is available to clients on a timely
basis, through GigaWeb's sophisticated authoring technology. The customization
features permitted by GigaWeb also make Giga's research more relevant to
specific client environments.
As part of its Continuous Advisory Consulting services, the Company also
enters into on-going retainer-based consulting arrangements with its customers
to assess various IT issues, including an organization's strategic technology
plan, a vendor's marketing plan, or the implementation issues surrounding a
major technology migration. Advisory Consulting is a valuable extension of the
Company's client inquiry process, enabling customers to request more in-depth
analysis targeted at the application of technology to their specific situation.
The Company also offers customers its innovative IT Practice Services to
complement its Advisory Service. Giga employs former IT operating executives to
survey leading IT organizations, document the techniques and methods ('best
practices') used by IT managers within these organizations, and deliver the
results to customers, which can be combined with consulting servies. Each of
these services focuses on a distinct job function within an IT organization,
permitting customers to benchmark their IT practices against those of peers and
to obtain new ideas.
GigaWeb, the Company's Internet-based information delivery interface allows
customers to easily and efficiently navigate through the full spectrum of
original research and third-party content available through the Advisory
Service. Through the use of intelligent software agents, the Company is able to
provide customized information to each customer and to allow customers to search
for and select the information that is most relevant to their particular needs.
GigaWeb also enables collaboration with Giga's clients and maintains rich
features which improve the usability of Giga research. In addition, to
complement the Company's research and inquiry access, Advisory Service customers
are provided access to ExperNet, the Company's network of external IT
practitioners who have practical experience in solving real-world IT problems.
GIGA STRATEGY
Giga's objective is to become the leading third generation CIS provider,
offering a significant price/performance advantage over its competitors. The key
elements of Giga's strategy include:
o Utilizing and Enhancing its Price/Performance Advantage. The Company
intends to use its price/performance advantage to increase the range
of companies which can afford CIS products and services and to allow
customers to offer Giga's content for a wider group of employees than
has been affordable with competitors' products.
o Leveraging Existing Customer Base. The Company's services are used
by over 800 customers worldwide. Giga intends to expand its customer
relationships by providing additional non-advisory services, such as
IT Practice Services and Continuous Advisory Consulting. In addition,
the Company is focused on increasing the number of Advisory Service
subscribers within each customer's organization.
27
<PAGE>
o Expanding and Capitalizing on Worldwide Distribution. Giga has
expanded its worldwide sales force from 49 on December 31, 1996 to
103 on April 30, 1998. The Company plans to continue to expand its
sales and marketing organization both domestically and
internationally. The Company has entered into agreements with
distributors located in Spain, Israel and Korea and intends to
develop additional international distribution arrangements.
PRODUCTS AND SERVICES
The Company's four principal product and service lines are (i) Advisory
Service, which includes ExperNet, (ii) IT Practice Services, (iii) Advisory
Consulting and (iv) Events and Publications. The Company's services are designed
to be accessed through GigaWeb, as well as through published reports and
consultation with the Company's analysts and consultants. Set forth below is a
schematic of Giga's principal product and service lines:
<TABLE>
<S> <C>
------------------------------------
| Giga Information Group |
------------------------------------
|
|
<S> <C> <C> <C>
___________________________________________|____________________________________________________
| | | |
| | | |
- ----------------------------------------------------------------------------------------------------------------------------------
| IT Practice Services || Advisory Service || Continuous Advisory || Events and Publications |
| || || Consulting || |
| Integration of best practice || Continuous subscription- || || Conferences on IT industry |
| surveys with consulting || based decision-support service || In-depth analysis and advice ||issues and trends, stand-alone|
| || ExpertNet network || provided on an on-going basis || reports and newsletters |
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
| GigaWeb |
| Internet-based information delivery interface |
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Advisory Service
Advisory Service, the principal CIS offering of the Company, is available
to customers for an annual subscription fee billed and payable in advance, which
entitles members to (i) access all of the Company's advisory service information
and analyses, (ii) inquiry privileges and (iii) participate in briefings, a
conference and teleconferences.
Research
Giga employs a structured and consistent research methodology. The goal of
Giga research is to form original judgments and recommendations to support
client decision-making. Research topics are determined in part by examination of
customers' needs, which are identified by analysts through direct discussions
with clients. The Company's methodology enables it to rapidly analyze IT
markets, technologies, vendors, products and user issues. Analysts conduct
informal research by surveying the Company's client base and interviewing
vendors, consultants and other sources. These activities are supplemented with
searches of numerous trade, financial and other third-party source materials
compiled by the Company's research center. The Company believes its analysts
form original judgments and recommendations by applying their professional
experiences to their review of these combined materials. To ensure research
quality and consistency, all research is reviewed on an ongoing basis by the
Company's research management team, in conjunction with several senior analysts
who are designated research leaders.
28
<PAGE>
The Company seeks to convey relevant and actionable information and
analyses, as well as practical advice, to its customers through a spectrum of
delivery mechanisms, including:
o IdeaBytes. IdeaBytes are one-page, published analyses that are
intended to provide customers with quick, up-to-date findings and
opinions on current issues that are authored by the Company's
analysts.
o Planning Assumptions. Planning Assumptions are multi-page and highly
formatted reports that provide customers with in-depth analyses of IT
topics and recommendations for action. Planning Assumptions are
designed to be responsive to the current needs of the market.
o Inquiry Support. The Company maintains a 'Knowledge Center,' which
consists of experienced research support associates who track
customer inquiries and direct customers to the appropriate analyst or
source of information. Customers also have direct access to the
Company's analysts or ExperNet practitioners on-line through GigaWeb.
o GigaTels. GigaTels are audio teleconferences run by the Company's
analysts on selected topics and provide an open forum for questions,
exchanges and debate. There were 3,000 participants in the 91
hour-long GigaTels held in 1997.
o Third-Party Content. The Company provides customers with access
through GigaWeb to publications from information partners such as Dow
Jones and Information Access Corporation.
Examples of Giga research topics include 'Network-Centric Enterprise
Architectures,' 'Platforms for Enterprise Computing: The Emerging Role of NT in
the Enterprise' and 'Participating in Electronic Commerce.' Since these topics
are typically interdisciplinary, they are supported by research from multiple
analysts that cover different areas of IT. For example, the topic covering
enterprise platforms requires research contributions from analysts who cover the
mainframe, client-server, wide-area networks, database management systems and
operating systems areas, necessitating the active participation of five or more
analysts. The Company's research culture is designed to encourage collaboration
among analysts.
The Company currently employs over 50 research professionals and plans to
hire additional research professionals, as needed. The Company's principal
research offices are located in Cambridge, MA, Westport, CT and Santa Clara, CA.
Giga's analysts average 10 years of experience with backgrounds ranging from
consulting to vendor and user professional positions.
ExperNet.
To complement the Company's research and inquiry access, customers have
access through GigaWeb to ExperNet, a network of over 1,000 external IT
practitioners. These practitioners have current experience in diversified
segments of the IT industry, which the Company believes cannot be efficiently
covered by the traditional CIS approach, and are available to assist clients in
solving real-world IT problems. Each practitioner responds to customer inquiries
at no additional charge in return for access to Giga information.
GigaWeb and Other Delivery Mechanisms
Advisory Service research is customized in a personalized manner through
GigaWeb, the Company's proprietary, Internet-based information delivery
interface which provides on-line access to the Company's research reports,
third-party content, analysts and ExperNet. GigaWeb makes it possible for
members to obtain both a unified and complete view across all of Giga's advisory
content while matching customers' specific needs as determined by
self-administered profiles and prior inquiries. GigaWeb is designed to make it
easy and efficient for a customer to navigate through the full spectrum of
Giga's original research and third-party content, together with access to human
expertise. Subscribers to Advisory Service are provided with a personalized home
page (the 'Virtual Office') which is accessed through Giga's password-protected
Internet site using a Web browser.
GigaWeb enables customers to search for relevant information using word
searches. Based on the individualized customer profile, GigaWeb automatically
selects the particular subset of Giga research and third-party content most
relevant to the customer and delivers it to the customer's Virtual Office or via
e-mail. In addition, customers who have shared objectives or interests can
interact with each other, as well as with Giga analysts and ExperNet
practitioners, through on-line discussion groups. Advisory Service clients may
provide GigaWeb access to large numbers of their IT professionals via
content-only seats and various site license practices.
29
<PAGE>
The Company also has installed its content as an additional deliverable on
several corporate intranets, and expects the volume of such installations to
increase substantially. This service is called IntraGiga. For those companies
utilizing Lotus Notes, Giga offers access to its research via GigaNotes.
Customers can also request that Giga's research be provided via hard copy.
Continuous Advisory Consulting
The Company's Continuous Advisory Consulting services provide Giga
customers with support such as assessments of an organization's strategic
technology plan, the implementation issues surrounding a major technology
migration or a vendor's marketing plan. Advisory Consulting is a valuable
extension of the Company's client inquiry process, enabling customers to request
more in-depth analysis targeted at the application of technology to their
specific situation. When a customer inquiry requires on-going or periodic
assessments and updates, Giga analysts may construct a scheduled advisory
program.
IT Practice Services
The Company believes that its IT Practice Services enable Giga customers to
be more effective in solving IT problems by leveraging the best practices of
their peers. Senior Giga advisors with strong IT and management expertise
document the successful operating practices and techniques of IT managers in a
concise reference book. The insights gained from these best practices are
interpreted by the advisors and tailored to fit in the context of the customer's
organization. IT Practice Services are designed for specific job functions found
within the IT organization and address the issues that such individuals must
solve. Currently, the Company offers IT Practice Services in three areas: CIO
Practices, Year 2000 Practices and Security Practices. Each IT Practice Service
is available for an annual subscription fee. Each customer receives (i) three
in-depth studies documenting best practices, (ii) on-site consultations to guide
the client in applying the best practices that are most pertinent to the
customer and (iii) inquiry access to IT Practice Service advisors.
Events and Publications
The Company organizes and sponsors a range of events on significant IT
industry issues and trends. At GigaWorld IT Forum, the Company's flagship annual
conference, Giga analysts present and update their most important research
findings and recommendations and meet one-on-one in advisory sessions with
clients. Other conferences include the 'Business OnLine Symposia' and the
'Business and Process Workflow' conference series, both held in the United
States and Europe annually. In 1997, the Company organized and hosted 11 three-
day conferences, sponsored an additional 9 conferences (hosted by partner
organizations). All events are promoted via direct mail and telesale channels
with over 1.2 million pieces of mail bearing the Company's logo circulated in
1997.
The Company produces a series of off-the-shelf publications based on
conference topics or current IT issues which are identified through the Advisory
Service and marketed to IT professionals. The Company produced six publications
and one newsletter in 1997.
SALES AND MARKETING
Since inception, the Company has made substantial investments in sales and
marketing to sell its services, address additional markets and support its
growing customer base. The Company sells its services through a direct sales
force located in the United States, Canada, United Kingdom, France, Germany, the
Netherlands and Denmark. As of April 30, 1998, the Company's North American
direct sales force consisted of 88 field sales personnel, an increase from 42
personnel at December 31, 1996. The Company also had 15 international direct
sales personnel serving Europe, an increase from 7 personnel at December 31,
1996. The Company also sells its services through independent third-party
distributors in Spain, Israel and Korea. The Company's internal marketing
organization, primarily located in the Company's Norwell, Massachusetts
facility, provides public relations, lead generation, direct mail support and
other related services.
All Giga sales representatives participate in the Company's annual sales
compensation plan. Commissions are paid monthly based upon NAVI attainment
versus established quotas. Additional bonuses and other incentives are paid for
meeting and/or exceeding certain established targets and for special promotions.
30
<PAGE>
The Company has over 800 customers. No single customer accounted for over
3% of the Company's revenues for the year ended December 31, 1997. The Company
serves customers across a broad array of industries, which include:
<TABLE>
<S> <C>
Allstate Corp. Hewlett-Packard Co.
AT&T Wireless Services International Business Machines Corporation
BASF Intel Corp.
Blue Cross Blue Shield of Nebraska Microsoft
British Aerospace PLC Motorola Inc.
Citibank N.A. Netscape
Federal Express Corp. Pirelli SPA
Ford Motor Company State of Texas
General Electric Co. Texaco Inc.
The Gillette Co. United Nations International Computing Centre
</TABLE>
COMPETITION
The Company competes in the IT market directly with other independent
providers of Continuous Information Services, including Gartner Group, META
Group, Inc. and Forrester Research Inc., and the internal planning, research and
marketing staffs of corporations and IT vendors. The Company also competes with
other information providers, including market research firms, 'Big Six'
accounting firms, consulting firms and systems integrators. Many of the
Company's direct and indirect competitors have substantially greater financial,
information gathering and marketing resources than the Company. Some of the
Company's direct and indirect competitors also have established research
organizations with greater market recognition and experience in the IT industry.
See 'Risk Factors--Significant Competition.'
EMPLOYEES
As of March 31, 1998, the Company employed 307 persons, including 63 in
research and research support, 26 events and publications, 165 in sales and
marketing, 10 in research and development and 43 in administration. Of such
employees, 100 are located in the Company's Norwell facility, 69 are located in
the Company's other domestic facilities, 49 are located internationally and 90
work from their homes. None of the Company's employees are represented by a
collective bargaining arrangement and the Company believes its relationship with
its employees is good.
FACILITIES
The Company's headquarters are located in Norwell, Massachusetts and
consist of approximately 27,000 square feet. This facility and the Company's
approximately 8,000 square feet in its Cambridge, Massachusetts facility
together accommodate corporate administration, research and analysis, marketing
and sales and customer support. The lease on the Cambridge facility expires in
November 2000 and the lease on the Norwell facility is currently on a
month-to-month basis. The Company is actively negotiating a five-year lease on
the Norwell facility which would commence in June 1998. The Company also leases
office space for its research, and sales and marketing efforts in three other
U.S. and three primary international locations. The Company believes that
additional facilities will be available in the future on commercially reasonable
terms to meet future needs. See Note 7 to the Consolidated Financial Statements
for information regarding the Company's annual rental costs.
LEGAL PROCEEDINGS
The Company, from time to time, is a party to legal proceedings. See 'Risk
Factors--Uncertainties Relating to Proprietary Rights.'
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages as of
March 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Gideon I. Gartner............................... 63 Chairman, President and Chief Executive Officer
James C. R. Graham.............................. 47 Executive Vice President
Daniel M. Clarke................................ 51 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Keith R. Belton................................. 37 Senior Vice President, Research
Michael R. Mooradian............................ 40 Senior Vice President, Worldwide Sales
Neill H. Brownstein (1)(2)...................... 54 Director
David L. Gilmour................................ 40 Director
Richard L. Crandall (2)......................... 54 Director
Bernard Goldstein (2)........................... 67 Director
Irwin Lieber (1)................................ 58 Director
Josh S. Weston (3).............................. 69 Director Nominee
</TABLE>
- ------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) To be appointed a director upon closing of the Offering
Mr. Gartner has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception in March 1995. In October
1997, he was also elected President. From 1993 to 1994, he was a private
investor. From 1991 to 1992, he served as Chairman, and from 1979 to 1991 he
served as President, Chairman and Chief Executive Officer of Gartner Group,
Inc., an information technology company which he founded. From 1972 to 1979, he
served as a technology analyst and subsequently as a partner at Oppenheimer &
Co., an entity engaged in the financial services business. Mr. Gartner received
his B.S. in engineering from Massachusetts Institute of Technology ('MIT') and
received an M.S. in management from MIT's Sloan School of Management.
Mr. Graham has served as Executive Vice President of the Company since
October 1997. Prior to joining Giga, he was Vice President, Information Systems
of United States Fidelity & Guaranty Corporation, an insurance company, from
1994 to October 1997. From 1990 to 1994, he was Vice President, Marketing and
Product Management at Seer Technologies, a software company. From 1987 to 1990,
Mr. Graham was Vice President, Software Engineering Strategies at Gartner Group,
Inc. From 1982 to 1986, he was Executive Vice President of VenturCom, a software
company that he founded. Prior to that he was an Economic Advisor at The
Business Roundtable from 1977 to 1980. From 1976 to 1977, Mr. Graham was the
Special Assistant to the U.S. Secretary of Commerce and, from 1974 to 1976, he
was the Vice President and Executive Secretary of Industrial Energy Users Forum.
Mr. Graham received a B.A. in logic from Georgetown University and an M.S. in
finance and economics from MIT's Sloan School of Management.
Mr. Clarke has served as Senior Vice President, Chief Financial Officer,
Treasurer and Secretary since September 1997. From July 1996 to August 1997, Mr.
Clarke served as Vice President, Finance and Administration and Chief Financial
Officer for Dataware Technologies, Inc., a provider of software for professional
electronic publishing and knowledge management. From 1990 to December 1995, Mr.
Clarke was an executive officer of Xyvision, Inc., a software and services
company that develops and markets advanced software for document management,
publishing and prepress. He served as Vice President, Chief Financial Officer
and Secretary of Xyvision until January 1994, and as President and Chief
Operating Officer from
32
<PAGE>
February 1994. From 1981 to 1989, Mr. Clarke served in a variety of senior
management positions with BBN Corporation, a diversified high technology
company. Mr. Clarke holds a B.S. Degree from Rensselaer Polytechnic Institute
and an M.B.A. from Harvard Business School.
Mr. Belton joined the Company in October 1997 as Vice President, Research
and was named Senior Vice President, Research in December 1997. From October
1996 to September 1997, Mr. Belton was Vice President, Marketing for Datamedic
Corp., a software company. From July 1994 to September 1996, he was a partner at
Benchmark Partners, a consulting company. From 1990 to 1994, he held various
positions with Kurzweil Applied Intelligence Inc., a software company, including
Director of Product Marketing from 1993 to 1994. From 1985 to 1989, he was the
Director, Manufacturing Automation Planning Service for the Yankee Group, a
consulting company. Mr. Belton holds a B.A. in Economics from Haverford College.
Mr. Mooradian has served as Senior Vice President, Worldwide Sales of the
Company since August 1997. From August 1996 to August 1997, Mr. Mooradian served
as Regional Vice President of Giga's central region. From January 1996 to July
1996, he served as Vice President of Sales, North America for Timeline, Inc., a
developer of client/server, financial management and reporting systems. From
1991 to January 1996, he held several management positions at Comshare, a
decision support software company. From 1989 to 1991, he served as a sales
representative for Ross Systems, Inc., a financial systems integrator. From 1987
to 1989, he served as a sales representative for Corporate Class Software, Inc.,
a software company. From 1985 to 1986, he served as a sales representative for
Information Resources, Inc., a software company, and, from 1984 to 1985, as a
sales representative for Hewlett-Packard. Mr. Mooradian received a B.S. in
Business Administration from DePaul University.
Mr. Brownstein has served as a director of the Company since July 1995.
Since January 1995, he has been a private investor. From 1970 to January 1995,
Mr. Brownstein was associated with Bessemer Securities Corporation and was a
founder and General Partner of three affiliated venture capital funds: Bessemer
Venture Partners L.P., Bessemer Venture Partners III L.P. and Bessemer Venture
Partners II L.P., for which he currently serves as a Special General Partner.
Since 1970, he has been president of Neill H. Brownstein Corporation, an
investment management counseling enterprise. He serves as a director of DSP
Communications, Inc. Mr. Brownstein received a B.A. from Columbia College and an
M.B.A. from the Kellogg School of Management at Northwestern University. Between
1979 and 1988, Mr. Brownstein also served as a director of Gartner Group, Inc.
Mr. Gilmour is a co-founder of the Company with Mr. Gartner. He served as
Senior Vice President and Chief Research Officer of the Company from April 1996
to February 1998 and has served as a director of the Company since July 1995.
Mr. Gilmour continues to be a special advisor to Giga on Research and Technology
and devotes approximately 25% of his time to the Company. From July 1995 to
April 1996, he served as Senior Vice President of Technology of the Company.
From July 1993 to July 1995, he served as Chief Executive Officer and a director
of ExperNet Corporation, an information technology company which he founded with
Mr. Gartner. From October 1992 to April 1993, Mr. Gilmour served as acting
President and Chief Executive Officer, and from April 1991 to October 1992 and
from April 1993 to July 1993, he served as Executive Vice President, Marketing,
of Versant Object Technology Corporation, a computer software company. From 1989
to 1991, he served as Vice President--Database Systems Division, from 1986 to
1989, he served as General Manager--Advanced Products Division, and from 1984 to
1986, he served as Director Product Planning at Lotus Development Corporation, a
software company. Mr. Gilmour received a B.A. in Applied Physics, an M.S. in
engineering, both from Harvard University, and an M.B.A., with distinction, from
Harvard Business School.
Mr. Crandall has served as a director of and consultant to the Company
since August 1995. He was founder of Comshare, Inc., a decision support software
company, serving as its Chief Executive Officer from 1970 until 1994 and
Chairman until April 1997. Mr. Crandall chairs the Enterprise Software
Roundtable, consisting of the CEO's and COO's of the twenty-five largest
enterprise software companies. He currently serves on the Board of Directors of
Comshare, Computer Task Group and Diebold and several privately held technology
companies. He serves on the National Advisory Board to the College of
Engineering of the University of Michigan. Mr. Crandall received a B.S. in
electrical engineering, a B.S. in mathematics and an M.S.E. in industrial
engineering from the University of Michigan.
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<PAGE>
Mr. Goldstein has served as a director of the Company since April 1997. He
is a Director of Broadview Associates, LLC, which he joined in 1979. He is a
past President of the Information Technology Association of America, the
industry trade association of the computer service industry, and past Chairman
of the Information Technology Foundation. Mr. Goldstein was a director of Apple
Computer Inc. until August 1997, and is currently a Director of Franklin
Electronic Publishers, Inc., Sungard Data Systems, Inc., SPSS, Inc. and several
privately held companies. Mr. Goldstein received a B.S. from the Wharton School
of the University of Pennsylvania and an M.B.A. from Columbia University.
Mr. Lieber has served as a director of the Company since November 1995.
Since 1979, he has served as Chairman and Chief Executive Officer of Geo Capital
Corporation, an investment advisory firm which he founded. Additionally, Mr.
Lieber has served as a corporate officer of InfoMedia Associates Ltd., a general
partner of 21st Century Communications Partners, L.P., an investment fund. In
addition, he is a general partner of Applewood L.P. and Wheatley L.P. LLC.,
investment funds. From 1970 to 1979, Mr. Lieber was a General Partner of First
Manhattan Co., an investment management, brokerage and investment banking firm.
Mr. Lieber is a director of LeaRonal Inc. He received a B.S. degree in
electrical engineering from City College of New York and an M.S. degree in
electrical engineering from Syracuse University.
Mr. Weston is Honorary Chairman of the Board of Automatic Data Processing,
Inc. ('ADP') and served as chairman from 1986 to April 1998. He was Chief
Executive Officer of ADP from 1982 to 1996. Mr. Weston is a director of J. Crew
Group Inc, Olsten Corporation, Public Service Enterprise Group Company, Shared
Medical Systems, Inc. and Vanstar Corporation. Mr. Weston received a B.S. from
City College of New York and an M.S. from the University of New Zealand where he
was a Fulbright Scholar.
Certain of the current directors of the Company were nominated and elected
in accordance with a stockholders voting agreement which will terminate upon the
consummation of the Offering. Each officer serves at the discretion of the Board
of Directors. There are no family relationships among or between any of the
directors and executive officers of the Company.
BOARD COMPENSATION
Each Non-Employee Director of the Company is reimbursed for expenses
incurred in connection with attendance at the meetings of the Board of Directors
and committees thereof and is entitled to receive stock options under the
Company's 1997 Director Option Plan. Directors who are employees of the Company
currently receive no compensation for serving as directors.
1997 Director Option Plan. The Director Plan, adopted in June 1997,
provides for the grant of stock options to directors of the Company who are not
full-time employees of the Company or any subsidiary ('Non-Employee Directors').
Only non-statutory options may be granted under the Director Plan. The maximum
number of shares of Common Stock as to which options may be granted under the
Plan is 50,000. Options are automatically granted to Non-Employee Directors as
follows: (i) on July 1st of each year, commencing July 1, 1997, options to
purchase 2,000 shares of Common Stock and (ii) unless such director was elected
pursuant to a certain stockholder voting agreement (which agreement terminates
upon consummation of the Offering), additional options to purchase 2,000 shares
of Common Stock upon such directors' initial election as a director after
adoption of the Plan.
The Director Plan is administered by the Board of Directors. The option
exercise price for each option granted under the Director Plan is the fair
market value of the Common Stock as of the date of grant. Options vest in four
equal annual installments beginning on the first anniversary of the date of
grant (subject to acceleration upon a 'change in control' as defined in the
Director Plan), provided the optionee continues to serve as a director. Payment
of the option exercise price is to be made in cash for the full exercise price
of the options. Options are not assignable or transferrable except by will or
the laws of descent and distribution and terminate on the earlier of ten years
after the date of grant or sixty days after the optionee ceases to serve as a
director, except in the event of death or disability.
For a discussion of transactions between the Company and certain directors
of the Company, see 'Certain Transactions.'
34
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal year ended
December 31, 1997 of the Company's Chief Executive Officer and the Company's
three other most highly compensated executive officers whose annual salary and
bonus compensation exceeded $100,000 (the Chief Executive Officer and such other
executive officers are hereinafter referred to as the 'Named Executive
Officers'):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------ ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) COMPENSATION($)(2) AWARDS OPTIONS
- ------------------------------------------ ------------ -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Gideon Gartner;
Chairman, CEO and President............. 160,000 30,000 -- --
David Gilmour;
Senior Vice President, Research;
Director(3)............................. 160,000 24,000(4) -- --
Henry Givray;
President and COO(5).................... 144,730(6) 30,000(7) 125,097(8) 33,333 shares
Jacques Bouvard;
Senior Vice President, Technology(9).... 104,167 30,000(10) 47,668(1) 20,000 shares
</TABLE>
- ------------------
(1) Includes amounts payable in 1997 and/or 1998 for services rendered by the
Named Executive Officers in 1997.
(2) Other compensation in the form of perquisites and other personal benefits
have been omitted because it constitutes the lesser of $50,000 or ten
percent of the total annual salary and bonus of each of the Named Executive
Officers in 1997.
(3) Mr. Gilmour became a non-employee consultant effective February 1, 1998
pursuant to a consulting agreement. See 'Employment and Related
Agreements.'
(4) The amount shown does not include $24,000 paid in 1997 for 1996
compensation.
(5) Mr. Givray's position with the Company was terminated on November 5, 1997
pursuant to the Separation Agreement dated January 7, 1998 (the 'Givray
Separation Agreement'). See 'Employment and Related Agreements.'
(6) The amount shown reflects salary and $9,205 for unused vacation but does
not reflect $77,808 of salary continuation paid for the period of November
6, 1997 to April 30, 1998.
(7) The amount shown does not reflect $30,000 paid in 1997 for 1996 bonus
compensation. The amount reflects $30,000 paid in 1998 for bonus pursuant
to the Givray Separation Agreement.
(8) This amount reflects $77,808 for salary continuation for the period of
November 6, 1997 to April 30, 1998, $5,000 for an additional bonus awarded
for signing the Givray Separation Agreement, $30,000 paid in 1997 for
relocation allowance and $12,289 reflecting certain travel and computer
expenses. See 'Employment and Related Agreements.'
(9) Mr. Bouvard's employment with the Company was terminated on October 16,
1997 pursuant to the Bouvard Agreement (as defined herein). See 'Employment
and Related Agreements.'
(10) The amount reflects $30,000 for bonus paid in 1998 pursuant to the Bouvard
Separation Agreement.
(11) This amount reflects $47,668 for salary continuation for the period of
October 16, 1997 to March 15, 1998.
35
<PAGE>
The following table sets forth certain information regarding options
granted by the Company to each of the Named Executive Officers during the fiscal
year ended December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
---------------------------------------------------------- RATES OF STOCK
NUMBER OF PRICE APPRECIATION
SECURITIES PERCENT OF TOTAL FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM($)(2)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ------------------
GRANTED FISCAL YEAR(%)(1) SHARE($) DATE 5% 10%
---------- ----------------- ------------ ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Gideon I. Gartner............. -- -- -- -- -- --
David L. Gilmour.............. -- -- -- -- -- --
Henry Givray.................. 33,333 6.45 3.00 2/11/2007 62,999 159,332
Jacques Bouvard............... 20,000 3.87 3.00 2/11/2007 37,800 95,600
</TABLE>
- ------------------
(1) Based on an aggregate of 528,708 options granted to employees in fiscal
1997, including options granted to the Named Executive Officers.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, computed annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the Common Stock, the optionholders' continued
employment through the option period and the date on which the options are
exercised.
The following table sets forth certain information concerning stock options
held as of December 31, 1997 by each of the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
UNEXERCISED OPTIONS
NUMBER OF AT FISCAL YEAR-END
SHARES ACQUIRED VALUE ----------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE/ UNEXERCISABLE
- ------------------------- --------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Gideon I. Gartner........ -- -- 220,000 --
David L. Gilmour......... -- -- 24,167 15,833
Henry Givray............. 6,250 1,875 -- 47,083
Jacques Bouvard.......... -- -- 6,667 13,333
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT FISCAL YEAR END(1)
---------------------------
NAME EXERCISABLE/ UNEXERCISABLE
- ------------------------------------- -------------
<S> <C> <C>
Gideon I. Gartner........$ $
David L. Gilmour.........
Henry Givray.............
Jacques Bouvard..........
</TABLE>
- ------------------
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1997 were exercised, determined by multiplying
the number of shares underlying the options by the difference between the
assumed initial public offering price of $ per share and the per share
option exercise price. An option is in-the-money if the fair market value of
the underlying shares exceeds the exercise price of the option.
36
<PAGE>
Employment and Related Agreements
Gideon I. Gartner. The Company has entered into a non-competition
agreement with Mr. Gartner, dated November 13, 1995, pursuant to which Mr.
Gartner has agreed not to compete with the Company, solicit any employee or take
away any customer of the Company either during his employment with the Company
or for so long thereafter as the Company continues to pay Mr. Gartner annual
compensation of at least $120,000 (whether as an employee, consultant or in the
form of severance or post-employment benefits).
Henry Givray. The Company entered into a Separation Agreement with Mr.
Givray, dated January 7, 1998 (the 'Givray Agreement'), under the terms of which
Mr. Givray ceased working for the Company on November 5, 1997 and received
continuation of base salary (at an annualized rate of $160,000) and certain
other benefits through April 30, 1998. Mr. Givray also received $30,000 for 1997
bonus, a $5,000 bonus for signing the Givray Agreement and reimbursement of
certain other items. The Company agreed to allow Mr. Givray to retain all
options shares which were vested as of November 5, 1997. In addition, the Givray
Agreement contains confidentiality and non-competition provisions which
terminate October 31, 1998.
Jacques Bouvard. The Company entered into a Separation Agreement with Mr.
Bouvard, dated October 2, 1997 (the 'Bouvard Agreement'), under the terms of
which Mr. Bouvard ceased working for the Company on October 15, 1997 and
received (i) continuation of base salary (at an annualized rate of $125,000) and
certain other benefits through March 15, 1998 and (ii) an annualized bonus of
$30,000. The Company agreed not to exercise its right to repurchase any shares
of Common Stock acquired by Mr. Bouvard under the 1996 Option Plan. As of March
15, 1998, Mr. Bouvard had 6,666 vested options under the 1996 Plan at an
exercise price of $3.00. In addition, the Bouvard Agreement contains
confidentiality and non-competition provisions which terminate February 15,
1999.
For a discussion of certain current and past consulting arrangements
between the Company and Messrs. Crandall, Brownstein and Gilmour, see 'Certain
Transactions--Consulting Agreements.'
Stock Plans
1995 Stock Option/Stock Issuance Plan. The Company's 1995 Stock Plan was
adopted by the Board of Directors in September 1995 and was approved by the
stockholders in February 1996. Under the terms of the 1995 Stock Plan, the
Company is authorized to make awards of restricted stock and to grant incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the 'Code') ('incentive stock options'), and stock options not
intended to qualify as incentive stock options ('non-statutory stock options'),
to employees, officers and directors of, and consultants and advisors to, the
Company and its subsidiaries. As of March 31, 1998, options to purchase a total
of 401,499 shares of Common Stock at a weighted average exercise price of $2.10
per share were outstanding under the 1995 Stock Plan (of which options to
purchase 193,483 shares were then exercisable). As of March 31, 1998, 478,228
shares of Common Stock were available for future grant under the 1995 Stock
Plan.
The Board of Directors is authorized to select the option recipients and to
determine the kind and terms of each option, including (i) the number of shares
of Common Stock subject to each option, (ii) the option exercise price, (iii)
the vesting schedule of the option, and (iv) the duration of the option. Options
are generally not assignable or transferable except by will or the laws of
descent and distribution.
Restricted stock awards under the 1995 Stock Plan entitle the recipient to
purchase Common Stock from the Company under terms which provide for vesting
over a period of time and a right of repurchase of unvested stock by the Company
when the recipient's relationship with the Company terminates. The Board of
Directors is authorized to select the recipients of restricted stock awards and
to determine the terms of each award, including (i) the dates on which
restricted stock awards are made, (ii) the number of shares of Common Stock
subject to the award, (iii) the purchase price (which can be less than the fair
market value of the Common Stock) of the award, and (iv) the vesting schedule of
the award. The recipients may not sell, transfer or otherwise dispose of shares
subject to a restricted stock award until such shares are vested. Upon
termination of the recipient's relationship with the Company will be entitled to
repurchase those shares which are not vested on the termination date at a price
equal to their original purchase price.
37
<PAGE>
1996 Stock Option Plan. The Company's 1996 Option Plan was adopted by the
Board of Directors in August 1996 and was approved by the stockholders in
September 1996. The 1996 Option Plan provides for the grant of stock options to
employees, officers and directors of, and consultants or advisors to, the
Company and its subsidiaries. Under the 1996 Option Plan, the Company may grant
incentive stock options or non-statutory stock options. Incentive stock options
may only be granted to employees of the Company. The maximum number of shares
with respect to which options may be granted to any employee under the 1996
Option Plan shall not exceed 33,333 shares of Common Stock during any calendar
year. As of March 31, 1998, options to purchase a total of 642,698 shares of
Common Stock at a weighted average exercise price of $3.00 per share were
outstanding under the 1996 Option Plan (of which options to purchase 49,663
shares were then exercisable). As of March 31, 1998, 357,045 shares of Common
Stock were available for future grant under the 1995 Stock Plan.
The 1996 Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1996 Option Plan, the
Compensation Committee has the authority to select option recipients and to
determine the kind and terms of each option, including (i) the number of shares
of Common Stock subject to the option, (ii) the option exercise price, which, in
the case of incentive stock options, must be at least 100% (110% in the case of
incentive stock options granted to a stockholder owning in excess of 10% of the
Company's Common Stock) of the fair market value of the Common Stock as of the
date of grant, (iii) the vesting schedule of the option, and (iv) the duration
of the option (which, in the case of incentive stock options, may not exceed ten
years).
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash and Common Stock or by any other method (including
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee consistent with Section 422 of
the Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
Options are not assignable or transferable except by will or the laws of descent
and distribution and, in the case of non-statutory options, pursuant to a
'qualified domestic relations order' (as defined in the Code).
401(k) Profit Sharing Plan. The Company maintains a 401(k) Profit Sharing
Plan (the '401(k) Plan'), a tax-qualified plan covering all of its employees who
are at least 21 years of age. Each employee may elect to reduce his or her
current compensation by up to 15% (on a pre-tax basis). All employee and Company
contributions to the 401(k) Plan are fully vested at all times. Upon termination
of employment, an employee may elect a lump sum distribution of all amounts
contributed by him or her under the 401(k) Plan. Early withdrawals from amounts
contributed under the 401(k) Plan are allowed under certain circumstances, such
as disability. In addition, subject to certain restrictions, employees may take
a loan drawn on contributions made by the employee under the 401(k) plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Neill H. Brownstein and Irwin
Lieber, neither of whom is or has been an officer or employee of the Company.
For information concerning certain transactions between the Company and certain
directors and concerning the former consulting relationship between the Company
and certain directors, including Mr. Brownstein, see 'Certain Transactions.'
38
<PAGE>
CERTAIN TRANSACTIONS
EARLY STAGES
In 1995, Mr. Gartner contributed approximately $1.0 million to the capital
of the Company. In consideration for such capital contribution, the Company
issued to Mr. Gartner (i) in March 1995, 1,400,000 shares of Common Stock at a
purchase price of $0.07125 per share, (ii) in July 1995, 60,000 shares of Series
A Preferred Stock (80,000 shares of Common Stock on an as-converted basis) at a
purchase price of $5.00 per share (or $3.75 per share of Common Stock), and
(iii) in October 1995, 400,000 shares of Common Stock at a purchase price of
$1.50 per share. In addition, Mr. Gartner has made loans totalling $221,000 to
ExperNet (a subsidiary of the Company) and $186,000 to the Company, which loans
were repaid, together with interest thereon, in December 1995 and August 1995,
respectively.
EXPERNET ACQUISITION
In July 1995, Giga acquired (the 'ExperNet Acquisition') all of the
ExperNet Corporation shares owned by Mr. Gartner and a majority of the ExperNet
Corporation shares owned by Mr. Gilmour, aggregating 77.8% of ExperNet
Corporation's outstanding common stock, in exchange for (i) 160,000 shares of
Series A Preferred Stock (213,333 shares of Common Stock on an as-converted
basis) of the Company, 80,000 shares (106,667 shares on an as-converted basis)
of which were issued to Mr. Gartner and 80,000 shares (106,667 shares on an as-
converted basis) of which were issued to Mr. Gilmour, and (ii) the issuance to
Mr. Gartner of a fully-vested option to purchase 53,333 shares of Common Stock
at an exercise price of $1.50 per share. In December 1995, the Company acquired
Mr. Gilmour's remaining 22.2% interest in ExperNet Corporation in exchange for a
$400,000 6% Convertible Note due December 31, 2005 (the 'Gilmour Note'). The
Gilmour Note was repaid in full, together with interest thereon, by the Company
one-half in February 1998 and the remainder in April 1998. See '--Consulting
Agreement--Gilmour Agreement.' In addition, Mr. Gilmour made loans totalling
$101,000 to ExperNet Corporation, which loans were repaid in full, together with
interest thereon, by ExperNet Corporation in December 1995.
FINANCINGS
Series A Preferred Stock Financing
In July 1995 and October 1995, the Company issued and sold (the 'Series A
Financing') an aggregate of 570,000 shares of Series A Preferred Stock (760,001
shares of Common Stock on an as-converted basis) at a purchase price of $5.00
per share (or $3.75 per share of Common Stock) to a limited number of investors,
including 60,000 shares (80,000 shares on an as-converted basis) to Mr.
Brownstein, 15,000 shares (20,000 shares on an as-converted basis) to Mr.
Crandall and 10,000 shares (13,333 shares on an as-converted basis) to James D.
Robinson III, a former director of the Company.
Series B Preferred Stock Financing
In August 1995, the Company entered into a Convertible Promissory Note and
Warrant Purchase Agreement with RRE Giga Investors, L.P. ('RRE Giga'), pursuant
to which the Company borrowed $2.0 million from RRE Giga and issued RRE Giga a
convertible promissory note (the 'RRE Note') in the principal amount of $2.0
million and a warrant (the 'RRE Warrant') to purchase 285,714 shares of Series B
Preferred Stock (95,238 shares of Common Stock on an as-converted basis) at an
exercise price of $2.345 per share (or $7.035 per share of Common Stock). In
November 1995, the RRE Note was converted into 571,428 shares of Series B
Preferred Stock (190,476 shares on an as-converted basis). In September 1996,
RRE Giga made a cashless exercise of the RRE Warrant and received 218,714 shares
of Series B Preferred Stock (72,905 shares on an as-converted basis). Mr.
Robinson is Chairman and Chief Executive Officer of RRE Investors, L.L.C., the
General Partner of RRE Giga.
In November 1995, February 1996 and December 1996, the Company issued and
sold (the 'Series B Financing') an aggregate of 8,144,642 shares of Series B
Preferred Stock (2,714,878 shares of Common Stock on an as-converted basis), at
a purchase price of $3.50 per share (or $10.50 per share of Common Stock), to a
39
<PAGE>
limited number of investors, including 40,000 shares of Series B Preferred Stock
to Mr. Brownstein and certain members of his family for aggregate consideration
of $140,000. The following entities which also purchased stock are affiliates of
directors and/or principal stockholders of the Company also purchased stock:
<TABLE>
<CAPTION>
ENTITIES AFFILIATED WITH: NO. OF SHARES AGGREGATE CONSIDERATION PAID
- ------------------------------------------------------------------ ------------- ----------------------------
<S> <C> <C>
21st Century Communications Partners, L.P......................... 1,714,286 $6,000,000
S2 Technology Corporation......................................... 1,116,398 3,907,393
RRE Giga Investors, L.P........................................... 859,999 3,009,997
Montgomery Small Cap Partners, L.P................................ 1,029,714 3,604,000
Wanger Asset Management, L.P...................................... 885,714 3,100,000
</TABLE>
Mr. Lieber, a director of the Company, is a corporate officer of InfoMedia
Associates, Ltd., which is a General Partner of 21st Century Communications
Partners, L.P. ('21-CCP'), 21st Century Communications T-E Partners, L.P.
('21-CCTEP') and 21st Century Communications Foreign Partners, L.P. ('21-CCFP').
Mr. Robinson, a former director of the Company, is Chairman and Chief Executive
Officer of RRE Investors, L.L.C., the General Partner of RRE Giga and RRE Giga
Investors II, L.P. ('RRE Giga II').
Series C Preferred Stock Financing
In May and December 1997, the Company issued and sold (the 'Series C
Financing') an aggregate of 2,609,491 shares of Series C Preferred Stock
(1,021,429 shares of Common Stock on an as-converted basis) at a purchase price
of $4.11 per share (or $10.50 per share of Common Stock). The Series C Preferred
Stock entitled investors to receive warrants to purchase up to 54% additional
shares of Series C Preferred Stock based upon the Company's NAVI for fiscal
1997. In January 1998, the Company issued warrants to purchase an aggregate of
an additional 1,409,127 shares of Series C Preferred Stock (551,574 shares on an
as-converted basis) at an exercise price of $5.28 per share (or $13.50 per
share of Common Stock). The following persons and entities who are executive
officers, directors, affiliates of directors and/or principal stockholders of
the Company invested in Series C Preferred Stock:
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
SERIES C SERIES C CONSIDERATION
NAME STOCK WARRANTS PAID
- --------------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
Entities affiliated with Dawson-Samberg Capital Management,
Inc.......................................................... 1,946,473 1,051,095 $ 8,000,000
Gideon I. Gartner.............................................. 60,827 32,847 250,000
Richard Crandall Trust......................................... 30,414 16,424 125,000
Bernard Goldstein.............................................. 24,331 13,139 100,000
Neill H. Brownstein............................................ 60,827 32,827 250,000
</TABLE>
Series D Preferred Stock Financing
In April and May 1998, the Company issued and sold (the 'Series D
Financing') an aggregate of 285,714 shares of Series D Preferred Stock (190,476
shares of Common Stock on an as-converted basis), at a purchase price of $7.00
per share (or $10.50 per share of Common Stock), and warrants to purchase an
additional 154,286 shares of Series D Preferred Stock (102,858 shares on an
as-converted basis), at an exercise price of $9.00 per share (or $13.50 per
share of Common Stock). Acorn Fund, a series of Acorn Investment Trust, which is
managed by Wanger Asset Management, L.P. purchased 71,429 shares of Series D
Preferred Stock and received warrants to purchase an additional 38,572 shares of
Series D Preferred Stock for an aggregate consideration of $500,003.
CONSULTING AGREEMENTS
Crandall Consulting Agreement
In August 1995, the Company entered into a consulting arrangement with Mr.
Crandall. The arrangement provided for payment to Mr. Crandall of $50,000 per
annum in 1995 and $60,000 per annum in 1996. In lieu of certain payments due to
Mr. Crandall, the Company issued to Mr. Crandall 40,000 shares of Common Stock
at a purchase price of $1.50 per share. The shares are subject to vesting and
certain restrictions on transfer. In July 1996, as compensation for the
consulting services to be rendered by Mr. Crandall to the Company for the
twelve-
40
<PAGE>
month period ended June 30, 1997, the Company granted to Mr. Crandall an option
to purchase 6,667 shares of Common Stock at an exercise price of $1.80 per
share. Twenty-five percent of the shares subject to the option vested one year
from the date of grant and one forty-eighth of the shares have vested monthly
thereafter. In February 1997, as compensation for the extension of Mr.
Crandall's consulting services through June 1998, and the devotion of one-third
of his time to such matters, the Company granted to Mr. Crandall, effective
January 1, 1997, 16,667 shares of Common Stock and an option to purchase 8,333
shares of Common Stock at an exercise price of $3.00 per share. One sixth of
such shares of Common Stock have vested quarterly since the effective date of
grant. Twenty-five percent of the shares subject to the option vested one year
from the effective date of grant and one thirty-sixth have vested monthly
thereafter.
Brownstein Financing and Consulting Agreement
In October 1995, the Company sold to Mr. Brownstein 26,667 shares of Common
Stock at a purchase price of $1.50 per share. The shares are subject to vesting
and certain restrictions on transfer.
In January 1996, the Company entered into a one-year consulting agreement
with the Neill H. Brownstein Corporation (the 'Brownstein Corporation'), of
which the sole shareholder is Neill H. Brownstein, a director of the Company.
Pursuant to the consulting agreement, the Brownstein Corporation received a
consulting fee of $60,000, plus reasonable expenses, payable quarterly. The
Brownstein Corporation agreed that during the term of the agreement and for a
period of one year thereafter, the Brownstein Corporation would not use any of
the Company's proprietary or confidential information or disclose such
proprietary and confidential information to any third party.
Gilmour Agreement
In February 1998, the Company entered into an agreement (the 'Gilmour
Agreement') with Mr. Gilmour, a director and co-founder of the Company, relating
to Mr. Gilmour's continuing relationship with the Company in light of Mr.
Gilmour's desire to establish Tacit Knowledge Systems ('Tacit'), a company to be
engaged in the development and commercialization of various forms of software
related to the automatic capture of knowledge through messaging systems (the
'Software'). The Gilmour Agreement superseded Mr. Gilmour's employment
agreement, dated July 6, 1995, pursuant to which Mr. Gilmour served as Senior
Vice President, Research, was elected a director and received a salary at the
rate of $160,000 per annum commencing September 1, 1995. The Gilmour Agreement
provides that Mr. Gilmour will remain a director of the Company and, for at
least six months, will serve as a consultant to the Company, acting as chief
research officer and devoting approximately 25% of his time to such duties. Mr.
Gilmour will be compensated at the rate of $50,000 per annum for such services.
The Gilmour Agreement also provides that the Company will receive a 7.5%
equity interest in Tacit upon its formation, will be entitled to participate in
future Tacit financings and will be granted an irrevocable, royalty-free,
worldwide license to use any and all software, products and technologies that
Tacit develops through January 2001. The Company has the option of extending the
license for two additional one-year periods for a fee of $50,000 per annum. The
Company also agreed that the Software shall not constitute 'Development' or
'Proprietary Information' as such terms are defined in the Invention and
Non-Disclosure Agreement, dated July 6, 1995, between the Company and Mr.
Gilmour. In addition, the Gilmour Agreement contained non-competition and
no-raid provisions, which are to survive for one year following a voluntary
termination by Mr. Gilmour of his consulting relationship with the Company.
The Gilmour Agreement also resolved the status of certain of the Company's
securities held by Mr. Gilmour. The Company agreed not to exercise its rights to
repurchase the Series A Preferred Stock that was issued to Mr. Gilmour in
connection with the ExperNet Acquisition. As of the date of the Gilmour
Agreement, of the options that had been granted to Mr. Gilmour to purchase
40,000 shares of Common Stock at an exercise price of $1.50 per share, options
to purchase 15,000 shares remained unvested. It was agreed that these unvested
options would vest at a revised rate of one ninety-sixth of such options per
month thereafter. Furthermore, the
41
<PAGE>
Company agreed to redeem the Gilmour Note, including accrued interest thereon,
one-half in February 1998 and the remainder in April 1998.
CERTAIN STOCKHOLDER RIGHTS
For a description of certain other registration rights of, and stock
transfer restrictions imposed on, certain executive officers, directors,
affiliates of directors and/or principal stockholders of the Company, see
'Description of Capital Stock--Registration Rights Agreement' and '--Co-Sale
Agreement.'
CERTAIN EMPLOYMENT AND RELATED ARRANGEMENTS
In March 1998, the Company granted options to purchase 100,000, 8,000,
8,000, and 8,000 shares of Common Stock to Messrs. Gartner, Graham, Clarke and
Crandall, respectively. See Note 15 to the Consolidated Financial Statements.
For a description of certain other employment and other arrangements
between the Company and certain executive officers and directors of the Company,
see 'Management--Executive Compensation' and 'Management--Employment and Related
Agreements.'
------------------------
The Company believes that the securities issued in the transactions
involving the Company described above were sold by the Company at their then
fair market value and that the terms of the transactions described above were no
less favorable than the Company could have obtained from unaffiliated third
parties. The Company has adopted a policy, effective following the consummation
of the Offering, that all material transactions between the Company and its
officers, directors and other affiliates must (i) be approved by a majority of
the members of the Company's Board of Directors and by a majority of the
disinterested members of the Company's Board of Directors and (ii) be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties. In addition, this policy will require that any loans by the Company to
its officers, directors or other affiliates be for bona fide business purposes
only.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of May 1, 1998 (assuming the
conversion of all outstanding shares of Convertible Preferred Stock into Common
Stock, after giving effect to the Reverse Stock Split), and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person or entity known to the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (2)
NUMBER OF SHARES -----------------------
NAME AND ADDRESS OF BENEFICIALLY OWNED BEFORE AFTER
BENEFICIAL OWNER PRIOR TO OFFERING(1) OFFERING OFFERING
- ------------------------------------------------------------------ -------------------- -------- --------
<S> <C> <C> <C>
21st Century Communications Partners, L.P......................... 571,429(3) 8.3
767 Fifth Avenue, 45th floor
New York, NY 10153
Entities affiliated with S2 Technology Corporation................ 443,897(4) 6.5
515 Madison Avenue, Suite 4200
New York, NY 10022
RRE Giga Investors, L.P........................................... 359,571(5) 5.3
126 East 56th Street, 22nd floor
New York, NY 10022
Funds managed by Wanger Asset Management, L.P..................... 368,570(6) 5.4
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Pequot Private Equity Fund, L.P................................... 1,173,337(7) 16.2
354 Pequot Avenue
Southport, CT 06490-0760
Gideon I. Gartner................................................. 2,256,113(8) 31.9
c/o Giga Information Group, Inc.
One Longwater Circle
Norwell, MA 02061
Neill H. Brownstein............................................... 156,666(9) 2.3
Richard L. Crandall............................................... 102,888(10) 1.5
David L. Gilmour.................................................. 132,448(11) 1.9
Bernard Goldstein................................................. 41,334(12) *
Irwin Lieber...................................................... 835,238(13) 12.2
Josh S. Weston.................................................... 0 --
Henry Givray...................................................... 6,250 *
Jacques Bouvard................................................... 0 --
All directors and executive officers as a group (11 persons)...... 3,540,936(14) 49.8
</TABLE>
- ------------------
* Less than 1%
(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise noted. Amounts shown include shares
issuable within the 60-day period following May 1, 1998 pursuant to the
exercise of options or warrants.
(2) On May 1, 1998, there were 6,846,256 shares of Common Stock outstanding,
assuming the conversion of all outstanding shares of all series of Preferred
Stock into Common Stock.
(3) Includes 387,443 shares of Common Stock held by 21-CCP, 131,853 shares of
Common Stock held by 21-CCTEP and 52,133 shares of Common Stock held by
21-CCFP.
(Footnotes continued on next page)
43
<PAGE>
(Footnotes continued from previous page)
(4) S2 Technology Corporation ('S Squared'), an investment manager, is the
General Partner of (i) Sci-Tech Investment Partners L.P., which holds 32,686
shares of Common Stock, (ii) S.G. Partners, L.P., which holds 53,165 shares
of Common Stock, and (iii) Executive Technology, L.P., which holds 22,027
shares of Common Stock. Seymour L. Goldblatt, the President of S Squared, is
the Managing Director of both The Matrix Technology Group N.V., which holds
13,249 shares of Common Stock, and Core Technology Fund, Inc., which holds
87,650 shares of Common Stock. S Squared serves as an investment advisor to
each of the foregoing funds and exercises by agreement investment and voting
power on behalf of each fund. Mr. Goldblatt, as president of S Squared, also
exercises by agreement investment and voting power for the following funds:
(i) Yale University, which holds 174,860 shares of Common Stock, (ii) Yale
University Retirement Plan for Staff Employees, which holds 8,584 shares of
Common Stock, (iii) Montsol Investments N.V., which holds 8,820 shares of
Common Stock, (iv) Alfred University, which holds 6,883 shares of Common
Stock, (v) Foundation Partners, which holds 6,772 shares of Common Stock,
(vi) Tampsco II Partnership, which holds 3,772 shares of Common Stock and
(vii) Hare & Co., which holds 25,429 shares of Common Stock.
(5) Includes 263,381 shares held by RRE Giga Investors, L.P. ('RRE Giga') and
96,190 shares of Common Stock held by RRE Giga Investors II, L.P. ('RRE Giga
II'). James D. Robinson III is the record owner of 13,333 shares of Common
Stock. Mr. Robinson is a General Partner of RRE Investors, L.L.C., the
General Partner of RRE Giga and RRE Giga II. Mr. Robinson disclaims
beneficial ownership of such shares, except to the extent of his pecuniary
interest in such shares. Mr. Robinson shares dispositive and voting power of
such shares with the General Parters of RRE Investors, L.L.C.
(6) Includes 199,998 shares of Common Stock held by Akkad and 168,572 shares of
Common Stock held by Acorn Fund, a series of Acorn Investment Trust (25,715
shares of which are subject to the exercise of warrants). Wanger Asset
Management, L.P. serves as the investment manager to each of these entities
and possesses investment and voting power with respect to each such entity
but disclaims beneficial ownership.
(7) Includes 1,041,474 shares of Common Stock held by Pequot Private Equity
Fund, L.P. (365,193 shares of which are subject to the exercise of warrants)
and 131,863 shares of Common Stock held by Pequot Offshore Private Equity
Fund, L.P. (46,238 shares of which are subject to the exercise of warrants).
Dawson-Samberg Capital Management, Inc. serves as the investment manager to
each of these entities and possesses investment and voting power with
respect to each such entity but disclaims beneficial ownership.
(8) Includes options to purchase 220,000 shares of Common Stock and warrants to
purchase 12,857 shares of Common Stock. Also includes 220,335 shares of
Common Stock which are held of record by members of Mr. Gartner's family.
Mr. Gartner disclaims beneficial ownership of shares held by members of his
family.
(9) Includes 8,000 shares of Common Stock held by Mr. Brownstein's children and
5,333 shares of Common Stock held by Mr. Brownstein and his spouse jointly.
Mr. Brownstein disclaims beneficial ownership of the 6,000 shares of Common
Stock held by his adult children, Adam J. and Todd D. Brownstein, and Will
Gordon, the adult child of his spouse. Mr. Brownstein disclaims beneficial
ownership of the 2,000 shares of Common Stock held by his minor child, Emily
Hamilton; however, Mr. Brownstein claims investment and voting power with
respect to these shares. Of the shares held by Mr. Brownstein directly,
of such shares are subject to repurchase by the Company under
certain circumstances.
(10) Includes 38,334 shares of Common Stock held by R. Crandall Trust, of which
Mr. Crandall serves as trustee (6,429 shares of which are subject to the
exercise of warrants). Also includes options to purchase 7,188 shares of
Common Stock. Also includes shares of Common Stock which are
subject to repurchase by the Company under certain circumstances.
(11) Includes options to purchase 25,781 shares of Common Stock.
(12) Includes warrants to purchase 5,143 shares of Common Stock.
(Footnotes continued on next page)
44
<PAGE>
(Footnotes continued from previous page)
(13) Includes 387,443 shares of Common Stock held by 21-CCP, 131,853 shares of
Common Stock held by 21-CCTEP, 52,133 shares of Common Stock held by
21-CCFP, 246,646 shares of Common Stock held by Wheatley Partners, L.P.
('Wheatley') and 17,163 shares of Common Stock held by Wheatley Foreign
Partners, L.P. ('Wheatley Foreign'). Mr. Lieber, a director of the Company,
is a corporate officer of InfoMedia Associates Ltd., a General Partner of
21-CCP, 21-CCTEP, 21-CCFP and a General Partner of Wheatley LLC, a General
Partner of Wheatley and Wheatley Foreign. Mr. Lieber disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest in
such shares. Mr. Lieber shares dispositive and voting power of such shares
with the General Partners of the General Partner of Wheatley and Wheatley
Foreign and with the other officers of the General Partner of 21-CCP,
21-CCTEP and 21-CCFP.
(14) Includes 264,015 shares of Common Stock issuable upon exercise of options
and shares of Common Stock issuable upon exercise of warrants held by all
directors and executive officers as a group. Also includes shares
of Common Stock held by all directors and executive officers as a group
which may be repurchased by the Company under certain circumstances.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At May 1, 1998, there were outstanding an aggregate of 2,159,472 shares of
Common Stock, 570,000 shares of Series A Preferred Stock, 8,144,642 shares of
Series B Preferred Stock, 2,609,491 shares of Series C Preferred Stock and
285,715 shares of Series D Preferred Stock of the Company. Upon the closing of
the Offering, all of such shares of Convertible Preferred Stock will
automatically be converted into an aggregate of 4,687,784 shares of Common
Stock. All of the shares of Convertible Preferred Stock that have been converted
will cease to be outstanding and may not be reissued. See 'Capitalization.'
COMMON STOCK
The Restated Certificate, which will become effective upon the closing of
the Offering, will authorize the issuance of up to 60,000,000 shares of Common
Stock, $.001 par value per share. Holders of Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of stockholders and
do not have cumulative voting rights. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable.
PREFERRED STOCK
Upon the consummation of the Offering, the Restated Certificate will
authorize the issuance of up to 5,000,000 shares of Preferred Stock, $.001 par
value per share. Under the terms of the Restated Certificate, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue such shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
WARRANTS
At May 1, 1998, there were outstanding warrants to purchase (i) 166,666
shares of Common Stock at an exercise price of $3.00 per share, (ii) 107,876
shares of Series B Preferred Stock at an exercise price of $4.625 per share,
(iii) 1,654,724 shares of Series C Preferred Stock at an exercise price of $5.28
per share and (iv) 308,572 shares of Series D Preferred Stock at an exercise
price of $9.00 per share. Upon the closing of the Offering, all of such warrants
to purchase Convertible Preferred Stock will be converted to warrants to
purchase Common Stock and there will be outstanding warrants to purchase 166,666
shares of Common Stock at an exercise price of $3.00 per share, 654,432 shares
of Common Stock at an exercise price of $13.50 per share and 35,959 shares of
Common Stock at an exercise price of $13.875 per share. The holders of such
warrants have no rights as stockholders until the exercise thereof.
46
<PAGE>
REGISTRATION RIGHTS AGREEMENT
In connection with its preferred stock financings, the Company entered into
a Registration Rights Agreement, dated November 13, 1995, as amended (the
'Registration Rights Agreement'), with its preferred stockholders (the
'Investors') and Messrs. Gartner and Gilmour (the 'Management Persons'). The
Registration Rights Agreement provides that, following June 30, 1998, the
holders of at least 30% of the Registrable Securities (as defined therein) then
outstanding, excluding shares held by Management Persons, shall have two demand
registration requests (no more than one within a twelve-month period). At such
time as the Company becomes eligible to file a registration statement under the
Securities Act on Form S-3, the holders of at least 20% of the Registrable
Securities then outstanding may make six additional demand registration requests
(no more than one within a six-month period). The Registration Rights Agreement
also provides the holders of Registrable Securities with unlimited piggyback
registration rights in the event the Company proposes to register its Common
Stock under the Securities Act in connection with a public offering. The Company
has obtained a waiver from the holders of a majority of the Registrable
Securities of their piggyback registration rights in connection with the
Offering.
Pursuant to the Registration Rights Agreement, the Company will pay all
expenses (other than underwriting discounts and commissions) incurred in
connection with demand registrations and piggyback registrations. In addition,
the Company has agreed to indemnify each holder of Registrable Securities and
any underwriter for such holder against certain liabilities, including
liabilities under federal or state securities laws. The Registration Rights
Agreement terminates with respect to each holder of Registrable Securities upon
the later of (i) three years following the consummation of a Qualified Public
Offering (as defined therein) or (ii) such time following an initial public
offering of the Company as such holder is entitled under Rule 144 to dispose of
all the Registrable Securities held by such holder during any 90-day period.
CO-SALE AGREEMENT
In connection with its preferred stock financings, the Company also entered
into a Co-Sale and Stock Restriction Agreement, dated November 13, 1995, as
amended (the 'Co-Sale Agreement') with Mr. Gartner (the 'Founder') and the
Series B Preferred Stockholders (the 'Stockholders'). The Co-Sale Agreement
provides that, except for certain limited sales and sales to the Company, if the
Founder proposes to sell or transfer shares of Common Stock (including shares of
Common Stock issuable upon conversion or exercise of any warrants, options or
preferred stock held by the Founder) ('Stock') in one or more transactions, the
Founder shall promptly give written notice to the Company and the Stockholders
and each Stockholder shall have the right to participate pro-rata in such sale
on the same terms and conditions. In addition, the Co-Sale Agreement provides
that each Stockholder has the right of first offer to purchase such
Stockholder's pro-rata share of all (or any part) of any Stock that the Founder
may from time to time propose to sell. Notwithstanding the foregoing provisions,
the Co-Sale Agreement provides that the Founder may not sell or transfer more
than an aggregate of 266,667 shares of Stock during the three-year period ending
November 1, 1998, subject to limited exceptions, including sales to the Company.
The Co-Sale Agreement terminates upon the earlier of (i) two years following the
closing of a qualified public offering (as described therein) or (ii) the
closing of the Company's sale of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the Company's capital
stock for securities or consideration issued by the acquiring entity or its
subsidiary.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is 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 the past three years did own, 15% or more of a
corporation's voting stock.
47
<PAGE>
The Restated Certificate provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See 'Management.' In addition, the Restated Certificate
provides that directors may be removed only for cause by the affirmative vote of
the holders of two-thirds of the shares of capital stock of the Company entitled
to vote. Under the Restated Certificate, any vacancy on the Board of Directors,
however occurring, including a vacancy resulting from an enlargement of the
Board, may only be filled by vote of a majority of the directors then in office.
The classification of the Board of Directors and the limitations on the removal
of directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Restated Certificate also provides that, after the consummation of the
Offering, any action required or permitted to be taken by the stockholders of
the Company 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 undertaken by
written action in lieu of a meeting. The Restated Certificate further provides
that special meetings of the stockholders may only be called by the Chairman of
the Board of Directors, the Chief Executive Officer or, if none, the President
of the Company or by the Board of Directors. Under the Company's Amended and
Restated By-Laws (the 'By-Laws'), which will become effective upon the closing
of the Offering, in order for any matter to be considered 'properly brought'
before a meeting, a stockholder must comply with certain requirements regarding
advance notice to the Company. 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 the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, 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. The Restated Certificate and the By-Laws
require the affirmative vote of the holders of at least two-thirds of the shares
of capital stock of the Company issued and outstanding and entitled to vote to
amend or repeal any of the provisions described in the prior two paragraphs.
The Restated Certificate contains certain provisions permitted under the
General Corporation Law of Delaware relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. Further, the Restated
Certificate contains provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be American
Stock Transfer & Trust Company.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, based on the number of shares
outstanding at , 1998, there will be shares
of Common Stock outstanding. Of these shares, the shares of Common
Stock sold in the Offering will be freely transferable without restriction under
the Securities Act, except that any shares purchased by 'affiliates' of the
Company, as that term is defined in Rule 144 under the Securities Act ('Rule
144'), generally must be sold in compliance with the limitations of Rule 144
described below. The remaining shares of Common Stock outstanding
will be 'restricted securities' as that term is defined in Rule 144 (the
'Restricted Shares').
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the lock-up agreements described below and the provisions of Rules 144,
144(k) and 701, additional shares will be available for sale in the public
market (subject in the case of shares held by affiliates to compliance with
certain volume restrictions) as follows: (i) no shares will be available for
immediate sale in the public market on the date of the Prospectus, (ii)
shares will be eligible for resale 90 days after the date of this
Prospectus, (iii) shares will be eligible for resale upon expiration
of lock-up agreements 180 days after the date of this Prospectus, and thereafter
(iv) the remaining shares will be eligible for sale upon expiration
of their respective one-year holding periods.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, including persons who may be deemed affiliates of the Company,
would be entitled to sell within any three-month period, subject to meeting
certain manner of sale and notice requirements, a number of shares that does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then issued and outstanding ( shares upon consummation of the
Offering) and (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 notice of sale with
the Securities and Exchange Commission. A person who is not deemed to have been
an affiliate of the Company 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 under Rule 144(k) without regard to the
volume limitations described above. Affiliates whose shares are not Restricted
Shares must nonetheless comply with the same Rule 144 restrictions applicable to
Restricted Shares with the exception of the one year holding period requirement.
Rule 701 promulgated under the Securities Act provides that shares of
Common Stock acquired on the exercise of outstanding options may be resold 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, beginning 90 days after the date of this Prospectus, subject to all
provisions of Rule 144 except its two-year minimum holding period.
The Company and its executive officers, directors and stockholders (who in
the aggregate will beneficially own approximately Restricted Shares,
including shares of Common Stock that may be acquired by them upon
the exercise of stock options exercisable with 60 days of ,
1998) have agreed that, subject to certain limited exceptions, for a period
ending 180 days after the consummation of the Offering, without the prior
written consent of Friedman, Billings, Ramsey & Co., Inc., they will not,
directly or indirectly, offer, pledge, sell, offer to sell, contract to sell,
grant any option to purchase or otherwise sell, dispose of, make any short sale
of, loan or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock.
See 'Underwriting.'
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1995
Stock Plan and the 1996 Option Plan. These registration statements are expected
to be filed approximately 180 days after the effective date of the Registration
Statement of which this Prospectus is a part and will be effective upon filing.
Shares issued upon the exercise of stock options after the effective date of the
Form S-8 registration statements will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements noted above.
49
<PAGE>
As of , 1998, the holders of shares of
Common Stock and warrants to purchase shares of Common Stock are
entitled to certain demand and/or piggyback registration rights with respect to
such shares (the 'Registrable Shares'). See 'Description of Capital
Stock--Registration Rights Agreement.'
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among the
Company and the Underwriters (the 'Underwriting Agreement'), the Underwriters
named below, through their Representative, Friedman, Billings, Ramsey & Co.,
Inc. ('FBR'), have severally agreed to purchase from the Company the following
respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ - ---------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc............................................
---------
Total..........................................................................
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased. The offering of Common Stock is made for delivery
when, as and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the Offering without notice. The
Underwriters reserve the right to reject an order for the purchase of shares in
whole or in part.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
re-allow a concession not in excess of $ per share to certain other
dealers. The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
After the initial public offering of Common Stock, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters the over-allotment option,
exercisable no later than 30 days after the date of this Prospectus, to purchase
up to additional shares of Common Stock at the initial public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. To the extent the Underwriters exercise such over-allotment
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the table above bears to the total number
of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the over-allotment option, to sell shares to the Underwriters to the
extent the over-allotment option is exercised. The Underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof. The
Company will reimburse the Underwriters for their reasonable out-of-pocket
expenses, including legal fees and expenses.
Prior to the Offering, there has been no public market for Common Stock.
The initial public offering price for Common Stock will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market conditions, revenues and earnings of the Company, market valuations of
other companies engaged in activities similar to the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this Prospectus is subject to change as a result of market conditions
and other factors. There can, however, be no assurance that the price at which
the shares of Common Stock will sell in the public market after the Offering
will not be lower than the price at which they are sold by the Underwriters.
51
<PAGE>
Until the distribution of the Common Stock is completed, the rules of the
SEC may limit the ability of the Underwriters and certain selling group members
to bid for or purchase Common Stock. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of shares of Common Stock. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of shares
Common Stock.
If the Underwriters create a short position in shares of Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing shares of Common Stock in the open
market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of shares of Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold such shares of Common Stock as part of the Offering.
In general, purchases of securities for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of shares of Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Company, its directors, officers and certain securityholders have each
agreed that it or they will not, without the prior written consent of FBR,
directly or indirectly, offer, pledge, sell, offer to sell, contract to sell,
grant any option to purchase or otherwise sell, dispose of, make any short sale
of, loan or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock for
the period ending 180 days after the consummation of the Offering, except that
the Company may grant additional options under its stock option plans.
Up to % of the shares of Common Stock offered hereby may be reserved for
sale to certain employees and directors of the Company and their family members,
at a price equal to the initial public offering price per share less the
underwriting discount. The number of shares available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares not so purchased will be offered by the Underwriters to the
general public on the same terms as the other shares offered hereby.
In April 1998, the Company engaged FBR to act as its financial advisor and
lead underwriter in connection with the Offering and to provide certain other
investment banking services to the Company for customary fees.
In April 1998, the Company entered into a Loan and Warrant Purchase
Agreement (the 'Loan Agreement') with certain affiliates of FBR (the 'Lenders'),
pursuant to which the Company borrowed $10.0 million from the Lenders (the
'Bridge Financing') and issued the Lenders the Bridge Notes in the aggregate
principal amount of $10.0 million and warrants (the 'Bridge Warrants') to
purchase an aggregate of 166,666 shares of Common Stock at an exercise price of
$3.00 per share. The Bridge Notes accrue interest at the rate of 12% per annum
on the principal amount thereof outstanding during the period beginning on the
date of issuance and ending on the Maturity Date (as defined below). The
obligations under the Bridge Notes are secured by substantially all of the
assets of the Company. The outstanding principal amount of, and any unpaid
accrued interest on, the Bridge Notes is due and payable on the consummation of
the Offering (the 'Maturity Date') and may be prepaid in whole or in part at any
time without penalty.
52
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Weil, Gotshal & Manges LLP, New York, New
York. Certain legal matters in connection with this Offering will be passed upon
for the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996 and the consolidated statements of operations, changes in stockholders'
equity and cash flows for the period March 17, 1995 (the date of inception) to
December 31, 1995 and each of the years ended December 31, 1996 and 1997 and the
combined statements of operations and cash flows of BIS Strategic Decisions for
the period January 1, 1995 to April 5, 1995 included in this Prospectus have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at prescribed rates 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 the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
----------------
<S> <C>
GIGA INFORMATION GROUP, INC.:
Report of Independent Accountants.................................................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and March 31, 1998 (unaudited)........... F-3
Consolidated Statements of Operations for the period March 17, 1995 (date of inception) to December
31, 1995; the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997
and 1998 (unaudited)............................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the period March 17, 1995 (date of
inception) to December 31, 1995; the years ended December 31, 1996 and 1997 and the three months
ended March 31, 1997 and 1998 (unaudited)........................................................ F-5
Consolidated Statements of Cash Flows for the period March 17, 1995 (date of inception) to December
31, 1995; the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997
and 1998 (unaudited)............................................................................. F-6
Notes to Consolidated Financial Statements......................................................... F-7 - F-25
BIS STRATEGIC DECISIONS:
Report of Independent Accountants.................................................................. F-26
Combined Statement of Operations for the period January 1, 1995 to April 5, 1995................... F-27
Combined Statement of Cash Flows for the period January 1, 1995 to April 5, 1995................... F-28
Notes to Combined Financial Statements............................................................. F-29 - F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Giga Information Group, Inc.:
We have audited the accompanying consolidated balance sheets of Giga Information
Group, Inc. as of December 31, 1996 and 1997 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the period March 17, 1995 (date of inception) to December 31, 1995 and the years
ended December 31, 1996 and 1997. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Giga Information
Group, Inc. as of December 31, 1996 and 1997 and the results of its operations
and its cash flows for the period March 17, 1995 (date of inception) to December
31, 1995 and the years ended December 31, 1996 and 1997 in conformity with
generally accepted accounting principles.
Boston, Massachusetts
April 17, 1998, except for the information
in the final two paragraphs of Note 20, as to
which the date is May 11, 1998.
F-2
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 8,286 $ 3,539 $ 1,753
Trade accounts receivable, net of allowance for uncollectible accounts of $536,
$483 and $405 at December 31, 1996 and 1997 and March 31, 1998,
respectively................................................................. 3,391 8,961 5,684
Unbilled accounts receivable................................................... 1,885 4,727 2,652
Prepaid expenses and other current assets...................................... 1,753 3,753 3,665
------- ------- -----------
Total current assets........................................................... 15,315 20,980 13,754
Property and equipment, net...................................................... 2,397 1,695 1,678
Leasehold intangible (Note 3).................................................... 603 177 71
Goodwill, net of accumulated amortization of $1,507, $2,692 and $2,692 at
December 31, 1996 and 1997 and March 31, 1998, respectively.................... 1,186 -- --
Note receivable.................................................................. 159 -- --
Other assets..................................................................... 19 171 170
------- ------- -----------
Total assets................................................................. $19,679 $23,023 $15,673
------- ------- -----------
------- ------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................... $ 1,319 $ 2,213 $ 1,304
Deferred revenues.............................................................. 6,832 20,604 19,458
Accrued expenses and other current liabilities................................. 5,557 6,385 5,033
Debt--other, current portion................................................... -- 1,526 1,556
Debt--related party, current portion........................................... -- 448 224
Net liabilities of discontinued operations, current portion.................... 1,494 -- --
------- ------- -----------
Total current liabilities...................................................... 15,202 31,176 27,575
Long-term debt--related party.................................................... 424 -- --
Long-term debt--other............................................................ 1,087 937 848
Net liabilities of discontinued operations, less current portion................. 1,307 -- --
------- ------- -----------
Total liabilities............................................................ 18,020 32,113 28,423
Commitments and other contingent liabilities (Note 12)
Stockholders' equity (deficit):
Preferred Stock, $.001 par value; 12,000,000, 16,500,000 and 16,500,000 shares
authorized at December 31, 1996 and 1997 and March 31, 1998, respectively:
650,000 shares designated as Series A Convertible Preferred Stock, 570,000
shares issued and outstanding (liquidation preference of $2,850,000)....... 1 1 1
9,000,000 shares designated as Series B Convertible Preferred Stock,
8,144,642 shares issued and outstanding (liquidation preference of
$28,506,000)............................................................... 8 8 8
4,500,000 shares designated as Series C Convertible Preferred Stock, 0,
2,609,491 and 2,609,491 shares issued and outstanding at December 31, 1996
and 1997 and March 31, 1998, respectively (liquidation preference of
$10,725,000)............................................................... -- 3 3
Common Stock, $.001 par value; 50,000,000 shares authorized, 2,026,738,
2,093,107 and 2,124,142 shares issued and outstanding at December 31, 1996
and 1997 and March 31, 1998, respectively.................................. 6 6 6
Additional paid-in capital....................................................... 30,638 41,282 42,584
Stock subscriptions receivable................................................... (25) -- --
Deferred Compensation............................................................ -- -- (1,229)
Accumulated deficit.............................................................. (29,112) (50,929) (54,736)
Cumulative translation adjustments............................................... 143 539 613
------- ------- -----------
Total stockholders' equity (deficit)............................................. 1,659 (9,090) (12,750)
------- ------- -----------
Total liabilities and stockholders' equity (deficit)......................... $19,679 $23,023 $15,673
------- ------- -----------
------- ------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
MARCH 17 TO 31, MARCH 31,
DECEMBER 31, ---------------------- --------------------
1995 1996 1997 1997 1998
------------ -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous information services................... $ 3,149 $ 14,600 $ 2,570 $ 6,804
Other services.................................... $ 5,517 6,043 4,715 1,276 1,693
Publications...................................... 1,442 946 344 180 55
------------ -------- -------- ------- -------
Total revenues.................................... 6,959 10,138 19,659 4,026 8,552
Costs and expenses:
Cost of services.................................. 4,707 12,336 12,477 3,202 4,391
Cost of publications.............................. 346 790 174 75 71
Sales and marketing............................... 1,016 6,706 19,617 4,158 5,781
Research and development.......................... 348 1,789 1,975 659 339
General and administrative........................ 5,760 9,739 6,419 1,061 1,339
Depreciation and amortization..................... 1,387 2,391 2,810 634 385
------------ -------- -------- ------- -------
Total costs and expenses.......................... 13,564 33,751 43,472 9,789 12,306
------------ -------- -------- ------- -------
Loss from operations................................ (6,605) (23,613) (23,813) (5,763) (3,754)
------------ -------- -------- ------- -------
Interest income..................................... 246 515 277 98 37
Interest expense.................................... (100) (95) (235) (17) (86)
------------ -------- -------- ------- -------
Loss from continuing operations before income
taxes........................................... (6,459) (23,193) (23,771) (5,682) (3,803)
Income tax (benefit) charge......................... (1,093) (491) (641) 7 4
------------ -------- -------- ------- -------
Loss from continuing operations................... (5,366) (22,702) (23,130) (5,689) (3,807)
------------ -------- -------- ------- -------
Discontinued operations:
Income (loss) from the discontinued BIS market
research business, less applicable income taxes
of $1,497 and $114 for the period March 17 to
December 31, 1995 and the year ended December
31, 1996........................................ 1,490 (79) -- -- --
Income (loss) from the discontinued Shrapnel
business, less applicable income taxes of $0.... 154 (134) -- -- --
Income (loss) on disposal of discontinued BIS
market research business, less applicable income
taxes of $158 and $568 for the years ended
December 31, 1996 and 1997, respectively........ -- (2,315) 1,101 -- --
Income (loss) on disposal of discontinued Shrapnel
business, less applicable income taxes of $0 and
$109 for the years ended December 31, 1996 and
1997, respectively.............................. -- (160) 212 -- --
------------ -------- -------- ------- -------
Income (loss) from discontinued operations........ 1,644 (2,688) 1,313 -- --
------------ -------- -------- ------- -------
Net loss............................................ $ (3,722) $(25,390) $(21,817) $(5,689) $(3,807)
------------ -------- -------- ------- -------
------------ -------- -------- ------- -------
Results per common share (Note 2):
Historical--basic and diluted:
Loss from continuing operations................. $ (11.16) $ (1.80)
-------- -------
-------- -------
Net loss........................................ $ (10.53) $ (1.80)
-------- -------
-------- -------
Weighted average number of shares............... 2,072,837 2,115,837
-------- -------
-------- -------
Pro forma--basic and diluted (unaudited):
Loss from continuing operations................. $ (3.42) $ (0.56)
-------- -------
-------- -------
Net loss........................................ $ (3.23) $ (0.56)
-------- -------
-------- -------
Weighted average number of shares .............. 6,759,621 6,802,621
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MARCH 17, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995, THE
YEARS ENDED
DECEMBER 31, 1996 AND 1997 AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE ADDITIONAL STOCK
PREFERRED PREFERRED PREFERRED COMMON PAID-IN SUBSCRIPTION
STOCK STOCK STOCK STOCK CAPITAL RECEIVABLE
----------- ----------- ----------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 2,036,002 shares of Common
Stock...................................... $ 6 $ 1,054 $ (350)
Issuance of 160,000 shares of Series A
Convertible Preferred Stock and convertible
note for acquisition of ExperNet
Corporation................................ 800
Issuance of 410,000 shares of Series A
Convertible Preferred Stock, net of
expenses................................... $ 1 2,049 (25)
Issuance of 4,026,772 shares of Series B
Convertible Preferred stock, net of
expenses................................... $ 4 13,212
Conversion of bridge financing to 571,428
shares of Series B Convertible Preferred
Stock...................................... 1,980
Net loss....................................
Translation adjustments.....................
----------- ----------- ----------- ------ ---------- -----
Balance at December 31, 1995................ 1 4 6 19,095 (375)
----------- ----------- ----------- ------ ---------- -----
Payment of stock subscription receivable.... 300
Issuance of 3,327,728 shares of Series B
Convertible Preferred Stock, net of
expenses................................... 4 11,546
Issuance of 36,458 shares of Common Stock... 70
Repurchase of 12,389 shares of Common
Stock...................................... (23)
Cancellation of 33,333 shares of Common
Stock issued............................... (50) 50
Exercise of warrant for 218,714 shares of
Series B Convertible Preferred Stock.......
Net loss....................................
Translation adjustments.....................
----------- ----------- ----------- ------ ---------- -----
Balance at December 31, 1996................ 1 8 6 30,638 (25)
----------- ----------- ----------- ------ ---------- -----
Issuance of 72,479 shares of Common Stock... 148
Repurchase of 6,110 shares of Common
Stock...................................... (38)
Issuance of 2,609,491 shares of Series C
Convertible Preferred Stock, net of
expenses................................... $ 3 10,534
Payment of stock subscription receivable.... 25
Net loss....................................
Translation adjustments.....................
----------- ----------- ----------- ------ ---------- -----
Balance at December 31, 1997................ 1 8 3 6 41,282 --
----------- ----------- ----------- ------ ---------- -----
Issuance of 31,035 shares of Common Stock... 73
Deferred Compensation....................... 1,229
Net loss....................................
Translation adjustments.....................
----------- ----------- ----------- ------ ---------- -----
Balance at March 31, 1998 (unaudited)....... $ 1 $ 8 $ 3 $ 6 $ 42,584 --
----------- ----------- ----------- ------ ---------- -----
----------- ----------- ----------- ------ ---------- -----
<CAPTION>
CUMULATIVE TOTAL
DEFERRED TRANSLATION ACCUMULATED STOCKHOLDERS'
COMPENSATION ADJUSTMENTS DEFICIT EQUITY
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Issuance of 2,036,002 shares of Common
Stock...................................... $ 710
Issuance of 160,000 shares of Series A
Convertible Preferred Stock and convertible
note for acquisition of ExperNet
Corporation................................ 800
Issuance of 410,000 shares of Series A
Convertible Preferred Stock, net of
expenses................................... 2,025
Issuance of 4,026,772 shares of Series B
Convertible Preferred stock, net of
expenses................................... 13,216
Conversion of bridge financing to 571,428
shares of Series B Convertible Preferred
Stock...................................... 1,980
Net loss.................................... $ (3,722) (3,722)
Translation adjustments..................... $ (37) (37)
------ --- ----------- -------------
Balance at December 31, 1995................ (37) (3,722) 14,972
------ --- ----------- -------------
Payment of stock subscription receivable.... 300
Issuance of 3,327,728 shares of Series B
Convertible Preferred Stock, net of
expenses................................... 11,550
Issuance of 36,458 shares of Common Stock... 70
Repurchase of 12,389 shares of Common
Stock...................................... (23)
Cancellation of 33,333 shares of Common
Stock issued............................... --
Exercise of warrant for 218,714 shares of
Series B Convertible Preferred Stock....... --
Net loss.................................... (25,390) (25,390)
Translation adjustments..................... 180 180
------ --- ----------- -------------
Balance at December 31, 1996................ 143 (29,112) 1,659
------ --- ----------- -------------
Issuance of 72,479 shares of Common Stock... 148
Repurchase of 6,110 shares of Common
Stock...................................... (38)
Issuance of 2,609,491 shares of Series C
Convertible Preferred Stock, net of
expenses................................... 10,537
Payment of stock subscription receivable.... 25
Net loss.................................... (21,817) (21,817)
Translation adjustments..................... 396 396
------ --- ----------- -------------
Balance at December 31, 1997................ 539 (50,929) (9,090)
------ --- ----------- -------------
Issuance of 31,035 shares of Common Stock... 73
Deferred Compensation....................... (1,229) 0
Net loss.................................... (3,807) (3,807)
Translation adjustments..................... 74 74
------ --- ----------- -------------
Balance at March 31, 1998 (unaudited)....... $ (1,229) $ 613 $ (54,736) $ (12,750)
------ --- ----------- -------------
------ --- ----------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
GIGA INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED
MARCH 17 TO DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------- ------------------
1995 1996 1997 1997 1998
------------ -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (3,722) $(25,390) $(21,817) $(5,689) $(3,807)
Adjustments to reconcile net loss to net cash used in
continuing operating activities:
(Income) loss from discontinued operations............. (1,644) 213 -- -- --
(Income) loss on disposal of discontinued operations... -- 2,475 (1,313) -- --
Depreciation and amortization.......................... 1,387 2,391 2,810 634 385
Net loss on write-down of investments.................. -- 200 179 -- --
Provision for doubtful accounts........................ 20 395 27 59 (79)
Decrease in deferred taxes............................. 50 61 -- -- --
Interest on long-term debt added to principal.......... 37 74 74 18 13
Interest on note receivable added to principal......... -- (9) (5) (3) --
Gain on sale of fixed assets........................... (3) (11) (2) (7) (9)
Other non-cash items................................... -- -- 87 8 8
Change in assets and liabilities net of effects of
acquisitions:
Decrease (increase) in accounts receivable............. 1,489 (4,092) (8,405) 563 5,321
Increase in prepaid expenses and other current
assets............................................... (1,509) (536) (1,755) (853) (53)
Increase (decrease) in accounts payable and accrued
liabilities.......................................... 1,988 1,928 1,894 (458) (2,045)
Increase (decrease) in deferred revenues............... 551 4,582 13,696 2,137 (1,023)
------------ -------- -------- ------- -------
Net cash provided by (used in) operating activities:
Net cash used in continuing operations................... (1,356) (17,719) (14,530) (3,591) (1,289)
Net cash provided by (used in) discontinued operations... 335 (571) (1,667) (145) (13)
------------ -------- -------- ------- -------
Net cash used in operating activities.................. (1,021) (18,290) (16,197) (3,736) (1,302)
------------ -------- -------- ------- -------
Cash flows from investing activities:
Acquisition of equipment and improvements................ (961) (1,799) (559) (151) (261)
Net cash acquired in BIS acquisition..................... 1,013 -- -- -- --
Net cash acquired in ExperNet acquisition................ 61 -- -- -- --
Issuance of note receivable.............................. -- (150) -- -- --
Proceeds from sale of Shrapnel........................... -- -- 293 -- --
Other, net............................................... 76 40 60 24 10
------------ -------- -------- ------- -------
Cash provided by (used in) investing activities........ 189 (1,909) (206) (127) (251)
------------ -------- -------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of Common Stock................... 710 70 61 8 65
Repurchase of common stock............................... -- (23) (38) -- --
Proceeds from issuance of Series A Convertible Preferred
Stock.................................................. 2,025 -- -- -- --
Proceeds from bridge financing, net of issuance costs
of $20................................................. 1,980 -- -- -- --
Proceeds from issuance of Series B Convertible
Preferred Stock, net of issuance costs of $90 and
$878................................................. 13,216 11,557 -- -- --
Proceeds from issuance of Series C Convertible
Preferred Stock, net of issuance costs of $188......... -- -- 10,537 -- --
Repayments of principal to related parties............... (321) -- -- -- (224)
Proceeds from stock subscriptions receivable............. -- 300 25 -- --
Net increase (decrease) in short-term borrowings......... 234 (294) (193) 56 --
Proceeds from long-term debt............................. -- -- 1,465 -- --
Principal payments on long-term debt..................... (97) (11) (139) -- (72)
------------ -------- -------- ------- -------
Cash provided by (used in) financing activities........ 17,747 11,599 11,718 64 (231)
------------ -------- -------- ------- -------
Effect of exchange rates on cash......................... (39) 10 (62) (28) (2)
Net increase (decrease) in cash and cash equivalents..... 16,876 (8,590) (4,747) (3,827) (1,786)
Cash and cash equivalents, beginning of period........... -- 16,876 8,286 8,286 3,539
------------ -------- -------- ------- -------
Cash and cash equivalents, end of period............... $ 16,876 $ 8,286 $ 3,539 $ 4,459 $ 1,753
------------ -------- -------- ------- -------
------------ -------- -------- ------- -------
Supplementary cash flow information:
Income taxes paid...................................... $ 39 $ 30 $ 15 $ 5 $ 5
Interest paid.......................................... $ 58 $ 22 $ 121 $ 0 $ 55
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
1. THE COMPANY:
Giga Information Group, Inc. ('Giga' or the 'Company') was incorporated on
March 17, 1995 (date of inception) in the State of Delaware. The Company's
principal business activity is to provide information, analysis and advice
relating to developments and trends in the computing, telecommunications and
related industries (collectively, the information technology or 'IT' industry)
primarily through subscription-based products. The Company derives its revenues
primarily from three sources; Continuous Information Services, which include its
Giga Advisory Service and IT Practices; Other Services, which include events and
consulting; and Publications. Continuous Information Services consist of
monitoring, research and analysis of IT developments and trends to support
customers' IT decisions, distributed through a variety of electronic and print
media, as well as inquiry access to analysts and practitioners and participation
in briefings and conferences, packaged into an annually renewable
subscription-based product. On April 5, 1995, the Company acquired BIS Strategic
Decisions, Inc. and its five foreign affiliates (collectively, 'BIS'). On July
6, 1995 Giga acquired a 77.8% equity interest in ExperNet Corporation
('ExperNet') which was owned by Gideon I. Gartner, Chairman of the Board of
Directors and Chief Executive Officer of the Company, and David L. Gilmour, then
a director and officer of the Company, and, on December 29, 1995, acquired the
remaining 22.2% interest.
The Company is subject to a number of risks similar to other companies in
its industry including a dependence on sales and renewals of subscription-based
services, uncertainty of market acceptance of its services, competition from
other companies including those with greater resources than the Company,
dependence on key individuals, the development of new services and products, the
need to obtain additional financing, protection of proprietary information and
technology and the risks associated with international operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. Certain prior year amounts have
been reclassified to conform to the current year's presentation.
Pursuant to the purchase method of accounting, acquired assets and
liabilities were revalued to their fair market value. The excess of the purchase
price over the fair market value of the net assets acquired was recorded as
goodwill.
Interim Financial Information
The consolidated financial statements of the Company at March 31, 1998 and
for the three months ended March 31, 1997 and 1998 are unaudited. All
adjustments (consisting only of normal recurring adjustments) have been made
which, in the opinion of management, are necessary for a fair presentation.
Results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for any future
period.
Cash and Cash Equivalents
Cash equivalents consist primarily of liquid investments, with original
maturities of 90 days or less, in money market funds which are convertible to a
known amount of cash and bear an insignificant risk of change in value.
F-7
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
Foreign Currency Translation
The accounts of foreign subsidiaries are translated using exchange rates in
effect at period-end for assets and liabilities and at average exchange rates
during the period for results of operations. The local currency for all foreign
subsidiaries is the functional currency. The related translation adjustments are
reported as a separate component of stockholders' equity (deficit). Gains
(losses) resulting from foreign currency transactions are included in other
income (expense) and are immaterial for all periods presented.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments in
money market funds and trade accounts receivable. The Company places its
temporary cash investments with high credit quality financial institutions in
accordance with its investment policy as approved by its board of directors.
Trade receivables result from contracts with various customers. Giga generally
does not require collateral or other security from these customers. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses. Such losses have historically been within management's
expectations.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the Company's
consolidated financial statements. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates for the year in which the differences are expected to reverse. The Company
records a valuation allowance against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Revenue and Commission Expense Recognition
Subscription revenues from Continuous Information Services are deferred and
recognized on a pro rata basis over the contract period, generally one year. The
Company's policy is to record a receivable and related deferred revenues for the
full amount of the contract on the date it is signed. Contracts are generally
billable upon signing. The Company also records the related commission
obligation upon the signing of these contracts and amortizes the corresponding
deferred commission expense over the contract period in which the related
Continuous Information Services revenues are earned. In the event the contract
is canceled by the customer, the commission is refundable with respect to the
portion related to the revenue which will not be recognized.
Revenues from (i) Advisory Service, IT Practices and Advisory Consulting
are aggregated into Continuous Information Services, (ii) Events and other
services, principally consulting, are aggregated into Other Services and (iii)
Publications are listed separately. Revenues from Other Services are recognized
as follows: events as they occur and consulting as such services are performed.
Revenues from Publications are recognized when publications are delivered.
Unbilled accounts receivable pertain to the portion of a customer's service
period not yet invoiced in accordance with contractual quarterly billing terms
offered in conjunction with the Continuous Information Services.
F-8
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
Property and Equipment
Property and equipment are stated at cost for items acquired after the
initial acquisition of the respective entities and at estimated fair market
value for those assets in existence at date of acquisition. Expenditures for
maintenance and repairs are charged to expense; expenditures for additions,
renewals and betterments are capitalized.
Depreciation is computed for financial reporting purposes principally by
use of the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computers and related equipment..................... 3 years
Furniture and fixtures.............................. 5 years
Motor vehicles...................................... 4 years
Leaseholds and related improvements................. Shorter of economic life or remaining lease term
</TABLE>
Upon retirement or sale, the cost of assets disposed of and the related
accumulated depreciation are eliminated from the balance sheet and the resulting
gains or losses reflected in income.
Long-Lived Assets
The Company regularly reviews long-lived assets for impairment. Any
write-downs are treated as permanent reductions in the carrying amount of the
assets. Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets when the facts and circumstances suggest that these
assets may be impaired. The test of such recoverability is a comparison of the
asset value to its expected undiscounted future cash flows over the remaining
life of the asset. This analysis relies on a number of factors including
operating results, business plans, budgets, economic projections and changes in
management's strategic direction or market emphasis.
Goodwill
Goodwill represents the excess of the purchase price of entities acquired
over the fair values of amounts assigned to the net tangible and intangible
assets acquired and liabilities assumed. Amortization is recorded using the
straight-line method over two years for the BIS acquisition and five years for
the ExperNet acquisition. The carrying value of goodwill is included in
management's evaluation of the recoverability of its long-lived assets. During
1996, approximately $666,000 of goodwill identifiable with the discontinuance of
the BIS market research business was written off to amortization expense in
connection with the disposition of this business. In 1997, the Company's
assessment of the recoverability of goodwill associated with the ExperNet
acquisition indicated a de-minimis level of future cash flows associated with
this business. As such, the Company wrote-off the remaining unamortized portion
of the goodwill resulting in a charge to amortization expense of $1,025,000.
Total amortization expense related to goodwill was approximately $578,000,
$929,000, $1,186,000, $231,000 and $0 for the period from March 17, 1995 to
December 31, 1995, the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities at the dates of the financial
statements and (iii) the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-9
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
Historical Net Loss per Common Share
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standard ('SFAS') No. 128, 'Earnings Per
Share.' Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Common equivalent shares have been
excluded from the computation of diluted loss per share as their effect would be
anti-dilutive. Common equivalent shares result from the assumed exercise of
outstanding stock options and warrants, the proceeds of which are then assumed
to have been used to repurchase outstanding common stock using the treasury
stock method, and the conversion of convertible notes into Common Stock. As a
result, options and warrants to purchase 1,638,825 and 1,903,730 shares of
Common Stock and convertible notes convertible into 93,196 and 78,910 shares of
Common Stock outstanding during the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively, were excluded from the calculation of
diluted net loss per common share.
Pro Forma Net Loss Per Common Share (unaudited)
The pro forma basic and diluted net loss per common share is computed based
upon the weighted average number of common shares outstanding in accordance with
SFAS No. 128. In addition, all outstanding shares of convertible preferred
stock, which convert to Common Stock upon the closing of an initial public
offering of Common Stock at a price of at least $15.75 per share and having
aggregate proceeds of at least $15,000,000, are treated as if converted to
Common Stock (see Note 13).
Comprehensive Income (Loss)
The Company has adopted SFAS No. 130, 'Reporting Comprehensive Income,'
which establishes standards for the reporting and display of comprehensive
income and its components in general purpose financial statements for the year
ended December 31, 1998 and interim periods. The table below sets forth
'Comprehensive income (loss)' as defined by SFAS No. 130 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS
MARCH 17 TO 31, ENDED MARCH 31,
DECEMBER 31, ------------------- -----------------
1995 1996 1997 1997 1998
------------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net loss...................................................... $ (3,722) $(25,390) $(22,075) $(5,689) $(3,807)
Other Comprehensive income (loss), net of tax:
Foreign currency translation adjustment.................. (37) 180 396 99 74
------------ -------- -------- ------- -------
Comprehensive loss............................................ $ (3,759) $(25,210) $(21,679) $(5,590) $(3,733)
------------ -------- -------- ------- -------
------------ -------- -------- ------- -------
</TABLE>
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
'Disclosures about Segments of an Enterprise and Related Information.' This
statement supersedes SFAS No. 14, 'Financial Reporting for Segments of a
Business Enterprise.' SFAS No. 131 includes requirements to report selected
segment information quarterly and entity-wide disclosures about products and
services, major customers, and the material countries in which the entity holds
assets and reports revenues. The statement will be effective for annual periods
beginning after December 15, 1997 and the Company will adopt its provisions in
the year ended December 31, 1998. Reclassification for earlier periods is
required, unless impracticable, for comparative purposes. The Company is
currently evaluating the impact this statement will have on its financial
statements; however, because the statement requires only additional disclosure,
the Company does not expect the statement to have a material impact on its
financial position or results of operations.
F-10
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
3. ACQUISITIONS:
BIS Strategic Decisions, Inc. and Affiliates
On April 5, 1995, the Company acquired 100% of the stock of BIS for
$200,000 in cash and a $1,000,000 convertible promissory note (see Note 11). BIS
was engaged in compiling and providing data intensive market research to vendors
for use primarily in planning their product operating and marketing programs.
The acquisition was accounted for as a purchase and, accordingly, the cost
(including acquisition costs of $204,000) was assigned to the tangible and
identifiable intangible assets acquired, including a leasehold for one of the
facilities, and liabilities assumed based upon their estimated fair values at
the date of acquisition. As part of the transaction, an intangible asset
(leasehold) of approximately $1,300,000 was recorded representing the fair value
of payments being made through May 1998 by a former owner of BIS. In addition
the Company acquired current assets of approximately $8,700,000 and furniture
and equipment of approximately $2,000,000 offset by current liabilities assumed
of approximately $12,600,000 (of which approximately $9,100,000 were deferred
revenues), a note payable of $192,000 and a tax provision of approximately
$1,000,000. The excess of the purchase price over the net assets acquired of
approximately $3,059,000 was recorded as goodwill. The Company's statements of
operations include the results of operations of BIS from April 5, 1995.
ExperNet
On July 6, 1995, the Company acquired a majority interest in ExperNet in
exchange for (i) 160,000 shares of Series A Preferred Stock (213,333 shares of
Common Stock on an as-converted basis), 80,000 shares (106,667 shares of Common
Stock on an as-converted basis) of which were issued to Mr. Gartner and 80,000
shares (106,667 shares of Common Stock on an as-converted basis) of which were
issued to Mr. Gilmour and (ii) the issuance to Mr. Gartner of an option to
purchase 53,333 shares of Common Stock at an exercise price of $1.50 per share
which vested immediately. On December 29, 1995 the Company acquired Mr.
Gilmour's remaining interest in ExperNet in exchange for a $400,000, 6%
convertible note (the 'Note') due December 31, 2005 (see Note 11). ExperNet is
comprised of a network of external IT practitioners, and the related interactive
software, which respond to specific customer inquiries. In the transaction, the
Company acquired current assets of approximately $148,000 and furniture and
equipment of approximately $126,000, offset by current liabilities assumed of
approximately $96,000 and long-term debt of approximately $386,000. The
acquisition was accounted for as a purchase; accordingly, the excess of the
purchase price over the net assets acquired of approximately $1,408,000 has been
recorded as goodwill. The Company's statements of operations include the results
of operations of ExperNet from July 6, 1995.
4. RELATED PARTIES:
During the period from March 17, 1995 to December 31, 1995, the Company
reimbursed Mr. Gartner $186,000 for disbursements made by him for items related
to the acquisition of BIS and for other operational expenses prior to the
incorporation of the Company.
In addition, following the initial closing of the sale of Series B
Convertible Preferred Stock by the Company in November 1995, ExperNet repaid a
loan in the principal amount of approximately $221,000 plus accrued interest at
a rate of 10%, or a total of approximately $248,000, to Mr. Gartner and a loan
in the principal amount of approximately $101,000 plus accrued interest at a
rate of 10%, or a total of approximately $113,000, to Mr. Gilmour.
During 1997, the Company awarded 17,778 shares of Common Stock at a fair
value of $3.00 per share to Mr. Gartner in lieu of a payment of cash for
services rendered during 1996 as Chief Executive Officer. The Company recorded
as compensation expense in 1996 the fair value of the Common Stock awarded to
Mr. Gartner.
F-11
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
In connection with the repayment of the note issued to Mr. Gilmour in
conjunction with the ExperNet acquisition (see Note 11), the Company received a
7.5% equity interest in a company newly formed by Mr. Gilmour and a
royalty-free, irrevocable license to use any software, products and technologies
the new company will develop during a three year period commencing on February
1, 1998.
Certain of the Company's existing investors have represented that they
will, to the extent necessary, fund the Company through May 1999 on terms to be
mutually agreed upon.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Prepaid compensation..................................................... $1,126 $2,559 $ 2,422
Other.................................................................... 627 1,194 1,243
------ ------ ---------
Total.................................................................. $1,753 $3,753 $ 3,665
------ ------ ---------
------ ------ ---------
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment at cost, less accumulated depreciation and
amortization, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Computer and related equipment........................................... $2,849 $3,202 $ 3,463
Furniture and fixtures................................................... 781 827 771
Motor vehicles........................................................... 108 27 1
Leasehold improvements................................................... 119 119 119
------ ------ ---------
3,857 4,175 4,354
Less accumulated depreciation and amortization........................... 1,460 2,480 2,676
------ ------ ---------
Property and equipment, net.............................................. $2,397 $1,695 $ 1,678
------ ------ ---------
------ ------ ---------
</TABLE>
Depreciation and amortization expense was $525,000, $1,020,000, $1,190,000,
$319,000 and $278,000 for the period March 17, 1995 to December 31, 1995, the
years ended December 31, 1996 and 1997, and the three months ended March 31,
1997 and 1998, respectively.
F-12
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
7. LEASE COMMITMENTS
The Company leases certain office space and equipment under operating lease
agreements. Future minimum rental commitments under all operating leases with
remaining noncancelable terms of one year or more are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
April 1 through December 31, 1998.................................................. $ 685
1999............................................................................... 910
2000............................................................................... 590
2001............................................................................... 137
2002............................................................................... 80
Thereafter......................................................................... 39
---------
Total............................................................................ $ 2,441
---------
---------
</TABLE>
Rent expense, net of sublease income of approximately $60,000, $78,000,
$54,000, $11,000 and $6,000 was $482,000, $701,000, $725,000, $232,000 and
$189,000 for the period March 17, 1995 to December 31, 1995, the years ended
December 31, 1996 and 1997, and the three months ended March 31, 1997 and 1998,
respectively.
An agreement was entered into by and among the Company and two prior owners
of BIS providing for one of the prior owners, who had guaranteed all payments
under a lease, to pay an aggregate of $1,500,000 to the landlord for rent under
the lease, payable monthly in an amount of $36,722. The guaranteed payments end
at May 30, 1998.
8. INCOME TAXES:
The Company has deferred tax assets of approximately $11,148,000,
$20,216,000 and $21,862,000 at December 31, 1996 and 1997 and March 31, 1998,
respectively. For financial reporting purposes, valuation allowances of
$11,148,000, $20,216,000 and $21,862,000, respectively, have been recognized to
offset these deferred tax assets until the Company can conclude that it is more
likely than not that these deferred tax assets will be realized. During the
years ended December 31, 1996 and 1997, and the three months ended March 31,
1998, the valuation allowance increased by approximately $8,529,000, $9,068,000
and $1,646,000, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Deferred revenue.................................................... $ 742
Net operating loss carryforwards.................................... 9,112 $19,119 $20,604
Discontinued operations............................................. 474 24 --
Other--net.......................................................... 820 1,073 1,258
------- ------- ---------
Total deferred tax assets........................................ 11,148 20,216 21,862
Valuation allowance for deferred tax assets........................... 11,148 20,216 21,862
------- ------- ---------
Net deferred tax assets............................................... -- -- --
------- ------- ---------
------- ------- ---------
</TABLE>
F-13
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
For financial reporting purposes, income before income taxes includes the
following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
MARCH 17 TO 31, MARCH 31,
DECEMBER 31, -------------------- ------------------
1995 1996 1997 1997 1998
------------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Pretax loss for continuing operations:
United States............................. $ (5,068) $(20,688) $(21,006) $(5,120) $(3,005)
Non-United States......................... (1,391) (2,505) (2,765) (562) (798)
------------ -------- -------- ------- -------
Consolidated................................ $ (6,459) $(23,193) $(23,771) $(5,682) $(3,803)
------------ -------- -------- ------- -------
------------ -------- -------- ------- -------
</TABLE>
The income tax expense(benefit) of the loss from continuing operations,
substantially all of which is deferred, consists of the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 17 TO DECEMBER 31, THREE MONTHS ENDED MARCH 31,
DECEMBER 31, -------------- ----------------------------------
1995 1996 1997 1997 1998
------------ ----- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
U.S. Federal....................................... $ (754) $(239) $(554) $ 7 $ 4
Foreign............................................ (339) (252) (87) -- --
-- --
------------ ----- -----
$ (1,093) $(491) $(641) $ 7 $ 4
-- --
-- --
------------ ----- -----
------------ ----- -----
</TABLE>
The income tax benefit of the loss from continuing operations differs from
the amount of income tax benefit determined by applying the applicable U.S.
statutory income tax rate to pretax loss from continuing operations as a result
of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
MARCH 17 TO DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ---------------- ----------------
1995 1996 1997 1997 1998
------------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Income tax at the statutory rate................... (34.0)% (34.0)% (34.0)% (34.0)% (34.0)%
Foreign subsidiary losses with no benefit
recognized....................................... 3.5 1.7 4.0 3.4 7.1
Foreign income taxed at different rates............ (1.4) 0.9 0.4 (0.2) (0.4)
Nondeductible goodwill............................. 3.1 1.4 1.7 -- --
U.S. losses with no benefit recognized............. 12.3 27.8 24.9 30.5 26.9
Other items (net).................................. (0.4) 0.1 0.3 0.4 0.5
------------ ----- ----- ----- -----
(16.9)% (2.1)% (2.7)% 0.1% 0.1%
------------ ----- ----- ----- -----
------------ ----- ----- ----- -----
</TABLE>
The Company has available net operating loss carryforwards of approximately
$47,988,000 and $51,791,000 at December 31, 1997 and March 31, 1998 which may be
used to reduce future taxable income. Of this amount, at December 31, 1997 U.S.
carryforwards of approximately $43,081,000 expire in various years through 2012,
certain non-U.S. carryforwards of approximately $2,367,000 expire in various
years through 2002 and the balance may be carried forward indefinitely. If
losses of acquired companies are used to reduce future taxable income,
associated tax benefits will first reduce acquired goodwill and other noncurrent
intangible assets before being recognized as a reduction of income tax expense
in the period the benefits are realized. Utilization of the net operating loss
carryforwards may be limited pursuant to the provisions of Section 382 of the
Internal Revenue Code of 1986, as amended.
F-14
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
9. JOINT VENTURE AGREEMENT:
In 1991, BIS entered into a joint venture agreement with a Japanese company
(the 'Joint Venture') to provide additional market penetration in Japan for the
Company's products and services. BIS's initial equity ownership was 40%.
Pursuant to the terms of the agreement, the Company was required to purchase an
additional 10% interest in the Joint Venture from its partner in March 1996 for
approximately $85,000. In April 1996, the Company and its partner each increased
their investment in the joint venture by approximately $24,000. In December
1996, the Company notified its partner, pursuant to the terms of the agreement,
of its desire to dissolve the Joint Venture. The Company does not expect any
proceeds from the dissolution and, as such, wrote off to expense its investment
of approximately $125,000. The net earnings of the joint venture to date have
been de minimis. At December 31, 1996 and 1997 and March 31, 1998 the Company
had accounts receivable due from the Joint Venture of $125,000, $0 and $0,
respectively.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Accrued compensation and benefits........................................ $1,675 $2,260 $ 1,101
Sales tax payable........................................................ 1,110 1,198 1,026
Other.................................................................... 2,772 2,927 2,906
------ ------ ---------
Total.................................................................. $5,557 $6,385 $ 5,033
------ ------ ---------
------ ------ ---------
</TABLE>
11. BORROWINGS AND LONG-TERM DEBT:
In connection with the Company's acquisition of BIS, the seller received a
$1,000,000, 5% convertible note due April 5, 1998. The note was convertible into
185,298 shares of Common Stock. The note plus accrued interest was fully repaid
on April 17, 1998.
In connection with the Company's acquisition of ExperNet, the Company
issued a $400,000, 6% convertible note to Mr. Gilmour (see also Note 3). The
note plus accrued interest was repaid in two installments, the last of which was
in April 1998.
In June 1997, the Company entered into a loan agreement with a lending
institution collateralized by certain equipment, machinery and fixtures. Under
this agreement the Company received a $1,465,000 loan due in June 2000 with an
effective interest rate of 17.133%. Principal payments required on this loan in
the years 1998 through 2000 are $389,000, $461,000 and $444,000.
The weighted average interest rates of outstanding short-term borrowings
were 7.3%, 6.9%, 7.1%, 0% and 8.1% for the period March 17, 1995 to December 31,
1995, the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1997 and 1998, respectively.
12. COMMITMENTS AND CONTINGENT LIABILITIES:
In October 1997, the Company entered into an invoice factoring arrangement
with a commercial bank under which the Company could borrow up to $1,250,000.
Under the arrangement, the bank charges an administrative fee of 0.5% of each
factored invoice and a monthly factoring management fee of 1.25% of the gross
average monthly factored invoices. Borrowings under the arrangement are
collateralized by all the Company's assets. Upon the initial utilization of the
factoring arrangement, the bank will receive warrants equal to the value of
$125,000 for a class of stock to be determined and at a price to be determined.
As of March 31, 1998, no invoices have been factored under the arrangement.
F-15
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
13. PREFERRED STOCK:
The authorized capital stock of the Company includes 16,500,000 shares of
Preferred Stock. Of the Preferred Stock, 650,000, 9,000,000 and 4,500,000 shares
have been designated as Series A, Series B and Series C Convertible Preferred
Stock. The remaining 2,350,000 shares of Preferred Stock have not been
designated.
Series A Convertible Preferred Stock ('Series A')
During 1995, the Company issued 410,000 shares of Series A (546,667 shares
on an as-converted basis) for consideration of $2,050,000 which consisted of
$2,025,000 cash and a $25,000 non-recourse note from an employee in connection
with his acceptance of employment with the Company. In addition, 160,000 shares
of Series A (213,333 shares on an as-converted basis) were issued in connection
with the acquisition of ExperNet as described in Note 3.
Series B Convertible Preferred Stock ('Series B')
During 1995, the Company issued 4,026,772 shares of Series B for cash
consideration of $13,216,000, net of issuance costs of $878,000. In addition,
bridge financing in the principal amount of $2,000,000 was automatically
converted into 571,428 shares of Series B at the first closing of the Series B
Stock financing in November 1995. During 1996 the Company issued an additional
3,327,728 shares of Series B, in two separate financings, for cash consideration
of $11,550,000, net of issuance costs of $97,000. In addition, a warrant issued
to the lender in connection with the Series B bridge financing in August 1995
was exercised on a cashless basis for 218,714 shares in September 1996 (see Note
15).
Series C Convertible Preferred Stock ('Series C')
During 1997, the Company issued 2,609,491 shares of Series C, in two
separate financings, for cash consideration of $10,537,000, net of issuance
costs of $188,000.
In connection with this issuance the Company issued warrants to purchase-up
to 1,409,129 shares of Series C at an exercise price of $4.50 per share (see
Note 15).
Conversion
Each share of Series A, Series B and Series C is convertible, at the
holder's option, into that number of shares of Common Stock as is determined by
dividing the initial purchase price of such shares by the conversion price in
effect at the time of conversion. The conversion price of each share of Series
A, Series B and Series C is subject to adjustment upon the occurrence of certain
events. At March 31, 1998 each share of Series A, Series B and Series C is
convertible into four-thirds (4/3), one-third (1/3) and 0.39143 shares of Common
Stock, respectively.
The Series A, Series B and Series C Shares will automatically convert into
Common Stock at the then effective conversion price upon the closing of a firmly
underwritten public offering of Common Stock at a price of at least $15.75 per
share (as adjusted for splits, combinations and share dividends), and generating
gross proceeds of at least $15,000,000. In addition, the Series A, Series B and
Series C Shares will convert into Common Stock at the then effective conversion
price upon the consent of the holders of at least two-thirds (2/3) of the then
outstanding Series A, Series B and Series C Shares.
Liquidation
Upon (i) the liquidation, dissolution, or winding up of the Company (either
voluntary or involuntary) or (ii) the merger or consolidation of the Company
with another corporation or the sale or other transfer of all or substantially
all of the assets of the Company which is not agreed to by the holders of not
less than a majority of
F-16
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
the Convertible Preferred Stock, voting together as a single class, and in which
the stockholders of the Company immediately prior to such transaction do not own
more than a 50% interest in the surviving entity, (i) holders of the Series A,
Series B and Series C Shares are entitled to receive out of the assets of the
Company available for distribution to its stockholders, an amount equal to
$5.00, $3.50 and $4.11 per share, respectively, plus any declared but unpaid
dividends, prior to any distribution to the holders of the Company's Common
Stock. Following distribution of such preferential amounts, holders of Series A,
Series B and Series C Shares shall not participate in any further distribution.
Voting
Except as provided by law or in the Company's Amended and Restated
Certificate of Incorporation, the holders of the Series A, Series B and Series C
Shares vote with holders of the Company's Common Stock on an as converted basis
and not as a separate class or series. In addition, so long as at least
1,000,000 shares of Series A, Series B and Series C Shares are outstanding, the
Company may not, without the approval of at least a majority of the outstanding
shares of the Series A, Series B and Series C Shares, take certain actions as
described in the Certificate of Incorporation.
14. COMMON STOCK:
In November 1995, the Company amended its Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 10,000,000 to
28,000,000. In December 1996, the Company amended its Certificate of
Incorporation to increase the authorized number of Common Stock from 28,000,000
to 50,000,000.
During March 1995, the Company sold to Mr. Gartner 1,400,000 shares of
Common Stock at a purchase price of $0.07125 per share. During the remainder of
1995, the Company sold 636,000 shares of Common Stock to employees, consultants
and directors at a purchase price of $1.50 per share.
15. STOCK OPTIONS AND WARRANTS:
Stock Options
In June 1995, the Company adopted the 1995 Stock Plan (the 'Prior Stock
Plan'). The Prior Stock Plan was superseded in October 1995 by the 1995 Stock
Option/Stock Issuance Plan (the '1995 Stock Plan'). On August 28, 1996 the Board
of Directors adopted the 1996 Stock Option Plan (the '1996 Stock Plan') to
effectively supersede the 1995 Stock Plan. The 1995 Stock Plan provided for the
granting of options to purchase and for direct purchases of up to 1,033,333
shares of Common Stock. The 1996 Stock Plan provides for the granting of options
to purchase up to 1,000,000 shares of Common Stock.
Both the 1995 Stock Plan and the 1996 Stock Plan provide for the grants of
non-qualified and incentive options to purchase shares of the Company's Common
Stock to employees (including officers and directors who are employed by the
Company) of, and consultants to, the Company generally at the fair market value
determined by the Board on the date of the grant. The 1995 Stock Plan also
provided for direct purchases of Common Stock. The Board may determine the date
on which these shares vest and become exercisable. Shares purchased as the
result of the exercise of these options or direct purchases under the 1995 Stock
Plan are subject to the Company's right to repurchase such shares upon the
occurrence of certain events and at a price equal to the fair market value as
defined on the date of repurchase.
Options granted under the 1995 and 1996 stock plans have variable vesting
periods. No options granted under these plans have a term in excess of 10 years
after the date of grant.
F-17
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
In March, 1998 the Board voted to grant 1,007,500 options to certain
employees at exercise prices ranging from $3.00 to $3.30 per share. The
estimated fair market value of the Company's Common Stock at the date of grant
was determined to be $6.75 per share. Accordingly, such grants were deemed to be
compensatory options in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock issued to employees" ('APB No. 25'). Total
option-related compensation expense for the three months ended March 31, 1998
was immaterial.
In June 1997, the Company adopted the 1997 Director Stock Option Plan (the
'Director Plan') which provides for the granting of non-qualifying stock options
to purchase-up to 50,000 shares of common stock. Under the Director Plan,
non-employee directors are entitled to receive options to purchase 2,000 shares
of common stock on July 1 of each year commencing in 1997. In addition, each
eligible non-employee director would receive an option to purchase 2,000 shares
of common stock upon the initial election to the Board of Directors. The
exercise price of the options, which vest in four equal installments starting
from the date of the grant, will equal the fair market value on the date of the
grant. Each option shall expire 10 years after the date of the grant.
A summary of stock option activity through March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at March 17, 1995
Granted........................................................ 1,023,718 $ 1.50
Exercised...................................................... (53,332) 1.50
Forfeited/canceled............................................. (20,000) 1.50
---------- ------
Outstanding at December 31, 1995................................. 950,386 1.50
Granted........................................................ 444,554 2.07
Exercised...................................................... (24,794) 1.50
Forfeited/canceled............................................. (449,301) 1.61
---------- ------
Outstanding at December 31, 1996................................. 920,845 1.72
Granted........................................................ 517,597 3.00
Exercised...................................................... (38,035) 1.64
Forfeited/canceled............................................. (349,115) 2.29
---------- ------
Outstanding at December 31, 1997................................. 1,051,292 2.17
Granted........................................................ 402,377 3.07
Exercised...................................................... (37,702) 1.71
Forfeited/canceled............................................. (99,770) 2.54
---------- ------
Outstanding at March 31, 1998.................................... 1,316,197 2.43
---------- ------
---------- ------
</TABLE>
Options vested and exercisable at December 31, 1996 and 1997 and March 31,
1998 were 151,571, 239,807, and 488,458, respectively.
In July and October 1995 the Company granted options to purchase a total of
260,000 shares of Common Stock other than pursuant to the 1995 Stock Plan at an
exercise price of $1.50 per share.
The Company has adopted the disclosure-only provisions of SFAS No. 123, but
applies APB No. 25 and related Interpretations in accounting for options.
Accordingly, no compensation expense has been recognized for the issuance of
options. Pursuant to the required pro forma disclosure under the fair value
method of estimating compensation cost, the Company has estimated the fair value
of its stock options by applying a present value approach which does not
consider expected volatility of the underlying stock ('minimum value method')
using
F-18
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
risk free interest rates based on zero coupon Treasury instruments with
maturities similar to the estimated option term and assuming no dividends.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1995, 1996 and 1997
consistent with the provisions of SFAS No. 123, the Company's net loss to common
stockholders and net loss per share to common stockholders would have been
increased to the SFAS No. 123 pro forma amounts indicated below in thousands
except per share amounts:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
1996 1997 31, 1998
-------- -------- ------------
<S> <C> <C> <C>
Net loss to common stockholders--as reported..................... $(25,390) $(21,817) $ (3,807)
Net loss to common stockholders--SFAS No. 123
pro forma...................................................... (25,427) (21,941) (3,852)
Net loss per share to common stockholders--as reported........... $ (10.53) $ (1.80)
Net loss per share to common stockholders--SFAS No. 123 pro
forma.......................................................... (10.59) (1.82)
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of the effects on reported net income for future years. SFAS No. 123
does not apply to awards prior to 1996 and additional awards in future years are
anticipated.
The weighted average fair value per share at date of grant for stock
options granted during the years December 31, 1996 and 1997 and the three months
ended March 31, 1998 was $0.22, $0.38 and $0.36, respectively. The fair value of
each option granted during the years ended December 31, 1996 and 1997 is
estimated on the date of grant using the Black-Scholes option pricing model with
a zero expected volatility, a dividend yield of 0%, weighted average expected
lives of 6.3 and 8.0 years, respectively, and weighted average risk free
interest rates of 6.0% and 6.2%, respectively.
The following table summarizes the status of the Company's stock options
outstanding and exercisable at March 31, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------- ----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
- --------------- --------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.50 to $1.80 531,709 5.2 years $ 1.53 423,039 $ 1.54
$2.70 to $3.30 784,488 9.5 years $ 2.98 65,419 $ 2.94
--------- ---------
Total 1,316,197 488,458
--------- ---------
--------- ---------
</TABLE>
Warrants
In connection with its engagement of a private placement agent for the sale
by the Company of the Series B Preferred Stock, the Company agreed in June 1995
to issue the placement agent a warrant to purchase 107,876 shares of Series B at
an exercise price of $4.625 per share. In connection with the Series B bridge
financing, the Company agreed in August 1995 to issue the lender a warrant to
purchase 285,714 shares of Series B at an exercise price of $2.345 per share,
which warrant was exercised on a cashless basis in September 1996 for 218,714
shares. Both of these warrants are for a term of five years, subject to earlier
expiration upon the occurrence of certain events. The Company believes the fair
market value of each warrant was nominal.
F-19
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
In connection with the issuance of Series C, the Company issued warrants to
purchase up to 1,409,179 shares of Series C at an exercise price of $4.50 per
share. These warrants are for a term of five years, subject to earlier
expiration upon the occurrence of certain events.
16. STOCK PURCHASE PLANS/AGREEMENTS:
In the period from inception to December 31, 1995, the Company sold 139,999
shares of Common Stock to certain employees of the Company at $1.50 per share
under the provisions of the 1995 Stock Plan or separate stock purchase
agreements. Employees vest in these shares over four years from their respective
dates of purchase, with 25% vesting on the first anniversary of the purchase and
pro rata thereafter over the remaining 36 months. If an employee who purchased
stock under either the 1995 Stock Plan or separate agreements ceases to be
employed by the Company, the Company at its option may elect to repurchase the
employee's unvested shares at the original cost paid by the employee for such
stock and vested shares at a price equal to the fair market value as determined
on the date of repurchase.
In October 1995, the Company sold 40,000 shares of Common Stock to a
director who also serves as a consultant to the Company for $1.50 per share of
which $10,000 was paid in cash and $50,000 was paid in the form of a nonrecourse
interest bearing note due March 31, 1996. In June 1996, the Company canceled the
promissory note plus interest accrued thereunder (totaling approximately
$52,000), in lieu of payment to the director for services rendered to the
Company in 1995 (for which the director was entitled to receive $25,000) and the
first six months of 1996 (for which the director was entitled to receive
$30,000) plus interest. These shares are also subject to certain repurchase
rights by the Company in the event that the director ceases to be either a
director of, or consultant to, the Company.
Pursuant to an agreement entered into in February 1997, the Company issued
to a director of the Company for services rendered 16,667 shares of Common Stock
which vest over six quarterly periods contingent upon services being provided
during the period. The Company recorded as compensation expense $50,000
representing the fair value of the Common Stock over the period during which the
services are rendered. Under the agreement, the Company also granted to the
director 8,333 non-qualified stock options with an exercise price at the fair
market value on the date of grant which vest over four years. In addition, the
Company reimbursed him $18,000 for operational expenses.
17. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS:
In the United States, the Company maintains a Savings and Retirement Plan
(the '401 (k) Plan') under Section 401 of the Internal Revenue Code. In 1997,
the Company amended its 401(k) Plan specifying that employees can enter the plan
on the date of hire or the first day of the month. Employees must have attained
the age of 21. In prior years, employees were eligible to participate in the
401(k) Plan who worked a minimum of one year and had attained the age of 21. The
Company matched by 25% that portion representing the first 3% of an employee's
base salary and by 50% that portion representing the next 3% of an employee's
base salary. Effective in 1997, the employer contributions are discretionary
after considering business results at the conclusion of each plan year. The
Company has made mandatory contributions to the 401(k) Plan of $47,000 and
$63,000 during the period March 17 to December 31, 1995 and the year ended
December 31, 1996, respectively, and made no discretionary contributions during
the year ended December 31, 1997 and the three months ended March 31, 1997 and
1998.
In the United Kingdom, the Company maintains a defined contribution plan.
All permanent employees who have attained the age of 20, and are not
contributing to a personal pension plan, are eligible to participate. The
Company matches a percentage of employee contributions which are invested at
each participant's discretion in a choice of three funds. The employer matching
percentage is determined within defined age ranges. During the period March 17
to December 31, 1995, the years ended December 31, 1996 and 1997, and the three
months
F-20
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
ended March 31, 1997 and 1998, the Company's match totaled $2,000, $2,000,
$2,000, $500 and $500, respectively.
18. DISCONTINUED OPERATIONS:
On June 25, 1996, the Company announced the discontinuation of the BIS
market research business. In connection with the discontinuance of such
operations, the Company terminated the personnel employed in developing and
compiling the data-intensive BIS market research products, ceased operations at
two of its licensed facilities in England and entered into contracts with two
independent IT service providers engaged to fulfill the Company's obligations to
customers of BIS under certain existing subscription agreements, all of which
expired by June 1997. The contracts with the service providers required that
Giga pay a percentage of the remaining contract value in exchange for their
fulfillment of Giga's obligations. In 1996, a total of approximately $623,000
was paid to the service providers to fulfill the obligations remaining under the
discontinued operations. A provision of approximately $1,187,000 was established
for probable refunds in connection with dissatisfied clients. At December 31,
1996 a total of approximately $720,000 remained in the provision for refunds.
The contracts with the providers also require the service providers to pay
royalties to Giga upon the renewal of contracts by them. Through December 31,
1997, no royalties had been earned or received. The results of these operations
prior to June 25, 1996 have been classified as discontinued operations and prior
year financial statements have been restated to reflect the discontinuance. A
charge of approximately $2,315,000 (net of taxes of approximately $158,000) was
recorded in 1996 for the loss on disposition of the operations consisting
primarily of rent and compensation. Included within the charge was a provision
related to the operations at two facilities in England which, based on the
market for subleased properties at the time, approximates the present value of
the expected expenses of these facilities for two and one-half years plus fifty
percent of the expected expenses over the remaining life of the leases and a
provision for the severance benefits payable to the terminated employees.
A gain of approximately $1,101,000 was recorded in 1997, mainly comprised
of a reversal of the provision for future lease commitments and related expenses
for two facilities in England and the provision which was established for
refunds to dissatisfied customers.
The net liabilities of the discontinued operations of the BIS business have
been segregated in the consolidated balance sheets and as of December 31, 1996
consist primarily of accounts receivable ($404,000), amounts payable related to
rent and facilities expenses ($2,245,000), customer refunds ($720,000),
liability to providers ($206,000) and salaries and related severance costs
($56,000). The operating results of the BIS business are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 17, TO
DECEMBER 31, YEAR ENDED
1995 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Revenues.................................................... $ 11,329 $ 3,557
Pre-tax income.............................................. 2,987 35
Provision for income taxes.................................. 1,497 114
Net income (loss)........................................... 1,490 (79)
</TABLE>
On December 20, 1996 the Company elected to discontinue its Australian
econometric forecasting business and commenced discussions with the management
team for the purchase of the entire business. A charge of approximately $160,000
was recorded at the time for the loss on disposition of the operations
consisting primarily of estimated losses to be incurred in the operation of the
business through the anticipated disposal date. The entire business was sold in
July 1997 to the management team for AU$407,500, or approximately $293,000 at
the time of sale. A gain of approximately $212,000 was recognized on the
disposition after giving effect to transaction costs.
F-21
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
The net assets of the discontinued Australian business have been segregated
in the consolidated balance sheets and as of December 31, 1996 consist primarily
of accounts receivable ($438,000), prepaid expenses ($394,000), property, plant
and equipment, net ($404,000), deferred revenue ($496,000), reserve for loss on
disposal ($162,000) and provision for long-term service ($258,000).
The results of the Australian operations prior to December 20, 1996 have
been classified as discontinued operations and prior year financial statements
have been restated to reflect the discontinuance. The operating results of the
Australian operations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 17, TO
DECEMBER 31, YEAR ENDED
1995 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Revenues.................................................... $ 3,747 $ 4,437
Pre-tax income.............................................. 154 (134)
Provision for income taxes.................................. -- --
Net income (loss)........................................... 154 (134)
</TABLE>
F-22
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
19. GEOGRAPHICAL MARKET INFORMATION:
The Company operates in one continuing business segment and in the
geographical markets indicated in the table below. Sales for continuing
operations are reflected in the segment from which the sales are made. The Other
International segment includes France, Italy, Germany and Korea.
<TABLE>
<CAPTION>
UNITED UNITED OTHER
STATES KINGDOM INTERNATIONAL TOTAL
-------- ------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
March 17, 1995 to December 31, 1995:
Revenues:
Total revenues.............................................. $ 3,755 $ 2,051 $ 1,270 $ 7,076
Transfers between areas..................................... -- (55) (62) (117)
-------- -------- ------------- --------
Unaffiliated revenues....................................... $ 3,755 $ 1,996 $ 1,208 $ 6,959
-------- -------- ------------- --------
-------- -------- ------------- --------
Loss from operations........................................... $ (5,183) $ (857) $ (565) $ (6,605)
Total assets................................................... 21,534 2,077 1,222 24,833
January 1, 1996 to December 31, 1996:
Revenues:
Total revenues.............................................. $ 6,961 $ 2,314 $ 948 $ 10,223
Transfers between areas..................................... -- (35) (50) (85)
-------- -------- ------------- --------
Unaffiliated revenues....................................... $ 6,961 $ 2,279 $ 898 $ 10,138
-------- -------- ------------- --------
-------- -------- ------------- --------
Loss from operations........................................... $(21,073) $(1,386) $(1,154) $(23,613)
Total assets................................................... 17,928 1,019 732 19,679
January 1, 1997 to December 31, 1997:
Revenues:
Total revenues.............................................. $ 17,249 $ 2,014 $ 396 $ 19,659
Transfers between areas..................................... -- -- -- --
-------- -------- ------------- --------
Unaffiliated revenues....................................... $ 17,249 $ 2,014 $ 396 $ 19,659
-------- -------- ------------- --------
-------- -------- ------------- --------
Loss from operations........................................... $(21,031) $(1,064) $(1,718) $(23,813)
Total assets................................................... 20,114 1,690 1,219 23,023
January 1, 1997 to March 31, 1997:
Revenues:
Total revenues.............................................. $ 3,432 $ 506 $ 88 $ 4,026
Transfers between areas..................................... -- -- -- --
-------- -------- ------------- --------
Unaffiliated revenues....................................... $ 3,432 $ 506 $ 88 $ 4,026
-------- -------- ------------- --------
-------- -------- ------------- --------
Loss from operations........................................... $ (5,193) $ (168) $ (401) $ (5,762)
Total assets................................................... 13,485 1,189 964 15,638
January 1, 1998 to March 31, 1998:
Revenues:
Total revenues.............................................. $ 7,852 $ 514 $ 186 $ 8,552
Transfers between areas..................................... -- -- -- --
-------- -------- ------------- --------
Unaffiliated revenues....................................... $ 7,852 $ 514 $ 186 $ 8,552
-------- -------- ------------- --------
-------- -------- ------------- --------
Loss from operations........................................... $ (2,948) $ (404) $ (402) $ (3,754)
Total assets................................................... 12,353 1,875 1,445 15,673
</TABLE>
F-23
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
Export Sales
The information below summarizes export sales by geographic area for the
United States operations of Giga (in thousands):
<TABLE>
<CAPTION>
TOTAL
EXPORT
EUROPE FAR EAST OTHER SALES
------ -------- ----- ------
<S> <C> <C> <C> <C>
March 17 to December 31, 1995............................ $191 $251 $105 $ 547
1996..................................................... 124 101 11 236
1997..................................................... 924 87 8 1,019
January 1 to March 31, 1997.............................. 153 41 2 196
January 1 to March 31, 1998.............................. 443 11 1 455
</TABLE>
20. SUBSEQUENT EVENTS:
In April 1998, the Company designated 2,000,000 shares of Preferred Stock
as Series D Convertible Preferred Stock ('Series D') and, for cash proceeds of
$1,500,000, issued 214,286 shares of Series D and warrants to purchase 115,714
shares of Series D at $9.00 per share. The warrants expire on April 5, 2003.
Each share of Series D is convertible, at the holder's option, into that
number of shares of Common Stock as determined by dividing the original purchase
price by the conversion price in effect at the time of conversion. Each share of
Series D is currently convertible into two-thirds of a share of Common Stock.
The Series D will automatically convert into Common Stock at the then
effective conversion price upon the earlier of (a) the approval by the holders
of at least two-thirds (2/3) of the then outstanding Series D shares, (b)
immediately prior to the closing of a firmly underwritten public offering of
Common Stock at a price of at least $15.75 per share (as adjusted for splits,
combinations and share dividends), and having aggregate cash proceeds of at
least $15,000,000 and (c) immediately prior to the closing of a firmly
underwritten public offering of Common Stock at a price of at least $12.00 per
share and having aggregate cash proceeds of at least $30,000,000 and which
closes on or prior to January 31, 1999.
In the event of liquidation, dissolution or winding up of the Company
(either voluntary or involuntary) or the merger or consolidation of the Company
with another corporation or the sale or transfer of all or substantially all of
the assets of the Company which is not agreed to by the holders of not less than
a majority of the Preferred Stock, voting together as a single class, and in
which the stockholders of the Company immediately prior to the such transaction
do not own more than 50% interest in the surviving entity, holders of Series D
will be entitled to receive out of the assets of the Company, prior and in
preference to any distribution of any of the assets of the Company to the
holders of Common Stock, but after payment of any liquidation preference which
may be provided for any other series of Preferred Stock, the original purchase
price for each outstanding share of Series D held (as adjusted for splits and
combinations), plus all declared and unpaid dividends prior to any distribution
to the holders of the Company's Common Stock. Following distribution of such
preferential amounts, holders of Series D shall not participate in any further
distribution.
Except as provided by law or in the Company's Amended and Restated
Certificate of Incorporation, the holders of Series D vote with the holders of
the Company's Common Stock on an as converted basis. In addition, as described
in the Certificate of Incorporation, the company may not take certain actions as
long as at least 1,000,000 shares of Series A, Series B, Series C and Series D
are outstanding, and without the approval of the holders of at least a majority
of the outstanding shares of Series A, Series B, Series C and Series D generally
voting together as a class.
Also in April 1998, the Company entered into a Loan and Warrant Purchase
Agreement whereby the Company issued convertible promissory notes with a face
value of $10,000,000 and warrants to purchase up-to
F-24
<PAGE>
GIGA INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
166,667 shares of Common Stock in exchange for cash proceeds of $10,000,000. The
notes bear interest at an annual interest rate of 12% payable in quarterly
installments and are convertible into 952,381 shares of Common Stock. The
warrants are exercisable at $3.00 per share for a period of ten years from the
date of the grant. The fair market value of the warrants was recorded as a
discount of $1,046,907 to the Notes and such Notes will be recorded at
$8,953,093. Accordingly, approximately $1,046,907 of accretion will be charged
to interest expense, in addition to the stated interest rates, over the term of
the notes.
The outstanding principal amount of the notes and warrants will be
automatically converted on February 1, 1999 into 1,428,571 shares of Series D
with warrants to purchase up to a maximum of 514,285 shares of Common Stock at
an exercise price of $13.50 per share unless the Company completes prior to that
date a public offering of Common Stock generating proceeds of at least
$30,000,000 at an offering price of at least $12.00 per share.
In May 1998, the Company issued an additional 71,429 shares of Series D and
warrants to purchase 30,572 shares of Series D for consideration of $500,000.
In May 1998, pursuant to a vote of the board of directors, the Company
effected a 1 for 3 reverse stock split of the Common Stock. All share and per
share data presented herein have been restated to reflect the Common Stock
split.
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Giga Information Group, Inc.:
We have audited the accompanying combined statements of operations and cash
flows of BIS Strategic Decisions for the period from January 1, 1995 to April 5,
1995. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the combined financial statements, BIS Strategic
Decisions was acquired by Giga Information Group, Inc. on April 5, 1995 and has
been operated by the management of Giga since that date. The transaction
involved the payment of $200,000 cash and a convertible note in the principal
amount of $1,000,000 for all the outstanding shares of BIS Strategic Decisions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined results of BIS Strategic Decisions'
operations and its cash flows for the period from January 1, 1995 to April 5,
1995 in conformity with generally accepted accounting principles.
Boston, Massachusetts
April 17, 1998
F-26
<PAGE>
BIS STRATEGIC DECISIONS
COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1 TO APRIL 5, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Information service revenues............................................................................. $ 2,116
Cost and expenses:
Cost of services and product development............................................................... 1,422
Sales and marketing.................................................................................... 167
General and administrative............................................................................. 1,047
Depreciation and amortization.......................................................................... 215
---------
Total costs and expenses....................................................................... 2,851
---------
Operating loss........................................................................................... (735)
Interest income, net..................................................................................... 19
---------
Loss from continuing operations before income taxes............................................ (716)
---------
Income tax benefit....................................................................................... (213)
---------
Loss from continuing operations................................................................ (503)
---------
Discontinued operations:
Income from the discontinued BIS market research business, net of tax effect........................... 597
Income from the discontinued Shrapnel business, net of tax effect...................................... 54
---------
Income from discontinued operations............................................................ 651
---------
Net income..................................................................................... $ 148
---------
---------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-27
<PAGE>
BIS STRATEGIC DECISIONS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1 TO APRIL 5, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income............................................................................................. $ 148
Adjustments to reconcile net income to net cash used in continuing operating activities:
Net income from discontinued operations........................................................... (651)
Depreciation...................................................................................... 191
Amortization and write-down of goodwill........................................................... 24
Provision for deferred income taxes............................................................... 58
Allowance for doubtful accounts................................................................... 7
Changes in certain operating assets and liabilities:
Increase in accounts receivable................................................................... (383)
Decrease in unbilled services..................................................................... 183
Increase in prepaid expenses and other current assets............................................. (310)
Decrease in accounts payable and accrued expenses................................................. (531)
Increase in deferred revenue...................................................................... 370
---------
Net cash provided by (used in) operating activities of:
Continuing operations.................................................................................. (894)
Discontinued operations................................................................................ 681
---------
Net cash used in operating activities.................................................................... (213)
Cash flows from investing activities:
Purchase of fixed assets............................................................................... (83)
Proceeds from sale of equipment........................................................................ 32
---------
Net cash used in investing activities.................................................................... (51)
Cash flows from financing activities:
Proceeds from borrowings............................................................................... 22
Principal payments on borrowings....................................................................... (157)
Principal payments on capital lease obligations........................................................ (19)
---------
Net cash used in financing activities.................................................................... (154)
Effect of exchange rate changes on cash.................................................................. 219
---------
Net decrease in cash and cash equivalents................................................................ (199)
Cash and cash equivalents at beginning of period......................................................... 1,809
---------
Cash and cash equivalents at end of period............................................................... $ 1,610
---------
---------
Supplemental cash flow information:
Income taxes paid...................................................................................... $ 7
Interest paid.......................................................................................... $ 2
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-28
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BACKGROUND:
BIS Strategic Decision, Inc. and its five foreign affiliates (collectively
'BIS Strategic Decisions' or 'BIS') were wholly-owned subsidiaries of Friday
Holdings, L.P. ('FHLP'). On April 5, 1995, Giga Information Group, Inc. ('Giga')
acquired 100% of the common stock outstanding of each of the BIS companies from
FHLP for $200,000 in cash and a $1,000,000 convertible promissory note. The
acquisition of BIS by Giga was accounted for as a purchase. As part of the
transaction, a $1,300,000 intangible asset was recorded representing the fair
value of payments being made on a property lease through May 1998 by a former
owner of BIS.
On June 25, 1996, Giga elected to discontinue the BIS market research
business. In connection with the discontinuance of such operations, Giga
terminated the personnel employed in developing and compiling the BIS market
research products, ceased operations at two of the licensed facilities in
England and entered into contracts with two independent IT service providers
engaged to fulfill Giga's obligations to customers of BIS under certain existing
subscription agreements, all of which expired on or before June 1997.
On December 20, 1996, Giga elected to discontinue its economic forecasting
business in Australia, BIS Shrapnel PTY Ltd. ('BIS Shrapnel'). In connection
with the discontinuance of such business, in July 1997 Giga sold the stock of
BIS Shrapnel to the management team in exchange for AU$407,500, or approximately
$293,000 at the time of sale.
The continuing operations reflected in the financial statements represent
revenues and expenses associated with BIS Information Service revenues which
include events, publications and consulting. The results of the BIS market
research business and BIS Shrapnel have been shown as discontinued operations.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The combined financial statements of BIS Strategic Decision include the
accounts of BIS Strategic Decisions, Inc., BIS Strategic Decisions, Ltd., BIS
Shrapnel, BIS Strategic Decisions, GmbH, BIS Strategic Decisions, Srl and BIS
Strategic Decisions, Sarl. All intercompany accounts and transactions have been
eliminated in combination.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that effect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
For international operations, the local currency is used as the functional
currency. Income statement items are translated at the average rates of exchange
for the year. Realized and unrealized exchange gains or losses arising from
transaction adjustments are reflected in operations and are not material.
F-29
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of
three months or less at date of purchase.
Revenue Recognition
Revenues from events, publications and consulting are recognized as
follows:
Events--revenues and associated expenses are recognized during the
month that the conference is held.
Publications--revenues from general and research reports are
recognized when the report is published. Newsletter revenues are recognized
over the subscription period.
Consulting Services--revenues are recognized based on the percentage
of the service that has been performed.
Income Taxes
The Predecessor Companies recognize deferred tax assets and liabilities for
the expected future tax consequences of events that have been included in the
Predecessor Companies' consolidated financial statements. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
currently enacted tax rates for the year in which the differences are expected
to reverse. The Predecessor Companies record a valuation allowance against net
deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
The BIS companies filed separate tax returns.
Property and Equipment
Property and equipment are depreciated over the estimated useful lives of
the related assets using the straight-line method. Computers and related
equipment are depreciated over three years, furniture and fixtures are
depreciated over five years and motor vehicles are depreciated over four years.
Leasehold improvements are amortized over the lesser of the noncancelable term
of the related lease or their estimated economic lives. Maintenance and repairs
are charged to expense as incurred.
3. PROPERTY AND EQUIPMENT:
Depreciation expense and amortization of leasehold improvements was
$191,000 for the period from January 1, 1995 to April 5, 1995.
4. CREDIT ARRANGEMENTS:
One of the combined affiliates of the Company has a working capital line of
credit agreement with a bank under which it may borrow amounts up to $750,000.
The line of credit bears interest at the bank's base rate plus 1.5% and is
secured by all assets owned or leased by the affiliate. The agreement contains
operational covenants and expired on December 31, 1994; however, the bank has
allowed the affiliate to extend the line pending resolution of the sale of the
affiliate. As of April 5, 1995, no amounts were outstanding under the line.
The weighted average interest rate of outstanding borrowings was 7.5% for
the period January 1, 1995 to April 5, 1995.
F-30
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES:
For financial reporting purposes, the income tax benefit from continuing
operations was based on the following components:
<TABLE>
<S> <C>
Pretax loss from continuing operations:
United States................................................... $(497)
Foreign......................................................... (219)
-----
Total pretax loss from continuing operations............ $(716)
-----
-----
</TABLE>
The results of continuing operations include a foreign tax benefit of
$3,000.
6. PENSION PLANS:
BIS has established the CAP International Savings and Retirement Plan (the
401(k) Plan), a profit sharing plan under Section 401 of the Internal Revenue
Code. Employees are eligible to participate in the 401(k) Plan by meeting
certain requirements, including length of service and minimum age. BIS matches
the first 3% of an employee's contribution by 25% and the next 3% of an
employee's contribution by 50%. BIS may also make additional contributions to
the plan at the discretion of the Board of Directors. BIS has not made any
discretionary contributions to the profit sharing plan. For the period January 1
to April 5, 1995, BIS contributed $23,000 to the plan.
7. LEASE COMMITMENTS:
BIS leases certain office space and equipment under operating lease
agreements. Rent expense was $232,000 for the period January 1 to April 5, 1995.
8. JOINT VENTURE AGREEMENT:
On October 18, 1991, BIS entered into a joint venture agreement with a
Japanese company. The purpose of the joint venture was to provide additional
market penetration in Japan for its products and services. Under the terms of
the joint venture agreement, the Predecessor Companies may be required to pay
its Japanese partner approximately $75,000 if cumulative sales under the joint
venture do not meet certain agreed upon levels by December 31, 1995. In
addition, on or prior to April 1, 1996, the Predecessor Companies may be
required to increase its investment in the joint venture by approximately
$23,000.
9. GEOGRAPHIC MARKETS:
BIS operates in one business segment and in the geographical markets
indicated in the table below. Revenues from continuing operations are reflected
in the market from which the sales are made. The Other International market
includes France, Italy and Germany.
JANUARY 1, 1995 TO APRIL 5, 1995 (IN THOUSANDS):
<TABLE>
<CAPTION>
NORTH UNITED OTHER
AMERICA KINGDOM INTERNATIONAL TOTAL
------- ------- ------------- ------
<S> <C> <C> <C> <C>
Revenues:
Total revenues........................................... $1,113 $ 499 $ 586 $2,198
Transfers between areas.................................. -- (19) (63) (82)
------- ------- ------ ------
Unaffiliated revenues.................................... $1,113 $ 480 $ 523 $2,116
------- ------- ------ ------
------- ------- ------ ------
Loss from continuing operations............................ $ (537) $ (22) $(176) $ (735)
</TABLE>
F-31
<PAGE>
BIS STRATEGIC DECISIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Export sales by geographic area for the U.S. operations of BIS totaled
$163,000 for the period January 1 to April 5, 1995 and were comprised of $57,000
to Europe, $75,000 to the Far East and $31,000 to other areas.
10. DISCONTINUED OPERATIONS:
On June 25, 1996, Giga decided to discontinue the BIS Market Research
business. The results of these operations have been classified as discontinued
operations and the financial statements have been restated to reflect the
discontinuance. The operating results of the business for the period from
January 1 to April 5, 1995 are summarized as follows (in thousands):
<TABLE>
<S> <C>
Revenues......................................................... $3,994
Pre-tax income................................................... 876
Provision for income taxes....................................... 279
Net income....................................................... 597
</TABLE>
On December 20, 1996, Giga decided to discontinue its Australian
econometric forecasting business. The results of these operations have been
classified as discontinued operations and the financial statements have been
restated to reflect the discontinuance. The operating results of the business
for the period from January 1 to April 5, 1995 are summarized as follows (in
thousands):
<TABLE>
<S> <C>
Revenues......................................................... $1,121
Pre-tax income................................................... 54
Provision for income taxes....................................... --
Net income....................................................... 54
</TABLE>
F-32
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 25
Management..................................... 31
Certain Transactions........................... 38
Principal Stockholders......................... 42
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 48
Underwriting................................... 50
Legal Matters.................................. 52
Experts........................................ 52
Additional Information......................... 52
Index to Consolidated Financial
Statements................................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
SHARES
[GIGA]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................................................ $ 13,570
NASD Filing Fee............................................................................. 5,100
Nasdaq Listing Fee.......................................................................... *
Blue Sky Fees and Expenses.................................................................. *
Transfer Agent and Registrar Fees........................................................... *
Accounting Fees and Expenses................................................................ *
Legal Fees and Expenses..................................................................... *
Printing, Engraving and Mailing Expenses.................................................... *
Premium for directors and officers insurance................................................ *
Miscellaneous............................................................................... *
--------
Total.................................................................................. $ *
--------
</TABLE>
- ------------------
* To be completed by Amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seven of the Registrant's Amended and Restated Certificate of
Incorporation (the 'Restated Certificate') provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law (the 'DGCL') prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article Eight of the Restated Certificate provides that a director or
officer of the Registrant (a) shall be indemnified by the Registrant against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant brought against
him by virtue of his position as a director or officer of the Registrant if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless a court determines that, despite
such adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice, he
is required to be indemnified by the Registrant against all expenses (including
attorneys' fees) incurred in connection therewith. Expenses shall be advanced to
a director or officer at his request, provided that he undertakes to repay the
amount advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or
II-1
<PAGE>
officer must give the Registrant notice of the action for which indemnity is
sought and the Registrant has the right to participate in such action or assume
the defense thereof.
Section 145 of the DGCL provides that a corporation has the power to
indemnify a director, officer, employee or agent of the corporation and certain
other persons serving at the request of the corporation in related capacities
against amounts paid and expenses incurred in connection with an action or
proceeding to which he is or is threatened to be made a party by reason of such
position, if such person shall have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in any criminal proceeding, if such person had no reasonable
cause to believe his conduct was unlawful; provided that, in the case of actions
brought by or in the right of the corporation, no indemnification shall be made
with respect to any matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the adjudicating
court determines that such indemnification is proper under the circumstances.
The Board of Directors on April 26, 1996 approved, in accordance with
Section 145 of the DGCL, a Directors and Officers Indemnification Agreement to
be entered into between the Registrant and each of Registrant's directors and
officers. Pursuant to the terms of the agreement, the Registrant agrees to hold
any director or officer harmless against any and all expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such director
or officer in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Registrant), to which the
director or officer becomes a party at any time or is threatened to be made a
party, by reason of the fact that the director or officer is a director,
officer, employee or agent of the Registrant, or serves at the request of the
Registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
and otherwise to the fullest extent as may be provided to the director or
officer by the Registrant under the non-exclusivity provisions of Article V of
the Bylaws of the Registrant and the Delaware General Corporation Law. The
agreement also obligates the Registrant under certain circumstances to advance
amounts and contribute to any amounts paid out by a director or officer as a
result of his or her role as a director or officer of the Registrant in cases
where indemnification by the Registrant is not available. This agreement is also
intended to indemnify special advisors of the Registrant.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock and other securities issued by the Registrant since
the Registrant's inception in March 1995. Further included is the consideration,
if any, received by the Registrant for such shares of capital stock and other
securities and information relating to the section of the Securities Act, or
rule of the Commission under which exemption from registration was claimed. All
awards of options did not involve any sale under the Securities Act and none of
these securities was registered under the Securities Act.
1. Since March 1995, the Registrant has issued options to purchase an
aggregate of 2,385,293 shares of Common Stock at a weighted average exercise
price of $2.20 per share. During this same time period, the Registrant has
issued a total of 2,211,305 shares of Common Stock pursuant to the exercise of
options previously granted.
2. In March 1995, the Registrant sold to its Chairman of the Board of
Directors and Chief Executive Officer 1,400,000 shares of Common Stock at a
purchase price of $0.07125 per share.
3. In April 1995, the Registrant issued to Friday Holdings, L.P. a 5%
$1.0 million principal amount convertible promissory note in connection with the
Registrant's acquisition of BIS Strategic Decisions, Inc. and its five foreign
affiliates.
4. In June 1995, the Registrant issued a warrant to purchase 107,876
shares of Series B Preferred Stock to Montgomery Securities in consideration for
certain placement agent services at an exercise price of $4.625 per share.
II-2
<PAGE>
5. In July 1995 and October 1995, the Registrant issued and sold an
aggregate of 570,000 shares of Series A Preferred Stock, $.001 par value
('Series A Preferred Stock') to a group of investors, including certain
employees and directors, at a purchase price of $5.00 per share.
6. In July 1995, the Registrant issued 160,000 shares of Series A
Preferred Stock to its Chairman of the Board of Directors and Chief Executive
Officer and to its Senior Vice President, Research & Technology in connection
with the Registrant's acquisition of a majority of the shares of ExperNet
Corporation ('ExperNet') and in December 1995, the Registrant issued to its
Senior Vice President, Research & Technology, in connection with the
Registrant's acquisition of the remaining shares of ExperNet, a 6% $400,000
convertible promissory note.
7. In August 1995, the Company issued to Mr. Crandall 40,000 shares of
Common Stock at a purchase price of $1.50 per share.
8. In August 1995, the Registrant issued a warrant to purchase 285,714
shares of Series B Preferred Stock to an investor at an exercise price of $2.345
per share. In September 1996, the investor made a cashless exercise of the
warrant and received 218,714 shares of the Company's Series B Preferred Stock.
9. Throughout 1995, the Registrant issued 2,036,002 shares of Common
Stock to a group of employees, consultants and directors at a purchase price of
$1.50 per share.
10. In November 1995 and February 1996, the Registrant issued and sold an
aggregate of 8,144,642 shares of Series B Preferred Stock, $.001 par value
('Series B Preferred Stock') to a group of investors at a purchase price of
$3.50 per share.
11. In August 1996, the Registrant issued 8,333 shares of Common Stock to
an employee in connection with the acquisition of his business.
12. In May and December 1997, the Company issued and sold an aggregate of
2,609,491 shares of Series C Preferred Stock, $.001 par value ('Series C
Preferred Stock'), at a purchase price of $4.11 per share to a limited number of
investors (the 'Series C Investors').
13. In January 1998, the Company issued warrants to purchase an aggregate
of 1,409,127 shares of Series C Preferred Stock at an exercise price of $5.28
per share to the Series C Investors.
14. In April 1998, the Company issued convertible promissory notes in the
aggregate principal amount of $10.0 million and warrants to purchase an
aggregate of 166,666 shares of Common Stock at an exercise price of $3.00 per
share to certain affiliates of Friedman, Billings, Ramsey & Co., Inc. ('FBR').
15. In April and May 1998, the Company issued and sold an aggregate of
285,715 shares of Series D Preferred Stock, par value $.001 per share ('Series D
Preferred Stock'), at a purchase price of $7.00 per share and warrants to
purchase an additional 154,286 shares of Series D Preferred Stock at an exercise
price of $9.00 per share.
Other than FBR, certain of whose affiliates purchased convertible notes
from the Company in April 1998, no underwriters were engaged in connection with
any of the foregoing sales of securities.
The shares of capital stock and other securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D or Rule
701 promulgated under the Securities Act, relative to sales by an issuer not
involving any public offering.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
* 1 -- Form of Underwriting Agreement.
3.1* -- Fourth Amended and Restated Certificate of Incorporation of the Registrant.
3.2 -- Certificate of Designations of Series D Preferred Stock of the Registrant.
3.3* -- Form of Amended and Restated Certificate of Incorporation of the Registrant (to be filed with the
State of Delaware prior to the closing of the Offering to which this Registration Statement
relates).
3.4* -- By-Laws of the Registrant.
3.5* -- Form of Amended and Restated Bylaws of the Registrant (to become effective upon the closing of the
Offering to which this Registration Statement relates).
4.1* -- Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant.
5* -- Opinion of Weil, Gotshal & Manges LLP with respect to the validity of the securities being offered.
10.1 -- Series B Preferred Stock Purchase Agreement dated November 13, 1995, as amended, between the
Registrant and the Investors named on Exhibit A thereto.
10.2* -- Form of Series B Preferred Stock Purchase Warrant dated February 28, 1996 registered in the name of
Montgomery Securities.
10.3 -- (a) Series C Preferred Stock and Warrant Purchase Agreement dated May 9, 1997, between the Registrant
and the Investors named in Exhibit A thereto.
*(b) Amendment No. 1 to Series C Preferred Stock and Warrant Purchase Agreement.
*(c) Letter Agreement re: Purchase of Series C Stock, between the Company and the Investors named
on the signature page thereto.
10.4 -- Form of Series C Preferred Stock Purchase Warrant dated January 2, 1998 and issued to the Investors
in the Series C Financing.
10.5 -- Series D Preferred Stock and Warrant Purchase Agreement dated April 6, 1998 between the Registrant
and the Investors named in Exhibit A thereto.
10.6 -- (a) Registration Rights Agreement dated November 13, 1995, among the Registrant, the Investors named
on Exhibit A thereto, Gideon I. Gartner and David L. Gilmour.
*(b) Amendment No. 1 to Registration Rights Agreement.
*(c) Amendment No. 2 to Registration Rights Agreement.
*(d) Amendment No. 3 to Registration Rights Agreement.
*(e) Amendment No. 4 to Registration Rights Agreement.
10.7 -- (a) Co-Sale and Stock Restriction Agreement dated November 13, 1995, among the Registrant, Gideon I.
Gartner and the stockholders named on the signature pages thereto.
*(b) Amendment No. 1 to Co-Sale Agreement.
*(c) Amendment No. 2 to Co-Sale Agreement.
10.8 -- Form of Series D Preferred Stock Purchase Warrant dated April 7, 1998 and issued to the Investors
in the Series D Financing.
10.9 -- Loan and Warrant Purchase Agreement dated April 7, 1998 between the Registrant and the Lenders
named in Schedule A thereto.
10.10 -- Form of Convertible Promissory Note dated April 7, 1998 issued to certain affiliates of Friedman,
Billings, Ramsey & Co., Inc.
10.11 -- Form of Common Stock Purchase Warrant dated April 7, 1998 issued to certain affiliates of Friedman,
Billings, Ramsey & Co., Inc.
10.12 -- Security Agreement dated as of April 7, 1998 between the Registrant and an affiliate of Friedman,
Billings, Ramsey & Co., Inc. as agent for the Lenders.
10.13* -- Consulting Agreement dated February 1, 1998 between the Registrant and David Gilmour.
10.14* -- Separation Agreement dated January 7, 1998 between the Registrant and Henry S. Givray.
10.15* -- Separation Agreement dated October 2, 1997 between the Registrant and Jacques Bouvard.
10.16 -- Non-competition Agreement dated November 13, 1995 between the Registrant and Gideon I. Gartner.
10.17 -- (a) Letter Agreement dated July 12, 1996 between the Registrant and Richard L. Crandall.
*(b) Letter Agreement dated February 11, 1997 between the Registrant and Richard L. Crandall.
10.18 -- Lease dated October 31, 1995 between the Registrant and Cambridge 1400 Limited Partnership.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.19 -- Lease dated October 6, 1987, as amended, between BIS Strategic Decisions, Inc. and Charles A.
Pesko, Jr., as Trustee of Longwater Circle Trust.
10.20* -- Content Distribution Agreement dated May 21, 1996 between the Registrant and Dow Jones and Company,
Inc.
10.21* -- Content Distribution Agreement dated December 31, 1996 between the Registrant and Information
Access Corporation.
10.22* -- 1995 Stock Option/Stock Issuance Plan
10.23* -- 1996 Stock Option Plan
10.24 -- 1997 Director Option Plan
21 -- Subsidiaries of the Registrant.
23.1* -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5).
23.2 -- Consent of Coopers & Lybrand L.L.P.
24 -- Powers of Attorney (included on page II-7).
27 -- Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Restated Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws of
the State of Delaware, or otherwise, the Registrant has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser. The undersigned Registrant hereby
undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMBRIDGE,
COMMONWEALTH OF MASSACHUSETTS, ON THIS 15th DAY OF MAY, 1998.
GIGA INFORMATION GROUP, INC.
By: /s/ Gideon I. Gartner
----------------------------------
Gideon I. Gartner
Chairman of the Board,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW
HEREBY CONSTITUTES GIDEON I. GARTNER AND DANIEL M. CLARKE, AND EACH OF THEM
SINGLY, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, EACH WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION (UNTIL REVOKED IN WRITING) TO SIGN FOR SUCH
PERSON AND IN SUCH PERSON'S NAME AND CAPACITY INDICTAED BELOW, ANY AND ALL
AMENDMENTS TO THIS REGISTRATION STATEMENT AND ANY OTHER REGISTRATION STATEMENT
FILED IN CONNECTION WITH THE SAME OFFERING PURSUANT TO RULE 462(B) UNDER THE
SECURITIES ACT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION,
HEREBY RATIFYING AND CONFIRMING SUCH PERSON'S SIGNATURE AS IT MAY BE SIGNED BY
SUCH ATTORNEYS TO ANY AND ALL SUCH AMENDMENTS AND ADDITIONAL REGISTRATION
STATEMENTS.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------------------------- ------------
<C> <S> <C>
/s/ Gideon I. Gartner
- --------------------------------------------- Chairman of the Board of Directors, President May 15, 1998
Gideon I. Gartner and Chief Executive Officer (Principal
Executive Officer)
/s/ Daniel M. Clarke
- --------------------------------------------- Senior Vice President and Chief Financial May 15, 1998
Daniel M. Clarke Officer, Treasurer and Secretary (Principal
Financial and Accounting Officer)
/s/ David L. Gilmour
- --------------------------------------------- Director May 15, 1998
David L. Gilmour
/s/ Neill H. Brownstein
- --------------------------------------------- Director May 15, 1998
Neill H. Brownstein
/s/ Richard L. Crandall
- --------------------------------------------- Director May 15, 1998
Richard L. Crandall
- --------------------------------------------- Director May 15, 1998
Irwin Lieber
/s/ Bernard Goldstein
- --------------------------------------------- Director May 15, 1998
Bernard Goldstein
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ---------- --------------------------------------------------------------------------------------------- ---------
<S> <C> <C> <C>
</TABLE>
- ------------------
* To be filed by amendment.
** [Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.]
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS
OF
SERIES D PREFERRED STOCK
OF
GIGA INFORMATION GROUP, INC.
Giga Information Group, Inc. (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that, in accordance with the provisions of
Section 151 of the DGCL and pursuant to Article III of the Fourth Amended and
Restated Certificate of Incorporation of the Company (the "Certificate"), the
Board of Directors of the Company (the "Board") is authorized to issue the
preferred stock, par value $0.001 per share (the "Preferred Stock"), of the
Company in one or more series and has authorized the Preferred Stock
hereinafter provided for, and has adopted the following resolution creating a
series of shares of Preferred Stock, designated as Series D Preferred Stock,
as follows:
RESOLVED, that pursuant to the authority vested in the Board in
accordance with the provisions of the Certificate, a series of Preferred Stock
be, and hereby is, created and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereon, are as follows:
1. Definitions. For purposes of this Resolution, the following
definitions shall apply:
(a) "Common Stock" shall mean the Common Stock, $.001 par
value, of the Company.
(b) "Original Issue Date" shall mean the effective date of
the initial sale of the Series D Preferred Stock issued by the Company.
(c) "Original Purchase Price" shall mean $7.00 per share.
(d) "Series A Preferred Stock" shall mean the Series A
Preferred Stock, $.001 par value, of the Company.
(e) "Series B Preferred Stock" shall mean the Series B
Preferred Stock, $.001 par value, of the Company.
(f) "Series C Preferred Stock" shall mean the Series C
Preferred Stock $.001 par value of the Company.
-1-
<PAGE>
(g) "Series Preferred Stock" shall mean, unless otherwise
specified in this Resolution, collectively, the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock.
(h) "Subsidiary" shall mean any corporation of which more
than fifty percent (50%) of the outstanding voting stock is at the time owned
directly or indirectly by the Company or by one or more other Subsidiaries.
2. Designation and Amount. The series shall be designated as "Series
D Preferred Stock" and the number of shares constituting such series shall be
Two Million (2,000,000).
3. Voting Rights. Except as otherwise required by law or as provided
by this Resolution, the holders of Series D Preferred Stock will be entitled to
notice of any meeting of stockholders of the Company and to vote upon any matter
submitted to stockholders or a class of stockholders of the Company on the basis
that each holder of shares of Series D Preferred Stock will have the right to
the number of votes equal to the number of shares of Common Stock into which
such shares could be converted on the record date fixed for the vote or consent
of stockholders (with any fractional share determined on an aggregate conversion
basis being rounded to the nearest whole share). With respect to such vote, each
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock.
4. Dividends. The holders of Series D Preferred Stock shall be
entitled to receive dividends from legally available funds when and if declared
by the Company's Board. In the event the Company shall declare a distribution
(other than distributions payable solely in shares of Common Stock) payable in
cash, securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets or options or rights to purchase any such
securities or evidences of indebtedness, then, in each such case the holders of
the Series D Preferred Stock shall be entitled to a proportionate share of any
such distribution as though the holders of the Series D Preferred Stock were the
holders of the number of shares of Common Stock into which their respective
shares of Series D Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock entitled to receive such
distribution. The holders of Series D Preferred Stock shall have no right to
share in any preferential distributions made to any other series of Preferred
Stock which may hereafter be issued in compliance with Section 7.
5. Liquidation Preference.
(a) In the event of the liquidation, dissolution or winding
up of the Company, either voluntarily or involuntarily, the holders of the
Series D Preferred Stock will be entitled to receive out of the assets of the
Company, prior and in preference to any distribution of any of the assets or
surplus of the Company to the
-2-
<PAGE>
holders of the Common Stock by reason of their ownership thereof, but after
payment of any liquidation preference which may hereafter be provided for any
other series of Preferred Stock issued in accordance with Section 7, an amount
equal to the greater of (i) the Original Purchase Price for each outstanding
share of Series D Preferred Stock then held by them (as appropriately adjusted
for stock splits and combinations), plus all declared and unpaid dividends
with respect thereto, or (ii) such amount per share as would have been payable
had each such share been converted to Common Stock pursuant to Section 6
immediately prior to such liquidation, dissolution and winding up, and the
holders of Series D Preferred Stock shall not be entitled to any further
payment. If upon the occurrence of an event referred to in the preceding
sentence the assets and funds thus distributed among the holders of the Series
D Preferred Stock are insufficient to permit the payment to such holders of
the full preferential amount for each such series, then the entire assets and
funds of the Company legally available for distribution will be distributed
ratably among the holders of the Series Preferred Stock (so that each holder
receives the same percentage of the applicable preferential amount). After
payment has been made to the holders of the Series D Preferred Stock of the
full preferential amounts referred to above, the holders of Series D Preferred
Stock shall not participate with the Common Stock in any further
distributions.
(b) Unless otherwise agreed to by the holders of not less
than a majority of the Series Preferred Stock then outstanding, voting
together as a single class, a merger of the Company with or into any other
corporation or corporations, or a sale, transfer or lease (other than a pledge
or grant of a security interest to a bona fide lender) of all or substantially
all of the assets of the Company shall be deemed to be a liquidation,
dissolution or winding up for purposes of this subsection (b), unless the
stockholders of the Company immediately prior to such transaction own more
than fifty (50) percent of the voting power of the surviving entity (or its
parent) subsequent to the transaction (provided, however, that shares of the
surviving entity held by holders of the capital stock of the Company acquired
by means other than the exchange or conversion of the capital stock of the
Company shall not be used in determining if the stockholders of the Company
own more than fifty (50) percent of the voting power of the surviving entity
(or its parent), but shall be used for determining the total outstanding
voting power of the surviving entity).
(c) The Company shall give each holder of record of Series
Preferred Stock written notice of an impending transaction described in
subsection 4(a) or 4(b) not later than fifteen (15) days prior to the
stockholders' meeting called to approve such transaction, or fifteen (15) days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction and the Company shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than fifteen (15) days after the Company has given the first notice
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the
-3-
<PAGE>
holders of the Series Preferred Stock which are entitled to such notice rights
or similar notice rights and which represents at least a majority of the
voting power of all then outstanding shares of such Series Preferred Stock
voting together as a single class.
(d) Whenever the distribution provided for in this Section 4 shall
be payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board.
6. Conversion Rights.
(a) Right to Convert. The holders of the Series D Preferred Stock
shall have conversion rights as follows:
(i) Optional Conversion. Each share of Series D
Preferred Stock will be convertible, at the option of the holder
thereof, at the office of the Company or any transfer agent for the
Series D Preferred Stock, into Common Stock. The number of shares of
Common Stock into which each share of Series D Preferred Stock will
be converted will equal the Original Purchase Price divided by the
applicable "Conversion Price" (as hereafter defined), such conversion
ratio being referred to hereafter as the "Conversion Rate." The
initial Conversion Price for shares of Series D Preferred Stock shall
be $3.50 per share; provided, however, such Conversion Price shall be
subject to adjustment as set forth in subsections 6(c), (d) and (e).
Upon any decrease or increase of the Conversion Price or the
Conversion Rate as described in this Section 6, the Conversion Rate
or Conversion Price, as the case may be, will be increased or
decreased proportionately.
(ii) Automatic Conversion. Each share of Series D
Preferred Stock will be converted automatically into shares of Common
Stock at the then effective Conversion Rate upon the earlier to occur
of (A) the approval by the holders of at least two-thirds (2/3) of
the then outstanding shares of Series D Preferred Stock, (B)
immediately prior to the closing of a firmly underwritten public
offering (an "IPO") pursuant to a registration statement (other than
a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase
or similar plan or a transaction pursuant to Rule 145 under the
Securities Act of 1933, as amended (the "Act")) under the Act
covering the Common Stock, which results in aggregate cash proceeds
(prior to underwriters' commissions and expenses) to the Company and
any selling stockholders of at least $15,000,000 and which has a
public offering price of not less than $5.25 per share (as adjusted
for any stock split, stock dividend, subdivision or combination of
the Common Stock) or (C) immediately prior to the closing of an IPO
which results in aggregate cash proceeds (prior to underwriters'
commissions and expenses) to the Company of
-4-
<PAGE>
at least $30,000,000, which has a public offering price of not less
than $4.00 per share and which closes on or prior to January 31, 1999.
(b) Mechanics of Conversion. Before any holder of Series D
Preferred Stock will be entitled to convert the same into shares of Common
Stock, such holder will surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or of any transfer agent for the Series D
Preferred Stock, and such holder will give written notice to the Company stating
the name or names in which he wishes the certificate or certificates for shares
of Common Stock to be issued. The Company, as soon as practicable thereafter,
will issue and deliver at such office to such holder or to his nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which he will be entitled as aforesaid. Such conversion will be deemed to
have been made immediately prior to the close of business on the date of notice
of conversion provided by the holder to the Company, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion will be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(c) Adjustment for Subdivisions or Combinations of Common Stock.
In the event the Company at any time or from time to time after the Original
Issue Date effects a subdivision or combination of its outstanding Common Stock
into a greater or lesser number of shares without a proportionate and
corresponding subdivision or combination of its outstanding shares of the Series
D Preferred Stock then the Conversion Price shall be decreased or increased, as
applicable, so that the number of shares into which each share of the Series D
Preferred Stock is convertible will be decreased or increased proportionately.
(d) Adjustment for Dividends, Distributions and Common Stock
Equivalents. In the event the Company at any time or from time to time after the
Original Issue Date makes or issues, or fixes a record date for the
determination of holders of Common Stock (but not holders of the Series D
Preferred Stock) entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights (hereinafter
referred to as "Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock without payment of
any consideration by such holder for such Common Stock Equivalents or the
additional shares of Common Stock, for the purpose of protecting the holders of
the Series D Preferred Stock from any dilution in connection therewith, then and
in each such event the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable in payment of
such dividend or distribution or upon conversion or exercise of such Common
Stock Equivalents will be deemed to be issued and outstanding as of the time of
such issuance or, in the event such a record date has been fixed, as of the
close of business on such record date. In each such event the then existing
Conversion Rate will be increased as of the time of
-5-
<PAGE>
such issuance or, in the event such a record date has been fixed, as of the
close of business on such record date, by multiplying the Conversion Rate by a
fraction,
(i) the numerator of which will be the total number
of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution or upon conversion or exercise of such
Common Stock Equivalents; and
(ii) the denominator of which will be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date;
provided, however, (A) if such record date has been fixed and such
dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Rate will be recomputed
accordingly as of the close of business on such record date and
thereafter the Conversion Rate will be adjusted pursuant to this
Section 6(d) as of the time of actual payment of such dividends or
distribution; (B) if such Common Stock Equivalents provide, with the
passage of time or otherwise, for any decrease in the number of shares
of Common Stock issuable upon conversion or exercise thereof, the
Conversion Rate shall, upon any such decrease becoming effective, be
recomputed to reflect such decrease insofar as it affects the rights of
conversion or exercise of the Common Stock Equivalents then
outstanding, and (C) upon the expiration of any conversion rights or
exercise under any unexercised Common Stock Equivalents, the Conversion
Rate computed upon the original issue thereof shall, upon such
expiration, be recomputed as if the only additional shares of Common
Stock issued were the shares of such stock, if any, actually issued
upon the conversion or exercise of such Common Stock Equivalents.
(e) Adjustment for Sale of Shares. If at any time after the
Original Issue Date the Company issues or sells any Additional Stock (as defined
below) for a consideration per share less than the then applicable Conversion
Price, then and in each such case, the Conversion Price will be reduced to a
price (calculated to the nearest cent) determined by multiplying such Conversion
Price by a fraction (1) the numerator of which will be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the Company
for such issue would purchase at such Conversion Price, and (2) the denominator
of which will be the number of shares of Common Stock outstanding immediately
after the Additional Stock is issued or sold; provided, however, that such
fraction will in no event be greater than one (1). Notwithstanding the
foregoing, if after the Original Issue Date and prior to the earlier of (a) May
9, 1999 and (b) the consummation by the Company of a sale or series of related
sales of any series or class of its equity securities at a common equivalent
price per share of not less than $4.61 and for aggregate proceeds to Company of
at least Six
-6-
<PAGE>
Million Five Hundred Thousand Dollars ($6,500,000), the Company issues or
sells any Additional Stock for a common equivalent price per share less than
the then applicable Conversion Price, then and in each such case the
Conversion Price will not be adjusted pursuant to the preceding sentence, but
instead will be reduced to a price (calculated to the nearest cent) equal to
the common equivalent price per share received by the Company for such
Additional Stock. For purposes of this Section 6(e), the shares of Common
Stock issuable upon conversion of the Series Preferred Stock and upon exercise
or conversion of all outstanding warrants, options or other securities
exercisable or exchangeable for, or convertible into, Common Stock, will be
deemed to be outstanding on the Original Issue Date.
"Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued as provided herein) by the Company after the
Original Issue Date other than:
(i) the issuance (or deemed issuance) of up to Seven Million
Five Hundred Thousand (7,500,000) shares of Common Stock issuable or
issued to officers, directors, employees, advisors and consultants of
the Company, at not less than fair market value (as determined by the
Board) pursuant to stock option or stock issuance plans approved by the
Board (including a majority of the directors who are not then employees
of the Company nor purchasers or grantees of such shares or options);
(ii) capital stock or warrants or options to purchase capital
stock at not less than fair market value (as determined by the Board)
issued in connection with bona fide acquisitions, licensing
transactions, mergers or similar transactions which do not violate
clause (y) of Section 7, in which the majority of the value of the
consideration received therefor (as determined by the Board) is not
cash, and the terms of which are approved by the Board;
(iii) capital stock or warrants or options to purchase capital
stock the issuance of which is determined to be excluded from the
definition of "Additional Stock" upon the written consent of the
holders of at least a majority of the then outstanding Series Preferred
Stock of all series of Series Preferred Stock as to which such issuance
would otherwise result in an adjustment to the Conversion Price as
provided above (without any requirement of an amendment to the
Certificate);
(iv) shares of Common Stock issued or issuable upon
conversion of shares of Series Preferred Stock (including shares issued
or issuable upon conversion of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock issued upon exercise of
warrants issued by the Company);
-7-
<PAGE>
(v) shares of Common stock issued or issuable in a public
offering before or in connection with which all outstanding shares of
Series Preferred Stock are converted to Common Stock;
(vi) except for shares described in clause (e)(i) above, any
securities ("Warrant Securities") issuable upon exercise of any
options, warrants or rights to purchase any securities of the Company
outstanding on November 11, 1995 (the "Series B Original Issue Date")
and any securities issuable upon the conversion of any Warrant
Securities or other securities or instruments outstanding on the Series
B Original Issue Date;
(vii) shares of the Common Stock or Series Preferred Stock
issued in connection with any stock split or stock dividend with
respect to which the Conversion Price is adjusted pursuant to Section
6(d);
(viii) 357,143 shares of Series D Preferred Stock (the "Series
D Shares") and warrants to purchase up to 192,858 additional shares of
Series D Preferred Stock (the "Series D Stock Warrants") issued or
issuable pursuant to that certain Series D Preferred Stock and Warrant
Purchase Agreement, dated April 6, 1998 (the "Purchase Agreement"), by
and among the Company and the entities named on Exhibit A thereto,
including shares issued pursuant to any Additional Closing (as defined
in the Purchase Agreement), and the shares of Series D Preferred Stock
issued or issuable upon exercise of the Series D Stock Warrants (the
"Warrant Shares") and the shares of Common Stock issued or issuable
upon conversion of the Series D Shares and the Warrant Shares.
For the purpose of making any adjustment in the Conversion
Price as provided above, the consideration received by the Company for any
issue or sale of Common Stock will be computed:
(x) to the extent it consists of cash, as the
amount of cash received by the Company before deduction of any
offering expenses payable by the Company and any underwriting or
similar commissions, compensation, or concessions paid or allowed by
the Company in connection with such issue or sale;
(y) to the extent it consists of property other
than cash, at the fair market value of that property as determined in
good faith by the Board; and
(z) if Common Stock is issued or sold together with
other stock or securities or other assets of the Company for a
consideration which covers both, as the portion of the consideration
so received that may be reasonably determined in good faith by the
Board to be allocable to such Common Stock.
-8-
<PAGE>
If the Company (1) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells
any security convertible into shares of Common Stock (in either case, other than
rights or options issued to employees, officers, directors and consultants of
the Company pursuant to paragraph (i) above), then, in each case, the price per
share of Common Stock issuable on the exercise of the rights or options or the
conversion of the securities will be determined by dividing the total amount, if
any, received or receivable by the Company as consideration for the granting of
the rights or options or the issue or sale of the convertible securities, plus
the minimum aggregate amount of additional consideration payable to the Company
on exercise or conversion of the securities, by the maximum number of shares of
Common Stock issuable on exercise or conversion at the price per share
determined under this subsection, and the Conversion Price will be adjusted as
and if above so provided to reflect (on the basis of that determination) the
issue or sale. No further adjustment of the Conversion Price will be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such rights or options or the conversion of any such convertible securities.
Upon the redemption or repurchase of any such securities or the
expiration or termination of the right to convert into, exchange for, or
exercise with respect to, Common Stock, the Conversion Price (if adjusted upon
the issuance of such securities) will be readjusted (giving effect to all
provisions hereof and all issuances after such original issuance) to such price
as would have been obtained had the adjustment made upon their issuance been
made upon the basis of the issuance of only the number of such securities as
were actually converted into, exchanged for, or exercised with respect to,
Common Stock. If the purchase price or conversion or exchange rate provided for
in any such security changes at any time, then, upon such change becoming
effective, the Conversion Price (if adjusted upon the issuance of such security)
will be readjusted (giving effect to all provisions hereof and all issuance
after such original issuance) forthwith to such price as would have been
obtained had the adjustment made upon the issuance of such securities been made
upon the basis of (1) the issuance of only the number of shares of Common Stock
theretofore actually delivered upon the conversion, exchange or exercise of such
securities, and the total consideration received therefor, and (2) the granting
or issuance, at the time of such change, of any such securities then still
outstanding for the consideration, if any, received by the Company therefore and
to be received on the basis of such changed price or rate.
(f) No Impairment. The Company, whether by amendment of the
Certificate or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, will
not avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed under this Section 6 by the Company, but at all
time in good faith will assist in the carrying out of all of such actions as
may be necessary or appropriate in order to protect the conversion
-9-
<PAGE>
rights pursuant to this Section 6 of the holders of Series D Preferred Stock
against impairment.
(g) Certificate to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate pursuant to this Section 6,
the Company at its expense promptly will compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series D Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company, upon the written request at
any time of any holder of Series D Preferred Stock, will furnish or cause to
be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Rate at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Series D Preferred Stock held by such holder.
(h) Notice of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, and Common Stock
Equivalents or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to
receive any other right, the Company will mail to each holder of Series D
Preferred Stock at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or rights, and the amount and character
of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. The
Company at all times will 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 Series Preferred Stock such number of its shares
of Common Stock as from time to time will be sufficient to effect the
conversion of all then outstanding shares of Series Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock is not
sufficient to effect the conversion of all then outstanding shares of Series
Preferred Stock, in addition to such other remedies as may be available to the
holders of Series Preferred Stock for such failure, the Company will take such
corporate action as, in the opinion of its counsel, may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as will be sufficient for such purposes.
(j) Notices. Any notices required by the provisions of this
Section 6 to be given to the holders of shares of Series D Preferred Stock
shall be given in writing and shall be conclusively deemed effectively given
to persons located in the United States five days after deposit in the United
Stated mail by registered or certified
-10-
<PAGE>
mail postage prepaid, or upon actual receipt if given by any other method or
to persons located outside of the United States, addressed to such holder at
his address appearing on the books of the Company. To persons located outside
the United States, such notice shall be sent by telex or facsimile in cases
where the Company has notice of a telex or facsimile number for such person.
(k) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in Section 5 or in this Section 6), provision shall be made so that
the holders of the Series D Preferred Stock shall thereafter be entitled to
receive upon conversion of such shares of such Series D Preferred Stock the
number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion of
such Series D Preferred Stock would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 6 with respect to the rights
of the holders of the Series D Preferred Stock after the recapitalization to
the end that the provisions of this Section 6 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series D Preferred Stock) shall be applicable after that
event in as nearly an equivalent manner as may be practicable.
7. Covenants. In addition to any other rights provided by law, so
long as not less than an aggregate of 1,000,000 shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are outstanding, the Company, without first obtaining the
affirmative vote or written consent of the holders of not less than a majority
of the outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, voting together
as a single class, will not:
(a) amend or repeal any provision of, or add any provision
to, the Certificate if such action would adversely alter or change the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and the Series D Preferred Stock;
(b) increase the number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
authorized by the Certificate, as amended hereby;
(c) reclassify any class or series of any Common Stock into shares
having any preference or priority as to dividends or in liquidation over the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock;
-11-
<PAGE>
(d) create any new series of preferred stock having a preference
as to dividends or in liquidation over the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock;
(e) apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of any class or series of equity securities of the
Company, except from (i) current or former employees, officers, directors, and
consultants of the Company under the terms of any stock option or stock purchase
plans or agreements, upon or following termination of employment or association
and (ii) holders of any series of Preferred Stock which may be issued hereafter
which has a liquidation preference senior to that of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock; and
(f) declare or pay any dividend or make any distribution on shares
of Common Stock or any series of Preferred Stock which may be issued hereafter
which is senior in dividend preference to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
Notwithstanding the foregoing, if any of the actions referred to in
clauses (a) through (d) would adversely affect the rights, preference,
privileges or powers of the Series D Preferred Stock in a different manner than
the other series of Series Preferred Stock, then such action shall require the
approval of the holders of a majority of the then outstanding shares of Series D
Preferred Stock, voting separately as a class, and shall not require the
approval of holders of any such series not adversely affected by such action.
In addition to the foregoing and any other rights provided by law, so
long as an aggregate of 1,000,000 shares of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock are outstanding, the Company shall
not without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of the outstanding shares of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting
together as a separate class:
(x) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or
consolidate with any other Company (other than a wholly owned
subsidiary corporation) of effect any transaction or series of
related transactions in which more than 50% of the voting power of
the Company is transferred.
(y) enter into any transaction with any director or Affiliate
(as defined below) of the Company unless the terms of such transaction
are at least as favorable to the Company than those which might be
obtained at the time from persons who are not Affiliates and, in the
case of a single transaction or series of
-12-
<PAGE>
transactions involving more than $50,000, has been approved by a
written resolution duly adopted prior to such transaction by a
majority of the independent directors. For purposes hereof, an
"Affiliate" shall mean a holder of more than five percent of the
existing Common Stock of the Company (on a fully diluted basis after
giving effect to the conversion of any outstanding convertible Series
Preferred Stock and the exercise of any exercisable warrants and
options) or a member of the Board.
(z) incur indebtedness for borrowed money in excess of $7,500,000
at any one time outstanding (excluding short term or revolving credit
borrowing the proceeds of which are used to finance current assets, to
repay current liabilities or for working capital).
8. Miscellaneous.
(a) Except as may otherwise be required by the DGCL, the
holders of Series D Preferred Stock shall not have any powers, preferences or
relative, participating, optional or other special rights other than those
specifically set forth in this Resolution or in the Certificate.
(b) If any provision of this Resolution is determined to be
invalid, unlawful or unenforceable by reason of any rule of law or public
policy, all provisions set forth herein which can be given effect without
giving effect to the invalid, unlawful or unenforceable provision shall,
nevertheless, remain in full force and effect, and no provision hereof shall
be deemed dependent upon any other provision hereof, unless so expressed
herein.
[SIGNATURES BEGIN ON THE NEXT PAGE]
-13-
<PAGE>
IN WITNESS HEREOF, the Company has caused this Certificate to be
signed by its duly authorized President and Chief Executive Officer and
attested to by its Senior Vice President, Chief Financial Officer, Treasurer
and Secretary, this 6th day of April, 1998.
GIGA INFORMATION GROUP, INC.
/s/ Gideon I. Gartner
By: -------------------------------------
Gideon I. Gartner
President and Chief Executive Officer
ATTEST:
/s/ Daniel M. Clarke
- ----------------------------
Daniel M. Clarke
Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary
-14-
<PAGE>
EXHIBIT 10.1
GIGA INFORMATION GROUP, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
NOVEMBER 13, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
-----
1. AGREEMENT TO PURCHASE AND SELL STOCK ........................ 1
1.1 Authorization .......................................... 1
1.2 Agreement to Purchase and Sell ......................... 1
2. CLOSING ..................................................... 2
2.1 The Closing ........................................... 2
2.2 Additional Closing .................................... 2
(a) Conditions of Additional Closing ................ 2
(b) Amendments ...................................... 2
(c) Status of New Investors ......................... 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............... 3
3.1 Organization, Good Standing and Qualification ......... 3
3.2 Authorization ......................................... 3
3.3 Valid Issuance of Preferred and Common Stock .......... 4
3.4 Capitalization ........................................ 4
(a) Preferred Stock ................................. 4
(b) Common Stock .................................... 4
(c) Options, Warrants, Reserved Shares .............. 4
(d) Outstanding Security Holders .................... 5
(e) Valid Issuance .................................. 5
3.5 Subsidiaries .......................................... 5
3.6 Governmental Consents ................................. 6
3.7 Contracts and Other Commitments ....................... 6
3.8 Litigation ............................................ 6
3.9 Invention Assignment and Confidentiality Agreement .... 6
3.10 Proprietary Assets .................................... 7
3.11 Compliance with Law and Charter Documents ............. 7
3.12 Registration Rights ................................... 7
3.13 Financial Statements .................................. 7
3.14 Disclosure ............................................ 8
3.15 Certain Actions ....................................... 8
3.16 Activities Since Balance Sheet Date ................... 8
3.17 Employee Benefit Plans ................................ 8
3.18 Tax Returns, Payments and Elections ................... 9
3.19 Related Party Transactions ............................ 9
i
<PAGE>
PAGE
4. REPRESENTATIONS WARRANTIES AND CERTAIN
AGREEMENTS OF INVESTORS ........................................ 9
4.1 Authorization ............................................ 9
4.2 Purchase for Own Account ................................. 9
4.3 Disclosure of Information ................................ 10
4.4 Investment Experience .................................... 10
4.5 Accredited Investor Status ............................... 10
4.6 Restricted Securities .................................... 10
4.7 Further limitations on Disposition ....................... 11
4.8 Legends .................................................. 11
4.9 Waiver of Conflicts ...................................... 12
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING ................ 12
5.1 Representations and Warranties True ...................... 13
5.2 Performance .............................................. 13
5.3 Restated Articles Effective .............................. 13
5.4 Compliance Certificate ................................... 13
5.5 Securities Exemptions .................................... 13
5.6 Proceedings and Documents ................................ 13
5.7 No Material Change ....................................... 13
5.8 Registration Rights Agreement; Voting Agreement; Co-Sale
Agreement ................................................ 13
5.9 Opinion of Counsel ....................................... 14
5.10 Directors ................................................ 14
5.11 Minimum Shares Purchased ................................. 14
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING ............. 14
6.1 Representations and Warranties ........................... 14
6.2 Payment of Purchase Price ................................ 14
6.3 Restated Certificate Effective ........................... 14
6.4 Securities Exemptions .................................... 14
6.5 Registration Rights Agreement ............................ 14
6.6 Minimum Shares Purchased ................................. 15
7. COVENANTS OF THE COMPANY ....................................... 15
7.1 Delivery of Financial Statements ......................... 15
7.2 Inspection ............................................... 16
8. MISCELLANEOUS .................................................. 16
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
8.1 Survival of Warranties and Covenants ............. 16
8.2 Successors and Assigns ........................... 16
8.3 Governing Law .................................... 17
8.4 Counterparts ..................................... 17
8.5 Headings ......................................... 17
8.6 Notices .......................................... 17
8.7 Expenses ......................................... 17
8.8 No Finder's Fees ................................. 18
8.9 Amendments and Waivers ........................... 18
8.10 Severability ..................................... 18
8.11 Entire Agreement ................................. 18
8.12 Further Assurances ............................... 18
Exhibit A - Schedule of Investors
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Schedule of Exceptions
Exhibit D - List of Stockholders
Exhibit E - List of Subsidiaries
Exhibit F - Non Competition Agreement
Exhibit G - Registration Rights Agreement
Exhibit H - Voting Agreement
Exhibit I - Co-Sale Agreement
Exhibit J - Opinion of Brobeck, Phleger & Harrison
iii
<PAGE>
GIGA INFORMATION GROUP, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is
made and entered into as of November 13, 1995 by and among Giga Information
Group, Inc., a Delaware corporation (the "COMPANY"), and the parties listed on
the Schedule of Investors attached to this Agreement as Exhibit A (each
---------
hereinafter individually referred to as an "Investor" and collectively referred
to as the "INVESTORS").
RECITAL
A. The Company desires to sell to the Investors, and the Investors
desire to purchase from the Company, shares of the Company's Series B Preferred
Stock on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
-------------------------------------
1.1 Authorization. As of the Closing (as defined below) the Company
-------------
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of the shares of the Company's Series B Preferred Stock, $.001 par
value (the "SERIES B STOCK") to be sold by it pursuant to this Agreement, having
the rights, preferences, privileges and restrictions set forth in the Amended
and Restated Certificate of Incorporation of the Company attached to this
Agreement as Exhibit B (the "RESTATED CERTIFICATE").
---------
1.2 Agreement to Purchase and Sell. The Company agrees to sell to
------------------------------
each Investor at the Closing, and each Investor agrees, severally and not
jointly, to purchase from the Company at the Closing, the number of shares of
Series B Stock set forth beside such Investor's name on Exhibit A at a price of
---------
$3.50 per share. The shares of Series B Stock purchased and sold pursuant to
this Agreement will be collectively hereinafter referred to as the "PURCHASED
SHARES" and the shares of the Company's Common Stock, $.001 par value per share,
issuable upon conversion of the Purchased Shares will be hereinafter referred to
as the "CONVERSION SHARES".
1
<PAGE>
2. CLOSING.
-------
2.1 The Closing. The purchase and sale of the Purchased Shares will
-----------
take place at the offices of Brobeck, Phleger & Harrison, Spear Street Tower,
One Market, San Francisco, California 94105, at 10:00 a.m. Pacific Time,
November 13, 1995 or at such other time and place as the Company and Investors
who have agreed to purchase a majority of the Purchased Shares listed on Exhibit
-------
A mutually agree (which time and place are referred to in this Agreement as the
"CLOSING"). At the Closing, the Company will deliver to each Investor a
certificate representing the number of Purchased Shares that such Investor has
agreed to purchase hereunder as shown on Exhibit A, and each Investor shall pay
---------
to the Company the full purchase price of such Purchased Shares, by (i) a check
payable to the Company's order, or (ii) wire transfer of funds to the Company.
2.2 Additional Closing.
------------------
(a) Conditions of Additional Closing. At any time or times within
--------------------------------
thirty (30) days immediately following the Closing, the Company may, at one or
more closings (each an "ADDITIONAL CLOSING"), without obtaining the signature,
consent or permission of any of the Investors, offer and sell to other investors
("NEW INVESTORS"), at a price of not less than $3.50 per share, up to that
number of shares of Series B Stock that is equal to 5,142,856 shares of Series B
Stock less the number of shares of Series B Stock actually issued and sold by
the Company prior to such Additional Closing pursuant to this Agreement and upon
conversion of the Convertible Note (as defined in Section 3.4(c)). New Investors
may include persons or entities who are already Investors under this Agreement.
(b) Amendments. The Company and the New Investors purchasing Series B
----------
Stock at any Additional Closing will execute counterpart signature pages to this
Agreement, the Registration Rights Agreement, the Voting Agreement and the Co-
Sale Agreement (each as defined in Section 5.8), and such New Investors will,
upon delivery to the Company of such signature pages, become parties to, and
bound by, this Agreement, the Registration Rights Agreement, the Voting
Agreement and the Co-Sale Agreement, each to the same extent as if they had been
Investors at the Closing. Immediately after any Additional Closing, Exhibit A to
---------
this Agreement will be amended by the Company to list the New Investors
purchasing shares of Series B Stock hereunder and the number of shares of Series
B Stock purchased by each New Investor under this Agreement at the Additional
Closing.
(c) Status of New Investors. Upon the completion of the Additional
-----------------------
Closing as provided in this Section 2, each New Investor will be deemed to be an
"INVESTOR" for all purposes of this Agreement, the Registration Rights
2
<PAGE>
Agreement and the Co-Sale Agreement, and a "SERIES B PURCHASER" for purposes of
the Voting Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions ("SCHEDULE OF EXCEPTIONS") attached to this Agreement as
Exhibit C the statements in the following paragraphs of this Section 3 are all
- ---------
true and correct in all material respects:
3.1 Organization, Good Standing and Qualification. The Company and
----------------------------------------------
each Significant Subsidiary (as defined below) is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, and, in the case of the Company, to
execute and deliver this Agreement, the Registration Rights Agreement and the
Voting Agreement, to issue and sell the Series B Stock, to issue the Conversion
Shares, and to carry out the provisions of this Agreement, the Registration
Rights Agreement, the Voting Agreement and the Restated Certificate. The
Company and each Significant Subsidiary are duly qualified to transact business
and are in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on the business, properties, financial
condition or prospects of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect"). As used in this Agreement, the term "Significant
Subsidiary" shall have the meaning set forth in Regulation S-X under the
Securities Act of 1933, as amended (the "Securities Act"), except that all
references therein to 10% shall be deemed to refer to 20%; provided, that the
term "Significant Subsidiary" shall include ExperNet, Inc.
3.2 Authorization. All corporate action on the part of the Company
-------------
and its officers, directors, and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Registration Rights Agreement and
the Voting Agreement, the performance of all obligations of the Company
hereunder and thereunder, as the case may be, and the authorization, issuance,
sale, and delivery of the Purchased Shares and the authorization and
registration for issuance of Conversion Shares has been duly taken or will be
taken prior to the closing or the applicable Additional Closing, as the case may
be, and this Agreement, the Registration Rights Agreement and the Voting
Agreement constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws.
3
<PAGE>
3.3 Valid Issuance of Preferred and Common Stock.
--------------------------------------------
(a) The Purchased Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Registration Rights Agreement and the Voting Agreement and
under applicable state and federal securities laws. The Conversion Shares have
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Registration Rights
Agreement and the Voting Agreement, and under applicable state and federal
securities laws.
(b) Based in part on the representation made by the Investors in
Section 4 hereof, the Purchased Shares and (assuming no change in applicable law
and no unlawful distribution of Purchased Shares by Investors or other parties)
the Conversion Shares will be issued in full compliance with applicable U.S.
state and federal securities laws (provided that with respect to the Conversion
-------- ----
Shares, no commission or other remuneration is paid or given, directly or
indirectly, for soliciting the issuance of Conversion Shares upon the conversion
of the Purchased Shares and no additional consideration is paid for the
Conversion Shares other than surrender of the applicable Purchased Shares upon
conversion thereof in accordance with the Restated Certificate).
3.4 Capitalization. Immediately prior to the Closing the
--------------
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of Ten Million (10,000,000) authorized
---------------
shares of preferred stock, $.001 par value per share (the "PREFERRED STOCK"),
consisting of Six Hundred Fifty Thousand (650,000) shares designated as Series A
Preferred Stock (the "SERIES A STOCK"), not more than 590,000 of which will be
issued or outstanding and Six Million (6,000,000) shares designated as Series B
Preferred Stock ("SERIES B STOCK"), none of which will be issued and
outstanding. The rights of the Series A Stock are, and the rights, preferences
and privileges of the Series B Stock will be, as stated in the Restated
Certificate and as provided by law.
(b) Common Stock. A total of Twenty-Eight Million (28,000,000)
------------
authorized shares of common stock, $.001 par value per share (the "COMMON
STOCK"), of which not more than 6,172,000 shares will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for: (i) the
----------------------------------
conversion privileges of the Series A Stock and Series B Stock; (ii) the Five
Million
4
<PAGE>
(5,000,000) shares of Common Stock reserved for issuance under the Company's
1995 Stock Option/Stock Issuance Plan (of which Two Hundred Thousand (200,000)
shares have been issued and options have been granted to purchase an additional
One Million Seven Hundred Thirty-Two Thousand (1,732,000) shares); (iii) options
to purchase Seven Hundred Eighty Thousand (780,000) shares granted under
contractual arrangements and not under such plan; (iv) a Convertible Promissory
Note of the Company with an aggregate principal amount of $2,000,000 which is
convertible into Five Hundred Seventy-One Thousand Four Hundred Twenty-Eight
(571,428) shares of the Company's Series B Stock at the Closing (the
"CONVERTIBLE NOTE"); (v) warrants to purchase an aggregate of Two Hundred
Eighty-Five Thousand Seven Hundred Fourteen (285,714) shares of Series B Stock
issued in connection with the Convertible Note at a price equal to 66-2/3% of
the purchase price for the Purchased Shares; (vi) a warrant to purchase 100,000
shares of Series B Preferred Stock to be issued to Montgomery Securities in
connection with its services as placement agent; (vii) a convertible note dated
April 5, 1995 payable to Friday Holdings, L.P.; and (viii) up to 160,000 shares
of Common Stock issuable to David Gilmour pursuant to the terms of the Stock
Purchase Agreement dated July 6, 1995, between the Company and Mr. Gilmour;
there are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into or
ultimately exchangeable or exercisable for any shares of the Company's capital
stock. Apart from the exceptions noted in this Section 3.4(c), and except for
rights of repurchase and rights of first refusal held by the Company to
repurchase shares of its stock issued to founders of the Company, no shares of
the Company's outstanding capital stock, or stock issuable upon exercise or
exchange of any outstanding options, warrants or rights, or other stock issuable
by the Company, are subject to any preemptive rights or rights of first refusal
or other rights to purchase such stock (whether in favor of the Company or any
other person), pursuant to any agreement or commitment of the Company, and, to
the Company's knowledge, no officer, director or holder of the Company's Common
Stock is a party to any voting agreement or voting trust other than the Voting
Agreement.
(d) Outstanding Security Holders. Exhibit C attached hereto contains
---------------------------- ---------
a listing of all holders of the outstanding Common Stock and Series A Stock
immediately prior to the Closing.
(e) Valid Issuance. The outstanding Series A Preferred Stock and
--------------
Common Stock referred to in Section 3.4(a) and (b) are duly and validly issued,
fully paid and nonassessable.
3.5 Subsidiaries. Exhibit E attached hereto contains a listing of
------------ ---------
all of the Company's subsidiaries. The Company beneficially owns or has the
right to acquire all of the outstanding capital stock of each of its
subsidiaries.
5
<PAGE>
3.6 Governmental Consents. No consent, approval, qualification,
---------------------
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement, the
offer, sale or issuance of the Series B Stock by the Company or the issuance of
Common Stock upon conversion of the Series B Preferred Stock, except (i) the
filing of the Restated Certificate with the Secretary of State of the State of
Delaware, and (ii) such filings as have been or will be made prior to the
Closing, except that any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act, or
such post-closing filings as may be required under applicable state securities
laws, which will be timely filed within the applicable periods therefor.
3.7 Contracts and Other Commitments. Neither the Company nor any of
-------------------------------
its Significant Subsidiaries has any material contract, agreement, lease,
commitment or proposed transaction, written or oral, absolute or contingent,
other than (i) contracts for the purchase of supplies and services that do not
involve more than $100,000, and do not extend for more than one (1) year beyond
the date hereof, (ii) contracts entered into in the ordinary course of business,
(iii) contracts terminable at will by the Company on no more than thirty (30)
days, notice without cost or liability to the Company which are not material to
the conduct of the Company's business, (iv) contracts described in the Placement
Memorandum (as defined in Section 3.13 and leases of offices and facilities
identified therein), and (v) employment or consulting agreements with persons
who are not directors or executive officers of the Company. Neither the Company
nor any of its Significant Subsidiaries has a collective bargaining agreement
with any of its United States employees.
3.8 Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation ("ACTION") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company or any of its
subsidiaries, or their activities, properties or assets or, to the best of the
Company's knowledge, against any officer or director of the Company or its
subsidiaries in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, the Company or any of its
subsidiaries or questioning the validity of this Agreement or any action taken
or to be taken in connection herewith that could reasonably be expected to have
a Material Adverse Effect. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality and there is no Action by the Company
currently pending or which the Company has threatened, and intends, to initiate.
3.9 Invention Assignment and Confidentiality Agreement. Each
--------------------------------------------------
employee and contractor of the Company, BIS Strategic Decisions, Inc. ("BIS")
and ExperNet, Inc. ("ExperNet") who is engaged in information technology
research and analysis, or software development, has entered into and executed an
agreement
6
<PAGE>
containing confidentiality obligations in the form attached to this Agreement as
Exhibit F or an agreement containing substantially similar terms, or terms no
- ---------
less favorable to the Company.
3.10 Proprietary Assets. The Company and its Significant Subsidiaries
------------------
have full title and ownership of, or are duly licensed under or otherwise
authorized to use, all patents, patent applications, trademarks, service marks,
trade names, copyrights, trade secrets, confidential and proprietary
information, designs and proprietary rights necessary to enable them to carry on
their business as now conducted (the "PROPRIETARY ASSETS") and have or expect in
good faith to be able to obtain or create the Proprietary Assets necessary to
carry on their business as proposed to be conducted, without, to the best of
their knowledge, any conflict with or infringement of the rights of others,
where the same would have a Material Adverse Effect. Neither the Company nor,
to its knowledge, any of its subsidiaries, has granted any options, licenses or
agreements of any kind giving any third party any exclusive rights to any
material Proprietary Assets of the Company. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as now conducted and as proposed to be conducted, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity.
3.11 Compliance with Law and Charter Documents. Neither the Company
-----------------------------------------
nor any of its Significant Subsidiaries is in violation or default of any
provisions of their Certificate or Articles of Incorporation or Bylaws, both as
amended (or foreign equivalents thereof), and to the best of the Company's
knowledge, except for any violations that would have no Material Adverse Effect,
the Company and its Significant Subsidiaries are in compliance with all material
indentures, instruments or agreements by which it is bound, all applicable
statutes, laws, regulations and executive orders of the United States of America
and all states, foreign countries or other governmental bodies and agencies
having jurisdiction over their business or properties.
3.12 Registration Rights. Except as provided in the Registration
-------------------
Rights Agreement, the Company has not granted or agreed to grant to any person
or entity any rights (including piggyback registration rights) to have any
securities of the Company registered with the United States Securities and
Exchange Commission ("SEC") or any other governmental authority.
3.13 Financial Statements. The statements of operations and balance
--------------------
sheets of BIS as of December 31, 1994 and June 30, 1995 and for the twelve (12)
and six (6) month periods then ended (the "Financial Statements"), of BIS,
included in the Private Placement Memorandum dated September 15, 1995 and
previously delivered to the Investors (the "Placement Memorandum") are in
accordance with the books and records of BIS and fairly set forth the
consolidated operating results and financial
7
<PAGE>
condition of BIS for the twelve-month and six-month periods then ended and as of
December 31, 1994 and June 30, 1995, respectively, on the basis described in the
Placement Memorandum. The Financial Statements as of, and for the twelve months
ended, December 31, 1994 have been prepared in accordance with generally
accepted accounting principles ("GAAP"). The statement of operations data
(shown on a pro forma basis) and balance sheet data (shown on an actual basis)
of the Company, BIS and ExperNet as of June 30, 1995 and for the six-month
period then ended, included in the Placement Memorandum, are in accordance with
the books and records of the Company, BIS and ExperNet. Except as set forth or
reserved for in the Financial Statements or as disclosed in the Placement
Memorandum, the Company has no material liabilities, other than (i) liabilities
incurred in the ordinary course of business subsequent to June 30, 1995, (ii)
liabilities not in excess of $100,000 in the aggregate, and (iii) liabilities
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial Statements.
3.14 Disclosure. This Agreement and the statements made in the
----------
Placement Memorandum, taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
herein or therein, under the circumstances under which they were made, not
misleading when taken as a whole; provided, that with respect to the
-------- ----
projections, forecasts and expressions of opinion included therein and the
statements set forth therein under the caption "Investment Considerations," the
Company represents only that such projections, forecasts, expressions of opinion
and statements were made in good faith and that the Company believes there is a
reasonable basis therefor.
3.15 Certain Actions. Since June 30, 1995, (i) the Company has not
---------------
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock and (ii) except as
disclosed in the Placement Memorandum, neither the Company nor any Significant
Subsidiary has (A) sold, exchanged or otherwise disposed of any material assets
or rights other than in the ordinary course of business, or (B) entered into any
material transactions with any of its officers, directors or employees or any
entity controlled by any of such individuals.
3.16 Activities Since Balance Sheet Date. To the best of the
-----------------------------------
Company's knowledge, since June 30, 1995, there has not been any event or
condition of any type that has had or would reasonably be expected to have a
Material Adverse Effect.
3.17 Employee Benefit Plans. None of the Company, BIS or ExperNet has
----------------------
any outstanding liabilities or accrued and unpaid funding obligations with
respect to any Employee Benefit Plan (as defined in Section 3 of the Employee
Retirement Income Security Act of 1974).
8
<PAGE>
3.18 Tax Returns. Payments and Elections. The Company and each
-----------------------------------
Significant Subsidiary has filed all United States federal and, to its
knowledge, state tax returns and reports as required by law, and, to its
knowledge, these returns and reports are true and correct in all material
respects, except in each case where the same would not have a Material Adverse
Effect or where adequate reserves therefor have been reflected in the Financial
Statements. The Company and its Significant Subsidiaries have not been
notified, nor do they otherwise have knowledge that, they are currently the
subject of any ongoing audit by federal or state tax authorization. The Company
has paid all taxes and other assessments shown on such returns as due, except
those contested by it in good faith.
3.19 Related Party Transactions. Except as described in the
--------------------------
Placement Memorandum, (i) no executive officer or director of the Company or
member of his or her immediate family is indebted to the Company, nor is the
Company indebted (or committed to make loans or extend or guarantee credit) to
any of them; and (ii) to the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a material
business relationship, or any firm or corporation that competes with the
Company, except through ownership of stock in publicly traded companies.
4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS. Each
--------------------------------------------------------------
Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. This Agreement, the Voting Agreement and the
-------------
Registration Rights Agreement constitute such Investor's valid and legally
binding obligations, enforceable in accordance with their respective terms
except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. Each Investor represents that
such Investor has full power and authority to enter into this Agreement, the
Registration Rights Agreement and the Voting Agreement.
4.2 Purchase for Own Account. This Agreement is made with each
------------------------
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Series B Stock to be purchased by such Investor and the Conversion
Shares issuable upon conversion thereof are being acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any
9
<PAGE>
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Series B Stock and/or the Conversion Shares.
4.3 Disclosure of Information. Such Investor has received or has had
-------------------------
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Purchased Shares to be
purchased by such Investor under this Agreement. Such Investor further has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to such Investor or to which such Investor had access.
The foregoing, however, does not in any way limit or modify the representations
and warranties made by the Company in Section 3.
4.4 Investment Experience. Such Investor understands and
---------------------
acknowledges that the purchase of the Purchased Shares involves substantial
risk. Such Investor: (i) has experience as an investor in securities of
companies in the development stage and acknowledges that such Investor is able
to fend for itself, can bear the economic risk of such Investor's investment in
the Purchased Shares and has such knowledge and experience in financial or
business matters that such Investor is capable of evaluating the merits and
risks of this investment in the Purchased Shares and protecting its own
interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables such
Investor to be aware of the character, business acumen and financial
circumstances of such persons.
4.5 Accredited Investor Status. Unless otherwise expressly indicated
--------------------------
on Exhibit A to this Agreement, such Investor is an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act.
4.6 Restricted Securities. Each Investor understands that the
---------------------
Purchased Shares and the Conversion Shares are characterized as "restricted
securities" under the Securities Act inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under the
Securities Act and applicable regulations thereunder such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. In this connection, such Investor represents that such Investor
is familiar with Rule 144 of the U.S. Securities and Exchange Commission, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. Such Investor understands that the Company is under no
obligation to register any of the securities sold hereunder (or any securities
issuable upon conversion thereof) except
10
<PAGE>
as provided in the Registration Rights Agreement. Such Investor understands
that no public market now exists for any of the Purchased Shares or the
Conversion Shares and that it is uncertain whether a public market will ever
exist for the Purchased Shares or the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting
-----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Purchased Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) such Investor shall
have furnished the Company, at the expense of such Investor or its transferee,
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares or Conversion Shares in compliance with SEC
Rule 144 or Rule 144A, or (ii) for any transfer of Purchased Shares or
Conversion Shares by an Investor that is a partnership or a corporation to (A) a
partner of such partnership or shareholder of such corporation, (B) a retired
partner of such partnership who retires after the date hereof, (C) the estate of
any such partner or shareholder, or (iii) for the transfer by gift, will or
interstate succession by any Investor to his or her spouse or lineal descendants
or ancestors or any trust for any of the foregoing; provided that in each of the
--------
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 (other than Section 4.5) to the same extent as if the transferee
were an original Investor hereunder.
4.8 Legends. It is understood that the certificates evidencing the
-------
Purchased Shares and the Conversion Shares will bear the legends set forth
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS
OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
11
<PAGE>
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Any legend required by the laws of the State of Delaware or any
other state securities laws, including a legend substantially in the form of the
following:
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE INTO
SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY TIME
PRIOR TO AUTOMATIC CONVERSION THEREOF, AND (2) AUTOMATICALLY CONVERT INTO COMMON
STOCK OF THE COMPANY IN THE EVENT OF A PUBLIC OFFERING MEETING CERTAIN
REQUIREMENTS OR UPON CERTAIN CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED
STOCK; ALL PURSUANT TO AND UPON THE TERMS AND CONDITIONS SPECIFIED IN THE
COMPANY'S CERTIFICATE OF INCORPORATION. A COPY OF SUCH CERTIFICATE OF
INCORPORATION MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL
OFFICE.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Purchased Shares or Conversion Shares upon delivery to
the Company of an opinion by counsel, reasonably satisfactory to the Company,
that a registration statement under the 1933 Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Purchased Shares or Conversion Shares.
4.9 Waiver of Conflicts. Each Investor acknowledges that Morrison &
-------------------
Foerster has represented other Investors in connection with transactions other
than this Agreement and may represent others having interests adverse to the
Investors in connection with matters unrelated to this Agreement. Each Investor
hereby waives any conflict or alleged conflict arising as a result of such
representation.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
-----------------------------------------------
each Investor under Section 2 of this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
to such waiver.
12
<PAGE>
5.1 Representations and Warranties True. Each of the representations
-----------------------------------
and warranties of the Company contained in Section 3 shall be true and correct
on and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Restated Articles Effective. The Restated Certificate shall have
---------------------------
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and stockholders, and shall have been duly filed with and accepted
by the Secretary of State of the State of Delaware.
5.4 Compliance Certificate. The Company shall have delivered to each
----------------------
Investor at the Closing a certificate signed on its behalf by its President,
Chief Executive Officer, or Vice President-Finance certifying, on behalf of the
Company, that the conditions specified in Sections 5.1, 5.2 and 5.3 have been
fulfilled and stating that there shall have been no material adverse change in
the business, affairs, prospects, operations, properties, assets or condition of
the Company not previously disclosed to the Investors in writing.
5.5 Securities Exemptions. The offer and sale of the Purchased
---------------------
Shares to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor's special counsel, Morrison & Foerster, which shall
have received all such counterpart originals and certified or other copies of
such documents as it may reasonably request.
5.7 No Material Change. There shall have been no material adverse
------------------
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company.
5.8 Registration Rights Agreement: Voting Agreement: Co-Sale
--------------------------------------------------------
Agreement. The Company and each Investor shall have executed and delivered the
- ---------
Registration Rights Agreement in the form attached to this Agreement as Exhibit
-------
G (the "REGISTRATION RIGHTS AGREEMENT"); the Company, Gideon Gartner and each
- -
13
<PAGE>
Investor shall have executed and delivered the Amended and Restated Investor
Rights and Voting Agreement in the form attached as Exhibit H (the "VOTING
---------
AGREEMENT"); and the Company, Gideon Gartner and each Investor shall have
executed and delivered the Co-Sale and Stock Restriction Agreement in the form
attached as Exhibit I (the "CO-SALE AGREEMENT").
---------
5.9 Opinion of Counsel. The Investors shall have received the
------------------
opinion of Brobeck, Phleger & Harrison, dated the date of the Closing, as to the
matters set forth in Exhibit J.
---------
5.10 Directors. The Company's Bylaws shall provide for at least six
---------
Directors and the Company's Board of Directors shall have resolved to appoint
Irwin Lieber to the position of Director effective as of the Closing.
5.11 Minimum Shares Purchased. A minimum of 2,285,696 shares of
------------------------
Series B Stock shall be purchased by the Investors at the Closing under this
Agreement for a minimum aggregate purchase price of $8,000,000 and, effective as
of the Closing, the Convertible Note shall be converted into an aggregate of
571,428 shares of Series B Stock.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
--------------------------------------------------
the Company to each Investor under this Agreement are subject to the fulfillment
or waiver on or before the Closing of each of the following conditions by such
Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Each Investor shall have delivered to
-------------------------
the Company the purchase price specified for such Investor on Exhibit A in
---------
accordance with the provisions of Section 2.
6.3 Restated Certificate Effective. The Restated Certificate shall
------------------------------
have been accepted by the Secretary of State of the State of Delaware.
6.4 Securities Exemptions. The offer and sale of the Purchased
---------------------
Shares to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
6.5 Registration Rights Agreement. Each Investor shall have
-----------------------------
14
<PAGE>
executed and delivered the Registration Rights Agreement and the Voting
Agreement.
6.6 Minimum Shares Purchased. A minimum of 2,285,696 shares of
------------------------
Series B Stock shall be purchased by the Investors at the Closing under this
Agreement for a minimum aggregate purchase price of $8,000,000.00 and, effective
as of the Closing, the Convertible Note shall be converted into an aggregate of
571,428 shares of Series B Stock.
7. COVENANTS OF THE COMPANY.
------------------------
7.1 Delivery of Financial Statements.
--------------------------------
(a) The Company shall furnish to each Investor as soon as
practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company (one hundred and twenty days in the case of the
fiscal year ending December 31, 1995), an income statement for such fiscal year,
a balance sheet of the Company and statement of stockholders' equity as of the
end of such year, and a schedule as to the sources and applications of funds for
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with GAAP, and audited by a nationally recognized firm of
independent public accountants selected by the Company and approved by its Board
of Directors.
(b) The Company shall deliver to each Investor as soon as
practicable, but in any event within sixty (60) days after the end of each of
the first three (3) quarters of each fiscal year of the Company, an unaudited
income statement, schedule as to the sources and application of funds for such
fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter.
(c) The Company shall furnish to each Investor who (together with
Investors which control it, are controlled by it, or are under common control
with it) holds at least 800,000 shares of Series B Preferred Stock or Common
Stock issued upon conversion thereof (each a "Major Investor") as soon as
practicable, but in any event within thirty (30) days after the end of each
month, an unaudited income statement and balance sheet as of the end of such
month, in reasonable detail.
(d) The Company shall furnish to each Major Investor as soon as
practicable, but in any event thirty (30) days after the end of each fiscal year
(sixty (60) days in the case of the fiscal year ended December 31, 1995), a
budget and business plan for the next fiscal year; provided, however, that the
Company's obligation to furnish a business plan may be waived by the Board of
Directors (either by express waiver or by the failure of the Board of Directors
to request preparation of a business plan).
15
<PAGE>
(e) Notwithstanding any provisions contained in this Section 7.1 to
the contrary, the Company shall not be obligated under this Section 7.1 to
provide information which it deems in good faith to be a trade secret or similar
confidential information.
7.2 Inspection. The Company shall permit each Major Investor, at
----------
such Major Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, and shall provide such other
information as may reasonably be requested by such, all at such reasonable times
as may be requested by the Major Investor; provided, however, that the Company
-------- -------
shall not be obligated pursuant to this Section 8.2 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information except to Major Investors who execute a confidentiality
agreement in such form as the Company may reasonably request.
8. MISCELLANEOUS.
-------------
8.1 Survival of Warranties and Covenants. The representations,
------------------------------------
warranties and covenants of the Company and the Investors contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of any of the Investors,
their counsel or the Company, as the case may be. The Company's obligations
under Section 7.1 and 7.2 shall terminate (a) immediately prior to the closing
of an underwritten public offering pursuant to a registration statement (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a transaction pursuant to Rule 145 under the Securities Act of 1933, as
amended (the "Act")) under the Act covering the Company's Common Stock, which
results in aggregate cash proceeds (prior to underwriters' commissions and
expenses) to the Company and any selling stockholder of at least $15,000,000,
and which has a public offering price of not less than $5.25 per share (as
appropriately adjusted for stock splits, combinations, reclassifications and the
like), or (b)upon an acquisition of the Company by another corporation or entity
by consolidation, merger or other reorganization in which the holders of the
Company's outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) or more of the voting power of the corporation or other entity
surviving such transaction.
8.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
16
<PAGE>
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of New York as applied to agreements among
New York residents entered into and to he performed entirely within New York,
without reference to principles of conflict of laws or choice of laws.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Headings. The headings and captions used in this Agreement are
--------
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
8.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at
---------
Giga Information Group, Inc.
One Longwater Circle
Norwell, MA 02061
Attention: Vice President - Finance
with a copy to:
Thomas A Bevilacqua, Esq.
Brobeck, Phieger & Harrison
One Market, Spear Street Tower
San Francisco, CA 94105
or at such other address as any party or the Company may designate by giving ten
(10) days advance written notice to all other parties.
8.7 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the reasonable
fees of special counsel for all of the Investors not to exceed $18,000.
17
<PAGE>
8.8 No Finder's Fees. Each party represents that it neither is nor
----------------
will be obligated for any finder's or broker's fee or commission in connection
with this transaction, except as disclosed in the Placement Memorandum. Each
Investor agrees to indemnity and to hold harmless the Company from any liability
for any commission or compensation in the nature of a finders' or broker's fee
(and any asserted liability) for which the Investor or any of its officers,
partners, employees, or representatives is responsible. The Company agrees to
indemnity and hold harmless each Investor from any liability for any omission or
compensation in the nature of a finder's or broker's fee (and any asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.9 Amendments and Waivers. Except as specified in Section 2.2, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of Purchased Shares and/or Conversion Shares representing at
least a majority of the aggregate number of shares of Common Stock into which
the Purchased Shares then are convertible and/or have been converted (excluding
any of such shares that have been sold to the public or pursuant to SEC Rule
144). Any amendment or waiver effected in accordance with this Section shall be
binding upon each holder of any Purchased Shares and/or Conversion Shares at the
time outstanding, each future holder of such securities, and the Company;
provided, however, that no condition set forth in Section 5 may be waived with
- --------- -------
respect to any Investor who does not consent thereto; and provided further, that
-------- -------
New Investors may become parties to this Agreement in accordance with Section
2.2 without any amendment of this Agreement or any consent or approval of any
Investor.
8.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
8.11 Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
8.12 Further Assurances. From and after the date of this Agreement,
------------------
upon the request of any Investor or the Company, the Company and the Investors
shall execute and deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
18
<PAGE>
SIGNATURE PAGE TO THE
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY:
- -----------
GIGA INFORMATION GROUP, INC.
(A DELAWARE CORPORATION)
By: /s/ Gideon Gartner
-------------------
Title:
----------------
19
<PAGE>
SIGNATURE PAGE TO THE
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THE INVESTORS:
- -------------
Name of Investor:
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------
Irwin Lieber
Title: Treasurer
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------
Irwin Lieber
Title: Treasurer
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------
Irwin Lieber
Title: Treasurer
Montsol Investments NV
By: S/2/ Technology Corp.
By: /s/ Seymour L. Goldblatt
-----------------------------------
Title: President S/2/ Technology Corp.
--------------------------------
Executive Technology L.P.
By: S/2/ Technology Corp. its General Partner
By: /s/ Seymour L. Goldblatt
-----------------------------------
Title: President S/2/ Technology Corp.
--------------------------------
which is the GP of Executive Technology
- ---------------------------------------
Core Technology Fund Inc.
By: /s/ Seymour L. Goldblatt
-----------------------------------
Title: Managing Director
--------------------------------
Sci Tech Investment Partners L.P.
By: S/2/ Technology Corp., its General Partner
By: /s/ Seymour L. Goldblatt
-----------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
which is the GP of Sci-Tech Investment
- --------------------------------------
Partner
- --------------------------------------
The Matrix Technology Group NV
By: /s/ Seymour L. Goldblatt
------------------------------------
Title: Managing Director
---------------------------------
Yale University
By: S/2/ Technology Corp.
By: /s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
Yale University Retirement Plan for Staff Employees
By: S/2/ Technology Corp.
By: /s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
20
<PAGE>
SG Partners L.P.
By: S/2/ Technology Corp., its General Partner
By: /s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
which is the GP of SG Partners
- ---------------------------------------
Derek Lemke-von Ammon
/s/ Derek Lemke-von Ammon
--------------------------
(Derek Lemke-von Ammon)
Haussmann Holdings
By: /s/ Dana Schmidt
-----------------------------------
Title: Principal
---------------------------------
Montgomery Growth Partners, L.P.
By: /s/ Dana Schmidt
-----------------------------------
Title: Principal
--------------------------------
Its General Partner, Montgomery Asset Management, L.P.
Montgomery Growth Partners, II, L.P.
By: /s/ Keith High
-----------------------------------
Title: Keith High
--------------------------------
Its General Partner
Nosrob Investments, Ltd.
By: /s/ Dana Schmidt
-----------------------------------
Title: Principal
--------------------------------
Quota Fund, N.V.
By: /s/ Dana Schmidt
------------------------------------
Title: Principal
---------------------------------
Montgomery Small Cap Partners III, L.P.
By: /s/ Keith High
------------------------------------
Title: Keith High
---------------------------------
Its General Partner
21
<PAGE>
Lagunitas Partners, L.P.
By: /s/ John D. Gruber
------------------------------------
Gruber & McBaine International
By: /s/ J. Patterson McBaine
------------------------------------
Jon D. Gruber
/s/ John D. Gruber
--------------------------------------
J. Patterson McBaine
/s/ J. Patterson McBaine
--------------------------------------
(J. Patterson McBaine)
Kensington Partners L.P.
By: /s/ Dick Keim , its General Partner
-----------------------------
By: Dick Keim
Title:
---------------------------------
Acorn Investment Trust
By:/s/ Roger Wagner
------------------------------------
Title: Chief Executive Officer
---------------------------------
22
<PAGE>
EXHIBIT A
---------
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Shares Cash Date
Investor Name Purchased Tendered Rec'd
------------- --------- --------- -------
<S> <C> <C> <C>
CLOSING OF NOVEMBER 9, 1995
1. Geo Capital
21st Century Communications Partners, L.P. 968,615 $ 3,390,150.00 11/14
767 Fifth Avenue
New York, NY 10153
Attention: Mr. Matthew Smith
21st Century Communications Foreign Partners, L.P. 130,397 $ 456,390.00 11/14
767 Fifth Avenue
New York, NY 10153
Attention: Mr. Matthew Smith
21st Century Communications T-E Partners, L.P. 329,560 $ 1,153,460.00 11/14
767 Fifth Avenue
New York, NY 10153
Attention: Mr. Matthew Smith
2. S. Squared
Montsol Investments N.V. 26,460 $ 92,610.00 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
Executive Technology L.P. 66,080 $ 231,280.00 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
Core Technology Fund Inc. 184,339 $ 645,186.50 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Shares Cash Date
Investor Name Purchased Tendered Rec'd
------------- --------- --------- -------
<S> <C> <C> <C>
Sci-Tech Investment Partners L.P. 98,058 $ 343,203.00 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
The Matrix Technology Group N.V. 39,746 $ 139,111.00 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
Yale University 332,581 $ 1,164,033.50 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
Yale University Retirement Plan for Staff Employees 25,752 $ 90,132.00 11/14
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
SG Partners L.P. 84,127 $ 294,444.50 11/13
c/o S/2/ Technology Corp.
515 Madison Avenue, Suite 4200
New York, NY 10022
Attention: Ms. Nancy Sprague
3. Wanger
Acorn Fund 600,000 $ 2,100,000.00 11/08
c/o Wagner Asset Management
227 West Monroe Street
Chicago, IL 60606
Attention: Ms. Ellie Giorgis
4. Montgomery
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Shares Cash Date
Investor Name Purchased Tendered Rec'd
------------- --------- --------- -------
<S> <C> <C> <C>
Montgomery Small Cap Partners III, L.P. 40,000 -$140,000.00 11/08
c/o Fiduciary Trust (Cayman) Limited
One Capital Place
P.O. Box 1062
George Town, Grand Cayman, Cayman Islands
Attention: Dana Schmidt
Montgomery Asset Management 224,000 $ 784,000.00 11/08
600 Montgomery Street
San Francisco, CA 94111
Attention: Dana Schmidt
Haussmann Holdings 288,000 $ 1,008,000.00 11/08
c/o Montgomery Asset Management
600 Montgomery Street
San Francisco, CA 94111
Attention: Dana Schmidt
Montgomery Growth Partners, L.P. 400,000 $ 140,000.00 11/08
c/o Montgomery Asset Management
600 Montgomery Street
San Francisco, CA 94111
Attention: Dana Schmidt
Montgomery Growth Partners II, L.P. 96,000 $ 336,000.00 11/08
c/o Fiduciary Trust (Cayman) Limited
One Capital Place
George Town, Grand Cayman, Cayman Islands
Attention: Dana Schmidt
Nosrob Investments Ltd. 48,000 $ 168,000.00 11/08
c/o Montgomery Asset Management
600 Montgomery Street
San Francisco, CA 94111
Attention: Dana Schmidt
Derek Lemke-von Ammon 2,857 $ 9,999.50 11/10
c/o Montgomery Asset Management
600 Montgomery Street
San Francisco, CA 94111
5. Kensington Partners
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Shares Cash Date
Investor Name Purchased Tendered Rec'd
------------- --------- --------- -------
<S> <C> <C> <C>
Kensington Partners, L.P. 88,000 -$308,000.00 11/13
237 Park Avenue
New York, New York 10017
Attention: Dick Kine
6. Gruber & McBaine
Lagunitas Partners, L.P. 221,400 $ 774,900.00 11/09
c/o Gruber and McBaine Capital Management
50 Osgood Place
San Francisco, CA 94133
Gruber & McBaine International 35,680 $ 124,880.00 11/09
c/o Gruber and McBaine Capital Management
50 Osgood Place
San Francisco, CA 94133
Jon D. Gruber 28,560 $ 99,960.00 11/09
c/o Gruber and McBaine Capital Management
50 Osgood Place
San Francisco, CA 94133
J. Patterson McBaine 28,560 $ 99,960.00 11/09
c/o Gruber and McBaine Capital Management --------------
50 Osgood Place
San Francisco, CA 94133
Total: $14,093,700.00
==============
</TABLE>
A-4
<PAGE>
AMENDMENT NO. 1 TO SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 dated as of December 5, 1995 to the Series B Preferred
Stock Purchase Agreement, dated November 13, 1995 (the "Purchase Agreement") by
and among Giga Information Group, Inc. (the "Company"), and the purchasers
listed on Exhibit A thereto (the "Purchasers").
WHEREAS, Section 2.2(a) of the Purchase Agreement, as executed on November
13, 1995, provides that:
Conditions of Additional Closing. At any time or times within thirty (30)
--------------------------------
days immediately following the Closing, the Company may, at one or more closings
(each an "ADDITIONAL CLOSING"), without obtaining the signature, consent or
permission of any of the Investors, offer and sell to other investors ("NEW
INVESTORS"), at a price of not less than $3.50 per share, up to that number of
shares of Series B Stock that is equal to 5,142,856 shares of Series B Stock
less the number of shares of Series B Stock actually issued and sold by the
Company prior to such Additional Closing pursuant to this Agreement and upon
conversion of the Convertible Note (as defined in Section 3.4(c)). New
Investors may include persons or entities who are already Investors under this
Agreement.
WHEREAS, the Company has requested an extension of the period in which it
may hold an Additional Closing to enable it to offer and sell shares of its
Series B Preferred Stock ("Series B Stock") to certain persons who are currently
stockholders, directors, or officers of, or advisors to, or who have other
business relationships with, the Company;
WHEREAS, the parties hereto wish to amend the Series B Purchase Agreement
pursuant to Section 8.9 thereof, to provide for such an extension, as
hereinafter provided;
NOW THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. The Company and each of the Purchasers signing below hereby agree that
Section 2.2(a) of the Purchase Agreement is hereby amended to read in its
entirety as follows:
Conditions of Additional Closing. At any time or times on or before January
--------------------------------
20, 1996, the Company may, at one or more closings (each an "ADDITIONAL
CLOSING"), without obtaining the signature, consent or permission
A-5
<PAGE>
of any of the Investors, offer and sell to other investors ("NEW INVESTORS"), at
a price of not less than $3.50 per share, up to that number of shares of Series
B Stock that is equal to 5,142,856 shares of Series B Stock less the number of
shares of Series B Stock actually issued and sold by the Company prior to such
Additional Closing pursuant to this Agreement and upon conversion of the
Convertible Note (as defined in Section 3.4(c)); provided that each New Investor
shall have been, as of November 13, 1995: (i) an employee of, or advisor to,
the Company, (ii) an individual specified in Exhibit I to Amendment No. 1 to the
---------
Purchase Agreement, or (iii) an affiliate of any of the foregoing. New
Investors may include persons or entities who are already Investors under this
Agreement.
Wherever the Purchase Agreement is itself referred to in the Purchase
Agreement, it shall mean the Purchase Agreement as amended by this Amendment No.
1.
2. The Company and the New Investors purchasing Series B Stock at any
Additional Closing will execute counterpart signature pages to this Agreement,
the Registration Rights Agreement, the Voting Agreement and the Co-Sale
Agreement (each as defined in the Purchase Agreement), and such New Investors
will, upon delivery to the Company of such signature pages, become parties to,
and bound by, this Agreement, the Registration Rights Agreement, the Voting
Agreement and the Co-Sale Agreement, each to the same extent as if they had been
Investors at the Closing. Immediately after any Additional Closing, Exhibit A to
---------
the Purchase Agreement will be amended by the Company to list the New Investors
purchasing shares of Series B Stock hereunder and the number of shares of Series
B Stock purchased by each New Investor under the Purchase Agreement at the
Additional Closing.
3. Upon the completion of an Additional Closing as provided in the
Purchase Agreement as amended hereby, each New Investor will be deemed to be an
"INVESTOR" for all purposes of the Purchase Agreement, the Registration Rights
Agreement and the Co-Sale Agreement, and a "SERIES B PURCHASER" for purposes of
the Voting Agreement.
4. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
A-6
<PAGE>
IN WITNESS WHEREOF, the undersigned (or sufficient of them) have executed
this Amendment No. 1 to the Series B Preferred Stock Purchase Agreement as of
the date first written above.
THE COMPANY:
- -----------
GIGA INFORMATION GROUP, INC.
(a Delaware corporation)
By:/s/Gideon Gartner
------------------------------
Title:
---------------------------
A-7
<PAGE>
SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THE INVESTORS:
- -------------
Name of Investor:
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
------------------------------------
Irwin Lieber
Title: Treasurer
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------------------------
Irwin Lieber
Title: Treasurer
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------------------------
Irwin Lieber
Title: Treasurer
A-8
<PAGE>
Montsol Investments NV
By: S/2/ Technology Corp.
By:/s/Seymour L. Goldblatt
-----------------------------------
Title: President S/2/ Technology Corp.
--------------------------------
Executive Technology L.P.
By: S/2/ Technology Corp. its General Partner
By:/s/Seymour L. Goldblatt
-----------------------------------
Title: President S/2/ Technology Corp.
--------------------------------
which is the GP of Executive Technology
- ---------------------------------------
Core Technology Fund Inc.
By: /s/Seymour L. Goldblatt
-----------------------------------
Title: Managing Director
--------------------------------
A-9
<PAGE>
Sci Tech Investment Partners L.P.
By: S/2/ Technology Corp., its General Partner
By: /s/Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
which is the GP of Sci-Tech Investment
- ---------------------------------------
Partner
- -------
The Matrix Technology Group NV
By:/s/Seymour L. Goldblatt
------------------------------------
Title: Managing Director
---------------------------------
Yale University
By: S/2/ Technology Corp.
By:/s/Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
Yale University Retirement Plan for Staff Employees
By: S/2/ Technology Corp.
By:/s/Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
A-10
<PAGE>
SG Partners L.P.
By: S/2/ Technology Corp., its General Partner
By:/s/Seymour L. Goldblatt
-------------------------------------
Title: President, S/2/ Technology Corp.
----------------------------------
which is the GP of SG Partners
- ----------------------------------------
A-11
<PAGE>
Derek Lemke-von Ammon
/s/ Derek Lemke-von Ammon
--------------------------
(Derek Lemke-von Ammon)
A-12
<PAGE>
Kensington Partners L.P.
By:/s/Dick Keim
------------------------------------
By: Dick Keim
Title:
---------------------------------
Acorn Investment Trust
By: /s/Roger Wagner
------------------------------------
Title: Chief Executive Officer
--------------------------------
A-13
<PAGE>
AMENDMENT NO.2 TO SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 dated as of February 19, 1996 to the Series B
Preferred Stock Purchase Agreement, dated November 13, 1995 (the "Purchase
Agreement") by and among Giga Information Group, Inc. (the "Company"), and the
purchasers listed on Exhibit A thereto (the "Purchasers").
WHEREAS, Section 2.2(a) of the Purchase Agreement, as executed on November
13, 1995, provides that:
Conditions of Additional Closing. At any time or times within thirty (30)
--------------------------------
days immediately following the Closing, the Company may, at one or more closings
(each an "ADDITIONAL CLOSING"), without obtaining the signature, consent or
permission of any of the Investors, offer and sell to other investors ("NEW
INVESTORS"), at a price of not less than $3.50 per share, up to that number of
shares of Series B Stock that is equal to 5,142,856 shares of Series B Stock
less the number of shares of Series B Stock actually issued and sold by the
Company prior to such Additional Closing pursuant to this Agreement and upon
conversion of the Convertible Note (as defined in Section 3.4(c)). New
Investors may include persons or entities who are already Investors under this
Agreement.
WHEREAS, the Company has requested an extension of the period in which it
may hold an Additional Closing to enable it TO OFFER and sell shares of its
Series B Preferred Stock ("Series B Stock") to certain persons who are currently
stockholders, directors, or officers of, or advisors to, or who have other
business relationships with, the Company;
WHEREAS, the parties hereto wish to amend the Series B Purchase Agreement
pursuant to Section 8.9 thereof, to provide for such an extension, as
hereinafter provided;
NOW THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. The Company and each of the Purchasers signing below hereby agree that
Section 2.2(a) of the Purchase Agreement is hereby amended to read in its
entirety as follows:
Conditions of Additional Closing. At any time or times on or before
--------------------------------
February 29, 1996, the Company may, at one or more closings (each an "ADDITIONAL
CLOSING"), without obtaining the signature, consent or permission
A-14
<PAGE>
of any of the Investors, offer and sell to other investors ("NEW INVESTORS"), at
a price of not less than $3.50 per share, up to that number of shares of Series
B Stock that is equal to 5,400,000 shares of Series B Stock less the number of
shares of Series B Stock actually issued and sold by the Company prior to such
Additional Closing pursuant to this Agreement and upon conversion of the
Convertible Note (as defined in Section 3.4(c)); provided that each New Investor
shall have been, as of November 13, 1995: (i) an employee of, or advisor to,
the Company, (ii) an individual specified in Exhibit I to Amendment No. 2 to the
---------
Purchase Agreement, or (iii) an affiliate of any of the foregoing. New Investors
may include persons or entities who are already Investors under this Agreement.
Wherever the Purchase Agreement is itself referred to in the Purchase
Agreement, it shall mean the Purchase Agreement as amended by this Amendment
No.2.
2. The Company and the New Investors purchasing Series B Stock at any
Additional Closing will execute counterpart signature pages to this Agreement,
the Registration Rights Agreement, the Voting Agreement and the Co-Sale
Agreement (each as defined in the Purchase Agreement), and such New Investors
will, upon delivery to the Company of such signature pages, become parties to,
and bound by, this Agreement, the Registration Rights Agreement, the Voting
Agreement and the Co-Sale Agreement, each to the same extent as if they had been
Investors at the Closing. Immediately after any Additional Closing, Exhibit A to
---------
the Purchase Agreement will be amended by the Company to list the New Investors
purchasing shares of Series B Stock hereunder and the number of shares of Series
B Stock purchased by each New Investor under the Purchase Agreement at the
Additional Closing.
3. Upon the completion of an Additional Closing as provided in the
Purchase Agreement as amended hereby, each New Investor will be deemed to be an
"INVESTOR" for all purposes of the Purchase Agreement, the Registration Rights
Agreement and the Co-Sale Agreement, and a "SERIES B PURCHASER" for purposes of
the Voting Agreement.
4. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
A-15
<PAGE>
IN WITNESS WHEREOF, the undersigned (or sufficient of them) have executed
this Amendment No. 2 to the Series B Preferred Stock Purchase Agreement as of
the date first written above.
THE COMPANY:
- -----------
GIGA INFORMATION GROUP, INC.
(a Delaware corporation)
By: /s/ Kenneth E Marshall
------------------------------------
Title: President & CEO
-----------------------------
A-16
<PAGE>
SIGNATURE PAGE TO AMENDMENT NO.2 TO THE
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THE INVESTORS:
- -------------
Name of Investor:
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-------------------------------------
Irwin Lieber
Title: Treasurer
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-------------------------------------
Irwin Lieber
Title: Treasurer
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
------------------------------------
Irwin Lieber
Title: Treasurer
A-17
<PAGE>
Montsol Investments NV
By: S/2/ Technology Corp.
By:/s/ Seymour L. Goldblatt
------------------------------------
Title: President S/2/ Technology Corp.
---------------------------------
Executive Technology L.P.
By: S/2/ Technology Corp. its General Partner
By:/s/ Seymour L. Goldblatt
------------------------------------
Title: President S/2/ Technology Corp.
---------------------------------
which is the GP of Executive Technology
- ---------------------------------------
Core Technology Fund Inc.
By: /s/ Seymour L. Goldblatt
------------------------------------
Title: Managing Director
---------------------------------
A-18
<PAGE>
Sci Tech Investment Partners L.P.
By: S/2/ Technology Corp., its General Partner
By: /s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
which is the GP of Sci-Tech Investment
- ---------------------------------------
Partner
- ---------------------------------------
The Matrix Technology Group NV
By:/s/ Seymour L. Goldblatt
------------------------------------
Title: Managing Director
--------------------------------
Yale University
By: S/2/ Technology Corp.
By:/s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
Yale University Retirement Plan for Staff Employees
By: S/2/ Technology Corp.
By:/s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
A-19
<PAGE>
SG Partners L.P.
By: S/2/ Technology Corp., its General Partner
By:/s/ Seymour L. Goldblatt
------------------------------------
Title: President, S/2/ Technology Corp.
---------------------------------
which is the GP of SG Partners
- ---------------------------------------
A-20
<PAGE>
Derek Lemke-von Ammon
/s/ Derek Lemke-von Ammon
--------------------------
(Derek Lemke-von Ammon)
A-21
<PAGE>
Kensington Partners L.P.
By: /s/ Dick Keim
-------------------------------------
By: Dick Keim
Title: General Partner
---------------------------------
Acorn Investment Trust
By:/s/ Roger Wagner
------------------------------------
Title: Cheif Executive Officer
---------------------------------
A-22
<PAGE>
Shares Cash Date
Investor Name Purchased Tendered Rec'd
------------- --------- --------- ------
CLOSING OF FEBRUARY 29, 1996
Neill and Linda Brownstein 16,000 $ 56,000.00 2/29
536 West Crescent Drive
Palo Alto, CA 94301
Adam J. Brownstein 6,000 $ 21,000.00 2/29
536 West Crescent Drive
Palo Alto, CA 94301
Todd D. Brownstein 6,000 $ 21,000.00 2/29
536 West Crescent Drive
Palo Alto, CA 94301
Will P. Gordon 6,000 $ 21,000.00 2/29
536 West Crescent Drive
Palo Alto, CA 94301
Emily G. Hamilton 6,000 $ 21,000.00 2/29
536 West Crescent Drive
Palo Alto, CA 94301
Richard J. Foudy 14,286 $ 50,001.00
780 Cedar Brook Lane
Southport, CT 06490
Cornelius T. Ryan 14,286 $ 50,001.00
315 Post Road West
Westport, CT 06880
Frederick G. Smith 57,143 $ 200,000.50
435 East 57th Street, Apt. 5C
New York, NY 10022
Michael J. Kolesar 20,000 $ 70,000.00 2/28
Giga Information Group, Inc.
1 Longwater Circle
Norwell, MA 02061
Christopher J. DiVecchio 6,000 $ 21,000.00 2/28
254 Main Street, #1C
Southport, CT 06490
A-23
<PAGE>
Shares Cash Date
Investor Name Purchased Tendered Rec'd
------------- --------- --------- ------
Martin P. DuRoss 1,300 $ 4,550.00 2/28
15120 Eclipse Drive
Manassas, VA 22111
Susan Tracy Wheeler 25,000 $ 87,500.00 2/28
2 Bonnie Brook Road
Westport, Connecticut 06880
John B. Landry 28,571 $ 99,998,50
62 Old Connecticut Path
Wayland, MA 01778
RRE Giga Investors II, L.P. 288,571 $ 1,009,998.50 2/28
126 East 56th Street, 22nd Floor
New York, New York 10022
Attention: Mr. Stuart Ellman
Harry Edelson 14,286 $ 50,001.00
Edelson Technology Partners
Whiteweld Centre
300 Tice Boulevard
Woodcliff Lake, NJ 07675
Edelson Technology Partners III 85,715 $ 300,002.50
Whiteweld Centre
300 Tice Boulevard
Woodcliff Lake, NJ 07675
Attention: Mr. Harry Edelson
Derek Lemke-von Ammon 2,857 $ 9,999.50 2/28
Montgomery Securities
600 Montgomery Street
San Francsico, CA 94111
Gilo Family Partnership 16,000 $ 56,000.00 2/28
100 Why Worry Lane
Woodside, CA 94062
Attention: Davidi Gilo
Robert E. Cook 60,000 $ 210,000.00 2/28
572 Park Avenue, 2nd Floor --------------
Park City, UT 84060
Total: $ 2,359,052.50
==============
A-24
<PAGE>
THE INVESTORS:
- -------------
Name of Investor:
Neill and Linda Brownstein
- --------------------------------------
By: /s/ Neill H. Brownstein
----------------------------------
Name:
----------------------------------
Title:
---------------------------------
Name of Investor:
Adam J. Brownstein
- ---------------------------------------
By:/s/ Adam J. Brownstein
------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
Name of Investor:
Robert E. Cook
- ---------------------------------------
By:/s/ Robert E. Cook
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-25
<PAGE>
Name of Investor:
Christopher J. DiVecchio
- ------------------------
By: /s/ Christopher J. DiVecchio
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
Name of Investor:
By: /s/ Martin P. DuRoss
------------------------------------
Name: Martin P. DuRoss
----------------------------------
Title:
---------------------------------
Name of Investor:
Harry Edelson
- ---------------------------------------
By:/s/ Harry Edelson
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Name of Investor:
Edelson Technology Partners III
- ---------------------------------------
By: /s/ Harry Edelson
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-26
<PAGE>
Name of Investor:
Richard J. Foudy
- ----------------------------------------
By: /s/ Richard J. Foudy
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Name of Investor:
Gilo Family Partnership
- ---------------------------------------
By: /s/ Davidi Gilo
----------------------------------
Name: Davidi Gilo
----------------------------------
Title:
----------------------------------
Name of Investor:
Michael J. Kolesar
- --------------------------------------
By:/s/ Michael J. Kolesar
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-27
<PAGE>
Name of Investor:
/s/ John B. Landry
- ---------------------------------------
By: John B. Landry
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
Name of Investor:
Derek Lemke-von Ammon
- ---------------------------------------
By: /s/ Derek Lemke-von Ammon
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
Name of Investor:
RRE GIGA INVESTORS II, L.P.
By: RRE PARTNERS, L.L.C.,
as General Partner
- ---------------------------------------
By: RRE Investors, L.L.C.,
as Managing Member
By: /s/ Stuart J. Ellman
----------------------------------
Name: Stuart J. Ellman
-----------------------------------
Title: Class A Member
-----------------------------
Name of Investor:
Cornelius T. Ryan
- ---------------------------------------
By: /s/ Cornelius T. Ryan
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
A-28
<PAGE>
Name of Investor:
Frederick G. Smith
- ---------------------------------------
By: /s/ Frederick G. Smith
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
Name of Investor:
Susan Tracy Wheeler
- ---------------------------------------
By: /s/ Susan Tracy Wheeler
----------------------------------
Name:
----------------------------------
Title:
---------------------------------
Name of Investor:
Will P. Gordon
- ---------------------------------------
By: /s/ Will P. Gordon
----------------------------------
Name of Investor:
Todd D. Brownstein
- ---------------------------------------
By: /s/ Todd D. Brownstein
----------------------------------
Name of Investor:
Emily G. Hamilton
- ---------------------------------------
By: /s/ Neill H. Brownstein
----------------------------------
Father
A-29
<PAGE>
EXHIBIT 10.3
GIGA INFORMATION GROUP, INC.
- --------------------------------------------------------------------------------
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
May 9, 1997
<PAGE>
Table of Contents
Page
----
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS................... 1
-------------------------------------------------
1.1 Authorization.............................................. 1
-------------
1.2 Agreement to Purchase and Sell Stock....................... 1
------------------------------------
1.3 Agreement to Purchase and Sell Warrants.................... 2
---------------------------------------
2. CLOSING............................................................. 2
-------
2.1 The Closing................................................ 2
-----------
2.2 Additional Closing......................................... 2
------------------
(a) Conditions of Additional Closing.................. 2
--------------------------------
(b) Amendments........................................ 2
----------
(c) Status of New Investors........................... 3
-----------------------
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 3
---------------------------------------------
3.1 Organization, Good Standing and Qualification.............. 3
---------------------------------------------
3.2 Authorization.............................................. 4
-------------
3.3 Valid Issuance of Shares and Conversion Shares............. 4
----------------------------------------------
3.4 Capitalization............................................. 5
--------------
(a) Preferred Stock....................................... 5
---------------
(b) Common Stock.......................................... 5
------------
(c) Options, Warrants, Reserved Shares.................... 5
----------------------------------
(d) Capitalization Table; Investors' Ownership Percentage. 6
-----------------------------------------------------
3.5 Subsidiaries............................................... 6
------------
3.6 Governmental Consents...................................... 6
---------------------
3.7 Contracts and Other Commitments............................ 7
-------------------------------
3.8 Litigation................................................. 7
----------
3.9 Invention Assignment and Confidentiality Agreement......... 7
--------------------------------------------------
3.10 Proprietary Assets......................................... 7
------------------
3.11 Compliance with Law and Charter Documents.................. 8
-----------------------------------------
3.12 Registration Rights........................................ 8
-------------------
3.13 Financial Statements....................................... 8
--------------------
3.14 Disclosure................................................. 9
----------
3.15 Certain Actions............................................ 9
---------------
3.16 Activities Since Balance Sheet Date........................ 9
-----------------------------------
3.17 Employee Benefit Plans..................................... 9
----------------------
3.18 Tax Returns; Payments and Elections........................ 9
-----------------------------------
3.19 Related Party Transactions................................. 9
--------------------------
3.20 Status of Certain Agreements............................... 10
----------------------------
i
<PAGE>
Page
4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF
INVESTORS........................................................... 10
4.1 Authorization.............................................. 10
4.2 Purchase for Own Account................................... 10
4.3 Disclosure of Information.................................. 10
4.4 Investment Experience...................................... 11
4.5 Accredited Investor Status................................. 11
4.6 Restricted Securities...................................... 11
4.7 Further Limitations on Disposition......................... 11
4.8 Legends.................................................... 12
4.9 Counsel.................................................... 12
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING..................... 13
-----------------------------------------------
5.1 Representations and Warranties True........................ 13
-----------------------------------
5.2 Performance................................................ 13
-----------
5.3 Restated Certificate Effective............................. 13
------------------------------
5.4 Compliance Certificate..................................... 13
----------------------
5.5 Securities Exemptions...................................... 13
---------------------
5.6 Proceedings and Documents.................................. 13
-------------------------
5.7 No Material Change......................................... 14
------------------
5.8 Opinion of Counsel......................................... 14
------------------
5.9 Directors.................................................. 14
---------
5.10 Minimum Shares Purchased................................... 14
------------------------
5.11 Registration Rights Amendment; Co-Sale Amendment; Voting
Rights Amendment......................................... 14
--------------------------------------------------------
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.................. 14
--------------------------------------------------
6.1 Representations and Warranties............................. 14
------------------------------
6.2 Payment of Purchase Price.................................. 15
-------------------------
6.3 Restated Certificate Effective............................. 15
------------------------------
6.4 Securities Exemptions...................................... 15
---------------------
6.5 Minimum Shares Purchased................................... 15
------------------------
6.6 Registration Rights Amendment; Co-Sale Amendment;
Voting Rights Amendment.................................. 15
------------------------------------------------
Amendment.................................................. 15
7. COVENANTS OF THE COMPANY............................................ 15
------------------------
7.1 Delivery of Financial Statements........................... 15
--------------------------------
7.2 Inspection................................................. 16
----------
7.3 Key Man Insurance.......................................... 16
-----------------
7.4 Giga Advisory Service...................................... 17
---------------------
7.5 Trademarks................................................. 17
----------
ii
<PAGE>
Page
8y. MISCELLANEOUS....................................................... 17
-------------
8.1 Survival of Warranties and Covenants....................... 17
------------------------------------
8.2 Successors and Assigns..................................... 18
----------------------
8.3 Governing Law.............................................. 18
-------------
8.4 Counterparts............................................... 18
------------
8.5 Headings................................................... 18
--------
8.6 Notices.................................................... 18
-------
8.7 Expenses................................................... 19
--------
8.8 No Finder's Fees........................................... 19
----------------
8.9 Amendments and Waivers..................................... 19
----------------------
8.10 Severability............................................... 19
------------
8.11 Entire Agreement........................................... 19
----------------
8.12 Publicity.................................................. 20
---------
8.13 Further Assurances......................................... 20
------------------
Exhibit A - Schedule of Investors
Exhibit B - Restated Certificate
Exhibit C - Schedule of Warrants
Exhibit D - Form of Warrant
Exhibit E - Original Registration Rights Agreement
Exhibit F - Original Voting Agreement
Exhibit G - Original Co-Sale Agreement
Exhibit H - Schedule of Exceptions
Exhibit I - Capitalization Table; Investors' Ownership Percentage
Exhibit J - List of Subsidiaries
Exhibit K - Non-Competition Agreement
Exhibit L - Financial Statements
Exhibit M - Opinion of Hale and Dorr LLP
Exhibit N - Registration Rights Amendment
Exhibit O - Co-Sale Amendment
Exhibit P - Voting Rights Amendment
Exhibit 3.20 - Major Customers
iii
<PAGE>
GIGA INFORMATION GROUP, INC.
SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
(this "Agreement") is made and entered into as of May 9, 1997 by and among
Giga Information Group, Inc., a Delaware corporation (the "Company"), and the
parties listed on the Schedule of Investors attached to this Agreement as
Exhibit A (each hereinafter individually referred to as an "Investor" and
collectively referred to as the "Investors").
RECITAL
A. The Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, shares of the Company's Series
C Preferred Stock and Warrants to purchase shares of the Company's Series C
Preferred Stock on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS.
1.1 Authorization. As of the Closing (as defined below) the
Company will have authorized the issuance, pursuant to the terms and
conditions of this Agreement, of the shares of the Company's Series C
Preferred Stock, $.001 par value (the "Series C Stock") to be sold by it
pursuant to this Agreement, having the rights, preferences, privileges and
restrictions set forth in the Fourth Amended and Restated Certificate of
Incorporation of the Company as attached to this Agreement as Exhibit B (the
"Restated Certificate") and the sale and issuance of the warrants to purchase
shares of the Company's Series C Stock.
1.2 Agreement to Purchase and Sell Stock. The Company agrees
to sell to each Investor at the Closing, and each Investor agrees, severally
and not jointly, to purchase from the Company at the Closing, the number of
shares of Series C Stock set forth beside such Investor's name on Exhibit A at
a price of $4.11 per share. The shares of Series C Stock purchased and sold
pursuant to this Agreement will be collectively hereinafter referred to as the
"Purchased Shares".
1
<PAGE>
1.3 Agreement to Purchase and Sell Warrants. The Company
agrees to issue to the Investors warrants (the "Warrants") to purchase from
the Company the number of shares of Series C Stock as is calculated pursuant
to the formula set forth on Exhibit C at an exercise price of $4.50 per share.
The Warrants shall be issued upon the terms and subject to the conditions set
forth in the form of Warrant attached hereto as Exhibit D.
The shares of Series C Stock issuable upon exercise of the
Warrants will be hereinafter referred to as the "Warrant Shares". The
Purchased Shares and the Warrant Shares will be hereinafter collectively
referred to as the "Shares" and the shares of the Company's Common Stock,
$.001 par value per share, issuable upon conversion of the Purchased Shares
and the Warrant Shares will be hereinafter collectively referred to as the
"Conversion Shares."
2. CLOSING.
2.1 The Closing. The purchase and sale of the Purchased
Shares will take place at the offices of Hale and Dorr LLP, 60 State Street,
Boston, MA 02109 at 10:00 a.m., May 9, 1997 or at such other time and place as
the Company and Investors who have agreed to purchase a majority of the
Purchased Shares listed on Exhibit A mutually agree (which time and place are
referred to in this Agreement as the "Closing"). At the Closing, the Company
will deliver to each Investor a certificate representing the number of
Purchased Shares that such Investor has agreed to purchase hereunder as shown
on Exhibit A, and each Investor shall pay to the Company the full purchase
price of such Purchased Shares, by (i) a check payable to the Company's order,
or (ii) wire transfer of funds to the Company. On or before January 31, 1998,
the Company will deliver to each Investor the Warrants, if any, that such
Investor is entitled to receive in accordance with the terms set forth on
Exhibit C.
2.2 Additional Closing.
(a) Conditions of Additional Closing. At any
time or times within ninety (90) days immediately following the Closing, the
Company may, at one or more closings (each an "Additional Closing"), without
obtaining the signature, consent or permission of any of the Investors, offer
and sell to other investors ("New Investors"), at a price of not less than $4.11
per share, up to that number of shares of Series C Stock that is equal to
2,676,399 shares of Series C Stock less the number of shares of Series C Stock
actually issued and sold by the Company prior to such Additional Closing
pursuant to this Agreement and such New Investors shall be entitled to receive
Warrants, if any, on the same terms and conditions as are set forth in this
Agreement. New Investors may include persons or entities who are already
Investors under this Agreement.
(b) Amendments. The Company and the New
Investors purchasing Series C Stock and Warrants at any Additional Closing will
execute
2
<PAGE>
counterpart signature pages to this Agreement, the Registration Rights
Agreement dated November 9, 1996, as amended (the "Original Registration
Rights Agreement"), as amended by Amendment No. 2 to Registration Rights
Agreement dated as of the date hereof (the "Registration Rights Amendment"
and, together with the Original Registration Rights Agreement, the
"Registration Rights Agreement"), among the Company and the parties signatory
thereto, a copy of which is attached hereto as Exhibit E , the Amended and
Restated Investor Rights and Voting Agreement dated November 13, 1995, as
amended (the "Original Voting Agreement"), as amended by Amendment No. 2 to
Amended and Restated Investor Rights and Voting Agreement dated as of the date
hereof (the "Voting Amendment" and, together with the Original Voting
Agreement, the "Voting Agreement") among the Company and the parties signatory
thereto, a copy of which is attached hereto as Exhibit F and the Co-Sale and
Stock Restriction Agreement dated November 13, 1995, as amended (the "Original
Co-Sale Agreement"), as amended by Amendment No. 2 to the Co-Sale and Stock
Restriction Agreement dated as of the date hereof (the "Co-Sale Amendment"
and, together with the Original Co-Sale Agreement, the "Co-Sale Agreement"),
among the Company and the parties signatory thereto, a copy of which is
attached hereto as Exhibit G and such New Investors will, upon delivery to the
Company of such signature pages, become parties to, and bound by, this
Agreement, the Registration Rights Agreement, the Voting Agreement and the
Co-Sale Agreement, each to the same extent as if they had been Investors at
the Closing. Immediately after any Additional Closing, Exhibit A and Exhibit C
to this Agreement will be amended by the Company to list the New Investors
purchasing shares of Series C Stock and Warrants under this Agreement at the
Additional Closing.
(c) Status of New Investors. Upon the
completion of the Additional Closing as provided in this Section 2, each New
Investor will be deemed to be an "Investor" for all purposes of this Agreement,
the Registration Rights Agreement and the Co-Sale Agreement, and a "Series C
Purchaser" for purposes of the Voting Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions ("Schedule of Exceptions") attached to this Agreement
as Exhibit H the statements in the following paragraphs of this Section 3 are
all true and correct:
3.1 Organization, Good Standing and Qualification. The
Company is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, has all requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, the Registration Rights Amendment, the Co-Sale
Amendment, the Voting Rights Amendment, and the Warrants, to issue and sell
the Shares, to issue the Conversion Shares, and to carry out the provisions of
this
3
<PAGE>
Agreement, the Registration Rights Agreement, the Voting Agreement, the
Co-Sale Agreement, the Warrants and the Restated Certificate. The Company is
duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on the business, properties, financial condition or prospects of the
Company and its subsidiaries taken as a whole (a "Material Adverse Effect").
3.2 Authorization. All corporate action on the part of the
Company and its officers, directors, and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Registration
Rights Amendment, the Co-Sale Amendment, the Voting Rights Amendment and the
Warrants, the performance of all obligations of the Company hereunder and
thereunder, as the case may be, and the authorization, issuance, sale, and
delivery of the Shares and the authorization and registration for issuance of
Conversion Shares has been duly taken or will be taken prior to the Closing or
the applicable Additional Closing, as the case may be, and this Agreement, the
Registration Rights Agreement, the Co-Sale Agreement, and the Voting Rights
Agreement constitute, and the Warrants (when executed and delivered by the
Company) will constitute, valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies and (iii) to the extent the indemnification provisions
contained in the Registration Rights Agreement, may be limited by applicable
federal or state securities laws.
3.3 Valid Issuance of Shares and Conversion Shares.
(a) The Shares, when issued, sold and delivered
in accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Registration Rights Agreement and the Voting Agreement and
under applicable state and federal securities laws. The Conversion Shares have
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Restated Certificate, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Registration Rights
Agreement and the Voting Agreement, and under applicable state and federal
securities laws.
(b) Based in part on the representation made by
the Investors in Section 4 hereof, the Shares and (assuming no change in
applicable law and no unlawful distribution of Shares by Investors or other
parties) the Conversion Shares will be issued in full compliance with applicable
U.S. state and federal securities laws (provided that with respect to the
Conversion Shares, no commission or other remuneration is paid or given,
directly or indirectly, for soliciting the issuance of Conversion Shares upon
the
4
<PAGE>
conversion of the Shares and no additional consideration is paid for the
Conversion Shares other than surrender of the applicable Shares upon
conversion thereof in accordance with the Restated Certificate).
3.4 Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
(a) Preferred Stock. A total of Sixteen Million
Five Hundred Thousand (16,500,000) authorized shares of preferred stock, $.001
par value per share (the "Preferred Stock"), consisting of (i) Six Hundred Fifty
Thousand (650,000) shares designated as Series A Preferred Stock (the "Series A
Stock"), of which 570,000 shares are validly issued and outstanding, fully paid
and nonassessable, (ii) Nine Million (9,000,000) shares designated as Series B
Preferred Stock ("Series B Stock"), of which 8,144,642 shares are validly issued
and outstanding, fully paid and nonassessable and (iii) Four Million Five
Hundred Thousand (4,500,000) shares designated as Series C Preferred Stock
("Series C Stock"), of which 1,824,818 shares will be validly issued and
outstanding, fully paid and nonassessable immediately following the Closing. The
rights, preferences and privileges of the Series A Stock, Series B Stock and
Series C Stock are as stated in the Restated Certificate and as provided by law.
(b) Common Stock. A total of Fifty Million
(50,000,000) authorized shares of common stock, $.001 par value per share (the
"Common Stock"), of which 6,220,677 shares are validly issued and outstanding,
fully paid and nonassessable.
(c) Options, Warrants, Reserved Shares. Except
for:
(i) the conversion privileges of the Series A Stock,
Series B Stock and Series C Stock;
(ii) the Three Million One Hundred Thousand (3,100,000)
shares of Common Stock reserved for issuance under
the Company's 1995 Stock Option/Stock Issuance Plan
(of which Seventy Four Thousand Three Hundred
Forty-Four (74,344) shares have been issued upon
exercise of options and options are outstanding to
purchase One Million Six Hundred Eighty Six
Thousand Two Hundred (1,686,200) shares);
(iii) the Three Million (3,000,000) shares of Common Stock
reserved for issuance under the Company's 1996 Stock
Option Plan (of which no shares have been issued upon
exercise of options and options are outstanding to
purchase Six Hundred Seventy Thousand Nine Hundred
Twenty-Nine (670,929) shares);
5
<PAGE>
(iv) options to purchase Seven Hundred Eighty Thousand
(780,000) shares of Common Stock granted under
separate contractual arrangements;
(v) warrants to purchase an aggregate of One Hundred
Seven Thousand Eight Hundred Seventy-Six (107,876)
shares of Series B Stock;
(vi) convertible notes dated April 5, 1995 which are
convertible into an aggregate of One Hundred Eighty
Five Thousand Two Hundred Ninety-Eight (185,298)
shares of Common Stock; and
(vii) a convertible note dated December 31, 1995 which is
convertible, as of April 30, 1997, into Seventy One
Thousand Four Hundred Thirty One (71,431) shares of
Common Stock;
there are not outstanding any options, warrants, rights (including conversion
or preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into
or ultimately exchangeable or exercisable for any shares of the Company's
capital stock. Apart from the exceptions noted in this Section 3.4(c), and
except for rights of repurchase and rights of first refusal held by the
Company to repurchase shares of its stock issued to founders and employees of
the Company, no shares of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options, warrants or
rights, or other stock issuable by the Company, are subject to any preemptive
rights or rights of first refusal or other rights to purchase such stock
(whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company, and, to the Company's knowledge, no
officer, director or holder of the Company's Common Stock is a party to any
voting agreement or voting trust other than the Voting Agreement.
(d) Capitalization Table; Investors' Ownership
Percentage. Exhibit I attached hereto contains a common stock equivalent
capitalization table of the Company immediately after the Closing. As indicated
on Exhibit I, the shares issued to the Investors at Closing shall be equal to
8.31% of the total number of shares of Common Stock outstanding on a
fully-diluted basis immediately after the Closing (including shares of Common
Stock issuable upon exercise or conversion of outstanding options, warrants,
notes and convertible preferred stock).
3.5 Subsidiaries. Exhibit J attached hereto contains a
listing of all of the Company's subsidiaries. The Company beneficially owns or
has the right to acquire all of the outstanding capital stock of each of its
subsidiaries.
3.6 Governmental Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution,
6
<PAGE>
delivery, or performance of this Agreement, the offer, sale or issuance of the
Shares by the Company or the issuance of the Conversion Shares, except (i) the
filing of the Restated Certificate with the Secretary of State of the State of
Delaware, and (ii) such filings as have been or will be made prior to the
Closing, except that any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act,
or such post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor.
3.7 Contracts and Other Commitments. Except as set forth on
Schedule 3.7 of the Schedule of Exceptions, the Company has no material
contract, agreement, lease, commitment or proposed transaction, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that do not involve more than $100,000, and do not
extend for more than one (1) year beyond the date hereof, (ii) contracts
entered into in the ordinary course of business, (iii) contracts terminable at
will by the Company on no more than thirty (30) days notice without cost or
liability to the Company which are not material to the conduct of the
Company's business, and (iv) employment or consulting agreements with persons
who are not directors or executive officers of the Company. The Company does
not have a collective bargaining agreement with any of its United States
employees.
3.8 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, or their
activities, properties or assets or, to the best of the Company's knowledge,
against any officer or director of the Company or its subsidiaries in
connection with such officer's, director's or employee's relationship with, or
actions taken on behalf of, the Company or any of its subsidiaries or
questioning the validity of this Agreement or any action taken or to be taken
in connection herewith that would have a Material Adverse Effect. The Company
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action by the Company currently pending or which the Company has
threatened, and intends, to initiate.
3.9 Invention Assignment and Confidentiality Agreement. Each
employee and contractor of the Company who is engaged in information
technology research and analysis, or software development, has entered into
and executed an agreement containing confidentiality obligations in the form
attached to this Agreement as Exhibit K or an agreement containing
substantially similar terms, or terms no less favorable to the Company.
3.10 Proprietary Assets. Except as set forth on Schedule
3.10 of the Schedule of Exceptions, to the Company's knowledge, the Company
has full title and ownership of, or is duly licensed under or otherwise
authorized to use, all patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, confidential and proprietary
information, designs and proprietary rights necessary to
7
<PAGE>
enable it to carry on its business as now conducted (the "Proprietary Assets")
and has or expects in good faith to be able to obtain or create the
Proprietary Assets necessary to carry on its business as proposed to be
conducted, without, to the best of its knowledge, any conflict with or
infringement of the rights of others, where the same would have a Material
Adverse Effect. Neither the Company nor, to its knowledge, any of its
subsidiaries, has granted any options, licenses or agreements of any kind
giving any third party any exclusive rights to any material Proprietary Assets
of the Company. Except as set forth on Schedule 3.10, the Company has not
received any communications alleging that the Company has violated or, by
conducting its business as now conducted and as proposed to be conducted,
would violate any of the patents, trademarks, including the name "Giga",
service marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity.
3.11 Compliance with Law and Charter Documents. The Company
is not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended, and to the best of the Company's
knowledge, except for any violations that would have no Material Adverse
Effect, the Company is in compliance with all indentures, instruments or
agreements by which it is bound, all applicable statutes, laws, regulations
and executive orders of the United States of America (including securities
laws as to previous issuances of securities), and all states, foreign
countries or other governmental bodies and agencies having jurisdiction over
its business or properties.
3.12 Registration Rights. Except as provided in the
Registration Rights Agreement, the Company has not granted or agreed to grant
to any person or entity any rights (including piggyback registration rights)
to have any securities of the Company registered with the United States
Securities and Exchange Commission ("SEC") or any other governmental
authority.
3.13 Financial Statements. The statements of operations,
changes in stockholders' equity, cash flows and balance sheets of the Company
as of December 31, 1996 and March 31, 1997 and for the twelve (12) and three
(3) month periods then ended, which are attached to this Agreement as Exhibit
L (the "Financial Statements"), of the Company are in accordance with the
books and records of the Company and fairly set forth the consolidated
operating results and financial condition of the Company for the twelve-month
and three-month periods then ended. The Financial Statements for the year
ended December 31, 1996 are unaudited. The Company will use its best efforts
to furnish to the Investors as soon as is practicable, and in no event later
than May 19, 1997, audited financial statements for the year ended December
31, 1996. The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). Except as set forth or
reserved for in the Financial Statements, the Company has no liabilities,
other than (i) liabilities incurred in the ordinary course of business
subsequent to March 31, 1997, (ii) liabilities not in excess of $100,000 in
the aggregate, and (iii) liabilities incurred in the ordinary course of
business and not required
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under GAAP to be reflected in the Financial Statements, other than contingent
liabilities in excess of $50,000.
3.14 Disclosure. This Agreement does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements herein or therein, under the circumstances under which
they were made, not misleading when taken as a whole.
3.15 Certain Actions. Since March 31, 1997, the Company has
not (i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock and (ii) has
not (A) sold, exchanged or otherwise disposed of any material assets or rights
other than in the ordinary course of business, or (B) entered into any
material transactions with any of its officers, directors or employees or any
entity controlled by any of such individuals.
3.16 Activities Since Balance Sheet Date. To the best of the
Company's knowledge, since March 31, 1997, there has not been any event or
condition of any type that has had or would reasonably be expected to have a
Material Adverse Effect, other than continuing losses incurred in connection
with the Company's development and introduction of its new services.
3.17 Employee Benefit Plans. The Company has no outstanding
liabilities or accrued and unpaid funding obligations with respect to any
Employee Benefit Plan (as defined in Section 3 of the Employee Retirement
Income Security Act of 1974).
3.18 Tax Returns; Payments and Elections. Except as
disclosed on Schedule 3.18, the Company has filed all United States federal
and, to its knowledge, state tax returns and reports as required by law, and,
to its knowledge, these returns and reports are true and correct in all
material respects, except in each case where the same would not have a
Material Adverse Effect or where adequate reserves therefor have been
reflected in the Financial Statements. The Company has not been notified, nor
does it otherwise have knowledge that, it is currently the subject of any
ongoing audit by federal or state tax authorities. The Company has paid all
taxes and other assessments shown on such returns as due, except those
contested by it in good faith.
3.19 Related Party Transactions. No executive officer or
director of the Company or member of his or her immediate family is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them; and, to the best of the Company's
knowledge, none of such persons has any direct or indirect ownership interest
in any firm or corporation with which the Company is affiliated or with which
the Company has a material business relationship, or any firm or corporation
that competes with the Company, except through ownership of stock in publicly
traded companies.
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3.20 Status of Certain Agreements. As of the date hereof,
the companies ("Major Customers") listed on Exhibit 3.20 have not canceled any
services provided to them by the Company and contracts between each of Major
Customers and the Company are in full force and effect. The Company has not
received any notification that such services provided to any of the Major
Customers are to be cancelled or has any knowledge of any plans or any threats
to cancel any of such services provided or any related contracts entered into
with such Major Customers.
4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS.
Each Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. This Agreement, the Registration Rights
Amendment, the Co-Sale Amendment and the Voting Rights Amendment constitute
such Investor's valid and legally binding obligations, enforceable in
accordance with their respective terms except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies. Each Investor represents that such Investor has full power
and authority to enter into this Agreement, the Registration Rights Amendment,
the Co-Sale Amendment and the Voting Rights Amendment.
4.2 Purchase for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Shares to be purchased by such Investor and the Conversion
Shares issuable upon conversion thereof are being acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Shares and/or the Conversion Shares.
4.3 Disclosure of Information. Such Investor has received or
has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Shares
to be purchased by such Investor under this Agreement. Such Investor further
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares and to obtain
additional information (to the extent the Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to
verify any information furnished to such Investor or to which such Investor
had access. The foregoing, however, does not in any way limit or modify the
representations and warranties made by the Company in Section 3.
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4.4 Investment Experience. Such Investor understands and
acknowledges that the purchase of the Shares involves substantial risk. Such
Investor: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that such Investor is able to fend for
itself, can bear the economic risk of such Investor's investment in the Shares
and has such knowledge and experience in financial or business matters that
such Investor is capable of evaluating the merits and risks of this investment
in the Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables such Investor to be aware of the
character, business acumen and financial circumstances of such persons.
4.5 Accredited Investor Status. Such Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act.
4.6 Restricted Securities. Each Investor understands that
the Shares and the Conversion Shares are characterized as "restricted
securities" under the Securities Act inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
the Securities Act and applicable regulations thereunder such securities may
be resold without registration under the Securities Act only in certain
limited circumstances. In this connection, such Investor represents that such
Investor is familiar with Rule 144 of the U.S. Securities and Exchange
Commission, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act. Such Investor understands that the
Company is under no obligation to register any of the securities sold
hereunder (or any securities issuable upon conversion thereof) except as
provided in the Registration Rights Agreement. Such Investor understands that
no public market now exists for any of the Shares or the Conversion Shares and
that it is uncertain whether a public market will ever exist for the Shares or
the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) (i) such Investor shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
such Investor shall have furnished the Company, at the expense of such Investor
or its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
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Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Shares or Conversion Shares in compliance with SEC Rule 144 or
Rule 144A, or (ii) for any transfer of Shares or Conversion Shares by an
Investor that is a partnership or a corporation to (A) a partner of such
partnership or shareholder of such corporation, (B) a retired partner of such
partnership who retires after the date hereof, (C) the estate of any such
partner or shareholder, or (iii) for the transfer by gift, will or interstate
succession by any Investor to his or her spouse or lineal descendants or
ancestors or any trust for any of the foregoing; provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 (other than Section 4.5) to the same extent as if the
transferee were an original Investor hereunder.
4.8 Legends. It is understood that the certificates
evidencing the Shares and the Conversion Shares will bear the legends set
forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Any legend required by the laws of the State
of Delaware or any other state securities laws.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Shares or Conversion Shares upon delivery to the
Company of an opinion by counsel, reasonably satisfactory to the Company, that
a registration statement under the 1933 Act is at that time in effect with
respect to the legended security or that such security can be freely
transferred in a public sale without such a registration statement being in
effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Shares or
Conversion Shares.
4.9 Counsel. Fried, Frank, Harris, Shriver & Jacobson is
acting as counsel to the Investors as a group and not to any individual
Investor and may represent other clients of the firm in matters which are or
may become adverse to any individual
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member of the Investor group (including matters where one member of the
Investor group is adverse to another member of the Investor group), except for
matters arising out of or in connection with this Agreement.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each Investor under Section 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Investor
who does not consent to such waiver.
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
5.3 Restated Certificate Effective. The Restated Certificate
shall have been duly adopted by the Company by all necessary corporate action
of its Board of Directors and stockholders, and shall have been duly filed
with and accepted by the Secretary of State of the State of Delaware.
5.4 Compliance Certificate. The Company shall have delivered
to each Investor at the Closing a certificate signed on its behalf by its
President, Chief Executive Officer, or Vice President-Finance certifying, on
behalf of the Company, that the conditions specified in Sections 5.1, 5.2 and
5.3 have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company not previously disclosed to the Investors
in writing.
5.5 Securities Exemptions. The offer and sale of the Shares
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Investor's special counsel, Fried, Frank, Harris, Shriver
& Jacobson, which shall have received all such
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counterpart originals and certified or other copies of such documents as it may
reasonably request.
5.7 No Material Change. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company.
5.8 Opinion of Counsel. The Investors shall have received
the opinion of Hale and Dorr LLP, dated the date of the Closing, as to the
matters set forth in Exhibit M.
5.9 Directors. The Company's Bylaws shall provide for at
least eight Directors.
5.10 Minimum Shares Purchased. A minimum of 1,824,818 shares
of Series C Stock shall be purchased by the Investors at the Closing under
this Agreement for a minimum aggregate purchase price of $7,500,002.
5.11 Registration Rights Amendment; Co-Sale Amendment;
Voting Rights Amendment. The Company, each Investor, and stockholders holding
the number of shares of capital stock of the Company necessary to amend the
Original Registration Rights Agreement (as set forth in Section 1.1 therein)
shall have executed and delivered the Registration Rights Amendment in the
form attached hereto as Exhibit N. The Company, each Investor, and
stockholders holding the number of shares of capital stock of the Company
necessary to amend the Original Co-Sale Agreement (as set forth in Section 7.2
therein) shall have executed and delivered the Co-Sale Amendment in
substantially the form attached hereto as Exhibit O. The Company, each
Investor and stockholders holding the number of shares of capital stock of the
Company necessary to amend the Original Voting Rights Agreement (as set forth
in Section 3.2 therein) shall have executed and delivered the Voting Rights
Amendment in substantially the form attached hereto as Exhibit P.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject
to the fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
warranties of such Investor contained in Section 4 shall be true and correct
on the date of the Closing with the same effect as though such representations
and warranties had been made on and as of the Closing.
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6.2 Payment of Purchase Price. Each Investor shall have
delivered to the Company the purchase price specified for such Investor on
Exhibit A in accordance with the provisions of Section 2.
6.3 Restated Certificate Effective. The Restated
Certificate shall have been accepted by the Secretary of State of the State of
Delaware.
6.4 Securities Exemptions. The offer and sale of the Shares
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
6.5 Minimum Shares Purchased. A minimum of 1,824,818 shares
of Series C Stock shall be purchased by the Investors at the Closing under
this Agreement for a minimum aggregate purchase price of $7,500,002.
6.6 Registration Rights Amendment; Co-Sale Amendment; Voting
Rights Amendment. The Company, each Investor, and stockholders holding the
number of shares of capital stock necessary to amend the Original Registration
Rights Agreement (as set forth in Section 1.1 therein) shall have executed and
delivered the Registration Rights Amendment in the form attached hereto as
Exhibit N. The Company, each Investor, and stockholders holding the number of
shares of capital stock necessary to amend the Original Co-Sale Agreement (as
set forth in Section 7.2 therein) shall have executed and delivered the
Co-Sale Amendment in substantially the form attached hereto as Exhibit O. The
Company, each Investor and stockholders holding the number of shares of
capital stock necessary to amend the Original Voting Rights Agreement (as set
forth in Section 3.2 therein) shall have executed and delivered the Voting
Rights Amendment in substantially the form attached hereto as Exhibit P.
7. COVENANTS OF THE COMPANY.
7.1 Delivery of Financial Statements.
(a) The Company shall furnish to each Investor
as soon as practicable, but in any event within ninety (90) days after the end
of each fiscal year of the Company, an income statement for such fiscal year, a
balance sheet of the Company and statement of stockholders' equity as of the end
of such year, and a schedule as to the sources and applications of funds for
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with GAAP, and audited by a nationally recognized firm of
independent public accountants selected by the Company and approved by its Board
of Directors.
(b) The Company shall deliver to each Investor
as soon as practicable, but in any event within sixty (60) days after the end of
each of the first three
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(3) quarters of each fiscal year of the Company, an unaudited income
statement, schedule as to the sources and application of funds for such fiscal
quarter and an unaudited balance sheet as of the end of such fiscal quarter.
(c) The Company shall furnish to each Investor
who (together with Investors which control it, are controlled by it, or are
under common control with it) holds at least 500,000 shares of Series C
Preferred Stock or Common Stock issued upon conversion thereof (each a "Major
Investor") as soon as practicable, but in any event within thirty (30) days
after the end of each month, an unaudited income statement and balance sheet as
of the end of such month, in reasonable detail.
(d) The Company shall furnish to each Major
Investor as soon as practicable, but in any event thirty (30) days after the end
of each fiscal year, a budget and business plan for the next fiscal year;
provided, however, that the Company's obligation to furnish a business plan may
be waived by the Board of Directors (either by express waiver or by the failure
of the Board of Directors to request preparation of a business plan); provided,
further that, in the event the budget and business plan for any given fiscal
year are updated on an interim basis, such updated documents shall be provided
to each Major Investor as soon as is practicable after such update.
(e) The Company shall furnish to each Major
Investor as soon as practicable, but in any event thirty days after each fiscal
quarter, a report, by function, setting forth employee turnover.
(f) Notwithstanding any provisions contained in
this Section 7.1 to the contrary, the Company shall not be obligated under this
Section 7.1 to provide information which it deems in good faith to be a trade
secret or similar confidential information.
7.2 Inspection. The Company shall permit each Major
Investor, at such Major Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, and shall provide
such other information as may reasonably be requested by such, all at such
reasonable times as may be requested by the Major Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 7.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information except to Major Investors who
execute a confidentiality agreement in such form as the Company may reasonably
request; provided, further that, such investigations shall in no way impact
the effectiveness of the representations and warranties set forth in Section
3.
7.3 Key Man Insurance. The level of "key man" insurance
shall be reviewed as to appropriateness by the Board of Directors as promptly
as practicable following the Closing Date.
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7.4 Giga Advisory Service. The Company shall provide a full
subscription to Giga Advisory Service to the Investors so long as the
Investors hold a minimum of 250,000 shares of Series C Stock or Common Stock.
7.5 Trademarks. As soon as practicable after the date
hereof, the Company will use its reasonable efforts to register as a trademark
the name "Giga."
8. MISCELLANEOUS.
8.1 Survival of Warranties and Covenants. The
representations, warranties and covenants of the Company and the Investors
contained in or made pursuant to this Agreement shall survive the execution
and delivery of this Agreement and the Closing and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of any
of the Investors, their counsel or the Company, as the case may be. The
Company's obligations under Section 7.1 and 7.2 shall terminate (a)
immediately prior to the closing of an underwritten public offering pursuant
to a registration statement (other than a registration statement relating
either to the sale of securities to employees of the Company pursuant to a
stock option, stock purchase or similar plan or a transaction pursuant to Rule
145 under the Securities Act of 1933, as amended (the "Act")) under the Act
covering the Company's Common Stock, which results in aggregate cash proceeds
(prior to underwriters' commissions and expenses) to the Company and any
selling stockholder of at least $15,000,000, and which has a public offering
price of not less than $5.25 per share (as appropriately adjusted for stock
splits, combinations, reclassifications and the like), or (b) upon an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's
outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) or more of the voting power of the corporation or other entity
surviving such transaction.
Any indemnification payment by the Company to an Investor in
connection with a breach of the representations, warranties and covenants of
the Company shall include an additional amount so that such Investor suffers
no loss as a result of any diminution in the book value of the stockholders'
equity related to its investment in the Company as a result of such
indemnification payment. Any payment by the Company to an Investor in
connection with a breach of the representations, warranties and covenants of
the company shall be treated for federal income tax purposes as an adjustment
to the price paid by such Investor for the Series C Stock and Warrants
pursuant to this Agreement.
In addition to and without limitation to all other
indemnities in this Agreement, in the event of any breach of the
representation and warranty set forth in the second sentence of Section
3.4(d), the Company shall issue to each Investor, at no cost to the Investor,
an additional amount of Series C Stock such that, if such issuance were made
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at the Closing Date, such representation and warranty would have been true and
accurate in all respects when made.
8.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.3 Governing Law. This Agreement shall be governed by and
construed under the internal laws of the State of New York as applied to
agreements among residents of the State of New York entered into and to be
performed entirely within the State of New York, without reference to
principles of conflict of laws or choice of laws.
8.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs, exhibits and schedules shall, unless otherwise provided,
refer to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which exhibits and schedules are incorporated herein by this
reference.
8.6 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at
Giga Information Group, Inc.
One Longwater Circle
Norwell, MA 02061
Attention: Chief Executive Officer
with a copy to:
Mark G. Borden, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
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or at such other address as any party or the Company may designate by giving
ten (10) days advance written notice to all other parties.
8.7 Expenses. The parties hereto shall each bear their own
respective costs and expenses in connection with this transaction; provided,
however, that, whether or not the transaction contemplated hereby is
consummated, the Company shall, promptly upon request therefore, reimburse the
Investor for its reasonable costs and expenses (including, without limitation,
the fees and expenses of their counsel) in connection with this transaction
and for any expenses of the Investor (including, without limitation, legal
fees and expenses) incurred to enforce this provision, up to an amount not
exceeding $50,000.
8.8 No Finder's Fees. Each party represents that it neither
is nor will be obligated for any finder's or broker's fee or commission in
connection with this transaction. Each Investor agrees to indemnity and to
hold harmless the Company from any liability for any commission or
compensation in the nature of a finders' or broker's fee (and any asserted
liability) for which the Investor or any of its officers, partners, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Investor from any liability for any omission or compensation in
the nature of a finder's or broker's fee (and any asserted liability) for
which the Company or any of its officers, employees or representatives is
responsible.
8.9 Amendments and Waivers. Except as specified in Section
2.2, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the holders of Shares and/or Conversion Shares representing at
least a majority of the aggregate number of shares of Common Stock into which
the Shares then are convertible and/or have been converted (excluding any of
such shares that have been sold to the public or pursuant to SEC Rule 144).
Any amendment or waiver effected in accordance with this Section shall be
binding upon each holder of any Shares and/or Conversion Shares at the time
outstanding, each future holder of such securities, and the Company; provided,
however, that no condition set forth in Section 5 may be waived with respect
to any Investor who does not consent thereto; and provided further, that New
Investors may become parties to this Agreement in accordance with Section 2.2
without any amendment of this Agreement or any consent or approval of any
Investor.
8.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
8.11 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with
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respect to the subject matter hereof and supersedes any and all prior
negotiations, correspondence, agreements, understandings duties or obligations
between the parties with respect to the subject matter hereof.
8.12 Publicity. The terms of this Agreement and the
transactions contemplated hereby shall be kept confidential until the parties
hereto mutually agree upon the language and timing of a press release or until
such time as one such party determines, based upon the advice of counsel, that
a public announcement is required by law, in which case the parties hereto
shall in good faith attempt to agree on any public announcements or publicity
statements with respect thereto.
8.13 Further Assurances. From and after the date of this
Agreement, upon the request of any Investor or the Company, the Company and
the Investors shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE COMPANY:
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GIGA INFORMATION GROUP, INC.
By: /s/ Henry S. Givray
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Title: President and COO
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THE INVESTORS:
- -------------
PEQUOT PRIVATE EQUITY FUND, L.P.
By: /s/ A
-------------------------------------------------
Title: CFO, Dawson-Samberg Capital Management, Inc.,
Investment Advisor
----------------------------------------------
PEQUOT OFFSHORE PRIVATE EQUITY
FUND, INC.
By: /s/ A
-------------------------------------------------
Title: CFO, Dawson-Samberg Capital Management, Inc.,
Investment Advisor
----------------------------------------------
21
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Series C Shares Cash
Purchased Tendered
--------------- --------
Investor Name (#) ($)
Pequot Private Equity Fund L.P. 1,619,741 6,657,135
354 Pequot Avenue
Southport, CT 06490-0760
Attention: Lawrence D. Lenihan, Jr.
Phone: (203) 254-0091
Fax: (203) 254-3259
Pequot Offshore Private Equity Fund, Inc. 205,077 842,867
c/o Hemisphere Management Limited
Hemisphere House
9 Church Street
P.O. Box HM951
Hamilton HM OX Bermuda
Attention: Thomas L. Healy
Phone: (441) 295-9166
Fax: (441) 295-1607
--------- ---------
Total: 1,824,818 7,500,002
--------- ---------
--------- ---------
22
<PAGE>
[REMAINDER OF EXHIBITS
INTENTIONALLY OMITTED.]
<PAGE>
EXHIBIT 10.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT.
THIS WARRANT AND THE SHARES OF SERIES C PREFERRED STOCK
ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. C- Number of Shares:
---- -------------------
(subject to adjustment)
Date of Issuance: January 2, 1998
GIGA INFORMATION GROUP, INC.
Series C Preferred Stock Purchase Warrant
(Void after January 1, 2003)
Giga Information Group, Inc., a Delaware corporation (the "Company"),
for value received, hereby certifies and agrees that _______________ or its
registered assigns (the "Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before January 1, 2003, at not later
than 5:00 p.m. (Cambridge, Massachusetts time), ____________ shares of Series C
Preferred Stock, $.001 par value ("Series C Preferred Stock"), at a purchase
price of $4.50 per share. The shares purchasable upon exercise of this Warrant,
and the purchase price per share, each as adjusted from time to time pursuant to
the provisions of this Warrant, are hereinafter referred to as the "Warrant
Shares" and the "Exercise Price," respectively. The term "Warrant" as used
herein shall include this Warrant and any other warrants delivered in
substitution or exchange therefor, as provided herein.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder,
in whole or in part, by surrendering this Warrant, with the Notice of Exercise
form appended hereto duly executed by such Registered Holder or by such
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money
<PAGE>
of the United States, of the Exercise Price payable in respect of the number
of shares of Warrant Shares purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on which
this Warrant shall have been surrendered to the Company as provided in
subsection 1(a) above. At such time, the person or persons in whose name or
names any certificates for Warrant Shares shall be issuable upon such exercise
as provided in subsection 1(c) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this
Warrant in full or in part, and in any event within 10 days thereafter, the
Company, at its expense, will cause to be issued in the name of, and delivered
to, the Registered Holder, or as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of
full Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased
by the Registered Holder upon such exercise as provided in subsection 1(a)
above.
(d) Notwithstanding anything to the contrary herein, in the
event this Warrant is outstanding upon the closing of a firm commitment
underwritten initial public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock of the Company (an "Initial Public Offering"), the closing of
which triggers the automatic conversion of Series C Preferred Stock into
Common Stock pursuant to the Company's Certificate of Incorporation, then this
Warrant shall no longer be exercisable into Series C Preferred Stock, but
shall instead be exercisable into the number of shares of Common Stock into
which the Series C Preferred Stock would have been convertible.
2. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Stock Dividend, Split or Subdivision of Shares. If the
number of shares of Series C Preferred Stock outstanding at any time after the
date hereof is increased or deemed increased by a stock dividend payable in
shares of Series C Preferred
-2-
<PAGE>
Stock or other securities (including the Common Stock) convertible into or
exchangeable for shares of Series C Preferred Stock ("Equivalents") or by a
subdivision or split-up of shares of Series C Preferred Stock or Equivalents
(other than a change in par value, from par value to no par value or from no
par value to par value), then, following the effective date fixed for the
determination of holders of Series C Preferred Stock or Equivalents entitled
to receive such stock dividend, subdivision or split-up, the Exercise Price
shall be appropriately decreased (but in no event shall the Exercise Price be
decreased below the par value of the Series C Preferred Stock issuable upon
exercise of this Warrant) and the number of shares of Series C Preferred Stock
issuable on exercise of each Warrant shall be increased in proportion to such
increase in outstanding shares (on a fully diluted basis).
(b) Combination of Shares. If, at any time after the date
hereof, the number of shares of Series C Preferred Stock outstanding is
decreased by a combination of the outstanding shares of Series C Preferred
Stock (other than a change in par value, from par value to no par value or
from no par value to par value), then, following the effective date for such
combination, the Exercise Price shall be appropriately increased and the
number of shares of Series C Preferred Stock issuable on exercise of each
Warrant shall be decreased in proportion to such decrease in outstanding
shares.
(c) Reorganizations, Consolidations, etc. In the event, at
any time after the date hereof, of any capital reorganization, or any
reclassification of the capital stock of the Company (other than a change in
par value or from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Company with or into another
person (other than consolidation or merger in which the Company is the
continuing corporation and which does not result in any change in the powers,
designations, preferences and rights, or the qualifications, limitations or
restrictions, if any, of the capital stock of the Company as amended from time
to time) or of the sale or other disposition of all or substantially all the
properties and assets of the Company in its entirety to any other person (any
such transaction, an "Extraordinary Transaction"), then this Warrant shall be
exercisable for the kind and number of shares of stock or other securities or
property of the Company, or of the corporation resulting from or surviving
such Extraordinary Transaction, that a holder of the number of shares of
Series C Preferred Stock deliverable (immediately prior to the effectiveness
of the Extraordinary Transaction) upon exercise of this Warrant would have
been entitled to receive upon such Extraordinary Transaction. The provisions
of this Section 2(c) shall similarly apply to successive Extraordinary
Transactions.
(d) Other Antidilution Rights. In addition to the foregoing,
in the event of an issuance of securities or other transaction by the Company
which causes an adjustment to the Conversion Price (as defined) of the
Company's Series C Preferred Stock pursuant to the provisions of Subsections
5(c) through (e) of Article IV of the Company's Third Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), then the Conversion
Price of the shares of Series C Preferred Stock issuable
-3-
<PAGE>
upon exercise of this Warrant shall be adjusted in accordance with this
provision. As used herein, "Conversion Price" shall have the meaning ascribed
to it in Section 5(a)(i) of the Restated Certificate.
(e) Calculations. All calculations under this Section shall
be made to the nearest one-hundredth of a cent ($.0001) or to the nearest
one-hundredth of a share, as the case may be.
(f) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment pursuant to this Section 2, the Company at its
own expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each Registered Holder a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request, at any time, of any such Holder,
furnish or cause to be furnished to such Holder a like certificate setting
forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the
time in effect; and (iii) the number of shares and the amount, if any, of
other property that at the time would be received upon the exercise of the
Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the fair market value for each
share of the Company's Series C Preferred Stock, determined in accordance with
Section 1(d) hereof.
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first
shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is
exempt from the registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or
opinion of counsel shall be requireds for (i) a transfer by a Registered
Holder which is a partnership to a partner of such partnership of a retired
partner of such partnership who retires after the date hereof, or to the
estate of any such partner or retired partner, if the transferee agrees in
writing to be subject to the terms of this Section 4, or (ii) a transfer made
in accordance with Rule 144 under the Act.
(c) Each certificate representing Warrant Shares shall bear
a legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
-4-
<PAGE>
may not be offered, sold or otherwise transferred, pledge or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required."
The foregoing shall be removed from the certificates representing any Warrant
Shares, at the request of the holder thereof, at such time as they become
eligible for resale pursuant to Rule 144(i) under the Act.
5. No Impairment. The Company will not, by amendment of its charter
or through reorganization, consolidation, merger, dissolution, sale of assets
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times carry
out all such terms and take all such action as may be reasonably necessary or
appropriate in order to protect the rights of the holder of this Warrant
against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Series C Preferred Stock payable otherwise than in cash
out of earnings or earned surplus (determined in accordance with generally
accepted accounting principles) except for a stock dividend payable in shares
of Series C Preferred Stock (a "Liquidating Dividend"), then the Company will
pay or distribute to the Registered Holder of this Warrant, upon the exercise
hereof, in addition to the Warrant Shares purchased upon such exercise, the
Liquidating Dividend which would have been paid to such Registered Holder if
he had been the owner of record of such Warrant Shares 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 Series C Preferred
Stock entitled to such dividends or distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Series C Preferred Stock (or other stock or securities at the time deliverable
upon the exercise of this Warrant) for the purpose of entitling or enabling
them to receive any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
-5-
<PAGE>
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any
is to be fixed, as of which the holders of record of Series C Preferred Stock
(or such other stock or securities at the time deliverable upon the exercise
of this Warrant) shall be entitled to exchange their shares of Series C
Preferred Stock (or such other stock or securities) for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty (20) days prior to the record date or
effective date for the event specified in such notice.
8. Reservation of Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and
property, as from time to time shall be issuable upon the exercise of this
Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section
4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of
such Registered Holder or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of
an indemnity agreement reasonably satisfactory to the Company, or (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company
will issue, in lieu thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the
names and addresses of the Registered Holders of this Warrant. Any Registered
Holder may change its or his address as shown on the warrant register by
written notice to the Company requesting such change.
-6-
<PAGE>
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form
attached hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the
warrant register, the Company may treat the Registered Holder of this Warrant
as the absolute owner hereof for all purposes; provided, however, that if and
when this Warrant is properly assigned in blank, the Company may (but shall
not be obligated to) treat the bearer hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.
12. Mailing of Notices, etc. All notices and other communications
from the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office
set forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give
prompt written notice to the Registered Holder of this Warrant and thereafter
all references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. This warrant is one of a series of Warrants
issued by the Company, all dated the date hereof and of like tenor, except as
to the number of shares of Series C Stock subject thereto (collectively, the
"Company Warrants"). Any term of this Warrant may be amended or waived upon
the written consent of the Company and the holders of Company Warrants
representing at least 51% of the number of shares of Series C Stock then
subject to outstanding Company Warrants; provided that any such amendment or
waiver must apply to all Company Warrants then outstanding; and provided
further that the number of Warrant Shares subject to this Warrant and the
Purchase Price of this Warrant may not be amended, and the right to exercise
this Warrant may not be waived, without the written consent of the holder of
this Warrant (it being agreed that an amendment to or waiver under any of the
provisions of Section 2 of this Warrant shall not be considered an amendment
of the number of Warrant Shares or the Purchase Price).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
-7-
<PAGE>
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
GIGA INFORMATION GROUP, INC.
By:
-------------------------------
Daniel M. Clarke
Senior Vice President and Chief Financial Officer
-8-
<PAGE>
NOTICE OF EXERCISE FORM
To: Dated:
------------------- -----------------------
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase _______ shares of the
Series C Preferred Stock covered by such Warrant and herewith makes payment of
$______ , representing the full purchase price for such shares at the price per
share provided for in such Warrant.
Signature:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-9-
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,_____________________________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the attached Warrant (No.___) with respect to the number of shares of Series C
Preferred Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
---------------- ------- -------------
Dated: Signature:
--------------- -------------------
Dated: Witness:
--------------- -------------------
-10-
<PAGE>
EXHIBIT 10.5
GIGA INFORMATION GROUP, INC.
- --------------------------------------------------------------------------------
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
April 6, 1998
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS............................................... 1
-------------------------------------------------
1.1 Authorization.......................................................................... 1
-------------
1.2 Agreement to Purchase and Sell Stock................................................... 1
------------------------------------
1.3 Agreement to Purchase and Sell Warrants................................................ 1
---------------------------------------
2. CLOSING......................................................................................... 2
-------
2.1 The Closing............................................................................ 2
-----------
2.2 Additional Closing..................................................................... 2
------------------
(a) Conditions of Additional Closing.............................................. 2
--------------------------------
(b) Amendments.................................................................... 2
----------
(c) Status of New Investors....................................................... 3
-----------------------
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................... 3
---------------------------------------------
3.1 Organization, Good Standing and Qualification.......................................... 3
---------------------------------------------
3.2 Authorization.......................................................................... 3
-------------
3.3 Valid Issuance of Shares and Conversion Shares......................................... 4
----------------------------------------------
3.4 Capitalization......................................................................... 4
--------------
(a) Preferred Stock............................................................... 4
---------------
(b) Common Stock.................................................................. 5
------------
(c) Options, Warrants, Reserved Shares............................................ 5
----------------------------------
(d) Capital Structure Table; Investors' Ownership Percentage...................... 6
--------------------------------------------------------
3.5 Subsidiaries........................................................................... 7
------------
3.6 Governmental Consents.................................................................. 7
---------------------
3.7 Contracts and Other Commitments........................................................ 7
-------------------------------
3.8 Litigation............................................................................. 7
----------
3.9 Proprietary Assets..................................................................... 7
------------------
3.10 Compliance with Law and Charter Documents.............................................. 8
-----------------------------------------
3.11 Registration Rights.................................................................... 8
-------------------
3.12 Financial Statements................................................................... 8
--------------------
3.13 Disclosure............................................................................. 9
----------
3.14 Certain Actions........................................................................ 9
---------------
3.15 Activities Since Balance Sheet Date.................................................... 9
-----------------------------------
3.16 Employee Benefit Plans................................................................. 9
----------------------
3.17 Tax Returns; Payments and Elections.................................................... 9
-----------------------------------
3.18 Related Party Transactions............................................................. 9
--------------------------
3.19 Status of Certain Agreements........................................................... 10
----------------------------
3.20 Year 2000 Compliance................................................................... 10
--------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF
INVESTORS....................................................................................... 10
4.1 Authorization.......................................................................... 10
4.2 Purchase for Own Account............................................................... 10
4.3 Disclosure of Information.............................................................. 11
4.4 Investment Experience.................................................................. 11
4.5 Accredited Investor Status............................................................. 11
4.6 Restricted Securities.................................................................. 11
4.7 Further Limitations on Disposition..................................................... 12
4.8 Legends................................................................................ 12
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING................................................. 13
-----------------------------------------------
5.1 Representations and Warranties True.................................................... 13
-----------------------------------
5.2 Performance............................................................................ 13
-----------
5.3 Certificate of Designations Effective.................................................. 13
-------------------------------------
5.4 Compliance Certificate................................................................. 13
----------------------
5.5 Securities Exemptions.................................................................. 13
---------------------
5.6 Proceedings and Documents.............................................................. 14
-------------------------
5.7 No Material Change..................................................................... 14
------------------
5.8 Opinion of Counsel..................................................................... 14
------------------
5.9 Minimum Shares Purchased............................................................... 14
------------------------
5.10 Registration Rights Amendment; Voting Rights Amendment................................. 14
------------------------------------------------------
5.11 FBR Financing.......................................................................... 14
-------------
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.............................................. 14
--------------------------------------------------
6.1 Representations and Warranties......................................................... 14
------------------------------
6.2 Payment of Purchase Price.............................................................. 15
-------------------------
6.3 Certificate of Designations Effective.................................................. 15
-------------------------------------
6.4 Securities Exemptions.................................................................. 15
---------------------
6.5 Minimum Shares Purchased............................................................... 15
------------------------
6.6 Registration Rights Amendment; Voting Rights Amendment................................. 15
------------------------------------------------------
6.7 FBR Financing
-------------
7. COVENANTS OF THE COMPANY........................................................................ 15
------------------------
7.1 Delivery of Financial Statements....................................................... 15
--------------------------------
7.2 Inspection............................................................................. 16
----------
7.3 Key Man Insurance...................................................................... 16
-----------------
7.4 Giga Advisory Service.................................................................. 16
---------------------
8. MISCELLANEOUS................................................................................... 17
-------------
8.1 Survival of Warranties and Covenants................................................... 17
------------------------------------
8.2 Successors and Assigns................................................................. 18
----------------------
8.3 Governing Law.......................................................................... 18
-------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
8.4 Counterparts........................................................................... 18
------------
8.5 Headings............................................................................... 18
--------
8.6 Notices................................................................................ 18
-------
8.7 Expenses............................................................................... 19
--------
8.8 No Finder's Fees....................................................................... 19
----------------
8.9 Amendments and Waivers................................................................. 19
----------------------
8.10 Severability........................................................................... 19
------------
8.11 Entire Agreement....................................................................... 20
----------------
8.12 Publicity.............................................................................. 20
---------
8.13 Further Assurances..................................................................... 20
------------------
</TABLE>
<TABLE>
<S> <C>
Exhibit A - Schedule of Investors
Exhibit B - Certificate of Designations
Exhibit C - Form of Warrant
Exhibit D - Amendment No. 3 to Registration Rights Agreement
Exhibit E - Amendment No. 4 and Waiver to Amended and Restated Investor
Rights and Voting Agreement
Exhibit F - Schedule of Exceptions
Exhibit G - Fourth Amended and Restated Certificate
Exhibit H - Capital Structure Table; Investors' Ownership Percentage
Exhibit I - List of Subsidiaries
Exhibit J - Financial Statements
Exhibit K - Opinion of Weil, Gotshal & Manges LLP
</TABLE>
iii
<PAGE>
GIGA INFORMATION GROUP, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
(this "Agreement") is made and entered into as of April 6, 1998 by and among
Giga Information Group, Inc., a Delaware corporation (the "Company"), and the
parties listed on the Schedule of Investors attached to this Agreement as
Exhibit A (each hereinafter individually referred to as an "Investor" and
collectively referred to as the "Investors").
RECITAL
A. The Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, shares of the Company's Series
D Preferred Stock and Warrants to purchase shares of the Company's Series D
Preferred Stock on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS.
1.1 Authorization. As of the Closing (as defined below) the
Company will have authorized the issuance, pursuant to the terms and
conditions of this Agreement, of the shares of the Company's Series D
Preferred Stock, $.001 par value (the "Series D Stock") to be sold by it
pursuant to this Agreement, having the rights, preferences, privileges and
restrictions set forth in the Certificate of Designations of Series D
Preferred Stock of Giga Information Group, Inc. as attached to this Agreement
as Exhibit B (the "Certificate of Designations") and the sale and issuance of
the warrants to purchase shares of the Company's Series D Stock (the
"Warrants").
1.2 Agreement to Purchase and Sell Stock. The Company agrees
to sell to each Investor at the Closing, and each Investor agrees, severally
and not jointly, to purchase from the Company at the Closing, the number of
shares of Series D Stock set forth beside such Investor's name on Exhibit A at
a price of $7.00 per share. The shares of Series D Stock purchased and sold
pursuant to this Agreement will be collectively hereinafter referred to as the
"Purchased Shares".
1.3 Agreement to Purchase and Sell Warrants. The Company
agrees to issue to each Investor 0.54 Warrants for each Purchased Share
purchased by such Investor, each Warrant exercisable to purchase from the
Company one share of Series D Stock at an exercise price of $9.00 per share.
The Warrants shall be issued upon the
1
<PAGE>
terms and subject to the conditions set forth in the form of Warrant attached
hereto as Exhibit C.
The shares of Series D Stock (or Common Stock, if applicable)
issuable upon exercise of the Warrants will be hereinafter referred to as the
"Warrant Shares". The Purchased Shares and the Warrant Shares will be
hereinafter collectively referred to as the "Shares" and the shares of the
Company's Common Stock, $.001 par value per share, issuable upon conversion of
the Purchased Shares and the Warrant Shares will be hereinafter collectively
referred to as the "Conversion Shares."
2. CLOSING.
2.1 The Closing. The purchase and sale of the Purchased
Shares will take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, NY 10153 at 10:00 a.m., April 6, 1998 or at such other time
and place as the Company and Investors who have agreed to purchase a majority
of the Purchased Shares listed on Exhibit A mutually agree (which time and
place are referred to in this Agreement as the "Closing"). At the Closing, the
Company will deliver to each Investor a certificate representing the number of
Purchased Shares that such Investor has agreed to purchase hereunder as shown
on Exhibit A and the Warrants that such Investor is entitled to receive in
accordance with the terms set forth in Section 1.3, and each Investor shall
pay to the Company the full purchase price of such Purchased Shares by wire
transfer of immediately available funds to the Company.
2.2 Additional Closing.
-------------------
(a) Conditions of Additional Closing. At any time
or times within ninety (90) days immediately following the Closing, the Company
may, at one or more closings (each an "Additional Closing"), without obtaining
the signature, consent or permission of any of the Investors, offer and sell to
other investors ("New Investors"), at a price of not less than $7.00 per
share, up to that number of shares of Series D Stock that is equal to 357,143
shares of Series D Stock less the number of shares of Series D Stock actually
issued and sold by the Company prior to such Additional Closing pursuant to
this Agreement, and such New Investors shall be entitled to receive Warrants,
if any, on the same terms and conditions as are set forth in this Agreement.
New Investors may include persons or entities who are already Investors under
this Agreement.
(b) Amendments. The Company and the New Investors
purchasing Series D Stock and Warrants at any Additional Closing will execute
counterpart signature pages to (i) this Agreement; (ii) Amendment No. 3 to
Registration Rights Agreement dated as of the date hereof, a copy of which is
attached hereto as Exhibit D (the "Registration Rights Amendment"), which
amends the Registration Rights Agreement dated November 13, 1995, as amended
(as amended by the Registration Rights Amendment, the "Registration Rights
Agreement"); and (iii) Amendment No. 4
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and Waiver to Amended and Restated Investor Rights and Voting Agreement dated
as of the date hereof, a copy of which is attached hereto as Exhibit E (the
"Voting Rights Amendment"), which amends the Amended and Restated Investor
Rights and Voting Agreement dated November 13, 1995, as amended (as amended by
the Voting Rights Amendment, the "Voting Rights Agreement"), and such New
Investors will, upon delivery to the Company of such signature pages, become
parties to, and bound by, this Agreement, the Registration Rights Agreement
and the Voting Rights Agreement, each to the same extent as if they had been
Investors at the Closing. Immediately after any Additional Closing, Exhibit A
to this Agreement will be amended by the Company to list the New Investors
purchasing shares of Series D Stock and Warrants under this Agreement at the
Additional Closing.
(c) Status of New Investors. Upon the completion
of the Additional Closing as provided in this Section 2, each New Investor will
be deemed to be an "Investor" for all purposes of this Agreement and the
Registration Rights Agreement and a "Series D Purchaser" for purposes of the
Voting Rights Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions ("Schedule of Exceptions") attached to this Agreement
as Exhibit F the statements in the following paragraphs of this Section 3 are
all true and correct:
3.1 Organization, Good Standing and Qualification. The
Company is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, has all requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, the Registration Rights Amendment, the Voting Rights
Amendment and the Warrants, to issue and sell the Shares, to issue the
Conversion Shares, and to carry out the provisions of this Agreement, the
Registration Rights Amendment, the Voting Rights Amendment, the Warrants and
the Certificate of Designations. Except as set forth in Section 3.1 of the
Schedule of Exceptions, the Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on the business, properties, financial
condition or prospects of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect").
3.2 Authorization. All corporate action on the part of the
Company and its officers, directors, and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Registration
Rights Amendment, the Voting Rights Amendment and the Warrants, the
performance of all obligations of the Company hereunder and thereunder, as the
case may be, and the authorization, issuance, sale, and delivery of the Shares
and the authorization and registration for issuance of Conversion Shares has
been duly taken or will be taken prior to the Closing or the applicable
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Additional Closing, as the case may be, and this Agreement, the Registration
Rights Amendment and the Voting Rights Amendment constitute, and the Warrants
(when executed and delivered by the Company) will constitute, valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies and (iii) to the extent the
indemnification provisions contained in the Registration Rights Agreement, may
be limited by applicable federal or state securities laws.
3.3 Valid Issuance of Shares and Conversion Shares.
(a) The Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Registration Rights Agreement and the Voting Rights
Agreement and under applicable state and federal securities laws. The Conversion
Shares have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Certificate of Designations, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement, the
Registration Rights Agreement and the Voting Rights Agreement and under
applicable state and federal securities laws.
(b) Based in part on the representations made by the
Investors in Section 4 hereof, the Shares and (assuming no change in applicable
law and no unlawful distribution of Shares by Investors or other parties) the
Conversion Shares will be issued in full compliance with applicable U.S. state
and federal securities laws (provided that with respect to the Conversion
Shares, no commission or other remuneration is paid or given, directly or
indirectly, for soliciting the issuance of Conversion Shares upon the conversion
of the Shares and no additional consideration is paid for the Conversion Shares
other than surrender of the applicable Shares upon conversion thereof in
accordance with the Certificate of Designations).
3.4 Capitalization. As of the date hereof, the capitalization
of the Company consists of the following:
(a) Preferred Stock. A total of Sixteen Million Five
Hundred Thousand (16,500,000) authorized shares of preferred stock, $.001 par
value per share (the "Preferred Stock"), consisting of (i) Six Hundred Fifty
Thousand (650,000) shares designated as Series A Preferred Stock (the "Series A
Stock"), of which 570,000 shares are validly issued and outstanding, fully paid
and nonassessable, (ii) Nine Million (9,000,000) shares designated as Series B
Preferred Stock ("Series B Stock"), of which
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8,144,642 shares are validly issued and outstanding, fully paid and
nonassessable, (iii) Four Million Five Hundred Thousand (4,500,000) shares
designated as Series C Preferred Stock ("Series C Stock"), of which 2,609,491
shares are validly issued and outstanding, fully paid and nonassessable and
(iv) Two Million (2,000,000) shares designated as Series D Preferred Stock
("Series D Stock"), of which 214,286 shares will be validly issued and
outstanding, fully paid and nonassessable immediately following the Closing.
The rights, preferences and privileges of the Series A Stock, Series B Stock,
Series C Stock and Series D Stock are as stated in the Fourth Amended and
Restated Certificate of Incorporation of the Company as attached to this
Agreement as Exhibit G and in the Certificate of Designations and as provided
by law.
(b) Common Stock. A total of Fifty Million
(50,000,000) authorized shares of common stock, $.001 par value per share (the
"Common Stock"), of which 6,392,425 shares are validly issued and outstanding,
fully paid and nonassessable.
(c) Options, Warrants, Reserved Shares. Except for:
(i) the conversion privileges of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock;
(ii) the Three Million One Hundred Thousand (3,100,000)
shares of Common Stock reserved for issuance under
the Company's 1995 Stock Option/Stock Issuance
Plan, of which there are options outstanding to
purchase 2,038,453 shares of Common Stock and
549,727 shares of Common Stock reserved for
issuance;
(iii) the Three Million (3,000,000) shares of
Common Stock reserved for issuance under
the Company's 1996 Stock Option Plan, of
which there are options outstanding to
purchase 1,849,721 shares of Common Stock
and 1,149,509 shares of Common Stock
reserved for issuance;
(iv) the One Hundred Fifty Thousand (150,000) shares of
Common Stock reserved for issuance under the 1997
Director Stock Option Plan, of which there are
options outstanding to purchase 36,000 shares of
Common Stock and 114,000 shares of Common Stock
reserved for issuance.
(v) options to purchase 780,000 shares of Common Stock
granted under separate contractual arrangements;
(vi) warrants to purchase an aggregate of 107,876 shares
of Series B Stock;
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(vii) warrants to purchase an aggregate of 1,409,125 shares
of Series C Stock;
(viii) warrants to purchase an aggregate of
115,714 shares of Series D Stock to be
outstanding immediately following the
Closing;
(ix) convertible notes to be dated April 7, 1998 which
are convertible, under certain circumstances, into
up to 1,428,571 shares of Series D Preferred Stock
and warrants to purchase up to 1,542,857 shares of
Common Stock;
(x) warrants to purchase an aggregate of 500,000 shares
of Common Stock to be issued April 7, 1998;
(xi) convertible notes dated April 5, 1995 which are
convertible into an aggregate of 185,298 shares of
Common Stock; and
(xii) a convertible note dated December 31, 1995
which is convertible, as of March 31,
1998, into 51,429 shares of Common Stock;
and except as set forth in Section 3.4 of the Schedule of Exceptions, there
are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into
or ultimately exchangeable or exercisable for any shares of the Company's
capital stock. Apart from the exceptions noted in this Section 3.4(c), and
except for rights of repurchase and rights of first refusal held by the
Company to repurchase shares of its stock issued to founders and employees of
the Company, no shares of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options, warrants or
rights, or other stock issuable by the Company, are subject to any preemptive
rights or rights of first refusal or other rights to purchase such stock
(whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company, and, to the Company's knowledge, no
officer, director or holder of the Company's Common Stock is a party to any
voting agreement or voting trust other than the Voting Rights Agreement.
(d) Capital Structure Table; Investors' Ownership
Percentage. Exhibit H attached hereto contains a common stock equivalent capital
structure table of the Company immediately after the Closing. As indicated on
Exhibit H, the securities issued to the Investors at Closing (including the
Warrant Shares) shall be equal to approximately 2.3% of the total number of
shares of Common Stock outstanding on a fully-diluted basis immediately after
the Closing (including shares of Common Stock issuable upon exercise or
conversion of outstanding options, warrants, notes and convertible preferred
stock).
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3.5 Subsidiaries. Exhibit I attached hereto contains a
listing of all of the Company's subsidiaries. The Company beneficially owns or
has the right to acquire all of the outstanding capital stock of each of its
subsidiaries.
3.6 Governmental Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of
this Agreement, the offer, sale or issuance of the Shares by the Company or
the issuance of the Conversion Shares, except (i) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, and (ii) such filings as have been or will be made prior to the
Closing, except that any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act,
or such post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor.
3.7 Contracts and Other Commitments. Except as set forth in
Section 3.7 of the Schedule of Exceptions or as described in the notes to the
Financial Statements (as defined in Section 3.12), the Company has no material
contract, agreement, lease, commitment or proposed transaction, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that do not involve more than $100,000, and do not
extend for more than one (1) year beyond the date hereof, (ii) contracts
entered into in the ordinary course of business, (iii) contracts terminable at
will by the Company on no more than thirty (30) days notice without cost or
liability to the Company which are not material to the conduct of the
Company's business, and (iv) employment or consulting agreements with persons
who are not directors or executive officers of the Company. The Company does
not have a collective bargaining agreement with any of its United States
employees.
3.8 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, or their
activities, properties or assets or, to the best of the Company's knowledge,
against any officer or director of the Company or its subsidiaries in
connection with such officer's, director's or employee's relationship with, or
actions taken on behalf of, the Company or any of its subsidiaries or
questioning the validity of this Agreement or any action taken or to be taken
in connection herewith that would have a Material Adverse Effect. The Company
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action by the Company currently pending or which the Company has
threatened, and intends, to initiate.
3.9 Proprietary Assets. Except as set forth in Section 3.9
of the Schedule of Exceptions, to the Company's knowledge, the Company has
full title and ownership of, or is duly licensed under or otherwise authorized
to use, all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets,
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confidential and proprietary information, designs and proprietary rights
necessary to enable it to carry on its business as now conducted (the
"Proprietary Assets") and has or expects in good faith to be able to obtain or
create the Proprietary Assets necessary to carry on its business as proposed
to be conducted, without, to the best of its knowledge, any conflict with or
infringement of the rights of others, where the same would have a Material
Adverse Effect. Neither the Company nor, to its knowledge, any of its
subsidiaries, has granted any options, licenses or agreements of any kind
giving any third party any exclusive rights to any material Proprietary Assets
of the Company. Except as set forth in Section 3.10 of the Schedule of
Exceptions, the Company has not received any communications alleging that the
Company has violated or, by conducting its business as now conducted and as
proposed to be conducted, would violate any of the patents, trademarks,
including the name "Giga", service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity.
3.10 Compliance with Law and Charter Documents. The Company
is not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended, and to the best of the Company's
knowledge, except for any violations that would have no Material Adverse
Effect, the Company is in compliance with all indentures, instruments or
agreements by which it is bound, all applicable statutes, laws, regulations
and executive orders of the United States of America (including securities
laws as to previous issuances of securities), and all states, foreign
countries or other governmental bodies and agencies having jurisdiction over
its business or properties.
3.11 Registration Rights. Except as provided in the
Registration Rights Agreement, the Company has not granted or agreed to grant
to any person or entity any rights (including piggyback registration rights)
to have any securities of the Company registered with the United States
Securities and Exchange Commission ("SEC") or any other governmental
authority.
3.12 Financial Statements. The unaudited statements of
operations, cash flows and balance sheets of the Company as of December 31,
1997 and for the twelve (12) month period then ended, which are attached to
this Agreement as Exhibit J (the "Financial Statements"), of the Company are
in accordance with the books and records of the Company and fairly set forth
the consolidated operating results and financial condition of the Company for
the twelve-month period then ended, subject to normal year-end audit
adjustments. The Company will use its best efforts to furnish to the Investors
as soon as is practicable, and in no event later than April 30, 1998, audited
financial statements for the year ended December 31, 1997. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). Except as set forth or reserved for in the Financial
Statements or the notes thereto, the Company has no liabilities, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1997, (ii) liabilities not in excess of $100,000 in the
aggregate, and (iii) liabilities incurred in the ordinary course of business
and not required
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under GAAP to be reflected in the Financial Statements, other than contingent
liabilities in excess of $50,000.
3.13 Disclosure. This Agreement does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements herein or therein, under the circumstances under which
they were made, not misleading when taken as a whole.
3.14 Certain Actions. Except as set forth in Section 3.14 of
the Schedule of Exceptions, since December 31, 1997, the Company has not (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock and (ii) has not (A)
sold, exchanged or otherwise disposed of any material assets or rights other
than in the ordinary course of business, or (B) entered into any material
transactions with any of its officers, directors or employees or any entity
controlled by any of such individuals.
3.15 Activities Since Balance Sheet Date. To the best of the
Company's knowledge, since December 31, 1997, there has not been any event or
condition of any type that has had or would reasonably be expected to have a
Material Adverse Effect, other than continuing losses incurred in connection
with the Company's development and introduction of its new services.
3.16 Employee Benefit Plans. The Company has no outstanding
liabilities or accrued and unpaid funding obligations with respect to any
Employee Benefit Plan (as defined in Section 3 of the Employee Retirement
Income Security Act of 1974), except as disclosed in the Financial Statements.
3.17 Tax Returns; Payments and Elections. Except as
disclosed in Section 3.17 of the Schedule of Exceptions, the Company has filed
all United States federal and, to its knowledge, state tax returns and reports
as required by law, and, to its knowledge, these returns and reports are true
and correct in all material respects, except in each case where the same would
not have a Material Adverse Effect or where adequate reserves therefor have
been reflected in the Financial Statements. The Company has not been notified,
nor does it otherwise have knowledge that, it is currently the subject of any
ongoing audit by federal or state tax authorities. The Company has paid all
taxes and other assessments shown on such returns as due, except those
contested by it in good faith.
3.18 Related Party Transactions. Except as set forth in
Section 3.18 of the Schedule of Exceptions, no executive officer or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them; and, to the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with
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which the Company has a material business relationship, or any firm or
corporation that competes with the Company, except through ownership of stock
in publicly traded companies.
3.19 Status of Certain Agreements. As of the date hereof, no
customers have canceled, or threatened to cancel, any services provided to
them by the Company that would have a Material Adverse Effect.
3.20 Year 2000 Compliance. Except as set forth in Section
3.20 of the Schedule of Exceptions, all information technology presently
expected to be used by the Company following December 31, 1999 in the
administration and the business operations of the Company, including, without
limitation, in all products and services (i) provided by the Company, whether
to third parties or for internal use, or (ii) to the best of the Company's
knowledge, used in combination with any information technology of its clients,
customers, suppliers or vendors, accurately processes or will process date and
time data (including, but not limited to calculating, comparing and
sequencing) from, into and between the years 1999 and 2000 and the twentieth
century and the twenty-first century, including leap year calculations, and
neither performance nor functionality of such technology will be affected by
dates prior to, during and after the year 2000. The Company has no obligations
under warranty agreements, service agreements or otherwise to remedy any
information technology defect relating to the year 2000.
4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS.
Each Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. This Agreement, the Registration Rights
Amendment and the Voting Rights Amendment constitute such Investor's valid and
legally binding obligations, enforceable in accordance with their respective
terms except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies. Each Investor represents
that such Investor has full power and authority to enter into this Agreement,
the Registration Rights Amendment and the Voting Rights Amendment.
4.2 Purchase for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Shares to be purchased by such Investor and the Conversion
Shares issuable upon conversion thereof are being acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any
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person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Shares and/or the Conversion Shares.
4.3 Disclosure of Information. Such Investor has received or
has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Shares
to be purchased by such Investor under this Agreement. Such Investor further
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares and to obtain
additional information (to the extent the Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to
verify any information furnished to such Investor or to which such Investor
had access. The foregoing, however, does not in any way limit or modify the
representations and warranties made by the Company in Section 3.
4.4 Investment Experience. Such Investor understands and
acknowledges that the purchase of the Shares involves substantial risk. Such
Investor: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that such Investor is able to fend for
itself, can bear the economic risk of such Investor's investment in the Shares
and has such knowledge and experience in financial or business matters that
such Investor is capable of evaluating the merits and risks of this investment
in the Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables such Investor to be aware of the
character, business acumen and financial circumstances of such persons.
4.5 Accredited Investor Status. Such Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act.
4.6 Restricted Securities. Each Investor understands that
the Shares and the Conversion Shares are characterized as "restricted
securities" under the Securities Act inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
the Securities Act and applicable regulations thereunder such securities may
be resold without registration under the Securities Act only in certain
limited circumstances. In this connection, such Investor represents that such
Investor is familiar with Rule 144 of the U.S. Securities and Exchange
Commission, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act. Such Investor understands that the
Company is under no obligation to register any of the securities sold
hereunder (or any securities issuable upon conversion thereof) except as
provided in the Registration Rights Agreement. Such Investor understands that
no public market now exists for any of the Shares or the Conversion Shares and
that it is uncertain whether a public market will ever exist for the Shares or
the Conversion Shares.
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4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) (i) such Investor shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
such Investor shall have furnished the Company, at the expense of such Investor
or its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Shares or Conversion Shares in compliance with SEC Rule 144 or
Rule 144A, or (ii) for any transfer of Shares or Conversion Shares by an
Investor that is a partnership or a corporation to (A) a partner of such
partnership or shareholder of such corporation, (B) a retired partner of such
partnership who retires after the date hereof, (C) the estate of any such
partner or shareholder, or (iii) for the transfer by gift, will or interstate
succession by any Investor to his or her spouse or lineal descendants or
ancestors or any trust for any of the foregoing; provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 (other than Section 4.5) to the same extent as if the
transferee were an original Investor hereunder.
4.8 Legends. It is understood that the certificates
evidencing the Shares and the Conversion Shares will bear the legends set
forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
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(b) Any legend required by the laws of the State of
Delaware or any other state securities laws.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Shares or Conversion Shares upon delivery to the
Company of an opinion by counsel, reasonably satisfactory to the Company, that
a registration statement under the 1933 Act is at that time in effect with
respect to the legended security or that such security can be freely
transferred in a public sale without such a registration statement being in
effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Shares or
Conversion Shares.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each Investor under Section 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Investor
who does not consent to such waiver.
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
5.3 Certificate of Designations Effective. The Certificate
of Designations shall have been duly adopted by the Company by all necessary
corporate action of its Board of Directors, and shall have been duly filed
with and accepted by the Secretary of State of the State of Delaware.
5.4 Compliance Certificate. The Company shall have delivered
to each Investor at the Closing a certificate signed on its behalf by its
President, Chief Executive Officer or Chief Financial Officer certifying, on
behalf of the Company, that the conditions specified in Sections 5.1, 5.2 and
5.3 have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company not previously disclosed to the Investors
in writing.
5.5 Securities Exemptions. The offer and sale of the Shares
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of
13
<PAGE>
the Securities Act and the registration and/or qualification requirements of
all applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to counsel for the Investors, which shall have received all such
counterpart originals and certified or other copies of such documents as it
may reasonably request.
5.7 No Material Change. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company.
5.8 Opinion of Counsel. The Investors shall have received
the opinion of Weil, Gotshal & Manges LLP, dated the date of the Closing, as
to the matters set forth in Exhibit K.
5.9 Minimum Shares Purchased. A minimum of 214,286 shares of
Series D Stock shall be purchased by the Investors at the Closing under this
Agreement for a minimum aggregate purchase price of $1.5 million.
5.10 Registration Rights Amendment; Voting Rights Amendment.
The Company and each Investor shall have executed and delivered the
Registration Rights Amendment in the form attached hereto as Exhibit D and the
Voting Rights Amendment in the form attached hereto as Exhibit E.
5.11 FBR Financing. The financing transactions (the "FBR
Financing") by and among the Company and certain affiliates of Friedman,
Billings, Ramsey & Co., Inc., pursuant to which the Company will issue senior
convertible notes in the aggregate principal amount of $10 million and
warrants to purchase 500,000 shares of Common Stock at an exercise price of
$1.00 per share, shall have been consummated.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject
to the fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
warranties of such Investor contained in Section 4 shall be true and correct
on the date of the Closing with the same effect as though such representations
and warranties had been made on and as of the Closing.
14
<PAGE>
6.2 Payment of Purchase Price. Each Investor shall have
delivered to the Company the purchase price specified for such Investor on
Exhibit A in accordance with the provisions of Section 2.
6.3 Certificate of Designations Effective. The Certificate
of Designations shall have been accepted by the Secretary of State of the
State of Delaware.
6.4 Securities Exemptions. The offer and sale of the Shares
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
6.5 Minimum Shares Purchased. A minimum of 214,286 shares of
Series D Stock shall be purchased by the Investors at the Closing under this
Agreement for a minimum aggregate purchase price of $1.5 million.
6.6 Registration Rights Amendment; Voting Rights Amendment.
The Company and each Investor shall have executed and delivered the
Registration Rights Amendment in the form attached hereto as Exhibit D and the
Voting Rights Amendment in the form attached hereto as Exhibit E.
6.7 FBR Financing. The FBR Financing shall have been
consummated.
7. COVENANTS OF THE COMPANY.
7.1 Delivery of Financial Statements.
(a) The Company shall furnish to each Investor as
soon as practicable, but in any event within ninety (90) days after the end of
each fiscal year of the Company, an income statement for such fiscal year, a
balance sheet of the Company and statement of stockholders' equity as of the end
of such year, and a schedule as to the sources and applications of funds for
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with GAAP, and audited by a nationally recognized firm of
independent public accountants selected by the Company and approved by its Board
of Directors.
(b) The Company shall deliver to each Investor as
soon as practicable, but in any event within sixty (60) days after the end of
each of the first three (3) quarters of each fiscal year of the Company, an
unaudited income statement, an unaudited schedule as to the sources and
application of funds for such fiscal quarter and an unaudited balance sheet as
of the end of such fiscal quarter.
(c) The Company shall furnish to each Investor who
(together with Investors which control it, are controlled by it, or are under
common control with it)
15
<PAGE>
holds at least 500,000 common equivalent shares (each a "Major Investor") as
soon as practicable, but in any event within thirty (30) days after the end of
each month, an unaudited income statement and balance sheet as of the end of
such month, in reasonable detail. For purposes of satisfying the threshold set
forth in this Section 7.1(c), the common equivalent share ownership of A.G.W.
Biddle III and Novak Biddle Venture Partners, L.P. shall be aggregated.
(d) The Company shall furnish to each Major
Investor as soon as practicable, but in any event thirty (30) days after the end
of each fiscal year, a budget and business plan for the next fiscal year;
provided, however, that the Company's obligation to furnish a business plan may
be waived by the Board of Directors (either by express waiver or by the failure
of the Board of Directors to request preparation of a business plan); provided,
further that, in the event the budget and business plan for any given fiscal
year are updated on an interim basis, such updated documents shall be provided
to each Major Investor as soon as is practicable after such update.
(e) The Company shall furnish to each Major
Investor as soon as practicable, but in any event thirty days after each fiscal
quarter, a report, by function, setting forth employee turnover.
(f) Notwithstanding any provisions contained in
this Section 7.1 to the contrary, the Company shall not be obligated under this
Section 7.1 to provide information which it deems in good faith to be a trade
secret or similar confidential information.
7.2 Inspection. The Company shall permit each Major
Investor, at such Major Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, and shall provide
such other information as may reasonably be requested by such, all at such
reasonable times as may be requested by the Major Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 7.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information except to Major Investors who
execute a confidentiality agreement in such form as the Company may reasonably
request; provided, further that, such investigations shall in no way impact
the effectiveness of the representations and warranties set forth in Section 3.
7.3 Key Man Insurance. The level of "key man" insurance
shall be reviewed as to appropriateness by the Board of Directors as promptly
as practicable following the Closing Date.
7.4 Giga Advisory Service. The Company shall provide a full
subscription to Giga Advisory Service to each Investor (for use solely by such
Investor and no affiliate of such Investor) so long as such Investor holds a
minimum of 250,000
16
<PAGE>
common equivalent shares. For purposes of satisfying the threshold set forth in
this Section 7.4, the common equivalent share ownership of A.G.W. Biddle III and
Novak Biddle Venture Partners, L.P. shall be aggregated.
8. MISCELLANEOUS.
8.1 Survival of Warranties and Covenants. The
representations, warranties and covenants of the Company and the Investors
contained in or made pursuant to this Agreement shall survive the execution
and delivery of this Agreement and the Closing and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of any
of the Investors, their counsel or the Company, as the case may be. The
Company's obligations under Section 7.1 and 7.2 shall terminate upon the
earliest to occur of the following (a) immediately prior to the closing of an
underwritten public offering (an "IPO") pursuant to a registration statement
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a transaction pursuant to Rule 145 under the Securities Act of
1933, as amended (the "Act")) under the Act covering the Company's Common
Stock, which results in aggregate cash proceeds (prior to underwriters'
commissions and expenses) to the Company and any selling stockholder of at
least $15,000,000, and which has a public offering price of not less than
$5.25 per share (as appropriately adjusted for stock splits, combinations,
reclassifications and the like), (b) immediately prior to the closing of an
IPO which results in aggregate cash proceeds (prior to underwriters'
commissions and expenses) to the Company of at least $30,000,000, which has a
public offering price of not less than $4.00 per share (as appropriately
adjusted for stock splits, combinations, reclassifications and the like) and
which closes on or before January 31, 1999, or (c) upon an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction.
Any indemnification payment by the Company to an Investor in
connection with a breach of the representations, warranties and covenants of
the Company shall include an additional amount so that such Investor suffers
no loss as a result of any diminution in the book value of the stockholders'
equity related to its investment in the Company as a result of such
indemnification payment. Any payment by the Company to an Investor in
connection with a breach of the representations, warranties and covenants of
the company shall be treated for federal income tax purposes as an adjustment
to the price paid by such Investor for the Series D Stock and Warrants
pursuant to this Agreement.
In addition to and without limitation to all other
indemnities in this Agreement, in the event of any breach of the
representation and warranty set forth in the second sentence of Section
3.4(d), the Company shall issue to each Investor, at no cost to
17
<PAGE>
the Investor, an additional amount of Series D Stock such that, if such
issuance were made at the Closing Date, such representation and warranty would
have been true and accurate in all respects when made.
8.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.3 Governing Law. This Agreement shall be governed by and
construed under the internal laws of the State of New York as applied to
agreements among residents of the State of New York entered into and to be
performed entirely within the State of New York, without reference to
principles of conflict of laws or choice of laws.
8.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs, exhibits and schedules shall, unless otherwise provided,
refer to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which exhibits and schedules are incorporated herein by this
reference.
8.6 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at
Giga Information Group, Inc.
One Longwater Circle
Norwell, MA 02061
Attention: Chief Executive Officer
with a copy to:
Gerald S. Backman, P.C.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
18
<PAGE>
or at such other address as any party or the Company may designate by giving
ten (10) days advance written notice to all other parties.
8.7 Expenses. The parties hereto shall each bear their own
respective costs and expenses in connection with this transaction; provided,
however, that, whether or not the transaction contemplated hereby is
consummated, the Company shall, promptly upon request therefor, reimburse the
Investors for their reasonable costs and expenses (including, without
limitation, the fees and expenses of their counsel) in connection with this
transaction and for any expenses of the Investors (including, without
limitation, legal fees and expenses) incurred to enforce this provision, up to
an amount not exceeding $50,000 in the aggregate.
8.8 No Finder's Fees. Except as previously disclosed to the
Investors, each party represents that it neither is nor will be obligated for
any finder's or broker's fee or commission in connection with this
transaction. Each Investor agrees to indemnity and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finders' or broker's fee (and any asserted liability) for which the Investor
or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Investor
from any liability for any omission or compensation in the nature of a
finder's or broker's fee (and any asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
8.9 Amendments and Waivers. Except as specified in Section
2.2, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the holders of Shares and/or Conversion Shares representing at
least a majority of the aggregate number of shares of Common Stock into which
the Shares then are convertible and/or have been converted (excluding any of
such shares that have been sold to the public or pursuant to SEC Rule 144).
Any amendment or waiver effected in accordance with this Section shall be
binding upon each holder of any Shares and/or Conversion Shares at the time
outstanding, each future holder of such securities, and the Company; provided,
however, that no condition set forth in Section 5 may be waived with respect
to any Investor who does not consent thereto; and provided further, that New
Investors may become parties to this Agreement in accordance with Section 2.2
without any amendment of this Agreement or any consent or approval of any
Investor.
8.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
19
<PAGE>
8.11 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
8.12 Publicity. The terms of this Agreement and the
transactions contemplated hereby shall be kept confidential until the parties
hereto mutually agree upon the language and timing of a press release or until
such time as one such party determines, based upon the advice of counsel, that
a public announcement is required by law, in which case the parties hereto
shall in good faith attempt to agree on any public announcements or publicity
statements with respect thereto.
8.13 Further Assurances. From and after the date of this
Agreement, upon the request of any Investor or the Company, the Company and
the Investors shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
[SIGNATURES BEGIN ON THE NEXT PAGE]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE COMPANY:
- -----------
GIGA INFORMATION GROUP, INC.
By: /s/ Daniel M. Clarke
------------------------------------
Title: Senior Vice President
---------------------------------
THE INVESTORS:
- -------------
NOVAK BIDDLE VENTURE PARTNERS, L.P.
By: Novak Biddle L.L.C., its General Partner
By: /s/ A. G. W. Biddle III
---------------------------------------------
Name: A.G.W. Biddle III
Title: Managing Member
ACORN FUND,
a series of Acorn Investment Trust
By: s/s Ken Kalina
--------------------------
Name: Ken Kalina
Title:
21
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Series D Shares Cash
Purchased Tendered
----------------- ---------
Investor Name (#) ($)
-------------
<S> <C> <C>
Novak Biddle Venture Partners, L.P. 214,286 1,500,002
Acorn Fund, a series of Acorn Investment Trust 71,429 500,000
</TABLE>
22
<PAGE>
"[Remainder of Exhibits
Intentionally Omitted.]"
<PAGE>
EXHIBIT 10.6
GIGA INFORMATION GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
NOVEMBER 13, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Amendment .............................................. 1
1.1 Amendment and Waiver.................................. 1
Section 2. Registration Rights .................................... 2
2.1 Definitions........................................... 2
2.2 Requested Registration................................ 3
2.3 Company Registration.................................. 5
2.4 Obligations of the Company............................ 5
2.5 Furnish Information................................... 6
2.6 Expenses of Demand Registration....................... 6
2.7 Expenses of Company Registration...................... 7
2.8 Underwriting Requirements............................. 7
2.9 Delay of Registration................................. 8
2.10 Indemnification....................................... 8
2.11 Reports Under Securities Exchange Act of 1934......... 10
2.12 Form S-3 Registration................................. 10
2.13 Assignment of Registration Rights..................... 11
2.14 "Market Stand-Off" Agreement.......................... 12
2.15 Termination of Registration Rights.................... 12
Section 3. Miscellaneous .......................................... 12
3.1 Assignment............................................ 12
3.2 Third Parties......................................... 12
3.3 Governing Law......................................... 12
3.4 Counterparts.......................................... 13
3.5 Notices............................................... 13
3.6 Severability.......................................... 13
3.7 Rights of Holders..................................... 13
3.8 Delays or Omissions................................... 13
3.9 Attorney's Fees....................................... 13
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 9th day of November, 1995, by and among Giga Information Group, Inc., a
Delaware corporation (the "Company"), the investors listed on Exhibit A hereto
---------
(collectively, the "Investors") and those key members of the Company's
management listed on Exhibit B hereto as may be designated from time to time by
---------
the Board of Directors (collectively, the "Management Persons").
RECITALS
WHEREAS, as of the date hereof each of the Investors is acquiring the
number of shares of the classes and series of the Company's capital stock set
forth opposite its name on Exhibit A hereto;
---------
WHEREAS, as of the date hereof each of the Management Persons owns the
number of shares of the classes and series of the Company's capital stock set
forth opposite his or her name on Exhibit B hereto (which, collectively with any
---------
additional shares of the Company's securities acquired by the Management Persons
after the date of this Agreement, shall be deemed to be "Management Shares");
WHEREAS, the execution of this Agreement is a condition precedent to
the consummation of the transactions contemplated by the Series B Preferred
Stock Purchase Agreement dated as of November 13, 1995 among the Company and the
Investors (the "Series B Purchase Agreement");
NOW, THEREFORE, the parties agree as follows:
Section 1. Amendment.
---------
1.1 Amendment and Waiver. Except as expressly provided herein,
--------------------
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that any provisions hereof may be amended, waived, discharged
or terminated upon the written consent of all of (i) the Company, (ii) the
Holders of at least a majority of the Registrable Securities, excluding the then
outstanding Management Shares; and (iii) the Holders of at least a majority of
the then outstanding Management Shares; provided further that the inclusion of
additional purchasers of the Company's Common Stock, as agreed from time to time
by the Company's Board of Directors, as "Management Persons" hereunder shall not
be deemed an amendment to this Agreement. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities, and the Company.
1
<PAGE>
Section 2. Registration Rights.
-------------------
2.1 Definitions. As used in this Agreement:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Securities Act")
and the subsequent declaration or ordering of the effectiveness of such
registration statement.
(b) The term "Registrable Securities" means:
(i) Management Shares, except for purposes of the registration rights
set forth under Sections 2.2 and 2.12 to which the Management Persons shall not
be entitled under this Agreement, except that the Management Persons may request
the inclusion of the Management Shares held by them upon receipt of the notice
from the Company to all Holders as specified in Section 2.2(a);
(ii) the shares of Common Stock issuable or issued upon conversion of
the Company's Series B Preferred Stock (the shares of Common Stock referred to
in clauses (i) and (ii) hereof are collectively referred to hereafter as the
"Stock"); and
(iii) any other shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Stock, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned;
provided, however, that:
(i) Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) sold in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act so that all transfer
restrictions, and restrictive legends with respect thereto, if any, are removed
upon the consummation of such sale, or (C) sold, assigned or otherwise
transferred in a transaction in which the rights under this Section 2 have not
been assigned in accordance with Section 2.13; and
(ii) if the Company shall have consummated a Qualified Public
Offering, Common Stock that is eligible to be sold pursuant to Rule 144(b)
promulgated under the Securities Act (or any successor rule).
2
<PAGE>
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(d) The term "Holder" means any person owning of record Registrable
Securities who acquired such Registrable Securities in a transaction or series
of transactions not involving any registered public offering or pursuant to Rule
144.
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) The term "Qualified Public Offering" means an underwritten initial
public offering pursuant to a registration statement (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a transaction
pursuant to Rule 145 under the Securities Act) under the Securities Act covering
the Company's Common Stock, which results in aggregate cash proceeds (prior to
underwriters' commissions and expenses) to the Company and any selling
stockholder of at least $15,000,000, and which has a public offering price of
not less than $5.25 per share (as appropriately adjusted for stock splits,
combinations, reclassifications and the like).
(g) Capitalized terms used herein and not otherwise defined shall have
the respective meanings assigned to them in the Series B Purchase Agreement.
2.2 Requested Registration.
----------------------
(a) If the Company shall receive at any time after the earlier of (i)
November 1, 1999, or (ii) six (6) months after the effective date of the first
registration statement for a Qualified Public Offering, a written request from
the Holders of at least forty percent (40%) of the Registrable Securities then
outstanding (excluding the Management Shares, for which the Management Persons
shall not be entitled to initiate a request under this Section 2.2(a)), that the
Company file a registration statement under the Securities Act covering the
registration of at least twenty percent (20%) of the Registrable Securities then
outstanding (excluding the Management Shares), and for which the anticipated
aggregate gross proceeds to the Company and any selling stockholder would exceed
$5,000,000, then the Company shall, within ten (10) days of the receipt thereof,
give written notice of such request to all Holders (including Management
Persons, who shall be entitled to request registration of the Management Shares
held by them pursuant to this sentence) and shall, subject to the limitations of
subsection 2.2(b), effect as soon as practicable, and in any event within ninety
(90) days
3
<PAGE>
of the receipt of such request, the registration under the Securities Act of all
Registrable Securities which the Holders request to be registered within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 2.2 and the Company
shall include such information in the written notice referred to in subsection
2.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company as
provided in subsection 2.4(e)) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 2.2, if the underwriter
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting that are held by Holders other than the Management Persons shall
not be reduced unless all Management Shares are first entirely excluded from the
underwriting; provided, further, that the number of shares of Registrable
Securities (including Management Shares) to be included in such underwriting
shall not be reduced unless all other securities proposed to be sold by persons
other than the Holders (including the Management Persons) and the Company are
first entirely excluded from the underwriting.
(c) The Company is obligated to effect only two (2) such registrations
pursuant to this Section 2.2 and, in any event, no more than one (1) such
registration in any twelve (12) month period.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the Initiating
4
<PAGE>
Holders; provided, however, that the Company may not utilize this right more
than twice in any twelve month period nor for a total of more than 120
consecutive days.
2.3 Company Registration. If the Company proposes to register
--------------------
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its Common Stock or other securities
under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating either to the
sale of securities to participants in a Company stock option, stock purchase or
similar plan or in an SEC Rule 145 transaction, or a registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.5, the Company shall, subject to the provisions of
Section 2.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
2.4 Obligations of the Company. Whenever required under this Section
--------------------------
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective until the distribution contemplated in the
Registration Statement has been completed (but not for more than 270 days).
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to
5
<PAGE>
qualify to do business or, except as required under the Securities Act, to file
a general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such securities are being
sold through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters.
(h) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated quotation system
on which similar securities issued by the Company are then listed.
2.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
2.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, fees and
6
<PAGE>
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 2.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
Participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 2.2.
2.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.3 for each Holder (which right may be assigned as provided
in Section 2.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
2.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 2.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the written opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters reasonably believe is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters believe will not jeopardize the success of the offering
(the securities so included to be apportioned pro rata among the selling
stockholders according to the total amount of securities entitled to be included
therein owned by each selling stockholder or in such other proportions as shall
mutually be agreed to by such selling stockholders, provided that (i) if the
number of shares of Registrable Securities to be included in any such offering
shall be reduced, such reduction shall first be made by a reduction of the
number of Management Shares to be so sold; (ii) the number of shares of
Registrable Securities included in any such offering shall not be so reduced
unless all other securities proposed to be sold by persons other than (A) the
Holders (including the Management Persons), (B) the Company, and (C) Pari Passu
Holders (as defined below) are first entirely excluded from the underwriting.
For purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing
7
<PAGE>
persons shall be deemed to be a single "selling stockholder," and any pro rata
reduction with respect to such "selling stockholder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling stockholder," as defined in this
sentence. "Pari Passu Holders" means persons who are contractually entitled to
inclusion in the offering, on a pari passu basis with the Holders, of shares of
Common Stock issued or issuable to such persons, which shares will be subject to
reduction of the number to be included in the registration on a pro rata basis
with the Registrable Securities held by the Investors; provided that the Company
may not grant such rights to Pari Passu Holders with respect to an aggregate of
more than 50% of the number of Registrable Securities (excluding Management
Shares) issued or issuable upon conversion of the aggregate number of Shares of
the Company's Series B Preferred Stock issued pursuant to the Series B Purchase
Agreement without the written consent of the Holders of at least a majority of
the Registrable Securities (excluding Management Shares).
2.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law; and the Company will pay as incurred
to each such Holder, underwriter or controlling person, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 2.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the
8
<PAGE>
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 2.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 2.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity under this subsection
2.10(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, only if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.10, but the omission
9
<PAGE>
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 2.10.
(d) The obligations of the Company and Holders under this Section 2.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
2.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
10
<PAGE>
2.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders owning in the aggregate at least 20% of the Registrable
Securities a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 20 days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 2.12, (1) if Form S-3 is not available for
such offering by the Holders; (2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $500,000; (3) if the Company shall furnish to the
Holders a certificate signed by the president of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than sixty (60) days after receipt of the request of the
Holder or Holders under this Section 2.12; provided, however, that the Company
shall not utilize this right more than once in any twelve month period; (4) if
the Company has, within the six month period preceding the date of such request,
already effected one registration on Form S-3 for the Holders pursuant to this
Section 2.12; (5) if the Company has already effected a total of six
registrations on Form S-3 for the Holders pursuant to this Section 2.12; or (6)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 2.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees, auditing
expenses and the fees and disbursements of counsel for the Company shall be
borne by the Company, but excluding underwriting discounts and commissions
relating to Registrable Securities and the fees and disbursements of counsel
11
<PAGE>
to the selling Holder or Holders. Registrations effected pursuant to this
Section 2.12 shall not be counted as demands for registration or registrations
effected pursuant to Section 2.2 or 2.3.
2.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of all of such Holder's
Registrable Securities or at least 400,000 shares (as adjusted to reflect stock
splits, stock dividends or recapitalizations) of such securities provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act. The foregoing 400,000 share
limitation shall not apply, however, to transfers by a Holder to stockholders,
partners or retired partners of the Holder, or to spouses, ancestors, lineal
descendants and siblings of the Holder, if all such transferees or assignees of
a single Holder agree in writing to appoint a single representative as their
attorney in fact for the purpose of receiving any notices and exercising their
rights under this Section 2.
2.14 "Market Stand-Off" Agreement. The Holder hereby agrees that
---------------------------
during the period of duration specified by the Company and an underwriter of
Company Common Stock or other securities of the Company following the effective
date of a registration statement of the Company filed under the Securities Act,
it shall not, to the extent requested by the Company and such underwriter, sell
or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any Common Stock of the Company held by it at any time during
such period except Common Stock included in such registration; provided,
however, that:
(a) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements; and
(b) such market stand-off period shall not exceed 180 days.
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of the Investor (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.15 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 2 after the later of (a)
three (3) years following the consummation of a Qualified Public Offering or (b)
such time following the Company's initial public offering as such Holder is
entitled under Rule 144 to
12
<PAGE>
dispose of all the Registrable Securities held by such Holder during any 90-day
period.
Section 3. Miscellaneous.
-------------
3.1 Assignment. Subject to the provisions of Section 2.13 hereof,
----------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
3.2 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
3.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of New York in the United States of America as
applied to agreements among New York residents entered into and to be performed
entirely within New York.
3.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.5 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be sent by prepaid registered or certified mail,
return receipt requested, addressed to the other party at the address shown
below or at such other address for which such party gives notice hereunder.
Such notice shall be deemed to have been given three (3) days after deposit in
the mail.
3.6 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
3.7 Rights of Holders. Each holder of Registrable Securities shall
-----------------
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.8 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an
13
<PAGE>
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
3.9 Attorney's Fees. If any action at law or in equity is necessary
---------------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the day and year first above written.
COMPANY:
GIGA INFORMATION GROUP, INC.
a Delaware corporation
By: /s/ Gideon Gartner
-------------------------
Title:
----------------------
MANAGEMENT PERSONS:
/s/ Gideon Gartner
- ----------------------------
(Gideon Gartner)
/s/ David Gilmour
- ----------------------------
(David Gilmour)
14
<PAGE>
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
THE INVESTORS:
- -------------
Name of Investor:
Neill & Linda Brownstein
- ------------------------
By:/s/ Neill & Linda Brownstein
----------------------------
Name of Investor:
Todd D. Brownstein
- ------------------
By:/s/ Todd D. Brownstein
----------------------
Name of Investor:
Emily G. Hamilton
- -----------------
By: /s/ Neill H. Brownstein
------------------------
Father
Name of Investor:
Will P. Gordon
- --------------
By:/s/ Will P. Gordon
------------------
Name of Investor:
Robert E. Cook
- --------------
By: /s/ Robert E. Cook
-------------------
15
<PAGE>
Name of Investor:
Christopher J. DiVecchio
- ------------------------
By:/s/ Christopher J. DiVecchio
----------------------------
Name of Investor:
Martin P. DuRoss
- ----------------
By:/s/ Martin P. DuRoss
--------------------
Name of Investor:
Harry Edelson
- -------------
By:/s/ Harry Edelson
-----------------
Name of Investor:
Edelson Technology Partners III
- -------------------------------
By:/s/ Harry Edelson
-----------------
Name: Harry Edelson
--------------
Title: General Partner
---------------
Name of Investor:
Richard J. Foudy
- ----------------
By:/s/ Richard J. Foudy
--------------------
16
<PAGE>
Name of Investor:
Gilo Family Partnership
- -----------------------
By:/s/ Davidi Gilo
---------------
Name: Davidi Gilo
-----------
Title: President of Davidi and Shamaja
-------------------------------
Gilo Inc., General Partner
--------------------------
Name of Investor:
Michael J. Kolesar
- ------------------
By:/s/ Michael J. Kolesar
----------------------
Name of Investor:
John B. Landry
- --------------
By:/s/ John B. Landry
------------------
Name of Investor:
Derek Lemke-von Ammon
- ---------------------
By:/s/ Derek Lemke-von Ammon
-------------------------
17
<PAGE>
Name of Investor:
RRE GIGA INVESTORS II, L.P.
By: RRE PARTNERS, L.L.C.,
as General Partner
------------------
By: RRE Investors, L.L.C.,
as Managing Member
By:/s/ Stuart J. Ellman
--------------------
Name: Stuart J. Ellman
-----------------
Title: Class A Member
--------------
Name of Investor:
Cornelius T. Ryan
- -----------------
By:/s/ Cornelius T. Ryan
---------------------
Name of Investor:
Frederick G. Smith
- ------------------
By:/s/ Frederick G. Smith
----------------------
Name of Investor:
Susan Tracy Wheeler
- -------------------
By:/s/ Susan Tracy Wheeler
-----------------------
18
<PAGE>
Name of Investor:
Adam J. Brownstein
- ------------------
By: /s/ Adam J. Brownstein
-----------------------
Name: Adam J. Brownstein
-------------------
Name of Investor:
21st Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------
Irwin Lieber
Title: Treasurer
21st Century Communications Foreign Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------
Irwin Lieber
Title: Treasurer
21st Century T-E Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
-----------------
Irwin Lieber
Title: Treasurer
Name of Investor:
Executive Technology L.P.
- -------------------------
By: /s/ Seymour L. Goldblatt
-------------------------------------
Title: President of S/2/ Technology Corp
----------------------------------
which is the General Partner of
Executive Technology L.P.
19
<PAGE>
Name of Investor:
Monstol Investments NV
- ----------------------
By: /s/ Seymour L. Goldblatt
---------------------------------
Seymour L. Goldblatt
Title:
------------------------------
President S/2/ Technology Corp
Name of Investor:
Core Technology Fund Inc.
- -------------------------
By: /s/ Seymour L. Goldblatt
-------------------------
Seymour L. Goldblatt
Title:
----------------------
Managing Director
Name of Investor:
Sci-Tech Investment Partners L.P.
- ---------------------------------------
By: /s/ Seymour L. Goldblatt
------------------------------------
Seymour L. Goldblatt
Title:
---------------------------------
President of S/2/ Technology Corp
which is the General Partner
of SciTech Investment Ptr.
Name of Investor:
The Matrix Technology Group NV
- ------------------------------
By: /s/ Seymour L. Goldblatt
-------------------------
Seymour L. Goldblatt
Title:
----------------------
Managing Director
20
<PAGE>
Name of Investor:
Yale University
- ---------------
By: /s/ Seymour L. Goldblatt
---------------------------------
Seymour L. Goldblatt
Title:
------------------------------
President S/2/ Technology Corp
Name of Investor:
Yale University Retirement Plan for Staff Employees
- ---------------------------------------------------
By: /s/ Seymour L. Goldblatt
----------------------------------
Seymour L. Goldblatt
Title:
-------------------------------
President, S/2/ Technology Corp
Name of Investor:
SG Partners, L.P.
- -----------------
By: /s/ Seymour L. Goldblatt
------------------------------------
Seymour L. Goldblatt
Title:
---------------------------------
President of S/2/ Technology Corp
which is the General Partner
of SG Partners L.P.
Haussmann Holdings
By: /s/ Dana Schmidt
-----------------
Title: PRINCIPAL
--------------
Montgomery Growth Partners, L.P.
By: Montgomery Asset Management, L.P., Its General Partner
-------------------------------------------------------
By: /s/ Dana Schmidt
-----------------
Title: PRINCIPAL
--------------
Montgomery Growth Partners II, L.P.
By: /s/ Keith High
-------------------
Title: GENERAL PARTNER
----------------
21
<PAGE>
Nosrob Investments, Ltd.
By: /s/ Dana Schmidt
-----------------
Title: PRINCIPAL
--------------
Quota Fund, N.V.
By: /s/ Dana Schmidt
-----------------
Title: PRINCIPAL
--------------
Montgomery Small Cap Partners III, L.P.
By: /s/ Keith High, Its General Partner
----------------
By: KEITH HIGH
------------------------------------
TITLE: GENERAL PARTNER
---------------------------------
RRE Giga Investors, L.P.
By: RRE Investors L.L.C., its General Partner
By: /s/ Stuart Ellman
------------------------------------
Title: Managing Director
---------------------------------
22
<PAGE>
Lagunitas Partners, L.P.
By: /s/ John D. Gruber, its General Partner
--------------------
Gruber & McBaine International
By: /s/ J. Patterson McBaine
-------------------------
Jon D. Gruber
/s/ John D. Gruber
- ----------------------------
(Jon D. Gruber)
J. Patterson McBaine
/s/ J. Patterson McBaine
- ----------------------------
(J. Patterson McBaine)
Kensington Partners L.P.
By: /s/ Richard Keim, its General Partner
------------------
By: Dick Keim
Title: G.P.
----------------------------------
Acorn Investment Trust
By: /s/ Ralph Wanger
-------------------------------------
Ralph Wanger
Title: President
23
<PAGE>
"Exhibit A Intentionally Omitted"
<PAGE>
EXHIBIT 10.7
GIGA INFORMATION GROUP, INC.
CO-SALE AND STOCK RESTRICTION AGREEMENT
---------------------------------------
This Co-Sale and Stock Restriction Agreement (the "Agreement") is made as
of the 13th day of November, 1995 by and among Gideon Gartner ("Founder"), Giga
Information Group, Inc., a Delaware corporation (the "Company"), and the
undersigned holders of Series B Preferred Stock (the "Stockholders").
In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. Definitions.
------------
(a) "Stock" shall mean, on a fully diluted basis, the shares of the
Company's Common Stock now owned by the Founder, including any shares of Common
Stock issuable upon conversion or exercise of any warrants, options or Preferred
Stock held by the Founder.
(b) "Preferred Stock" shall mean the Company's outstanding Series B
Preferred Stock, $.001 par value.
(c) "Common Stock" shall mean the Company's Common Stock, $.001 par value.
2. Sales by Founder.
-----------------
(a) Except in the case of any sale or transfer pursuant to the provisions
of paragraphs 4(a) or 4(b) of this Agreement, if the Founder proposes to sell or
transfer shares of Stock in one or more transactions then the Founder shall
promptly give written notice (the "Notice") to the Company and the Stockholders
at least twenty (20) days prior to the closing of such sale or transfer. The
Notice shall describe in reasonable detail the terms of such proposed sale or
transfer including, without limitation, the number of shares of Stock to be sold
or transferred, the nature of such sale or transfer, the consideration to be
paid, and the name and address of each prospective purchaser or transferee.
(b) Each Stockholder shall have the right, exercisable upon written notice
to such Founder within fifteen (15) days after receipt of the Notice, to
participate pro-rata in such sale of Stock on the same terms and conditions. To
the extent one or more of the Stockholders exercise such right of participation
in accordance with the terms and conditions set forth below, the number of
shares of Stock that the Founder may sell in the transaction shall be
correspondingly reduced subject to the proviso in the preceding sentence.
-------
<PAGE>
(c) Each Stockholder may sell all or any part of that number of shares of
Preferred Stock, or Common Stock then owned by it, or Common Stock issuable upon
conversion of Preferred Stock then owned (the "Stockholder Shares") equal to the
product obtained by multiplying (i) the aggregate number of shares of Stock
covered by the Notice by (ii) a fraction the numerator of which is the number of
Stockholder Shares owned by such Stockholder at the time of the sale or transfer
and the denominator of which is the total number of shares of Preferred Stock
and Common Stock then held by the Stockholders and the Founder (subject to
Section 2(e)).
(d) If any Stockholder fails to elect to fully participate in such
Founder's sale pursuant to this Section 2, the Founder shall give notice of such
failure to the Stockholders who did so elect (the "Participants"). Such notice
may be made by telephone if confirmed in writing within two (2) days. The
Participants shall have five (5) days from the date such notice was given to
agree to sell their pro rata share of the unsold portion. For purposes of this
paragraph, and subject to Section 2(e), a Participant's pro rata share shall be
the ratio of (x) the number of shares of Common Stock or Preferred Stock held by
such Participant to (y) the total number of shares of Common Stock and Preferred
Stock held by all Participants and the Founder.
(e) In the event that the Founder shall sell Stock in one or more exempt
trans actions pursuant to clause (a) of Section 4 representing the full amount
of Stock permitted to be sold under such clause, then as to any subsequent
proposed sales of Stock by the Founder representing up to the lesser of (a)
200,000 shares or (b) shares sold or to be sold for aggregate proceeds of up to
$1,000,000, then for purposes of Section 2(c), a Stockholder's pro rata share
shall be the ratio of (x) the number of shares of Common Stock, and Common Stock
issuable upon conversion of Preferred Stock, held by such Stockholder to (y) the
total number of shares of Common Stock, and Common Stock issuable upon
conversion of Preferred Stock, held by all Stockholders.
(f) Each Participant shall effect its participation in the sale by promptly
delivering to the Founder for transfer to the prospective purchaser one or more
certificates, properly endorsed for transfer, which represent:
(i) the type and number of shares of Common Stock which such Participant
elects to sell; or
(ii) that number of shares of Series A or Series B Preferred Stock which is
at such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Series A or Series B Preferred Stock in lieu of
Common Stock, such Participant shall convert such Preferred Stock into Common
Stock and deliver Common Stock as provided in subparagraph 2(e)(i) above. The
-2-
<PAGE>
Company agrees to make any such conversion concurrent with the actual transfer
of such shares to the purchaser.
(g) The stock certificate or certificates that the Participant delivers to
the Founder pursuant to paragraph 2(e) shall be transferred to the prospective
purchaser in consummation of the sale of the Stock pursuant to the terms and
conditions specified in the Notice, and the Founder shall concurrently therewith
remit to such Participant that portion of the sale proceeds to which such
Participant is entitled by reason of its participation in such sale. To the
extent that any prospective purchaser or purchasers prohibits such assignment or
otherwise refuses to purchase shares or other securities from a Participant
exercising its rights of co-sale hereunder, the Founder shall not sell to such
prospective purchaser or purchasers any Stock unless and until, simultaneously
with such sale, the Founder shall purchase such shares or other securities from
such Participant.
(h) The exercise or non-exercise of the rights of the Participants
hereunder to participate in one or more sales of Stock made by the Founder shall
not adversely affect their rights to participate in subsequent sales of Stock
subject to paragraph 2(a).
3. Right Of First Offer.
---------------------
3.1 General. Each Stockholder has the right of first offer to purchase
-------
such Stockholder's Pro Rata Share (as defined below), of all (or any part) of
any stock that the Founder may from time to time propose to sell after the date
of this Agreement. A Stockholder's "Pro Rata Share" for purposes of this right
of first offer is the ratio of (x) the number of shares of Common Stock and
Preferred Stock held by such Stockholders to (y) the total number of shares of
Common Stock and Preferred Stock held by the Stockholders and the Founder.
3.2 Subordination. The right of first offer granted herein to the
-------------
Stockholders under this Section 3 shall be subject to any right of first offer,
or similar right, granted by the Founder to the Company relating to the Common
Stock of the Company pursuant to any agreements or instruments executed by the
Founder in connection with the grant to the Founder or exercise by the Founder
of any options, or the purchase by the Founder of any Common Stock.
3.3 Procedures. In the event that the Founder proposes to sell Stock, it
----------
shall give to each Stockholder written notice of his intention to sell Stock
(the "Notice"), describing the type of Stock and the price and the general terms
upon which the Founder proposes to sell such Stock. Each Stockholder shall have
ten (10) business days from the date of receipt of any such Notice to agree in
writing to purchase such Stockholder's Pro Rata Share of such Stock for the
price and upon the general terms specified in the Notice by giving written
notice to the Founder and
-3-
<PAGE>
stating therein the number of shares of Stock to be purchased (not to exceed
such Stockholder's Pro Rata Share). If any Stockholder fails to so agree in
writing within such ten (10) day period to purchase such Stockholder's full Pro
Rata Share of a sale of Stock (a "Nonpurchasing Stockholder"), then such
Nonpurchasing Stockholder shall forfeit the right hereunder to purchase that
part of his Pro Rata Share of such Stock that he did not so agree to purchase,
and the Founder shall give notice of such failure to the Stockholders who did so
elect (the "Purchasing Stockholders"). Such notice may be made by telephone if
confirmed in writing within two (2) days. The Purchasing Stockholders shall have
five (5) days from the date such notice was given to agree to sell their pro
rata share of the unsold portion. For purposes of this paragraph, and subject to
Section 2(e), a Participant's pro rata share shall be the ratio of (x) the
number of shares of Common Stock or Preferred Stock held by such Participant to
(y) the total number of shares of Common Stock and Preferred Stock held by all
Purchasing Stockholders and the Founder.
3.4 Failure to Exercise. In the event that the Stockholders fail to
-------------------
exercise in full their rights of first offer as set forth in this Section 3
within the prescribed period, then the Founder shall have 120 days thereafter to
sell the Stock with respect to which the Stockholders' rights of first offer
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Founder's Notice
to the Stockholders. In the event that the Founder has not sold the Stock within
such 120-day period, then the Founder shall not thereafter sell any Stock
without again first offering such Stock to the Stockholders pursuant to this
Section 3.
4. Exempt Transfers. Notwithstanding the foregoing:
----------------
(a) Section 2 hereof shall not apply to (i) sale of Stock if, after giving
effect thereto, the Founder shall have sold less than an aggregate of the lesser
of (a) 200,000 shares or (b) shares for aggregate proceeds of less than
$1,000,000 after the date of this Agreement, or (ii) any sale of Stock to the
Company;
(b) neither Section 2 nor Section 3 hereof shall apply to (i) sales and
transfers of not more than 200,000 shares in any year to employees, directors or
strategic partners of the Company or its subsidiaries in connection with bona
fide compensation arrangements, licensing transactions, consulting arrangements
and the like; (ii) any pledge of Stock made pursuant to a bona fide loan
transaction that creates a mere security interest; (iii) any transfer to the
ancestors, descendants or spouse of the Founder or to trusts for the benefit of
such persons or the Founder; or (iv) any bona fide gift; provided that (A) the
Founder shall inform the Stockholders of such sale, pledge, transfer or gift
prior to effecting it and (B) in the case of transfers or gifts under clauses
(iii) and (iv), the transferee or donee shall furnish the Stockholders with a
written agreement to be bound by and comply with all provisions of Sections 2
and 3;
-4-
<PAGE>
(c) upon and after the consummation of a Qualified Public Offering (as
defined in Section 7.4), the provisions of Section 2 and Section 3 hereof shall
only apply to privately negotiated sales, and shall not apply to offers and
sales to the public; and
(d) the provisions of Section 2 and Section 3 hereof shall not apply to the
sale of any Stock (i) to the public pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Securities Act"), or (ii) if prior
to such sale, the Founder held less than 5% of the Company's outstanding shares.
In the case of a transfer pursuant to clauses (b)(iii) or (iv), such
transferred Stock shall remain "Stock" hereunder, and such pledgee, transferee
or donee shall be treated as a "Founder" for purposes of this Agreement.
5. Prohibited Transfers.
---------------------
(a) Notwithstanding any other provision set forth herein, the Founder
agrees that he will not sell or transfer more than an aggregate of 800,000
shares of Stock during the three year period ending November 1, 1998 except in
transactions permitted by Section 4.
(b) In the event the Founder sells any Stock in contravention of the terms
of this Agreement (a "Prohibited Transfer"), the Stockholders, in addition to
such other remedies as may be available at law, in equity or hereunder, shall
have the put option provided below, and the Founder shall be bound by the
applicable provisions of such option.
(c) In the event of a Prohibited Transfer, each Stockholder shall have the
right to sell to the Founder the type and number of shares of Stock equal to the
number of shares each Stockholder would have been entitled to transfer to the
purchaser under Section 2(c) hereof had the Prohibited Transfer been effected
pursuant to and in compliance with the terms hereof. Such sale shall be made on
the following terms and conditions:
(i) The price per share at which the shares are to be sold to the Founder
shall be equal to the price per share paid by the purchaser to the Founder in
the Prohibited Transfer.
(ii) Within ninety (90) days after the later of the dates on which the
Stockholder (A) received notice of the Prohibited Transfer or (B) otherwise
become aware of the Prohibited Transfer, each Stockholder shall, if exercising
the option created hereby, deliver to the Founder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
-5-
<PAGE>
(iii) The Founder shall, upon receipt of the certificate or certificates
for the shares to be sold by a Stockholder, pursuant to this subparagraph 5(b),
pay the aggregate purchase price therefor, in cash or by other means acceptable
to the Stockholder.
(iv) Notwithstanding the foregoing, any attempt by the Founder to transfer
Stock in violation of Section 2 of this Agreement shall be void and the Company
agrees it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the written consent of a
majority in interest of the Stockholders.
6. Legend.
-------
(a) Each certificate representing shares of Stock now or hereafter owned by
the Founder or issued to any person in connection with a transfer pursuant to
Section 4(a) hereof shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
CO-SALE AND STOCK RESTRICTION AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE
CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(b) The Founder agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in Section 6(a) above to enforce the provisions of this
Agreement and the Company agrees to promptly do so. The legend shall be removed
upon termination of this Agreement.
7. Miscellaneous.
--------------
7.1 Governing Law. This Agreement shall be governed by and construed under
-------------
the laws of the State of New York.
7.2 Amendment. Any provision may be amended and the observance thereof may
---------
be waived (either generally or in a particular instance and either retroactively
or prospectively), only by the written consent of (i) as to the Company, only by
the Company, (ii) as to the Stockholders, by persons holding more than fifty
percent (50%) in interest of the Common Stock and Preferred Stock held by the
Stockholders and their assignees, pursuant to Section 7.3 hereof, and (iii) as
to the Founder, only by the Founder, provided that any Stockholder may waive any
of his
-6-
<PAGE>
rights hereunder without obtaining the consent of any other Stockholder. Any
amendment or waiver effected in accordance with clauses (i), (ii) and (iii) of
this paragraph shall be binding upon each Stockholder, its successors and
assigns, the Company and the Founder.
7.3 Assignment of Rights. This Agreement and the rights and obligations of
--------------------
the parties hereunder shall inure to benefit of, and be binding upon, the
parties hereto and their respective successors, assigns and legal
representatives. The rights of the Stockholders hereunder are only assignable
(i) by each of such Stockholders to any other person or entity who, immediately
prior to such transfer, is a Stockholder or (ii) to an assignee or transferee
who acquires the lesser of (a) at least one hundred percent (100%) of the Common
Stock and Preferred Stock held by a Stockholder or (b) 800,000 shares of Common
Stock or Preferred Stock.
7.4 Term. This Co-Sale and Stock Restriction Agreement shall terminate
----
upon the earlier of (i) the date two years following the closing of a firmly
underwritten public offering (a "Qualified Public Offering") pursuant to a
registration statement (other than a registration statement relating either to
the sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or a transaction pursuant to Rule 145 under the
Securities Act of 1933, as amended (the "Act")) under the Act covering the
Company's Common Stock, which results in aggregate cash proceeds (prior to
underwriters' commissions and expenses) to the Company and any selling
stockholders of at least $15,000,000 and which has a public offering price of
not less than $5.25 per share (as adjusted for any stock split, stock dividend,
subdivision or combination of the Common Stock), or (ii) the closing of the
Company's sale of all or substantially all of its assets or the acquisition of
the Company by another entity by means of merger or consolidation resulting in
the exchange of the outstanding shares of the Company's capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary. If, at any time, any Stockholder sells or contracts to
sell, in one or more transactions, an aggregate of 50% or more of the Stock held
by such Stockholder, this Agreement shall terminate with respect to such
Stockholder upon the consummation of any such sale.
7.5 Ownership. The Founder represents and warrants that he is the sole
---------
legal and beneficial owner of the shares of stock subject to this Co-Sale and
Stock Restriction Agreement and that no other person has any interest (other
than a community property interest) in such shares.
7.6 Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or five days after deposit in the United States mail, by
registered or certified mall, postage prepaid and properly addressed to the
party to be notified (a) as set forth on Annex A to the Series B Preferred Stock
-------
Purchase Agreement, dated as
-7-
<PAGE>
of November 17, 1995 among the Company and the Stockholders, in the case of the
Stockholders, (b) to the Founder at 146 West 57th Street, New York, N.Y. 10019;
(c) to the Company at 1 Longwater Circle, Norwell, MA 02061, attention: Vice
President-Finance; or at such other address as such party may designate by ten
(10) days' advance written notice to the other parties hereto. Notwithstanding
the foregoing, the telephone notice permitted by Section 2(d) shall be effective
at the time it is given.
7.7 Severability. In the event one or more of the provisions of this Co-
------------
Sale and Stock Restriction Agreement should, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Co-Sale and Stock
Restriction Agreement, and this Co-Sale and Stock Restriction Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
7.8 Attorney Fees. In the event that any dispute among the parties to this
-------------
Co- Sale and Stock Restriction Agreement should result in litigation, the
prevailing party in such dispute shall be entitled to recover from the closing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Co-Sale and Stock Restriction Agreement,
including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
7.9 Counterparts. This Co-Sale and Stock Restriction Agreement may be
------------
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
-8-
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
GIGA INFORMATION GROUP, INC.
By /s/ Gideon Gartner
---------------------------------
Title _____________________________
Address __________________________
__________________________
__________________________
FOUNDER:
-----------------------------------
/s/ Gideon Gartner
-----------------------------------
Gideon Gartner
Address ___________________________________
___________________________________
___________________________________
-9-
<PAGE>
SIGNATURE PAGE TO THE
CO-SALE AND STOCK RESTRICTION AGREEMENT
THE STOCKHOLDERS:
- ----------------
Name of Stockholder:
Neill & Linda Brownstein
- ------------------------------------
By: /s/ Neill H. Brownstein
-------------------------------
Name of Stockholder:
Robert E. Cook
- ------------------------------------
By: /s/ Robert E. Cook
-------------------------------
Name of Stockholder:
Christopher J. DiVecchio
- ------------------------------------
By: /s/ Christopher J. DiVecchio
-------------------------------
Name of Stockholder:
Martin P. DuRoss
- ------------------------------------
By: /s/ Martin P. DuRoss
-------------------------------
-10-
<PAGE>
Name of Stockholder:
Harry Edelson
- ------------------------------------
By: /s/ Harry Edelson
-------------------------------
Name of Stockholder:
Edelson Technology Partners III
- ------------------------------------
By: /s/ Harry Edelson
-------------------------------
Title: General Partner
----------------------------
Name of Stockholder:
Richard J. Foudy
- ------------------------------------
By: /s/ Richard J. Foudy
-------------------------------
Name of Stockholder:
Gilo Family Partnership
- ------------------------------------
By: /s/ Davidi Gilo
-------------------------------
-11-
<PAGE>
Name of Stockholder:
Michael J. Kolesar
- ------------------------------------
By: /s/ Michael J. Kolesar
-------------------------------
2/29/96
-------------------------------
Name of Stockholder:
/s/ John B. Landry
- ------------------------------------
By: John B. Landry
-----------------------------
Name of Stockholder:
Derek Lemke-von Ammon
- ------------------------------------
By: /s/ Derek Lemke-von Ammon
-------------------------------
-12-
<PAGE>
Name of Stockholder:
RRE GIGA INVESTORS II, L.P.
By: RRE PARTNERS, L.L.C.,
as General Partner
- ------------------------------------
By: RRE Investors, L.L.C.,
as Managing Member
By: /s/ Stuart J. Ellman
-------------------------------
Title: Class A Member
----------------------------
Name of Stockholder:
Cornelius T. Ryan
- ------------------------------------
By: /s/ Cornelius T. Ryan
-------------------------------
Title: Individual
----------------------------
Name of Stockholder:
Frederick G. Smith
- ------------------------------------
By: /s/ Frederick G. Smith
-------------------------------
Title: Sup. Sales
----------------------------
Name of Stockholder:
Susan Tracy Wheeler
- ------------------------------------
By: /s/ Susan Tracy Wheeler
-------------------------------
-13-
<PAGE>
21st. Century Communications Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
----------------------------
Irwin Lieber
Title: Treasurer
21st. Century Communications Foreign Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
----------------------------
Irwin Lieber
Title: Treasurer
21st. Century Communications T-E Partners, L.P.
By: Infomedia Associates, Ltd., a General Partner
By: /s/ Irwin Lieber
----------------------------
Irwin Lieber
Title: Treasurer
Name of Stockholder:
S.G. Partners L.P.
- --------------------------------
By: /s/ Seymour Goldblatt
----------------------------
Title:
--------------------------
-14-
<PAGE>
Lagunitas Partners, L.P.
By: /s/ John Gruber, Its General Partner
----------------
Gruber & McBaine International
By: /s/ J. Patterson McBaine
---------------------------------------
Jon D. Gruber
/s/ John Gruber
- -----------------------------------------
(Jon D. Gruber)
J. Patterson McBaine
/s/ J. Patterson McBaine
- -----------------------------------------
(J. Patterson McBaine)
Derek Lemke-von Ammon
/s/ Derek Lemke-von Ammon
- -----------------------------------------
(Derek Lemke-von Ammon)
Haussmann Holdings:
By: /s/ Dana Schmidt
--------------------------------------
Title: Dana Schmidt
-----------------------------------
Montgomery Growth Partners, L.P.
By: Montgomery Asset Management, its G.P.
-------------------------------------
By: /s/ Dana Schmidt
-------------------------------------
Title: Principal
----------------------------------
-15-
<PAGE>
Quota Fund, N.V.
By: /s/ Dana Schmidt
----------------------------
Title: Principal
-------------------------
Montgomery Small Cap Partners III, L.P.
By: /s/ Keith High , its General Partner
----------------------------
By: Keith High
----------------------------
Title: General Partner
-------------------------
RRE Giga Investors, L.P.
By: RRE Investors L.L.C., its General Partner
By: /s/ Stuart Ellman
----------------------------
Title: Managing Director
-------------------------
Kensington Partners L.P.
By: /s/ Richard Keim, , Its General Partner
----------------------------
By: Dick Keim
----------------------------
Title: G.P.
-------------------------
-16-
<PAGE>
Name of Stockholder:
The Matrix Technology Group N.V.
- --------------------------------------
By: /s/ Seymour Goldblatt
-----------------------------------
Title: Managing Director
-------------------------------
Name of Stockholder:
Core Technology Fund Inc.
- --------------------------------------
By: /s/ Seymour Goldblatt
----------------------------------
Title: Managing Director
-------------------------------
Name of Stockholder:
Executive Technology L.P.
- --------------------------------------
By: /s/ Seymour Goldblatt
----------------------------------
Title: Pres. of S/2/ Tech which is
--------------------------------
Gen'l Ptr. of Exec. Tech.
Name of Stockholder:
Yale University
- --------------------------------------
By: /s/ Seymour Goldblatt
----------------------------------
Title: President of S/2/ Tech
-------------------------------
-17-
<PAGE>
Name of Stockholder:
Yale University Retirement Plan for Staff Employees
- -------------------------------------------------
By: /s/ Seymour Goldblatt
---------------------------------------------
Title: President of S2 Tech
------------------------------------------
Name of Stockholder:
Sci-Tech Investment Partners L.P.
- -------------------------------------------------
By: /s/ Seymour Goldblatt
---------------------------------------------
Title: President of S2 Tech
------------------------------------------
which is Gen'l Ptr of Sci-Tech
Name of Stockholder:
Montsol Investments N.V.
- -------------------------------------------------
By: /s/ Seymour Goldblatt
---------------------------------------------
Title: Managing Director
------------------------------------------
Montgomery Small Cap
Partners II, L.P.
By: /s/ Keith High
---------------------------------------------
-18-
<PAGE>
Name of Stockholder:
Acorn Fund
- ------------------------------------
By: /s/ Bruce H. Lauer
--------------------------------
Title: Treasurer
-----------------------------
Name of Stockholder:
Nosrob Investments Ltd.
- ------------------------------------
By: /s/ Dana Schmidt
--------------------------------
Title: Dana Schmidt - Principal
-----------------------------
Name of Stockholder:
Adam J. Brownstein
- ------------------------------------
By: /s/ Adam J. Brownstein
--------------------------------
Name of Stockholder:
Todd D. Brownstein
- ------------------------------------
By: /s/ Todd D. Brownstein
--------------------------------
Name of Stockholder:
Emily G. Hamilton
- ------------------------------------
By: Neill H. Brownstein, Father
Name of Stockholder:
Will P. Gordon
- ------------------------------------
By: /s/ Will P. Gordon
--------------------------------
-19-
<PAGE>
EXHIBIT 10.8
GIGA INFORMATION GROUP, INC.
- --------------------------------------------------------------------------------
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
April 6, 1998
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS............................................... 1
-------------------------------------------------
1.1 Authorization.......................................................................... 1
-------------
1.2 Agreement to Purchase and Sell Stock................................................... 1
------------------------------------
1.3 Agreement to Purchase and Sell Warrants................................................ 1
---------------------------------------
2. CLOSING......................................................................................... 2
-------
2.1 The Closing............................................................................ 2
-----------
2.2 Additional Closing..................................................................... 2
------------------
(a) Conditions of Additional Closing.............................................. 2
--------------------------------
(b) Amendments.................................................................... 2
----------
(c) Status of New Investors....................................................... 3
-----------------------
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................... 3
---------------------------------------------
3.1 Organization, Good Standing and Qualification.......................................... 3
---------------------------------------------
3.2 Authorization.......................................................................... 3
-------------
3.3 Valid Issuance of Shares and Conversion Shares......................................... 4
----------------------------------------------
3.4 Capitalization......................................................................... 4
--------------
(a) Preferred Stock............................................................... 4
---------------
(b) Common Stock.................................................................. 5
------------
(c) Options, Warrants, Reserved Shares............................................ 5
----------------------------------
(d) Capital Structure Table; Investors' Ownership Percentage...................... 6
--------------------------------------------------------
3.5 Subsidiaries........................................................................... 7
------------
3.6 Governmental Consents.................................................................. 7
---------------------
3.7 Contracts and Other Commitments........................................................ 7
-------------------------------
3.8 Litigation............................................................................. 7
----------
3.9 Proprietary Assets..................................................................... 7
------------------
3.10 Compliance with Law and Charter Documents.............................................. 8
-----------------------------------------
3.11 Registration Rights.................................................................... 8
-------------------
3.12 Financial Statements................................................................... 8
--------------------
3.13 Disclosure............................................................................. 9
----------
3.14 Certain Actions........................................................................ 9
---------------
3.15 Activities Since Balance Sheet Date.................................................... 9
-----------------------------------
3.16 Employee Benefit Plans................................................................. 9
----------------------
3.17 Tax Returns; Payments and Elections.................................................... 9
-----------------------------------
3.18 Related Party Transactions............................................................. 9
--------------------------
3.19 Status of Certain Agreements........................................................... 10
----------------------------
3.20 Year 2000 Compliance................................................................... 10
--------------------
</TABLE>
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4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF
INVESTORS....................................................................................... 10
4.1 Authorization.......................................................................... 10
4.2 Purchase for Own Account............................................................... 10
4.3 Disclosure of Information.............................................................. 11
4.4 Investment Experience.................................................................. 11
4.5 Accredited Investor Status............................................................. 11
4.6 Restricted Securities.................................................................. 11
4.7 Further Limitations on Disposition..................................................... 12
4.8 Legends................................................................................ 12
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING................................................. 13
-----------------------------------------------
5.1 Representations and Warranties True.................................................... 13
-----------------------------------
5.2 Performance............................................................................ 13
-----------
5.3 Certificate of Designations Effective.................................................. 13
-------------------------------------
5.4 Compliance Certificate................................................................. 13
----------------------
5.5 Securities Exemptions.................................................................. 13
---------------------
5.6 Proceedings and Documents.............................................................. 14
-------------------------
5.7 No Material Change..................................................................... 14
------------------
5.8 Opinion of Counsel..................................................................... 14
------------------
5.9 Minimum Shares Purchased............................................................... 14
------------------------
5.10 Registration Rights Amendment; Voting Rights Amendment................................. 14
------------------------------------------------------
5.11 FBR Financing.......................................................................... 14
-------------
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.............................................. 14
--------------------------------------------------
6.1 Representations and Warranties......................................................... 14
------------------------------
6.2 Payment of Purchase Price.............................................................. 15
-------------------------
6.3 Certificate of Designations Effective.................................................. 15
-------------------------------------
6.4 Securities Exemptions.................................................................. 15
---------------------
6.5 Minimum Shares Purchased............................................................... 15
------------------------
6.6 Registration Rights Amendment; Voting Rights Amendment................................. 15
------------------------------------------------------
6.7 FBR Financing
-------------
7. COVENANTS OF THE COMPANY........................................................................ 15
------------------------
7.1 Delivery of Financial Statements....................................................... 15
--------------------------------
7.2 Inspection............................................................................. 16
----------
7.3 Key Man Insurance...................................................................... 16
-----------------
7.4 Giga Advisory Service.................................................................. 16
---------------------
8. MISCELLANEOUS................................................................................... 17
-------------
8.1 Survival of Warranties and Covenants................................................... 17
------------------------------------
8.2 Successors and Assigns................................................................. 18
----------------------
8.3 Governing Law.......................................................................... 18
-------------
</TABLE>
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8.4 Counterparts........................................................................... 18
------------
8.5 Headings............................................................................... 18
--------
8.6 Notices................................................................................ 18
-------
8.7 Expenses............................................................................... 19
--------
8.8 No Finder's Fees....................................................................... 19
----------------
8.9 Amendments and Waivers................................................................. 19
----------------------
8.10 Severability........................................................................... 19
------------
8.11 Entire Agreement....................................................................... 20
----------------
8.12 Publicity.............................................................................. 20
---------
8.13 Further Assurances..................................................................... 20
------------------
</TABLE>
<TABLE>
<S> <C>
Exhibit A - Schedule of Investors
Exhibit B - Certificate of Designations
Exhibit C - Form of Warrant
Exhibit D - Amendment No. 3 to Registration Rights Agreement
Exhibit E - Amendment No. 4 and Waiver to Amended and Restated Investor
Rights and Voting Agreement
Exhibit F - Schedule of Exceptions
Exhibit G - Fourth Amended and Restated Certificate
Exhibit H - Capital Structure Table; Investors' Ownership Percentage
Exhibit I - List of Subsidiaries
Exhibit J - Financial Statements
Exhibit K - Opinion of Weil, Gotshal & Manges LLP
</TABLE>
iii
<PAGE>
GIGA INFORMATION GROUP, INC.
SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This SERIES D PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
(this "Agreement") is made and entered into as of April 6, 1998 by and among
Giga Information Group, Inc., a Delaware corporation (the "Company"), and the
parties listed on the Schedule of Investors attached to this Agreement as
Exhibit A (each hereinafter individually referred to as an "Investor" and
collectively referred to as the "Investors").
RECITAL
A. The Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, shares of the Company's Series
D Preferred Stock and Warrants to purchase shares of the Company's Series D
Preferred Stock on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS.
1.1 Authorization. As of the Closing (as defined below) the
Company will have authorized the issuance, pursuant to the terms and
conditions of this Agreement, of the shares of the Company's Series D
Preferred Stock, $.001 par value (the "Series D Stock") to be sold by it
pursuant to this Agreement, having the rights, preferences, privileges and
restrictions set forth in the Certificate of Designations of Series D
Preferred Stock of Giga Information Group, Inc. as attached to this Agreement
as Exhibit B (the "Certificate of Designations") and the sale and issuance of
the warrants to purchase shares of the Company's Series D Stock (the
"Warrants").
1.2 Agreement to Purchase and Sell Stock. The Company agrees
to sell to each Investor at the Closing, and each Investor agrees, severally
and not jointly, to purchase from the Company at the Closing, the number of
shares of Series D Stock set forth beside such Investor's name on Exhibit A at
a price of $7.00 per share. The shares of Series D Stock purchased and sold
pursuant to this Agreement will be collectively hereinafter referred to as the
"Purchased Shares".
1.3 Agreement to Purchase and Sell Warrants. The Company
agrees to issue to each Investor 0.54 Warrants for each Purchased Share
purchased by such Investor, each Warrant exercisable to purchase from the
Company one share of Series D Stock at an exercise price of $9.00 per share.
The Warrants shall be issued upon the
1
<PAGE>
terms and subject to the conditions set forth in the form of Warrant attached
hereto as Exhibit C.
The shares of Series D Stock (or Common Stock, if applicable)
issuable upon exercise of the Warrants will be hereinafter referred to as the
"Warrant Shares". The Purchased Shares and the Warrant Shares will be
hereinafter collectively referred to as the "Shares" and the shares of the
Company's Common Stock, $.001 par value per share, issuable upon conversion of
the Purchased Shares and the Warrant Shares will be hereinafter collectively
referred to as the "Conversion Shares."
2. CLOSING.
2.1 The Closing. The purchase and sale of the Purchased
Shares will take place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth
Avenue, New York, NY 10153 at 10:00 a.m., April 6, 1998 or at such other time
and place as the Company and Investors who have agreed to purchase a majority
of the Purchased Shares listed on Exhibit A mutually agree (which time and
place are referred to in this Agreement as the "Closing"). At the Closing, the
Company will deliver to each Investor a certificate representing the number of
Purchased Shares that such Investor has agreed to purchase hereunder as shown
on Exhibit A and the Warrants that such Investor is entitled to receive in
accordance with the terms set forth in Section 1.3, and each Investor shall
pay to the Company the full purchase price of such Purchased Shares by wire
transfer of immediately available funds to the Company.
2.2 Additional Closing.
-------------------
(a) Conditions of Additional Closing. At any time
or times within ninety (90) days immediately following the Closing, the Company
may, at one or more closings (each an "Additional Closing"), without obtaining
the signature, consent or permission of any of the Investors, offer and sell to
other investors ("New Investors"), at a price of not less than $7.00 per
share, up to that number of shares of Series D Stock that is equal to 357,143
shares of Series D Stock less the number of shares of Series D Stock actually
issued and sold by the Company prior to such Additional Closing pursuant to
this Agreement, and such New Investors shall be entitled to receive Warrants,
if any, on the same terms and conditions as are set forth in this Agreement.
New Investors may include persons or entities who are already Investors under
this Agreement.
(b) Amendments. The Company and the New Investors
purchasing Series D Stock and Warrants at any Additional Closing will execute
counterpart signature pages to (i) this Agreement; (ii) Amendment No. 3 to
Registration Rights Agreement dated as of the date hereof, a copy of which is
attached hereto as Exhibit D (the "Registration Rights Amendment"), which
amends the Registration Rights Agreement dated November 13, 1995, as amended
(as amended by the Registration Rights Amendment, the "Registration Rights
Agreement"); and (iii) Amendment No. 4
2
<PAGE>
and Waiver to Amended and Restated Investor Rights and Voting Agreement dated
as of the date hereof, a copy of which is attached hereto as Exhibit E (the
"Voting Rights Amendment"), which amends the Amended and Restated Investor
Rights and Voting Agreement dated November 13, 1995, as amended (as amended by
the Voting Rights Amendment, the "Voting Rights Agreement"), and such New
Investors will, upon delivery to the Company of such signature pages, become
parties to, and bound by, this Agreement, the Registration Rights Agreement
and the Voting Rights Agreement, each to the same extent as if they had been
Investors at the Closing. Immediately after any Additional Closing, Exhibit A
to this Agreement will be amended by the Company to list the New Investors
purchasing shares of Series D Stock and Warrants under this Agreement at the
Additional Closing.
(c) Status of New Investors. Upon the completion
of the Additional Closing as provided in this Section 2, each New Investor will
be deemed to be an "Investor" for all purposes of this Agreement and the
Registration Rights Agreement and a "Series D Purchaser" for purposes of the
Voting Rights Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions ("Schedule of Exceptions") attached to this Agreement
as Exhibit F the statements in the following paragraphs of this Section 3 are
all true and correct:
3.1 Organization, Good Standing and Qualification. The
Company is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, has all requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, the Registration Rights Amendment, the Voting Rights
Amendment and the Warrants, to issue and sell the Shares, to issue the
Conversion Shares, and to carry out the provisions of this Agreement, the
Registration Rights Amendment, the Voting Rights Amendment, the Warrants and
the Certificate of Designations. Except as set forth in Section 3.1 of the
Schedule of Exceptions, the Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on the business, properties, financial
condition or prospects of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect").
3.2 Authorization. All corporate action on the part of the
Company and its officers, directors, and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Registration
Rights Amendment, the Voting Rights Amendment and the Warrants, the
performance of all obligations of the Company hereunder and thereunder, as the
case may be, and the authorization, issuance, sale, and delivery of the Shares
and the authorization and registration for issuance of Conversion Shares has
been duly taken or will be taken prior to the Closing or the applicable
3
<PAGE>
Additional Closing, as the case may be, and this Agreement, the Registration
Rights Amendment and the Voting Rights Amendment constitute, and the Warrants
(when executed and delivered by the Company) will constitute, valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies and (iii) to the extent the
indemnification provisions contained in the Registration Rights Agreement, may
be limited by applicable federal or state securities laws.
3.3 Valid Issuance of Shares and Conversion Shares.
(a) The Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Registration Rights Agreement and the Voting Rights
Agreement and under applicable state and federal securities laws. The Conversion
Shares have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Certificate of Designations, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement, the
Registration Rights Agreement and the Voting Rights Agreement and under
applicable state and federal securities laws.
(b) Based in part on the representations made by the
Investors in Section 4 hereof, the Shares and (assuming no change in applicable
law and no unlawful distribution of Shares by Investors or other parties) the
Conversion Shares will be issued in full compliance with applicable U.S. state
and federal securities laws (provided that with respect to the Conversion
Shares, no commission or other remuneration is paid or given, directly or
indirectly, for soliciting the issuance of Conversion Shares upon the conversion
of the Shares and no additional consideration is paid for the Conversion Shares
other than surrender of the applicable Shares upon conversion thereof in
accordance with the Certificate of Designations).
3.4 Capitalization. As of the date hereof, the capitalization
of the Company consists of the following:
(a) Preferred Stock. A total of Sixteen Million Five
Hundred Thousand (16,500,000) authorized shares of preferred stock, $.001 par
value per share (the "Preferred Stock"), consisting of (i) Six Hundred Fifty
Thousand (650,000) shares designated as Series A Preferred Stock (the "Series A
Stock"), of which 570,000 shares are validly issued and outstanding, fully paid
and nonassessable, (ii) Nine Million (9,000,000) shares designated as Series B
Preferred Stock ("Series B Stock"), of which
4
<PAGE>
8,144,642 shares are validly issued and outstanding, fully paid and
nonassessable, (iii) Four Million Five Hundred Thousand (4,500,000) shares
designated as Series C Preferred Stock ("Series C Stock"), of which 2,609,491
shares are validly issued and outstanding, fully paid and nonassessable and
(iv) Two Million (2,000,000) shares designated as Series D Preferred Stock
("Series D Stock"), of which 214,286 shares will be validly issued and
outstanding, fully paid and nonassessable immediately following the Closing.
The rights, preferences and privileges of the Series A Stock, Series B Stock,
Series C Stock and Series D Stock are as stated in the Fourth Amended and
Restated Certificate of Incorporation of the Company as attached to this
Agreement as Exhibit G and in the Certificate of Designations and as provided
by law.
(b) Common Stock. A total of Fifty Million
(50,000,000) authorized shares of common stock, $.001 par value per share (the
"Common Stock"), of which 6,392,425 shares are validly issued and outstanding,
fully paid and nonassessable.
(c) Options, Warrants, Reserved Shares. Except for:
(i) the conversion privileges of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock;
(ii) the Three Million One Hundred Thousand (3,100,000)
shares of Common Stock reserved for issuance under
the Company's 1995 Stock Option/Stock Issuance
Plan, of which there are options outstanding to
purchase 2,038,453 shares of Common Stock and
549,727 shares of Common Stock reserved for
issuance;
(iii) the Three Million (3,000,000) shares of
Common Stock reserved for issuance under
the Company's 1996 Stock Option Plan, of
which there are options outstanding to
purchase 1,849,721 shares of Common Stock
and 1,149,509 shares of Common Stock
reserved for issuance;
(iv) the One Hundred Fifty Thousand (150,000) shares of
Common Stock reserved for issuance under the 1997
Director Stock Option Plan, of which there are
options outstanding to purchase 36,000 shares of
Common Stock and 114,000 shares of Common Stock
reserved for issuance.
(v) options to purchase 780,000 shares of Common Stock
granted under separate contractual arrangements;
(vi) warrants to purchase an aggregate of 107,876 shares
of Series B Stock;
5
<PAGE>
(vii) warrants to purchase an aggregate of 1,409,125 shares
of Series C Stock;
(viii) warrants to purchase an aggregate of
115,714 shares of Series D Stock to be
outstanding immediately following the
Closing;
(ix) convertible notes to be dated April 7, 1998 which
are convertible, under certain circumstances, into
up to 1,428,571 shares of Series D Preferred Stock
and warrants to purchase up to 1,542,857 shares of
Common Stock;
(x) warrants to purchase an aggregate of 500,000 shares
of Common Stock to be issued April 7, 1998;
(xi) convertible notes dated April 5, 1995 which are
convertible into an aggregate of 185,298 shares of
Common Stock; and
(xii) a convertible note dated December 31, 1995
which is convertible, as of March 31,
1998, into 51,429 shares of Common Stock;
and except as set forth in Section 3.4 of the Schedule of Exceptions, there
are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into
or ultimately exchangeable or exercisable for any shares of the Company's
capital stock. Apart from the exceptions noted in this Section 3.4(c), and
except for rights of repurchase and rights of first refusal held by the
Company to repurchase shares of its stock issued to founders and employees of
the Company, no shares of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options, warrants or
rights, or other stock issuable by the Company, are subject to any preemptive
rights or rights of first refusal or other rights to purchase such stock
(whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company, and, to the Company's knowledge, no
officer, director or holder of the Company's Common Stock is a party to any
voting agreement or voting trust other than the Voting Rights Agreement.
(d) Capital Structure Table; Investors' Ownership
Percentage. Exhibit H attached hereto contains a common stock equivalent capital
structure table of the Company immediately after the Closing. As indicated on
Exhibit H, the securities issued to the Investors at Closing (including the
Warrant Shares) shall be equal to approximately 2.3% of the total number of
shares of Common Stock outstanding on a fully-diluted basis immediately after
the Closing (including shares of Common Stock issuable upon exercise or
conversion of outstanding options, warrants, notes and convertible preferred
stock).
6
<PAGE>
3.5 Subsidiaries. Exhibit I attached hereto contains a
listing of all of the Company's subsidiaries. The Company beneficially owns or
has the right to acquire all of the outstanding capital stock of each of its
subsidiaries.
3.6 Governmental Consents. No consent, approval,
qualification, order or authorization of, or filing with, any local, state, or
federal governmental authority is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of
this Agreement, the offer, sale or issuance of the Shares by the Company or
the issuance of the Conversion Shares, except (i) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, and (ii) such filings as have been or will be made prior to the
Closing, except that any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act,
or such post-closing filings as may be required under applicable state
securities laws, which will be timely filed within the applicable periods
therefor.
3.7 Contracts and Other Commitments. Except as set forth in
Section 3.7 of the Schedule of Exceptions or as described in the notes to the
Financial Statements (as defined in Section 3.12), the Company has no material
contract, agreement, lease, commitment or proposed transaction, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that do not involve more than $100,000, and do not
extend for more than one (1) year beyond the date hereof, (ii) contracts
entered into in the ordinary course of business, (iii) contracts terminable at
will by the Company on no more than thirty (30) days notice without cost or
liability to the Company which are not material to the conduct of the
Company's business, and (iv) employment or consulting agreements with persons
who are not directors or executive officers of the Company. The Company does
not have a collective bargaining agreement with any of its United States
employees.
3.8 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, or their
activities, properties or assets or, to the best of the Company's knowledge,
against any officer or director of the Company or its subsidiaries in
connection with such officer's, director's or employee's relationship with, or
actions taken on behalf of, the Company or any of its subsidiaries or
questioning the validity of this Agreement or any action taken or to be taken
in connection herewith that would have a Material Adverse Effect. The Company
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action by the Company currently pending or which the Company has
threatened, and intends, to initiate.
3.9 Proprietary Assets. Except as set forth in Section 3.9
of the Schedule of Exceptions, to the Company's knowledge, the Company has
full title and ownership of, or is duly licensed under or otherwise authorized
to use, all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets,
7
<PAGE>
confidential and proprietary information, designs and proprietary rights
necessary to enable it to carry on its business as now conducted (the
"Proprietary Assets") and has or expects in good faith to be able to obtain or
create the Proprietary Assets necessary to carry on its business as proposed
to be conducted, without, to the best of its knowledge, any conflict with or
infringement of the rights of others, where the same would have a Material
Adverse Effect. Neither the Company nor, to its knowledge, any of its
subsidiaries, has granted any options, licenses or agreements of any kind
giving any third party any exclusive rights to any material Proprietary Assets
of the Company. Except as set forth in Section 3.10 of the Schedule of
Exceptions, the Company has not received any communications alleging that the
Company has violated or, by conducting its business as now conducted and as
proposed to be conducted, would violate any of the patents, trademarks,
including the name "Giga", service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity.
3.10 Compliance with Law and Charter Documents. The Company
is not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended, and to the best of the Company's
knowledge, except for any violations that would have no Material Adverse
Effect, the Company is in compliance with all indentures, instruments or
agreements by which it is bound, all applicable statutes, laws, regulations
and executive orders of the United States of America (including securities
laws as to previous issuances of securities), and all states, foreign
countries or other governmental bodies and agencies having jurisdiction over
its business or properties.
3.11 Registration Rights. Except as provided in the
Registration Rights Agreement, the Company has not granted or agreed to grant
to any person or entity any rights (including piggyback registration rights)
to have any securities of the Company registered with the United States
Securities and Exchange Commission ("SEC") or any other governmental
authority.
3.12 Financial Statements. The unaudited statements of
operations, cash flows and balance sheets of the Company as of December 31,
1997 and for the twelve (12) month period then ended, which are attached to
this Agreement as Exhibit J (the "Financial Statements"), of the Company are
in accordance with the books and records of the Company and fairly set forth
the consolidated operating results and financial condition of the Company for
the twelve-month period then ended, subject to normal year-end audit
adjustments. The Company will use its best efforts to furnish to the Investors
as soon as is practicable, and in no event later than April 30, 1998, audited
financial statements for the year ended December 31, 1997. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP"). Except as set forth or reserved for in the Financial
Statements or the notes thereto, the Company has no liabilities, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1997, (ii) liabilities not in excess of $100,000 in the
aggregate, and (iii) liabilities incurred in the ordinary course of business
and not required
8
<PAGE>
under GAAP to be reflected in the Financial Statements, other than contingent
liabilities in excess of $50,000.
3.13 Disclosure. This Agreement does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements herein or therein, under the circumstances under which
they were made, not misleading when taken as a whole.
3.14 Certain Actions. Except as set forth in Section 3.14 of
the Schedule of Exceptions, since December 31, 1997, the Company has not (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock and (ii) has not (A)
sold, exchanged or otherwise disposed of any material assets or rights other
than in the ordinary course of business, or (B) entered into any material
transactions with any of its officers, directors or employees or any entity
controlled by any of such individuals.
3.15 Activities Since Balance Sheet Date. To the best of the
Company's knowledge, since December 31, 1997, there has not been any event or
condition of any type that has had or would reasonably be expected to have a
Material Adverse Effect, other than continuing losses incurred in connection
with the Company's development and introduction of its new services.
3.16 Employee Benefit Plans. The Company has no outstanding
liabilities or accrued and unpaid funding obligations with respect to any
Employee Benefit Plan (as defined in Section 3 of the Employee Retirement
Income Security Act of 1974), except as disclosed in the Financial Statements.
3.17 Tax Returns; Payments and Elections. Except as
disclosed in Section 3.17 of the Schedule of Exceptions, the Company has filed
all United States federal and, to its knowledge, state tax returns and reports
as required by law, and, to its knowledge, these returns and reports are true
and correct in all material respects, except in each case where the same would
not have a Material Adverse Effect or where adequate reserves therefor have
been reflected in the Financial Statements. The Company has not been notified,
nor does it otherwise have knowledge that, it is currently the subject of any
ongoing audit by federal or state tax authorities. The Company has paid all
taxes and other assessments shown on such returns as due, except those
contested by it in good faith.
3.18 Related Party Transactions. Except as set forth in
Section 3.18 of the Schedule of Exceptions, no executive officer or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them; and, to the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with
9
<PAGE>
which the Company has a material business relationship, or any firm or
corporation that competes with the Company, except through ownership of stock
in publicly traded companies.
3.19 Status of Certain Agreements. As of the date hereof, no
customers have canceled, or threatened to cancel, any services provided to
them by the Company that would have a Material Adverse Effect.
3.20 Year 2000 Compliance. Except as set forth in Section
3.20 of the Schedule of Exceptions, all information technology presently
expected to be used by the Company following December 31, 1999 in the
administration and the business operations of the Company, including, without
limitation, in all products and services (i) provided by the Company, whether
to third parties or for internal use, or (ii) to the best of the Company's
knowledge, used in combination with any information technology of its clients,
customers, suppliers or vendors, accurately processes or will process date and
time data (including, but not limited to calculating, comparing and
sequencing) from, into and between the years 1999 and 2000 and the twentieth
century and the twenty-first century, including leap year calculations, and
neither performance nor functionality of such technology will be affected by
dates prior to, during and after the year 2000. The Company has no obligations
under warranty agreements, service agreements or otherwise to remedy any
information technology defect relating to the year 2000.
4. REPRESENTATIONS WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS.
Each Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. This Agreement, the Registration Rights
Amendment and the Voting Rights Amendment constitute such Investor's valid and
legally binding obligations, enforceable in accordance with their respective
terms except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies. Each Investor represents
that such Investor has full power and authority to enter into this Agreement,
the Registration Rights Amendment and the Voting Rights Amendment.
4.2 Purchase for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Shares to be purchased by such Investor and the Conversion
Shares issuable upon conversion thereof are being acquired for investment for
such Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any
10
<PAGE>
person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Shares and/or the Conversion Shares.
4.3 Disclosure of Information. Such Investor has received or
has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Shares
to be purchased by such Investor under this Agreement. Such Investor further
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares and to obtain
additional information (to the extent the Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to
verify any information furnished to such Investor or to which such Investor
had access. The foregoing, however, does not in any way limit or modify the
representations and warranties made by the Company in Section 3.
4.4 Investment Experience. Such Investor understands and
acknowledges that the purchase of the Shares involves substantial risk. Such
Investor: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that such Investor is able to fend for
itself, can bear the economic risk of such Investor's investment in the Shares
and has such knowledge and experience in financial or business matters that
such Investor is capable of evaluating the merits and risks of this investment
in the Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables such Investor to be aware of the
character, business acumen and financial circumstances of such persons.
4.5 Accredited Investor Status. Such Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act.
4.6 Restricted Securities. Each Investor understands that
the Shares and the Conversion Shares are characterized as "restricted
securities" under the Securities Act inasmuch as they are being acquired from
the Company in a transaction not involving a public offering and that under
the Securities Act and applicable regulations thereunder such securities may
be resold without registration under the Securities Act only in certain
limited circumstances. In this connection, such Investor represents that such
Investor is familiar with Rule 144 of the U.S. Securities and Exchange
Commission, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act. Such Investor understands that the
Company is under no obligation to register any of the securities sold
hereunder (or any securities issuable upon conversion thereof) except as
provided in the Registration Rights Agreement. Such Investor understands that
no public market now exists for any of the Shares or the Conversion Shares and
that it is uncertain whether a public market will ever exist for the Shares or
the Conversion Shares.
11
<PAGE>
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(b) (i) such Investor shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition, and (ii)
such Investor shall have furnished the Company, at the expense of such Investor
or its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Shares or Conversion Shares in compliance with SEC Rule 144 or
Rule 144A, or (ii) for any transfer of Shares or Conversion Shares by an
Investor that is a partnership or a corporation to (A) a partner of such
partnership or shareholder of such corporation, (B) a retired partner of such
partnership who retires after the date hereof, (C) the estate of any such
partner or shareholder, or (iii) for the transfer by gift, will or interstate
succession by any Investor to his or her spouse or lineal descendants or
ancestors or any trust for any of the foregoing; provided that in each of the
foregoing cases the transferee agrees in writing to be subject to the terms of
this Section 4 (other than Section 4.5) to the same extent as if the
transferee were an original Investor hereunder.
4.8 Legends. It is understood that the certificates
evidencing the Shares and the Conversion Shares will bear the legends set
forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
12
<PAGE>
(b) Any legend required by the laws of the State of
Delaware or any other state securities laws.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Shares or Conversion Shares upon delivery to the
Company of an opinion by counsel, reasonably satisfactory to the Company, that
a registration statement under the 1933 Act is at that time in effect with
respect to the legended security or that such security can be freely
transferred in a public sale without such a registration statement being in
effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Shares or
Conversion Shares.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each Investor under Section 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against any Investor
who does not consent to such waiver.
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
5.2 Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
5.3 Certificate of Designations Effective. The Certificate
of Designations shall have been duly adopted by the Company by all necessary
corporate action of its Board of Directors, and shall have been duly filed
with and accepted by the Secretary of State of the State of Delaware.
5.4 Compliance Certificate. The Company shall have delivered
to each Investor at the Closing a certificate signed on its behalf by its
President, Chief Executive Officer or Chief Financial Officer certifying, on
behalf of the Company, that the conditions specified in Sections 5.1, 5.2 and
5.3 have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company not previously disclosed to the Investors
in writing.
5.5 Securities Exemptions. The offer and sale of the Shares
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of
13
<PAGE>
the Securities Act and the registration and/or qualification requirements of
all applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to counsel for the Investors, which shall have received all such
counterpart originals and certified or other copies of such documents as it
may reasonably request.
5.7 No Material Change. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company.
5.8 Opinion of Counsel. The Investors shall have received
the opinion of Weil, Gotshal & Manges LLP, dated the date of the Closing, as
to the matters set forth in Exhibit K.
5.9 Minimum Shares Purchased. A minimum of 214,286 shares of
Series D Stock shall be purchased by the Investors at the Closing under this
Agreement for a minimum aggregate purchase price of $1.5 million.
5.10 Registration Rights Amendment; Voting Rights Amendment.
The Company and each Investor shall have executed and delivered the
Registration Rights Amendment in the form attached hereto as Exhibit D and the
Voting Rights Amendment in the form attached hereto as Exhibit E.
5.11 FBR Financing. The financing transactions (the "FBR
Financing") by and among the Company and certain affiliates of Friedman,
Billings, Ramsey & Co., Inc., pursuant to which the Company will issue senior
convertible notes in the aggregate principal amount of $10 million and
warrants to purchase 500,000 shares of Common Stock at an exercise price of
$1.00 per share, shall have been consummated.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject
to the fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
warranties of such Investor contained in Section 4 shall be true and correct
on the date of the Closing with the same effect as though such representations
and warranties had been made on and as of the Closing.
14
<PAGE>
6.2 Payment of Purchase Price. Each Investor shall have
delivered to the Company the purchase price specified for such Investor on
Exhibit A in accordance with the provisions of Section 2.
6.3 Certificate of Designations Effective. The Certificate
of Designations shall have been accepted by the Secretary of State of the
State of Delaware.
6.4 Securities Exemptions. The offer and sale of the Shares
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
6.5 Minimum Shares Purchased. A minimum of 214,286 shares of
Series D Stock shall be purchased by the Investors at the Closing under this
Agreement for a minimum aggregate purchase price of $1.5 million.
6.6 Registration Rights Amendment; Voting Rights Amendment.
The Company and each Investor shall have executed and delivered the
Registration Rights Amendment in the form attached hereto as Exhibit D and the
Voting Rights Amendment in the form attached hereto as Exhibit E.
6.7 FBR Financing. The FBR Financing shall have been
consummated.
7. COVENANTS OF THE COMPANY.
7.1 Delivery of Financial Statements.
(a) The Company shall furnish to each Investor as
soon as practicable, but in any event within ninety (90) days after the end of
each fiscal year of the Company, an income statement for such fiscal year, a
balance sheet of the Company and statement of stockholders' equity as of the end
of such year, and a schedule as to the sources and applications of funds for
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with GAAP, and audited by a nationally recognized firm of
independent public accountants selected by the Company and approved by its Board
of Directors.
(b) The Company shall deliver to each Investor as
soon as practicable, but in any event within sixty (60) days after the end of
each of the first three (3) quarters of each fiscal year of the Company, an
unaudited income statement, an unaudited schedule as to the sources and
application of funds for such fiscal quarter and an unaudited balance sheet as
of the end of such fiscal quarter.
(c) The Company shall furnish to each Investor who
(together with Investors which control it, are controlled by it, or are under
common control with it)
15
<PAGE>
holds at least 500,000 common equivalent shares (each a "Major Investor") as
soon as practicable, but in any event within thirty (30) days after the end of
each month, an unaudited income statement and balance sheet as of the end of
such month, in reasonable detail. For purposes of satisfying the threshold set
forth in this Section 7.1(c), the common equivalent share ownership of A.G.W.
Biddle III and Novak Biddle Venture Partners, L.P. shall be aggregated.
(d) The Company shall furnish to each Major
Investor as soon as practicable, but in any event thirty (30) days after the end
of each fiscal year, a budget and business plan for the next fiscal year;
provided, however, that the Company's obligation to furnish a business plan may
be waived by the Board of Directors (either by express waiver or by the failure
of the Board of Directors to request preparation of a business plan); provided,
further that, in the event the budget and business plan for any given fiscal
year are updated on an interim basis, such updated documents shall be provided
to each Major Investor as soon as is practicable after such update.
(e) The Company shall furnish to each Major
Investor as soon as practicable, but in any event thirty days after each fiscal
quarter, a report, by function, setting forth employee turnover.
(f) Notwithstanding any provisions contained in
this Section 7.1 to the contrary, the Company shall not be obligated under this
Section 7.1 to provide information which it deems in good faith to be a trade
secret or similar confidential information.
7.2 Inspection. The Company shall permit each Major
Investor, at such Major Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, and shall provide
such other information as may reasonably be requested by such, all at such
reasonable times as may be requested by the Major Investor; provided, however,
that the Company shall not be obligated pursuant to this Section 7.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information except to Major Investors who
execute a confidentiality agreement in such form as the Company may reasonably
request; provided, further that, such investigations shall in no way impact
the effectiveness of the representations and warranties set forth in Section 3.
7.3 Key Man Insurance. The level of "key man" insurance
shall be reviewed as to appropriateness by the Board of Directors as promptly
as practicable following the Closing Date.
7.4 Giga Advisory Service. The Company shall provide a full
subscription to Giga Advisory Service to each Investor (for use solely by such
Investor and no affiliate of such Investor) so long as such Investor holds a
minimum of 250,000
16
<PAGE>
common equivalent shares. For purposes of satisfying the threshold set forth in
this Section 7.4, the common equivalent share ownership of A.G.W. Biddle III and
Novak Biddle Venture Partners, L.P. shall be aggregated.
8. MISCELLANEOUS.
8.1 Survival of Warranties and Covenants. The
representations, warranties and covenants of the Company and the Investors
contained in or made pursuant to this Agreement shall survive the execution
and delivery of this Agreement and the Closing and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of any
of the Investors, their counsel or the Company, as the case may be. The
Company's obligations under Section 7.1 and 7.2 shall terminate upon the
earliest to occur of the following (a) immediately prior to the closing of an
underwritten public offering (an "IPO") pursuant to a registration statement
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a transaction pursuant to Rule 145 under the Securities Act of
1933, as amended (the "Act")) under the Act covering the Company's Common
Stock, which results in aggregate cash proceeds (prior to underwriters'
commissions and expenses) to the Company and any selling stockholder of at
least $15,000,000, and which has a public offering price of not less than
$5.25 per share (as appropriately adjusted for stock splits, combinations,
reclassifications and the like), (b) immediately prior to the closing of an
IPO which results in aggregate cash proceeds (prior to underwriters'
commissions and expenses) to the Company of at least $30,000,000, which has a
public offering price of not less than $4.00 per share (as appropriately
adjusted for stock splits, combinations, reclassifications and the like) and
which closes on or before January 31, 1999, or (c) upon an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction.
Any indemnification payment by the Company to an Investor in
connection with a breach of the representations, warranties and covenants of
the Company shall include an additional amount so that such Investor suffers
no loss as a result of any diminution in the book value of the stockholders'
equity related to its investment in the Company as a result of such
indemnification payment. Any payment by the Company to an Investor in
connection with a breach of the representations, warranties and covenants of
the company shall be treated for federal income tax purposes as an adjustment
to the price paid by such Investor for the Series D Stock and Warrants
pursuant to this Agreement.
In addition to and without limitation to all other
indemnities in this Agreement, in the event of any breach of the
representation and warranty set forth in the second sentence of Section
3.4(d), the Company shall issue to each Investor, at no cost to
17
<PAGE>
the Investor, an additional amount of Series D Stock such that, if such
issuance were made at the Closing Date, such representation and warranty would
have been true and accurate in all respects when made.
8.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.3 Governing Law. This Agreement shall be governed by and
construed under the internal laws of the State of New York as applied to
agreements among residents of the State of New York entered into and to be
performed entirely within the State of New York, without reference to
principles of conflict of laws or choice of laws.
8.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs, exhibits and schedules shall, unless otherwise provided,
refer to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which exhibits and schedules are incorporated herein by this
reference.
8.6 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at
Giga Information Group, Inc.
One Longwater Circle
Norwell, MA 02061
Attention: Chief Executive Officer
with a copy to:
Gerald S. Backman, P.C.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
18
<PAGE>
or at such other address as any party or the Company may designate by giving
ten (10) days advance written notice to all other parties.
8.7 Expenses. The parties hereto shall each bear their own
respective costs and expenses in connection with this transaction; provided,
however, that, whether or not the transaction contemplated hereby is
consummated, the Company shall, promptly upon request therefor, reimburse the
Investors for their reasonable costs and expenses (including, without
limitation, the fees and expenses of their counsel) in connection with this
transaction and for any expenses of the Investors (including, without
limitation, legal fees and expenses) incurred to enforce this provision, up to
an amount not exceeding $50,000 in the aggregate.
8.8 No Finder's Fees. Except as previously disclosed to the
Investors, each party represents that it neither is nor will be obligated for
any finder's or broker's fee or commission in connection with this
transaction. Each Investor agrees to indemnity and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finders' or broker's fee (and any asserted liability) for which the Investor
or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Investor
from any liability for any omission or compensation in the nature of a
finder's or broker's fee (and any asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
8.9 Amendments and Waivers. Except as specified in Section
2.2, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the holders of Shares and/or Conversion Shares representing at
least a majority of the aggregate number of shares of Common Stock into which
the Shares then are convertible and/or have been converted (excluding any of
such shares that have been sold to the public or pursuant to SEC Rule 144).
Any amendment or waiver effected in accordance with this Section shall be
binding upon each holder of any Shares and/or Conversion Shares at the time
outstanding, each future holder of such securities, and the Company; provided,
however, that no condition set forth in Section 5 may be waived with respect
to any Investor who does not consent thereto; and provided further, that New
Investors may become parties to this Agreement in accordance with Section 2.2
without any amendment of this Agreement or any consent or approval of any
Investor.
8.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
19
<PAGE>
8.11 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
8.12 Publicity. The terms of this Agreement and the
transactions contemplated hereby shall be kept confidential until the parties
hereto mutually agree upon the language and timing of a press release or until
such time as one such party determines, based upon the advice of counsel, that
a public announcement is required by law, in which case the parties hereto
shall in good faith attempt to agree on any public announcements or publicity
statements with respect thereto.
8.13 Further Assurances. From and after the date of this
Agreement, upon the request of any Investor or the Company, the Company and
the Investors shall execute and deliver such instruments, documents or other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
[SIGNATURES BEGIN ON THE NEXT PAGE]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE COMPANY:
- -----------
GIGA INFORMATION GROUP, INC.
By: /s/ Daniel M. Clarke
------------------------------------
Title: Senior Vice President
---------------------------------
THE INVESTORS:
- -------------
NOVAK BIDDLE VENTURE PARTNERS, L.P.
By: Novak Biddle L.L.C., its General Partner
By: /s/ A. G. W. Biddle III
---------------------------------------------
Name: A.G.W. Biddle III
Title: Managing Member
ACORN FUND,
a series of Acorn Investment Trust
By: /s/ Ken Kalina
---------------------------------------------
Name: Ken Kalina
Title:
21
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Series D Shares Cash
Purchased Tendered
----------------- ---------
Investor Name (#) ($)
-------------
<S> <C> <C>
Novak Biddle Venture Partners, L.P. 214,286 1,500,002
Acorn Fund,
a series of Acorn Investment Trust 71,429 500,000
</TABLE>
22
<PAGE>
"[Remainder of Exhibits
Intentionally Omitted.]"
<PAGE>
EXHIBIT 10.9
[EXECUTION COPY]
--------------------------------------
GIGA INFORMATION GROUP, INC.
------------------------------
LOAN AND WARRANT PURCHASE AGREEMENT
------------------------------
April 7, 1998
--------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bridge Loans; Issuance of Warrants................................ 1
1.1 Bridge Loans............................................. 1
1.2 Issuance of Warrants..................................... 1
1.3 Closing.................................................. 2
2. Representations and Warranties of the Company..................... 2
2.1 Organization, Good Standing and Qualification............ 2
2.2 Subsidiaries............................................. 2
2.3 Authorization............................................ 2
2.4 Valid Issuance of Warrant Shares and Conversion Shares... 2
2.5 Compliance with Other Instruments........................ 3
2.6 Governmental Consents.................................... 3
2.7 Capitalization and Voting Rights......................... 3
2.8 Registration Rights...................................... 5
2.9 Permits.................................................. 6
2.10 Litigation............................................... 6
2.11 Title to Property and Assets; Leases..................... 6
2.12 Proprietary Assets....................................... 6
2.13 Employees; Employee Compensation......................... 6
2.14 Tax Returns, Payments and Elections...................... 6
2.15 Insurance................................................ 7
2.16 Environmental and Safety Laws............................ 7
2.17 Minute Books............................................. 7
2.18 ERISA.................................................... 7
2.19 Disclosure............................................... 7
2.20 Financial Statements..................................... 7
2.21 Status of Certain Agreements............................. 8
2.22 Year 2000 Compliance..................................... 8
3. Representations and Warranties of the Lenders..................... 8
3.1 Purchase for Lender's Account............................ 8
3.2 Authorization............................................ 8
4. Conditions of Lenders' Obligations................................ 9
4.1 Representations and Warranties........................... 9
4.2 Performance.............................................. 9
4.3 Compliance Certificate................................... 9
4.4 Proceedings and Documents................................ 9
4.5 Stock Purchase Agreement................................. 9
i.
<PAGE>
Page
----
4.6 Consents, Permits and Waivers............................ 9
4.7 Security Documents....................................... 9
4.8 Opinion of Counsel....................................... 10
4.9 Amendments............................................... 10
4.10 Warrants; Notes.......................................... 10
4.11 Fees etc................................................. 10
5. Affirmative Covenants............................................. 10
5.1 Information Covenants.................................... 10
5.2 Inspection............................................... 11
5.3 Additional Collateral.................................... 11
5.4 Use of Proceeds.......................................... 12
6. Negative Covenants................................................ 12
6.1 Liens.................................................... 12
6.2 Indebtedness............................................. 12
6.3 Consolidation, Merger, Purchase or Sale of Assets, etc... 13
6.4 Dividends................................................ 13
6.5 Loans.................................................... 13
6.6 Limitation on Modifications of Indebtedness.............. 13
7. Events of Default................................................. 13
7.1 Payments................................................. 13
7.2 Representations and Warranties........................... 14
7.3 Institution of Bankruptcy Proceedings.................... 14
7.4 Continuation of Bankruptcy Proceedings................... 14
7.5 Default on Senior Indebtedness........................... 14
7.6 Covenants................................................ 14
7.7 Attachment............................................... 14
7.8 Judgments................................................ 15
7.9 IPO...................................................... 15
7.10 Change of Control........................................ 15
8. Miscellaneous..................................................... 15
8.1 Successors and Assigns................................... 15
8.2 Governing Law............................................ 16
8.3 Counterparts............................................. 16
8.4 Titles and Subtitles..................................... 16
8.5 Notices.................................................. 16
8.6 Entire Agreement......................................... 16
8.7 Amendment and Waiver..................................... 16
ii.
<PAGE>
Page
----
8.8 Severability............................................. 16
8.9 Costs and Expenses....................................... 17
iii.
<PAGE>
Schedule A - Schedule of Lenders
Schedule B - Schedule of Exceptions
Schedule C - Schedule of Consents, Permits and Waivers
Exhibit A - Form of Convertible Promissory Note
Exhibit B - Form of Common Stock Warrant
Exhibit C - Form of Security Agreement
Exhibit D - Series D Stock Purchase Agreement
Exhibit E - Financial Statements
iv.
<PAGE>
LOAN AND WARRANT PURCHASE AGREEMENT
THIS LOAN AND WARRANT PURCHASE AGREEMENT is made as of the 7th
day of April 1998, by and among Giga Information Group, Inc., a Delaware
corporation (the "Company"), and the persons and entities named on the Schedule
of Lenders attached hereto as Schedule A (individually, a "Lender" and,
collectively, the "Lenders").
WITNESSETH THAT:
WHEREAS, the Company has requested that the Lenders make bridge loans
in anticipation of an initial public offering of the Company so as to provide
the Company, pending completion of such initial public offering, with funds for
working capital purposes; and
WHEREAS, the Lenders have agreed to make the bridge loans, subject to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Bridge Loans; Issuance of Warrants.
1.1 Bridge Loans. Subject to the terms and conditions of this
Agreement and pursuant to the convertible promissory notes in the form attached
hereto as Exhibit A (each a "Note" and, collectively, the "Notes"), each Lender
agrees, severally, to lend to the Company the principal amount set forth
opposite such Lender's name on Schedule A hereto (each a "Loan" and,
collectively, the "Loans") at the Closing (as defined below). The obligation of
the Company to repay each Loan shall be evidenced by a Note, dated as of the
Closing, payable to such Lender.
1.2 Issuance of Warrants. Subject to the terms and conditions
of this Agreement and simultaneously with the issuance of a Note to each Lender,
the Company agrees to sell and issue to each Lender at the Closing (as defined
below), a warrant to purchase the number of shares of Common Stock of the
Company ("Common Stock") set forth opposite such Lender's name on Schedule A
hereto on the terms and in the form attached hereto as Exhibit B (each a
"Warrant" and collectively the "Warrants").
<PAGE>
1.3 Closing. The closing of the Loans to the Company and the
issuance of the Warrants to the Lenders hereunder (the "Closing") shall take
place at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York,
New York 10153, at 2:00 P.M. on April 7, 1998, or at such other time and place
as the Company and Lenders mutually agree upon orally or in writing (the
"Closing Date"). At the Closing, the Company shall deliver to each Lender (a) a
Note representing the principal amount as is prescribed in Section 1.1 above and
(b) the Warrants exercisable to purchase that number of shares of capital stock
as is prescribed in Section 1.2 above, and such Lender shall cause to be
delivered to the Company a wire transfer in immediately available funds to the
Company in the aggregate amount of the principal amount of such Lender's Loans
as is prescribed in Section 1.1 above.
2. Representations and Warranties of the Company. Company
hereby represents and warrants to each Lender that:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and proposed to be
conducted. Except as set forth on Schedule B, the Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a material adverse
effect on its business or properties.
2.2 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity except as set forth on Schedule B.
2.3 Authorization. All corporate actions on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Notes, the
Warrants, the Security Documents and the Investor Amendments (as defined in
Section 3.2) (collectively, the "Loan Documents"), and the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Loan Documents have been taken or will be taken
prior to the Closing. The Loan Documents constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies and (iii) with regard to the Notes and this Agreement, as limited by
applicable usury laws.
2.4 Valid Issuance of Warrant Shares and Conversion Shares.
The shares of capital stock issuable upon exercise of the Warrants and the
Additional Common Stock Warrants (as defined in the Notes)(the "Warrant Shares")
and shares of capital stock to be issuable upon conversion of the Notes (the
"Conversion Shares") have been, or will be prior to the Closing,
2.
<PAGE>
reserved for issuance and, when issued upon the exercise of the Warrants and the
conversion of the Notes, will be duly and validly issued, fully paid and
nonassessable and free and clear of any liens and encumbrances and will be
issued in compliance with all applicable federal and state securities laws.
2.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Articles of Incorporation, as
amended (the "Articles"), or Bylaws, as amended (the "Bylaws"), or in any
material respect of any provision of a mortgage, indenture, agreement,
instrument or contract to which it is a party or by which it is bound or of any
federal or state judgment order, writ or decree, or, to its knowledge, of any
statute, rule or regulation applicable to the Company. The execution, delivery
and performance by the Company of the Loan Documents, and the consummation of
the transactions contemplated hereby and thereby, including the issuance and
delivery of the Notes and the Warrants, and the issuance of the Warrant Shares,
will not result in any such violation or be in material conflict with or
constitute, with or without the passage of time or giving of notice, either a
material default under any such provision or an event that results in the
creation of any material lien, charge or encumbrance upon any assets of the
Company (other than the liens under the Security Agreement (as defined in
Section 4.7)) or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any material permit, license, authorization, or approval
applicable to the Company, its business or operations, or any of its assets or
properties.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement; except for (i) the filing with the Secretary of
State of the State of Delaware of the Certificate of Designations of the Series
D Preferred Stock, (ii) such filings as have been or will be made prior to the
Closing, except that any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act, or
such post closing filings as may be required under applicable state securities
laws, which will be timely filed within the applicable periods therefor and
(iii) filings in connection with the perfection of liens on the Collateral
pursuant to the Security Agreement.
2.7 Capitalization and Voting Rights. On the Closing
Date, the authorized capital of the Company will consist of:
a. Preferred Stock. 16,500,000 shares of Preferred
Stock (the "Preferred Stock"), of which 650,000 shares have been designated
Series A Preferred Stock, 570,000 of which are issued and outstanding, 9,000,000
shares have been designated Series B Preferred Stock, 8,144,642 of which are
issued and outstanding, 4,500,000 shares have been designated Series C Preferred
Stock, 2,609,491 of which are issued and outstanding and 2,000,000 shares have
been designated Series D Preferred Stock, 214,286 of which are issued and
outstanding. The rights, privileges and preferences of the Series A, Series B,
Series C and Series D Preferred
3.
<PAGE>
Stock are stated in the Fourth Amended and Restated Certificate of Incorporation
of the Company and the Certificate of Designations.
b. Common Stock. 50,000,000 shares of Common Stock
("Common Stock"), of which 6,392,425 shares are issued and outstanding.
c. Except for:
(i) the conversion privileges of the Series A
Stock, Series B Stock, Series C Stock and
Series D Stock;
(ii) the Three Million One Hundred Thousand
(3,100,000) shares of Common Stock reserved
for issuance under the Company's 1995 Stock
Option/Stock Issuance Plan, of which there
are options outstanding to purchase
2,038,453 shares of Common Stock and 549,727
shares of Common Stock reserved for
issuance;
(iii) the Three Million (3,000,000) shares of
Common Stock reserved for issuance under the
Company's 1996 Stock Option Plan, of which
there are options outstanding to purchase
1,849,721 shares of Common Stock and
1,149,509 shares of Common Stock reserved
for issuance;
(iv) the One Hundred Fifty Thousand (150,000)
shares of Common Stock reserved for issuance
under the 1997 Director Stock Option Plan,
of which there are options outstanding to
purchase 36,000 shares of Common Stock and
114,000 shares of Common Stock reserved for
issuance.
(v) options to purchase 780,000 shares of Common
Stock granted under separate contractual
arrangements;
(vi) warrants to purchase an aggregate of 107,876
shares of Series B Stock;
(vii) warrants to purchase an aggregate of
1,409,125 shares of Series C Stock;
(viii) warrants to purchase an aggregate of 115,714
shares of Series D Stock to be outstanding
immediately following the Closing;
4.
<PAGE>
(ix) the Notes which are convertible, under
certain circumstances, into up to 1,428,571
shares of Series D Preferred Stock and
warrants to purchase up to 1,542,857 shares
of Common Stock;
(x) the Warrants to purchase an aggregate of
500,000 shares of Common Stock;
(xi) convertible notes dated April 5, 1995 which
are convertible into an aggregate of 185,298
shares of Common Stock; and
(xii) a convertible note dated December 31, 1995
which is convertible, as of March 31, 1998,
into 51,429 shares of Common Stock;
and except as set forth on Schedule B, there are not
outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its
capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company's
capital stock. Apart from the exceptions noted in this Section
2.7, and except for rights of repurchase and rights of first
refusal held by the Company to repurchase shares of its stock
issued to founders and employees of the Company, no shares of
the Company's outstanding capital stock, or stock issuable
upon exercise or exchange of any outstanding options, warrants
or rights, or other stock issuable by the Company, are subject
to any preemptive rights or rights of first refusal or other
rights to purchase such stock (whether in favor of the Company
or any other person), pursuant to any agreement or commitment
of the Company, and, to the Company's knowledge, no officer,
director or holder of the Company's Common Stock is party to
any voting agreement or voting trust other than the Voting
Rights Agreement (as defined in Section 4.9).
d. Investors' Ownership Percentage. The securities issued to
the Investors (as defined in the Series D Stock Purchase Agreement) at Closing
(including the Warrant Shares (as defined in the Series D Stock Purchase
Agreement)) shall be equal to approximately 2.3% of the total number of shares
of Common Stock outstanding on a fully diluted basis immediately after the
Closing (including shares of Common Stock issuable upon exercise or conversion
of outstanding options, warrants, notes and convertible preferred stock).
2.8 Registration Rights. The Company is not obligated to
register under the Securities Act of 1933, as amended (the "Securities Act"),
any of its presently outstanding securities or any of its securities that may
subsequently be issued except pursuant to the agreements listed on Schedule B.
5.
<PAGE>
2.9 Permits. The Company has all material franchises, permits,
and licenses necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business of the
Company.
2.10 Litigation. Except as set forth on Schedule B, there is
no action, suit, proceeding or investigation pending or, to the knowledge of the
Company, currently threatened against the Company that questions the validity of
this Agreement or the right of the Company to enter into such agreement, or to
consummate the transactions contemplated hereby, or that has a reasonable
likelihood of resulting, either individually or in the aggregate, in any
material adverse change in the assets, prospects or financial condition of the
Company, or in any material change in the current equity ownership of the
Company. The Company is not a party to, or to the best of its knowledge, named
in any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit or proceeding by the Company
currently pending or that the Company currently intends to initiate.
2.11 Title to Property and Assets; Leases. Except as set forth
on Schedule B, the Company owns its property and assets free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. All real and personal
property held under lease by the Company is held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made or proposed to be made by the Company. The Company,
to the best of its knowledge, is not in breach of any material provision of such
leases and such leasehold interests are free of any liens, claims or
encumbrances.
2.12 Proprietary Assets. Except as set forth on Schedule B,
the Company owns or possesses sufficient legal rights to all patents, patent
applications, trademarks, servicemarks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes necessary for its
business as now conducted without any conflict with or infringement of the
rights of others.
2.13 Employees; Employee Compensation. There is no strike, or
labor dispute or union organization activities pending or threatened between the
Company and its employees. None of the Company's employees belongs to any union
or collective bargaining unit. The Company has complied in all material respects
with all applicable state and federal equal employment opportunity and other
laws related to employment.
2.14 Tax Returns, Payments and Elections. The Company has
filed all tax returns and reports as required by law. These returns and reports,
as required by applicable law, are true and correct in all material respects.
Except as set forth on Schedule B, the Company has paid all taxes and other
assessments due, except those contested by it in good faith. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of
6.
<PAGE>
Section 1362(a) of the Code, nor has it made any other elections pursuant to the
Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the
business, properties, prospects or financial condition of the Company.
2.15 Insurance. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed where the loss of such properties would
result in a material and adverse effect on the business or prospects of the
Company.
2.16 Environmental and Safety Laws. To its knowledge, the
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing applicable statute, law, or regulation.
2.17 Minute Books. The Company has made available to the
Lenders (and will continue to make available up to the Closing), or to special
counsel to the Lenders, copies of the minute books of the Company, which minute
books contain a complete summary of all meetings of directors and shareholders
since the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects (other than meetings during which no
formal action (other than the adoption of the resolutions relating hereto) was
taken) except as previously disclosed to special counsel to the Lenders.
2.18 ERISA. The Company does not have, or otherwise
participate in or contribute, to any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended.
2.19 Disclosure. Neither this Agreement nor any other written
statements or certificates made or delivered in connection herewith, when taken
as a whole, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein and therein not
misleading in light of the circumstances under which they were made.
2.20 Financial Statements. The unaudited statements of
operations, cash flows and balance sheets of the Company as of December 31, 1997
and for the twelve (12) month period then ended, which are attached to this
Agreement as Exhibit E (the "Financial Statements"), of the Company are in
accordance with the books and records of the Company and fairly set forth the
consolidated operating results and financial condition of the Company for the
twelve-month period then ended, subject to normal year-end audit adjustments.
The Company will use its best efforts to furnish to the Lenders as soon as is
practicable, and in no event later than April 30, 1998, audited financial
statements for the year ended December 31, 1997. The Financial Statements have
been prepared in accordance with generally accepted accounting
7.
<PAGE>
principles ("GAAP"). Except as set forth or reserved for in the Financial
Statements or the notes thereto, the Company has no liabilities, other than (i)
liabilities incurred in the ordinary course of business subsequent to December
31, 1997, (ii) liabilities not in excess of $100,000 in the aggregate, and (iii)
liabilities incurred in the ordinary course of business and not required under
GAAP to be reflected in the Financial Statements, other than contingent
liabilities in excess of $50,000.
2.21 Status of Certain Agreements. As of the date hereof, no
customers have canceled, or threatened to cancel, any services provided to them
by the Company that would have a material adverse effect on the business,
properties, financial condition or prospects of the Company and its subsidiaries
taken as a whole.
2.22 Year 2000 Compliance. Except as set forth Schedule B, all
information technology presently expected to be used by the Company following
December 31, 1999 in the administration and the business operations of the
Company, including, without limitation, in all products and services (i)
provided by the Company, whether to third parties or for internal use, or (ii)
to the best of the Company's knowledge, used in combination with any information
technology of its clients, customers, suppliers or vendors, accurately processes
or will process date and time data (including, but not limited to calculating,
comparing and sequencing) from, into and between the years 1999 and 2000 and the
twentieth century and the twenty-first century, including leap year
calculations, and neither performance nor functionality of such technology will
be affected by dates prior to, during and after the year 2000. The Company has
no obligations under warranty agreements, service agreements or otherwise to
remedy any information technology defect relating to the year 2000.
3. Representations and Warranties of the Lenders.
3.1 Purchase for Lender's Account. Each Lender represents and
warrants that it is purchasing the Notes, Warrants, Warrant Shares and
Conversion Shares (collectively, the "Securities") for its own account or for
the account of its affiliates and not with a view to the distribution thereof
other than to its affiliates. Each Lender further represents that it, and any of
its affiliates to which it may transfer any of the Securities, is an accredited
investor within the meaning of Rule 501(a) promulgated under the Securities Act.
Each Lender understands that the Securities have not been registered under the
Securities Act or any state securities laws and that the Securities have been
acquired for investment and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as to such
Securities under the Securities Act and any applicable state securities laws or
the availability of an exemption from registration under the Securities Act and
any applicable state securities laws.
3.2 Authorization. All corporate actions on the part of each
Lender, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and Amendment No. 3 to
Registration Rights Agreement, which amends the Registration Rights Agreement
(as defined in Section 4.9) and Amendment No. 4 and Waiver to
8.
<PAGE>
Amended and Restated Investor Rights and Voting Agreement, which amends the
Voting Rights Agreement (as defined in Section 4.9)(collectively, the "Investor
Amendments"), and the performance of all obligations of each Lender thereunder
and the authorization, issuance and delivery of this Agreement and the Investor
Amendments have been taken or will be taken prior to the Closing.
4. Conditions of Lenders' Obligations. The obligations
of each Lender hereunder are subject to the fulfillment on or before the Closing
of each of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. If the Closing occurs on any date
other than date of execution hereof, the Company shall have delivered to the
Lenders at the Closing a certificate, dated as of the date of the Closing,
executed by the President, certifying to the satisfaction of the conditions
specified in Sections 4.1 and 4.2.
4.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Lenders' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
4.5 Stock Purchase Agreement. The Company shall receive,
simultaneously with the Closing hereof, at least $1,500,000 in gross cash
proceeds from the issuance of its Series D Preferred Stock pursuant to the
Series D Preferred Stock and Warrant Purchase Agreement among the Company and
the investors party thereto (the "Series D Stock Purchase Agreement")
substantially in the form attached hereto as Exhibit D and (ii) delivered an
executed copy of the Series D Stock Purchase Agreement to the Lenders.
4.6 Consents, Permits and Waivers. Upon receipt of the
consents and waivers set forth on Schedule C, the Company shall have obtained
any and all consents and waivers necessary or appropriate for consummation of
the transactions contemplated by this Agreement.
4.7 Security Documents. On the Closing Date, the Company shall
have duly authorized, executed and delivered a Security Agreement in the form of
Exhibit C (as amended, modified or supplemented from time to time, the "Security
Agreement") together with (i) proper
9.
<PAGE>
Financing Statements (Form UCC-1) fully executed for filing under the Uniform
Commercial Code or other appropriate filing offices of each jurisdiction as may
be necessary to perfect the security interests purported to be created by such
Security Agreement and (ii) evidence of the completion of all other recordings
and filings of, or with respect to, such Security Agreement as may be necessary
to perfect the security interests purported to be created by such Security
Agreement (collectively, the "Security Documents").
4.8 Opinion of Counsel. On the Closing Date, the Lenders shall
have received from Weil, Gotshal & Manges LLP, counsel to the Company, an
opinion addressed to the Lenders and dated the Closing Date in form and
substance satisfactory to the Lenders.
4.9 Amendments. On the Closing Date, the Company shall have
duly authorized, executed and delivered an amendment to (i) the Company's
Registration Rights Agreement (the "Registration Rights Agreement") dated
November 13, 1995, as amended, and (ii) the Company's Amended and Restated
Investors Rights and Voting Agreement (the "Voting Rights Agreement") dated
November 13, 1995, as amended, each in form and substance satisfactory to the
Lenders.
4.10 Warrants; Notes. On the Closing Date, the Company shall
have duly authorized, executed and delivered to each Lender (i) a Warrant in
substantially the form attached hereto as Exhibit B and (ii) a Note in the form
attached hereto as Exhibit A.
4.11 Fees etc. On the Closing Date, the Company shall have
paid to each Lender the origination fee set forth opposite such Lender's name on
Schedule A.
5. Affirmative Covenants. The Company hereby covenants and
agrees with the Lenders that:
5.1 Information Covenants. The Company hereby covenants and
agrees with the Lenders that so long as the Loans are outstanding or the Lenders
hold Series D Preferred Stock, the Company will furnish to the Lenders:
(a) Commencing with fiscal year 1998, as soon as practicable,
but in any event within ninety (90) days after the end of each fiscal year of
the Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of stockholders' equity as of the end of such year, and a
schedule as to the sources and applications of funds for such year, such
year-end financial reports to be in reasonable detail, prepared in accordance
with GAAP, and audited by a nationally recognized firm of independent public
accountants selected by the Company and approved by its Board of Directors.
(b) As soon as practicable, but in any event within sixty (60)
days after the end of the first three (3) quarters of each fiscal year of the
Company, an unaudited income statement,
10.
<PAGE>
an unaudited schedule as to the sources and application of funds for such fiscal
quarter and an unaudited balance sheet as of the end of such fiscal quarter.
(c) As soon as practicable, but in any event within thirty
(30) days after the end of each month, an unaudited income statement and balance
sheet as of the end of such month, in reasonable detail.
(d) Commencing with fiscal year 1998, as soon as practicable,
but in any event thirty (30) days after the end of each fiscal year, a budget
and business plan for the next fiscal year; provided, however, that the
Company's obligation to furnish a business plan may be waived by the Board of
Directors (either by express waiver or by the failure of the Board of Directors
to request preparation of a business plan); provided, further that, in the event
the budget and business plan for any given fiscal year are updated on an interim
basis, such updated documents shall be provided to each Lender as soon as is
practicable after such update.
(e) As soon as practicable, but in any event thirty days after
each fiscal quarter, a report, by function, setting forth employee turnover.
(f) Notwithstanding any provisions contained in this Section
5.1 to the contrary, the Company shall not be obligated under this Section 5.1
to provide information which it deems in good faith to be a trade secret or
similar confidential information.
5.2 Inspection. The Company shall permit each Lender, at such
Lender's expense, to visit and inspect the Company's properties, to examine its
book of account and records and to discuss the Company's affairs, finances and
accounts with its officers, and shall provide such other information as may
reasonably be requested by such, all at such reasonable times as may be
requested by the Lender; provided, however, that the Company shall not be
obligated pursuant to this Section 5.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information except to Lenders who execute a confidentiality agreement in such
form as the Company may reasonably request; provided, further that such
investigations shall in no way impact the effectiveness of the representations
and warranties set forth in Section 2.
5.3 Additional Collateral. The Company will use its best
efforts (provided that the Company shall not be required to incur greater than
$2,000 in the aggregate in out-of-pocket expenses) to deliver to the Lenders,
within 90 days after the Closing Date, (i) executed mortgages or deeds of trust
covering each leasehold property of the Company in form and substance reasonably
satisfactory to the Lenders, (ii) a consent from Phoenix to the grant of the
security interest by the Company to the Lenders under the Security Agreement in
respect of all assets otherwise encumbered or subject to a negative pledge under
the Lease Facility Debt and the leasehold interest evidenced thereby and (iii)
executed documents in form and substance satisfactory to the Lenders necessary
to grant the security interest in the foregoing clause (ii) assets and to
perfect the security interest purported to be created by such documents.
11.
<PAGE>
5.4 Use of Proceeds. The Company will use a portion of the
proceeds received pursuant to the Loans (i) to repay in full the outstanding
principal amount of One Million Dollars ($1,000,000), in the aggregate, owed by
the Company to QVC Holdings, Inc., Viacom International, Inc. and Richard
Rainwater, the holders of the 5% Convertible Notes issued on April 5, 1995 and
(ii) to repay in full the outstanding principal amount of Two Hundred Thousand
Dollars ($200,000) owed by the Company to David Gilmour pursuant to the 6 %
Convertible Note issued on December 31, 1995.
6. Negative Covenants. The Company covenants and agrees that
on and after the Closing Date, and until the loans are repaid in full (together
with interest, fees and all other obligations incurred hereunder):
6.1 Liens. The Company will not create, incur, assume or
suffer to exist any lien upon or with respect to any property or assets (real or
personal, tangible or intangible) of the Company, whether now owned or hereafter
acquired, or sell any such property or assets subject to an undertaking or
permit the filing of any financing statement under the Uniform Commercial Code
or any other similar notice of lien under any similar recording or notice
statute other than (the "Permitted Liens"): (i) liens for taxes, assessments or
other governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings which are adequately reserved for in
accordance with GAAP, (ii) liens of materialmen, mechanics, warehousemen,
carriers or employees or other similar liens provided by mandatory provisions of
law and securing obligations either not delinquent or being contested in good
faith by appropriate proceedings and which do not in the aggregate materially
impair the use or value of the property or risk the loss or forfeiture thereof,
(iii) liens consisting of pledges or deposits securing obligations under
workmen's compensation, unemployment insurance, social security, or public
liability laws or similar legislation, (iv) liens consisting of pledges or
deposits securing bids, tenders, contracts (other than contracts for the payment
of money) or leases to which the Company is a party as lessee made in the
ordinary course of business, (v) any attachment or judgment lien, unless the
judgment it secures shall not, within 30 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not have been
discharged within 30 days after expiration of any such stay, (vi) liens created
pursuant to the Security Documents, (vii) liens created in respect of the Senior
Loan and Security Agreement #0084 dated June 1, 1997 between Phoenix Leasing,
Inc. ("Phoenix") and the Company (the "Lease Facility Debt") and (viii)
additional liens securing indebtedness not in excess of $3,000,000 in the
aggregate at any time outstanding.
6.2 Indebtedness. The Company will not contract, create,
incur, assume or suffer to exist any indebtedness, except (i) indebtedness
incurred pursuant to this Agreement and the other Loan Documents, (ii) taxes
payable and other assessments and governmental charges incurred in the ordinary
course of business; (iii) accrued expenses and current trade accounts payable
incurred in the ordinary course; (iv) indebtedness of the Company pursuant to
the Lease Facility Debt; and (v) additional indebtedness of the Company not to
exceed $3,000,000 in aggregate principal amount.
12.
<PAGE>
6.3 Consolidation, Merger, Purchase or Sale of Assets, etc.
The Company will not wind up, liquidate or dissolve its affairs or enter into
any transaction of merger or consolidation, or convey, sell, lease or otherwise
dispose of (or agree to do any of the foregoing at any future time) all or any
part of its property or assets, or enter into any sale-leaseback transactions,
or purchase or otherwise acquire (in one or a series of related transactions)
any part of the property or assets (other than purchases or other acquisitions
of inventory, materials, equipment and intangible assets in the ordinary course
of business) of any Person except sales of assets at any one time not exceeding
$100,000.
6.4 Dividends. The Company will not authorize, declare or pay
any dividends or return any capital equity to its stockholders or authorize or
make any other distribution, payment or delivery of property or cash to its
stockholders or redeem, retire, purchase or otherwise acquire for consideration
any shares of any class of its capital stock outstanding on or after the Closing
Date (or any options or warrants issued with respect to its capital stock), or
set aside any funds for any of the foregoing purposes except that the Company
may repurchase Common Stock and/or options to purchase Common Stock held by
employees of the Company upon the death, disability, retirement or termination
of such employee provided that the aggregate amount of cash expended by the
Company shall not exceed $100,000 in any calendar month, $200,000 in any fiscal
quarter or $500,000 in the aggregate.
6.5 Loans. Without the consent of the Lenders, the Company
will not directly or indirectly lend money or credit or make advances to any
person or entity or purchase or acquire any stock, obligations or securities of,
or any other interest in, or make any capital contribution to, any other person
or entity other than: (i) loans and advances in the ordinary course of business
to its employees and (ii) loans or advances in the ordinary course to its
subsidiaries and (iii) equity investments in its existing subsidiaries;
provided, however, loans, advances and equity investments to Giga Information
Group Investment Corporation shall not exceed $100,000 in the aggregate at any
time outstanding.
6.6 Limitation on Modifications of Indebtedness. The Company
will not amend or modify any provision of the Lease Facility Debt which has the
effect of increasing the amount of the obligations due thereunder.
7. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"), unless such Event of
Default shall have been waived or cured prior to the exercise of the remedies
set forth below:
7.1 Payments. Any default by the Company in the payment when
due of any principal and unpaid accrued interest under any Note if such default
is not cured by the Company within five (5) days after the holder of such Note
has given the Company written notice of such default;
13.
<PAGE>
7.2 Representations and Warranties. Any representation or
warranty made by the Company herein shall prove to have been incorrect in any
material respect on or as of the date made and remains unremedied for a period
of thirty (30) days after any Lender provides the Company with written notice of
such breach;
7.3 Institution of Bankruptcy Proceedings. The institution by
the Company of proceedings to be adjudicated as bankrupt or insolvent, or the
consent by it to institution of bankruptcy or insolvency proceedings against it
or the filing by it of a petition or answer or consent seeking reorganization or
release under the federal Bankruptcy Act, or any other applicable federal or
state law, or the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee, or other similar
official, of the Company, or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the taking of
corporate action by the Company in furtherance of any such action;
7.4 Continuation of Bankruptcy Proceedings. If, within sixty
(60) days after the commencement of an action against the Company (and service
of process in connection therewith on the Company) seeking any bankruptcy,
insolvency, reorganization, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such action shall not have been
resolved in favor of the Company or all orders or proceedings thereunder
affecting the operations or the business of the Company stayed, or if the stay
of any such order or proceeding shall thereafter be set aside, or if, within
sixty (60) days after the appointment without the consent or acquiescence of the
Company of any trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such appointment shall not
have been vacated;
7.5 Default on Senior Indebtedness. Any declared default of
the Company under the Lease Facility Debt which gives the holder thereof the
right to accelerate such indebtedness, and such Lease Facility Debt is in fact
accelerated by the holder.
7.6 Covenants. Any failure or neglect by the Company to
perform, keep, or observe any material term, provision, condition, covenant, or
agreement contained in this or any of the other Loan Documents, if such failure
or neglect is not cured within thirty (30) days after written notice thereof to
the Company;
7.7 Attachment. If any material portion of the Company'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 thirty (30)
days, or if Company is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs and such restraint is not removed, discharged or rescinded within thirty
(30) days, or if a judgment or other claim becomes a lien or encumbrance upon
any material portion of Company's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Company's assets by the
United States
14.
<PAGE>
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within thirty (30) days after Company 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 Company;
7.8 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 entered against Company, and such judgment
or judgments shall be final and non-appealable and shall remain unsatisfied and
unstayed for a period of thirty (30) consecutive days;
7.9 IPO. If the Company, without reasonable regard to the
prevailing market conditions and against the advice of Friedman, Billings,
Ramsey & Co., Inc. (the "Underwriter") at such time as the Underwriter
reasonably believes it can underwrite the IPO (as defined below) in an aggregate
amount of at least $30,000,000 at a price per common share of at least $4.00, on
a pre-split basis, on or before January 31, 1999 (i) terminates the IPO at or
prior to January 31, 1999 or (ii) postpones the IPO to a date later than January
31, 1999 ("IPO" means the closing of an underwritten public offering (lead
managed by the Underwriter) of the Company's Common Stock on the minimum terms
set forth above pursuant to a registration statement filed with the Securities
and Exchange Commission in accordance with the Securities Act);
7.10 Change of Control. Any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) which will result in the Company's shareholders immediately prior
to such transaction not holding (by virtue of such shares or securities issued
solely with respect thereto) at least 50% of the voting power of the surviving
or continuing entity, or a sale of all or substantially all of the assets of the
Company, unless the Company's shareholders immediately prior to such sale will,
as a result of such sale, hold (by virtue of securities issued as consideration
for the Company's sale) at least 50% of the voting power of the purchasing
entity;
Then, and in any such event, and at any time thereafter, if any events shall be
continuing, the holders of at least 50% of the aggregate principal amount of the
Notes then outstanding shall have the option to declare the principal amount of
the Notes, and all accrued but unpaid interest thereon, to be immediately due
and payable upon written notice to the Company. If upon the occurrence of an
Event of Default set forth in Sections 7.3 or 7.4, the remaining assets and
funds to be distributed among the holders of the Notes shall be insufficient to
permit the payment to such holders of the full aforesaid amounts, the entire
assets and funds of the Company available for distribution shall be distributed
ratably among the holders of the Notes.
8. Miscellaneous.
8.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective
15.
<PAGE>
successors and assigns of the parties (including transferees of any securities).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
8.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York as applied to agreements among
New York residents, entered into and to be performed entirely within New York.
8.3 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or four (4)
days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by advance written notice to the other
parties.
8.6 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the entire agreement among the parties and
no party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
8.7 Amendment and Waiver. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of not
less than 50% in aggregate principal amount of the Notes then outstanding. This
provision shall not affect the amendment and waiver provisions of the Notes. Any
waiver or amendment effected in accordance with this section shall be binding
upon each holder of any Securities purchased under this Agreement at the time
outstanding, each future holder of all such Securities, and the Company.
8.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
16.
<PAGE>
8.9 Costs and Expenses. (a) The Company agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Lenders and their
affiliates, and reasonable fees and disbursements of one counsel (including
reasonable allocated costs of internal counsel), in connection with or arising
as a result of a Default or a prospective Default of the Company which results
in (1) any amendments, modifications or waivers of the terms of the Loan
Documents, (2) the enforcement or attempted enforcement of, and preservation of
any rights or interests under, the Loan Documents, (3) any out-of-court workout
or other refinancing or restructuring or any bankruptcy case, and (4) the
preservation of and realization upon any of the Collateral (as defined in the
Security Agreement), including any losses, costs and expenses sustained by the
Lenders as a result of any failure by the Company to perform or observe its
obligations contained in the Loan Documents.
(b) The Lenders agree to pay on demand all reasonable
out-of-pocket costs and expenses of the Company and their affiliates, and
reasonable fees and disbursements of counsel (including reasonable allocated
costs of internal counsel), in connection with or arising as a result of a
Default or a prospective Default of the Lenders which results in (1) any
amendments, modifications or waivers of the terms of the Loan Documents, (2) the
enforcement or attempted enforcement of, and preservation of any rights or
interests under, the Loan Documents, (3) any out-of-court workout or other
refinancing or restructuring or any bankruptcy case, and (4) the preservation of
and realization upon any of the Collateral (as defined in the Security
Agreement), including any losses, costs and expenses sustained by the Company as
a result of any failure by the Lenders to perform or observe their obligations
contained in the Loan Documents.
(c) The prevailing party in any litigation or proceeding
related to this Agreement or any other Loan Document shall be reimbursed by the
opposing party for all reasonable costs and out-of-pocket expenses and the
reasonable fees and disbursements of its counsel.
17.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
GIGA INFORMATION GROUP, INC.
By: /s/ Daniel M. Clarke
------------------------------------
Name: Daniel M. Clarke
Title: Senior Vice President
One Longwater Circle
Norwell, Massachusetts 02061
Attention: Daniel M. Clarke
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman
LENDERS:
FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.
By: /s/ Russell Ramsey
-------------------------------------
Name: Russell Ramsey
Title: President
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Attention: Suzanne Richardson
Robert Smith
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY
INVESTMENT MANAGEMENT, INC., on
behalf of itself and its affiliates
By: /s/ Russell Ramsey
-------------------------------------
Name: Russell Ramsey
Title: President
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Attention: Suzanne Richardson and
Robert Smith
<PAGE>
"Exhibits Intentionally Omitted"
<PAGE>
EXHIBIT 10.10
THE SECURITIES EVIDENCED BY THIS NOTE OR ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE BLUE SKY LAWS AND ARE SUBJECT TO CERTAIN INVESTMENT
REPRESENTATIONS. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND SUCH APPLICABLE BLUE SKY LAWS OR AN EXEMPTION THEREFROM.
CONVERTIBLE PROMISSORY NOTE
Amount: $_________ New York, New York
April 7, 1998
For value received, GIGA INFORMATION GROUP, INC., a Delaware corporation
("Maker"), promises to pay __________________________________________________
("Payee") the principal sum of ___________________ (__________). Commencing
on June 1, 1998, and on each September 1, December 1, March 1 and June 1
thereafter until outstanding principal and interest on this Note shall have been
paid in full or been converted as provided in paragraph 3, the Maker shall pay
interest at the rate of twelve percent (12%) per annum on the principal of this
Note outstanding during the period beginning on the date of issuance of this
Note and ending on the Maturity Date. This Convertible Promissory Note (the
"Note") is one of the Notes issued pursuant to a Loan and Warrant Purchase
Agreement (the "Loan and Warrant Purchase Agreement"), dated April 7, 1998,
among Maker and the lenders listed on Schedule A thereto (the "Lenders") and is
subject to the terms and conditions of the Loan and Warrant Purchase Agreement.
This Note is being issued simultaneously with the Warrants issued pursuant to
the Loan and Warrant Purchase Agreement. Capitalized terms not otherwise defined
herein shall have the meanings assigned to them in the Loan and Warrant Purchase
Agreement.
1. The outstanding principal amount and any unpaid accrued
interest shall be due and payable on the date of the IPO (the "Maturity Date")
pursuant to paragraph 2. The principal amount of this Note and accrued interest
thereon may be prepaid in whole or in part at any time without penalty. On each
date after the Closing Date upon which the Company receives proceeds from any
sale of assets in excess of $100,000 (excluding sales of assets in the ordinary
course of business), an amount equal to 100% of the net sale proceeds therefrom
shall be applied as a mandatory repayment. Any payment will be applied first to
the payment of any and all accrued and unpaid interest through the payment date
and second to the payment of principal remaining due hereunder.
2. All payments of interest and principal shall be in lawful
money of the United States of America and shall be made to Payee at Payee's
address listed below not later
<PAGE>
than 5:00 p.m. New York time within ten (10) days of the Maturity Date by check
payable to Payee. If any payment of principal or interest on this Note shall
become due on a Saturday, Sunday, or a public holiday under the laws of the
State of New York, such payment shall be made on the next succeeding business
day and such extension of time shall be included in computing interest in
connection with such payment.
3. The outstanding principal amount of this Note and the
outstanding Warrants issued to Payee simultaneously herewith shall be
automatically converted on February 1, 1999 (unless the IPO has closed prior to
such time) (the "Conversion Date"), into (i)(x) shares of Series D Preferred
Stock of the Company (the "Series D Preferred Stock") (rounded upward to the
nearest whole number) equal to the quotient obtained by dividing the outstanding
principal amount of this Note by $7.00 (the "Series D Conversion Price")
(subject to adjustment as set forth in Section 4 below) OR (at the Payee's
option and upon 5 days' written notice to Maker prior to the conversion) (y)
shares of Maker's equity securities (which shall not include shares of Common
Stock issuable or issued to employees, consultants or directors of Maker
directly or pursuant to a stock option plan or restricted stock plan or other
compensation arrangement approved by the Board of Directors) ("Equity
Securities") that are issued and sold to investors at the closing of any equity
financing of Maker following the date of issuance of this Note and prior to the
Maturity Date, as designated by Payee at its option as aforesaid (the "Equity
Financing") at the price at which Equity Securities are sold in such Equity
Financing (the "Equity Securities Conversion Price", and, together with the
Series D Conversion Price, the "Conversion Price")(subject to adjustment as set
forth in Section 4 below) (the number of Equity Securities to be issued upon
such conversion of this Note shall be equal to the quotient obtained by dividing
the outstanding principal amount of this Note by the price at which the Equity
Securities are sold to investors in the Equity Financing) AND (ii) warrants on
the warrant terms as set forth in attached Exhibit A (the "Additional Common
Stock Warrants"); and this Note shall be surrendered at such time.
4. Adjustment of Conversion Price and Number of Shares of
Series D Preferred Stock or Equity Securities. The number of securities issuable
upon the conversion of this Note and the Conversion Price shall be subject to
adjustment from time to time as follows:
a. Consolidation, Merger, Reorganization, Etc.
If the Company at any time prior to the Maturity Date of this Note shall
consolidate with or merge into any other corporation, reorganize or reclassify,
or in any manner change the securities then purchasable upon the conversion of
this Note, then upon consummation thereof this Note shall thereafter represent
the right of Payee to receive, to the extent this Note is converted as provided
above in Section 3, in lieu of shares of Series D Preferred Stock or Equity
Securities, the cash or such number of securities to which Payee would have been
entitled upon consummation thereof if this Note had converted immediately prior
thereto. Upon any such event, an appropriate adjustment shall also be made to
the Conversion Price, if necessary in the good faith judgment of the Board of
Directors of the Company, to preserve the economic benefit intended to be
conferred upon Payee in accordance with its terms.
2.
<PAGE>
b. Stock Dividend, Split or Subdivision of
Shares. If the number of shares of Series D Preferred Stock or Equity Securities
outstanding at any time after the date of original issuance is increased or
deemed increased by a stock dividend payable in shares of Series D Preferred
Stock, Equity Securities or other securities (including the Common Stock)
convertible into or exchangeable for shares of Series D Preferred Stock or
Equity Securities ("Equivalents") or by a subdivision or split-up of shares of
Series D Preferred Stock, Equity Securities or Equivalents (other than a change
in par value, from par value to no par value or from no par value to par value),
then, following the effective date fixed for the determination of holders of
Series D Preferred Stock, Equity Securities or Equivalents entitled to receive
such stock dividend, subdivision or split-up, the Conversion Price shall be
appropriately decreased (but in no event shall the Conversion Price be decreased
below the par value of the Series D Preferred Stock or Equity Securities
issuable upon conversion of this Note) and the number of shares of Series D
Preferred Stock or Equity Securities issuable on conversion of this Note shall
be increased in proportion to such increase in outstanding shares (on a fully
diluted basis).
c. Combination of Shares. If, at any time
after the date of original issuance, the number of shares of Series D Preferred
Stock or Equity Securities outstanding is decreased by a combination of the
outstanding shares of Series D Preferred Stock or Equity Securities (other than
a change in par value, from par value to no par value or from no par value to
par value), then, following the effective date for such combination, the
Conversion Price shall be appropriately increased and the number of shares of
Series D Preferred Stock or Equity Securities issuable on conversion of this
Note shall be decreased in proportion to such decrease in outstanding shares.
d. Other Antidilution Rights. In addition to
the foregoing, in the event of an issuance of securities or other transaction by
the Company which causes an adjustment to the Conversion Price of the Company's
Series D Preferred Stock pursuant to the provisions of Subsections 6(c) through
(e) of the Company's Certificate of Designations of Series D Preferred Stock
(the "Certificate of Designations"), then the Conversion Price of the shares of
Series D Preferred Stock issuable upon conversion of this Note shall be
automatically adjusted in accordance with the Certificate of Designations.
e. Certificate as to Adjustments. Upon the
occurrence of each adjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment in accordance with the terms
hereof and shall (i) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of this Note and the Conversion Price in effect and
(ii) cause a copy of such statement to be mailed to Payee promptly after the
date when the circumstances giving rise to the adjustment occurred.
5. If this Note is converted into shares of Series D Preferred
Stock or Equity Securities as provided herein, accrued and unpaid interest shall
be paid in cash and the provisions
3.
<PAGE>
of this Note relating to the obligation of the Maker to pay principal to the
Payee, set forth above, shall be null and void and no payment of principal shall
be owed or paid by Maker.
6. In case an Event of Default shall occur and be continuing,
the principal of and accrued interest of this Note may be declared to be due and
payable in the manner provided in the Loan and Warrant Purchase Agreement.
7. (a) This Note is nontransferable, except to affiliates of
the Payee. Subject to the foregoing, this Note may be transferred only in
compliance with applicable federal and state securities laws and only upon
surrender of this original Note to the Company for registration of transfer,
duly endorsed, or accompanied by a duly executed written instrument of transfer
in form satisfactory to the Company. Thereupon, a new promissory note for like
principal amount and interest will be issued to, and registered in the name of,
the transferee. Interest and principal are payable only to the registered holder
of the Note. Prior to the Maturity Date, the Warrant issued simultaneously
herewith is subject to the transfer restrictions set forth herein and may not be
transferred except to the transferee of this Note.
(b) Each certificate representing (i) this
Note, (ii) the Additional Common Stock Warrants, (iii) shares of Series D
Preferred Stock (or other Equity Securities) issued upon conversion of this
Note, (iii) the shares of Common Stock issued upon exercise of the Warrant or
Additional Common Stock Warrant and (iv) any other securities issued in respect
of such shares of Series D Preferred Stock, Common Stock or Equity Securities
upon any stock split, stock dividend or similar event (collectively, the
"Restricted Securities"), shall (unless otherwise permitted by the provisions of
Section 7(c) below or unless such securities have been registered under the
Securities Act) be imprinted with the following legend, in addition to any
legend required under applicable state securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of a holder of a certificate with such legend imprinted
thereon, the Company shall remove the foregoing legend therefrom or, if
appropriate, issue to such holder a new certificate therefor free of any
transfer legend, if, with such request, the Company shall have received the
opinion referred to in Section 7(c) to the effect that any transfer by such
holder of the securities evidenced by such certificate will be exempt from the
registration and/or qualification requirements of, and that such legend is not
required in order to establish compliance with the Securities Act, and if
applicable, any state securities laws under which transfer restrictions on such
securities had been previously imposed.
4.
<PAGE>
(c) Notice of Proposed Transfers. The holder of
each certificate representing Restricted Securities by acceptance thereof agrees
to comply in all respects with the provisions of this Section 7(c). Prior to any
proposed transfer of any Restricted Securities, the holder thereof shall give
ten (10) days prior written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall describe the transferee and the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied by an opinion of counsel satisfactory to the Company to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act and any applicable state
securities laws, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 4(b) above.
8. Maker waives presentment, notice of nonperformance,
protest, notice of protest, and notice of dishonor. No delay on the part of
Payee in exercising any right hereunder shall operate as a waiver of such right
under this Note.
9. Any term of this Note may be amended and the observance of
any term may be waived with the written consent of the Company and the holders
of not less than 50% in the aggregate principal amount of the Notes then
outstanding; provided, however, that without the written consent of each holder
of the Notes, an amendment or waiver under this section may not (with respect to
any Notes held by nonconsenting holders):
(a) reduce the rate of interest on any Note; and
(b) reduce the principal of or change the
Maturity Date of any of the Notes or alter the demand provisions with respect
thereto.
10. This Note shall inure to the benefit of and bind the
successors, permitted assigns, heirs, executors, and administrators of the
parties hereto.
11. In case an Event of Default (as defined in the Loan and
Warrant Purchase Agreement) shall occur and be continuing, the principal and
accrued interest on this Note may be declared to be due and payable in the
manner and with the effect provided in the Loan and Warrant Purchase Agreement.
12. Maker and the Payee intend to comply at all times with
applicable usury laws. If at any time such laws would render usurious any
amounts due under this Note, then it is the Maker's and the Payee's express
intention that the Maker not be required to pay interest on this Note at a rate
in excess of the maximum lawful rate, that the provisions of this paragraph
shall control over all other provisions of this Note which may be in apparent
conflict hereunder, that such excess amount shall be immediately credited to the
principal balance of this Note (or, if this Note has been fully paid, refunded
by the Payee to the Maker), and the provisions hereof
5.
<PAGE>
shall be immediately reformed and the amounts thereafter decreased, so as to
comply with the then applicable usury law, but so as to permit the recovery of
the fullest amount otherwise due under this Note. Any such crediting or refund
shall not cure or waive any default by the Maker under this Note. The term
"applicable law" as used in this Note shall mean the laws of the State of New
York as such laws now exist or may be changed or amended or come into effect in
the future.
13. If the indebtedness represented by this Note or any part
thereof is collected at law or in equity or in bankruptcy, receivership or other
judicial proceedings or if this Note is placed in the hands of attorneys for
collection after default, Maker agrees to pay, in addition to the principal and
interest payable hereon, reasonable attorneys' fees and costs incurred by Payee.
14. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given upon
delivery if personally delivered or upon deposit if deposited in the United
States mail for mailing by certified mail, postage prepaid, and addressed as
follows:
If to Payee: _______________________________________________
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Attention:
If to Maker: Giga Information Group, Inc.
One Longwater Circle
Norwell, Massachusetts 02061
Attention: Daniel M. Clarke
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman
Each of the above addressees may change its address for
purposes of this paragraph by giving to the other addressee notice in
conformance with this paragraph of such new address.
6.
<PAGE>
15. This Note is made in accordance with and shall be
construed under the laws of the State of New York, other than the conflicts of
law principles thereof.
7.
<PAGE>
EXECUTED as of the date first written above.
MAKER
GIGA INFORMATION GROUP, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
PAYEE
its affiliates
By:
--------------------------------------
Name:
---------------------------------------
Title:
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
8.
<PAGE>
EXHIBIT A TO CONVERTIBLE NOTE
ADDITIONAL WARRANT TERMS
Reference is made to that Convertible Promissory Note (the "Note")
dated April 7, 1998 between Giga Information Group, Inc. and ________________
_________________________________. On the Conversion Date the terms provided for
in these Additional Warrant Terms shall automatically become operative as a
warrant (the "Warrant") pursuant to which ____________________________________
_________________ and permitted assigns ("Warrantholder"), shall be entitled to
receive from Giga Information Group, Inc., a Delaware corporation (the
"Company"), on the terms and conditions contained herein, such number of shares
of the Company's Common Stock, $.001 par value per share (the "Common Stock"),
at a price of Four Dollars and Fifty Cents ($4.50) per share (the "Warrant
Price") as is equal to the number of shares of Series D Preferred Stock
receivable upon conversion of the Note pursuant to Section 3(i)(x) thereof,
multiplied by 1.08 (in each case subject to adjustment as set forth herein).
Notwithstanding anything contained herein to the contrary, if the Warrantholder
elects to convert into Equity Securities as provided in the Note, the number of
shares of Common Stock and the Warrant Price that the Warrantholder shall be
entitled to receive shall be the same number of shares at the same price as a
purchaser of Equity Securities in the Equity Financing is entitled to receive
(in each case subject to adjustment as set forth herein). Capitalized terms used
herein but not defined herein shall have the meaning assigned to them in the
Note.
1. Exercisability of Warrant. The Warrant shall be immediately
exercisable upon the Conversion Date.
2. Method of Exercise; Payment; Issuance of New Warrant;
Transfer and Exchange. The Warrant may be exercised by Warrantholder, in whole
or in part, by the surrender of the Warrant at the principal office of the
Company at One Longwater Circle, Norwell, MA 02061, and by (a) the payment to
the Company of the then applicable Warrant Price of the Common Stock being
purchased, which Warrant Price may be paid, in whole or in part, by the delivery
of cash or check payable to the order of the Company or cancellation of
indebtedness (including accrued but unpaid interest) of the Company to the
Warrantholder evidenced by a promissory note issued pursuant to the Loan and
Warrant Purchase Agreement in an amount equal to such Warrant Price, and (b)
delivery to the Company of a notice of exercise and an investment letter
executed by Warrantholder in the forms attached hereto as Attachments 1 and 2.
In the event of any exercise of the rights represented by the Warrant,
certificates for the shares of Common Stock so purchased shall be delivered to
Warrantholder within a reasonable time after the rights represented by the
Warrant shall have been so exercised, and unless the Warrant has expired, a new
Warrant representing the number of shares of Common Stock, if any, with respect
to which the Warrant shall not then have been exercised or that may become
exercisable after such date, shall also be issued to Warrantholder within such
time. In lieu of exercising the Warrant for a specified number of shares of
Common Stock (the "Exercised Shares") and paying the aggregate Warrant Price
therefor (the "Exercise Price"), Warrantholder may elect, at any time prior to
the expiration of the Warrant, to receive a number of shares of Common Stock
equal to the number of Exercised Shares minus that number of shares of Common
Stock having an aggregate Fair
<PAGE>
Market Value equal to the Exercise Price. Following such election, the number of
shares of Common Stock covered by the Warrant shall be deemed automatically
reduced by the number of Exercised Shares. For purposes of the Warrant, the
"Fair Market Value" shall mean the closing sales prices of Common Stock quoted
on the Nasdaq National Market or, if then traded on a national securities
exchange, the average closing prices of Common Stock on the principal national
securities exchange on which listed or, if quoted on the Nasdaq over-the-counter
system, the average of the mean of the closing bid and asked prices of Common
Stock quoted on such system, in any such case on each of the ten (10) trading
days immediately preceding the date of such conversion, or if not publicly
traded, the fair market value per share determined by the Board of Directors of
the Company in good faith.
3. Stock Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Common Stock that may be issued upon the
exercise of the rights represented by the Warrant will, upon issuance, be fully
paid and nonassessable and free from all liens and encumbrances. The Company
covenants and agrees that, during the period within which the rights represented
by the Warrant may be exercised, it shall reserve for the purpose of the
issuance upon exercise of the purchase rights evidenced by the Warrant at least
the maximum number of shares of Common Stock as are issuable upon the exercise
of the rights represented by the Warrant.
4. Restrictions on Transferability of Securities; Compliance
with Securities Act.
(a) Restrictions on Transferability. The
Warrant and the shares of Common Stock issuable hereunder shall not be
transferable except upon the conditions specified in the Section 4, which
conditions are intended to insure compliance with the provisions of the
Securities Act of 1933, as amended (the "Securities Act"). Each holder of the
Warrant or the Common Stock issuable hereunder will cause any proposed
transferee of the Warrant or such Common Stock to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 4. Prior to the Maturity Date of the Note issued simultaneously
herewith, the Warrant is subject to the transfer restrictions set forth in the
Note and may not be transferred except to the transferee of such Note.
(b) Restrictive Legend. Each certificate
representing (i) the Warrant, (ii) the shares of Common Stock issued upon
exercise of the Warrant and (iii) any other securities issued in respect of such
shares of Common Stock upon any stock split, stock dividend or similar event
(collectively, the "Restricted Securities"), shall (unless otherwise permitted
by the provisions of Section 4(c) below or unless such securities have been
registered under the Securities Act) be imprinted with the following legend, in
addition to any legend required under applicable state securities laws:
THESE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY
HAS
<PAGE>
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.
Upon request of a holder of a certificate with such legend imprinted
thereon, the Company shall remove the foregoing legend therefrom or, if
appropriate, issue to such holder a new certificate therefor free of any
transfer legend, if, with such request, the Company shall have received the
opinion referred to in Section 4(c) to the effect that any transfer by such
holder of the securities evidenced by such certificate will be exempt from the
registration and/or qualification requirements of, and that such legend is not
required in order to establish compliance with the Securities Act, and if
applicable, any state securities laws under which transfer restrictions on such
securities had been previously imposed.
(c) Notice of Proposed Transfers. The holder of
each certificate representing Restricted Securities by acceptance thereof agrees
to comply in all respects with the provisions of this Section 4(c). Prior to any
proposed transfer of any Restricted Securities, the holder thereof shall give
ten (10) days prior written notice to the Company of such holder's intention to
effect such transfer. Each such notice shall describe the transferee and the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied by an opinion of counsel satisfactory to the Company to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act and any applicable state
securities laws, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 4(b) above.
5. Adjustment of Purchase Price and Number of Shares of
Common Stock. The number and kind of securities purchasable upon the exercise of
the Warrant and the Warrant Price shall be subject to adjustment from time to
time as follows:
(a) Consolidation, Merger, Reorganization, Etc.
If the Company at any time while the Warrant remains outstanding and unexpired
shall consolidate with or merge into any other corporation, reorganize or
reclassify, or in any manner change the securities then purchasable upon the
exercise of the Warrant, then upon consummation thereof the Warrant shall
thereafter represent the right of Warrantholder to receive, to the extent the
Warrant is exercisable as provided above in Section 1, in lieu of shares of
Common Stock, the cash or such number of securities to which Warrantholder would
have been entitled upon consummation thereof if Warrantholder had exercised the
Warrant immediately prior thereto. Upon any such event, an appropriate
adjustment shall also be made to the Warrant Price, if necessary in the good
faith judgment of the Board of Directors of the Company, to preserve the
economic benefit intended to be conferred upon Warrantholder in accordance with
its terms.
(b) Subdivision or Combination of Shares;
Dividends and Distribution of Common Stock. If the Company at any time while the
Warrant remains outstanding and unexpired shall subdivide or combine its Common
Stock, or take a record of the holders of its
3.
<PAGE>
Common Stock for the purpose of entitling them to receive without payment a
dividend payable in, or other distribution of, Common Stock or other securities,
then the number of shares of Common Stock purchasable hereunder shall be
adjusted to that number determined by multiplying the number of shares
purchasable upon the exercise of the Warrant immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately after such subdivision,
combination, dividend or distribution, and (ii) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately prior to
such subdivision, combination, dividend or distribution. In addition, the
Warrant Price shall be adjusted to that price determined by multiplying the
Warrant Price in effect immediately prior to such subdivision, combination,
dividend or distribution by a fraction (x) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
subdivision, combination, dividend or distribution, and (y) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such subdivision, combination, dividend or distribution.
(c) Adjustment for Sale of Shares. If at any
time after April 7, 1998 the Company issues or sells any Additional Stock (as
defined in the Company's Certificate of Designations of Series D Preferred Stock
(the "Certificate of Designations")) for a consideration per share less than the
then Conversion Price (as defined in Section 6(a)(i) of the Certificate of
Designations), then and in each such case, the Warrant Price will be reduced to
a price (calculated to the nearest cent) determined by multiplying such Warrant
Price by a fraction (1) the numerator of which will be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the Company
for such issue would purchase at such Warrant Price, and (2) the denominator of
which will be the number of shares of Common Stock outstanding immediately after
the Additional Stock is issued or sold; provided, however, that such fraction
will in no event be greater than one (1). Notwithstanding the foregoing, if
after April 7, 1998 and prior to the earlier of (a) May 9, 1999 and (b) the
consummation by the Company of a sale or series of related sales of any series
or class of its equity securities at a common equivalent price per share of not
less than $4.61 and for aggregate proceeds to the Company of at least Six
Million Five Hundred Thousand Dollars ($6,500,000), the Company issues or sells
any Additional Stock for a common equivalent price per share less than the then
applicable Conversion Price, then and in each such case the Warrant Price will
not be adjusted pursuant to the preceding sentence, but instead will be reduced
to a price (calculated to the nearest cent) equal to the common equivalent price
per share received by the Company for such Additional Stock. For purposes of
this Section 5(c), the shares of Common Stock issuable upon conversion of the
Series Preferred Stock (as defined in the Certificate of Designations) and upon
exercise or conversion of all outstanding warrants, options or other securities
exercisable or exchangeable for, or convertible into, Common Stock, will be
deemed to be outstanding on April 7, 1998.
(d) Purchase of Shares. Upon any adjustment of
the Warrant Price as provided in Section 5(c), the holder hereof shall
thereafter be entitled to purchase, at the Warrant Price resulting from such
adjustment, the number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock purchasable hereunder
4.
<PAGE>
immediately prior to such adjustment by a fraction (A) the numerator of which
shall be the Warrant Price in effect immediately prior to such adjustment and
(B) the denominator of which shall be the Warrant Price resulting from such
adjustment.
(e) Certificate as to Adjustments. Upon the
occurrence of each adjustment pursuant to this Section 5, the Company at its
expense shall promptly compute such adjustment in accordance with the terms
hereof and shall (i) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the exercise of the Warrant and the Warrant Price in effect and
(ii) cause a copy of such statement to be mailed to Warrantholder promptly after
the date when the circumstances giving rise to the adjustment occurred.
6. Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder but in lieu of such
fractional shares, the Company shall make a cash payment therefor upon the basis
of the Fair Market Value of the Common Stock on the date of such exercise.
7. No Shareholder Rights. The Warrant, by itself and
distinguished from any securities purchased hereunder, shall not entitle
Warrantholder to any of the rights of a shareholder of the Company.
8. Registration Rights. Upon exercise of the Warrant, the
Warrantholder shall have and be entitled to exercise, together with all other
holders of registrable securities possessing registration rights under that
certain Registration Rights Agreement dated November 13, 1995, as amended, (the
"Registration Rights Agreement"), the rights of registration granted under the
Registration Rights Agreement (with respect to the Shares issued upon exercise
of the Warrant).
9. Notices. All notices and other communications from the
Company to the holder of the Warrant shall be delivered personally or mailed by
first class mail, postage prepaid, to the address furnished to the Company in
writing by the last holder of the Warrant who shall have furnished an address to
the Company in writing, and if mailed shall be deemed given three days after
deposit in the United States mail.
10. Governing Law. The Warrant shall be governed by and
construed in accordance with the laws of the State of New York as applied to
agreements among New York residents entered into and to be performed entirely
within New York.
11. Expiration of Warrant. This Warrant shall terminate and
expire and shall no longer be exercisable on and after 5:00 P.M. on February 1,
2004.
5.
<PAGE>
Attachment 1
NOTICE OF EXERCISE
TO: GIGA INFORMATION GROUP, INC.
1. The undersigned hereby elects to purchase ______ shares of the
Common Stock of Giga Information Group, Inc. pursuant to the terms of the
attached Warrant, and [tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any][directs the Company to
issue ______ shares, and to withhold ______ shares in lieu of payment of the
Warrant Price, as described in Section 2 of the Warrant].
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------
(Name)
------------------------------
(Address)
- -------------------------------- -------------------------------------
(Date) (Name of Warrantholder)
By:
------------------------------------
Title:
------------------------------------
1-I.
<PAGE>
EXHIBIT 10.12
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of April
7, 1998, is made between Giga Information Group, Inc., a Delaware corporation
("Debtor") and Friedman, Billings, Ramsey Group, Inc., as agent for the Lenders
("Secured Party").
Debtor and Secured Party hereby agree as follows:
SECTION 1 Definitions; Interpretation.
(a) All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the Loan
Agreement.
(b) As used in this Agreement, the following terms shall have
the following meanings:
"Collateral" has the meaning set forth in Section 2.
"Documents" means this Agreement, the Loan Agreement, the
Notes, and all other certificates, documents, agreements and instruments
delivered to Secured Party under the Loan Agreement or in connection with the
Obligations.
"Default" has the meaning set forth in Section 8.
"Excluded Collateral" means any Collateral of the type
referred to in Section 2(a)(i) and any equipment covered by the Lease Facility
Debt to the extent, and only to the extent, that such Collateral is subject to
or contains a legally enforceable provision which would require the consent of
another person or entity to the grant of the security interest created herein
pursuant to the terms of this Agreement; provided, however, that if and when any
prohibition on the assignment, pledge, or grant of a security interest in such
Collateral is removed or consent granted, the Collateral Agent will be deemed to
have been granted a security interest in such Collateral as of the date hereof,
and the Collateral will be deemed to include such Collateral.
"Loan Agreement" means that Loan and Warrant Purchase
Agreement dated of even date herewith among Debtor and the Lenders, as amended,
modified, renewed, extended or replaced from time to time.
"Obligations" means the indebtedness, liabilities and other
obligations of Debtor to Secured Party or the Lenders under or in connection
with the Documents, including, without limitation, all unpaid principal of the
Note, all interest accrued thereon, all fees and all other amounts payable
thereunder whether now existing or hereafter arising, and whether due or to
become due, absolute or contingent, liquidated or unliquidated, determined or
undetermined.
1.
<PAGE>
"Person" means an individual, corporation, partnership, joint
venture, trust, unincorporated organization, governmental agency or authority,
or any other entity of whatever nature.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(c) Where applicable and except as otherwise defined herein,
terms used in this Agreement shall have the meanings assigned to them in the
UCC.
(d) In this Agreement, (i) the meaning of defined terms shall
be equally applicable to both the singular and plural forms of the terms
defined; and (ii) the captions and headings are for convenience of reference
only and shall not affect the construction of this Agreement.
SECTION 2 Security Interest.
(a) As security for the payment and performance of the
Obligations, Debtor hereby pledges, assigns, transfers, hypothecates and sets
over to Secured Party, for itself and the ratable benefit of the Lenders, and
hereby grants to Secured Party for itself and the ratable benefit of the
Lenders, a security interest in, all of Debtor's right, title and interest in,
to and under the following property, wherever located and whether now existing
or owned or hereafter acquired or arising (excluding the Excluded Collateral)
(collectively, the "Collateral"):
(i) all accounts, accounts receivable, contract rights, rights
to payment, chattel paper, letters of credit, documents, securities, money and
instruments, and investment property, whether held directly or through a
securities intermediary, and other obligations of any kind owed to Debtor,
however evidenced;
(ii) all deposits and deposit accounts with any bank, savings
and loan association, credit union or like organization, and all funds and
amounts therein, and whether or not held in trust, or in custody or safekeeping,
or otherwise restricted or designated for a particular purpose;
(iii) all inventory, including, without limitation, all
materials, raw materials, parts, components, work in progress, finished goods,
merchandise, supplies, and all other goods which are held for sale, lease or
other disposition or furnished under contracts of service or consumed in
Debtor's business, including, without limitation, those held for display or
demonstration or out on lease or consignment;
2.
<PAGE>
(iv) all equipment, including, without limitation, all
machinery, furniture, furnishings, fixtures, trade fixtures, tools, parts and
supplies, automobiles, trucks, tractors and other vehicles, appliances, computer
and other electronic data processing equipment and other office equipment,
computer programs and related data processing software, and all additions,
substitutions, replacements, parts, accessories, and accessions to and for the
foregoing;
(v) all general intangibles and other personal property of
Debtor, including, without limitation, (A) all tax and other refunds, rebates or
credits of every kind and nature to which Debtor is now or hereafter may become
entitled; (B) all intellectual property (domestic or foreign) and all rights
therein of any type or description, including, without limitation, all
inventions and discoveries, patents and patent applications, copyrights and
applications for copyright (together with the underlying works of authorship)
whether or not registered, together with any renewals and extensions thereof,
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, trade secrets, trade dress,
trade styles, logos, other source of business identifiers, mask-works, mask-work
registrations, mask-work applications, software, confidential and proprietary
information, customer lists, other license rights, advertising materials,
operating manuals, methods, processes, know-how, algorithms, formulae,
databases, quality control procedures, product, service and technical
specifications, operating, production and quality control manuals, sales
literature, drawings, specifications, blue prints, descriptions, inventions,
name plates and catalogs, and the entire goodwill of or associated with the
businesses now or hereafter conducted by Debtor connected with and symbolized by
any of the aforementioned properties and assets, and all licenses relating to
any of the foregoing, all reissuance, continuations and continuations-in-part of
the foregoing, all other rights derived from or associated with the foregoing,
including the right to sue and recover for past infringement, and all income and
royalties with respect thereto; (C) all good will, chooses in action and causes
of action; (D) all interests in limited and general partnerships and limited
liability companies; and (E) all indemnity agreements, guaranties, insurance
policies, insurance claims, and other contractual, equitable and legal rights of
whatever kind or nature;
(vi) all books, records and other written, electronic or other
documentation in whatever form maintained by or for Debtor in connection with
the ownership of its assets or the conduct of its business or evidencing or
containing information relating to the Collateral; and
(vii) all products and proceeds, including insurance proceeds,
of any and all of the foregoing.
(b) Anything herein to the contrary notwithstanding, (i)
Debtor shall remain liable under any contracts, agreements and other documents
included in the Collateral, to the extent set forth therein, to perform all of
its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (ii) the exercise by Secured Party of any of the rights
hereunder shall not release Debtor from any of its duties or obligations under
such contracts, agreements and other documents included in the Collateral, and
(iii) Secured Party shall not have any obligation or liability under any
contracts, agreements and other documents included in the Collateral by reason
of this Agreement, nor shall Secured Party be obligated to perform any of the
obligations or duties of Debtor thereunder or to take any action to collect or
enforce any such contract, agreement or other document included in the
Collateral hereunder.
3.
<PAGE>
(c) This Agreement shall create a continuing security interest
in the Collateral which shall remain in effect until terminated in accordance
with Section 20 hereof.
SECTION 3 Financing Statements, Etc. Debtor shall execute and
deliver to Secured Party at any time and from time to time thereafter, all
financing statements, assignments, continuation financing statements,
termination statements, account control agreements, and other documents and
instruments, in form reasonably satisfactory to Secured Party, and take all
other action, as Secured Party may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the security interest
of Secured Party in the Collateral and to accomplish the purposes of this
Agreement.
SECTION 4 Representations and Warranties. Debtor represents
and warrants to Secured Party that:
(a) Debtor's chief executive office and principal place of
business is located at the address set forth in Schedule 1; all other locations
where Debtor conducts business or Collateral is kept are set forth in Schedule
1; and all trade names and fictitious names under which Debtor at any time in
the past has conducted or presently conducts its business operations are set
forth in Schedule 1 or Schedule 2.
(b) Debtor is the sole and complete owner of the Collateral,
free from any lien other than the liens permitted under the Loan Agreement.
(c) This Agreement creates, or will at the time Debtor
acquires rights in the same hereafter create, a perfected security interest in
and enforceable against the Collateral subject only to the liens permitted under
the Loan Agreement.
(d) All of Debtor's U.S. and foreign patents and patent
applications, copyrights (whether or not registered), applications for
copyright, trademarks, service marks and trade names (whether registered or
unregistered), and applications for registration of such trademarks, service
marks and trade names, are set forth in Schedule 2.
(e) All patents, copyrights, trademarks, service marks and
trade names are subsisting and have not been adjudged invalid or unenforceable
in whole or in part and to the best of the Debtor's knowledge each patent is
valid and enforceable.
(f) To the Debtor's knowledge no material infringement or
unauthorized use presently is being made of any of its intellectual property
Collateral and to the Debtor's knowledge its use of its intellectual property
does not infringe any right, privilege or license of any other person.
(g) Debtor owns or is authorized to use all material licenses,
patents, copyrights and other intellectual property rights necessary to continue
to conduct its business. No material intellectual property rights are owned or
held by any subsidiary of the Debtor (except for rights derivative of the
Debtor's intellectual property rights).
4.
<PAGE>
SECTION 5 Covenants. So long as any of the Obligations remain
unsatisfied, Debtor agrees that:
(a) Debtor shall appear in and defend any action, suit or
proceeding which may affect to a material extent its title to, or right or
interest in, or Secured Party's right or interest in, the Collateral, and shall
do and perform all reasonable acts that may be necessary and appropriate to
maintain, preserve and protect the Collateral.
(b) Debtor shall comply in all material respects with all
laws, regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.
(c) Debtor shall give prompt written notice to Secured Party
(and in any event not later than 30 days following any change described below in
this subsection) of: (i) any change in the location of Debtor's chief executive
office or principal place of business, (ii) any change in the locations set
forth in Schedule 1; (iii) any change in its name, (iv) any changes in,
additions to or other modifications of its trade names and trade styles set
forth in Schedule 1 or Schedule 2, and (v) any changes in its identity or
structure in any manner which might make any financing statement filed hereunder
incorrect or misleading.
(d) Debtor shall carry and maintain in full force and effect,
at its own expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such deductibles
and covering such risks as is customarily carried by companies engaged in the
same or similar businesses and owning similar properties in the localities where
Debtor operates.
(e) Debtor shall keep separate, accurate and complete books
and records with respect to the Collateral, disclosing Secured Party's security
interest hereunder.
(f) Debtor shall not surrender or lose possession of (other
than to Secured Party), sell, lease, rent, or otherwise dispose of or transfer
any of the Collateral or any right or interest therein without the prior written
consent of the Secured Party, except in the ordinary course of business;
provided that no such disposition or transfer of Collateral consisting of
investment property or instruments shall be permitted while any Default exists.
(g) Debtor shall keep the Collateral free of all liens other
than the liens in respect of the Lease Facility Debt.
(h) Debtor shall pay and discharge all taxes, fees,
assessments and governmental charges or levies imposed upon it with respect to
the Collateral prior to the date on which penalties attach thereto, except to
the extent such taxes, fees, assessments or governmental charges or levies are
being contested in good faith by appropriate proceedings.
(i) Debtor shall maintain and preserve its corporate
existence, its rights to transact business and all other rights, franchises and
privileges necessary or desirable in the normal course of its business and
operations and the ownership of the Collateral.
5.
<PAGE>
(j) Upon the request of Secured Party, Debtor shall (i)
promptly deliver to Secured Party, or an agent designated by it, appropriately
endorsed or accompanied by appropriate instruments of transfer or assignment,
all documents and instruments, all certificated securities with respect to any
investment property, all letters of credit and all accounts and other rights to
payment at any time evidenced by promissory notes, trade acceptances or other
instruments, (ii) cause any securities intermediaries to show on their books
that Secured Party is the entitlement holder with respect to any investment
property, and/or obtain account control agreements in favor of Secured Party
from such securities intermediaries, in form and substance satisfactory to
Secured Party, with respect to any investment property, as requested by Secured
Party, (iii) mark all documents and chattel paper with such legends as Secured
Party shall reasonably specify, and (iv) obtain consents from any letter of
credit issuers with respect to the assignment to Secured Party of any letter of
credit proceeds.
(k) Debtor shall at any reasonable time and from time to time
upon reasonable notice permit Secured Party or any of its agents or
representatives to visit the premises of Debtor and inspect the Collateral and
to examine and make copies of and abstracts from the records and books of
account of Debtor; provided, however, that prior to a Default the Debtor shall
not be required to disclose information which it reasonably considers to be a
trade secret or information subject to confidentiality undertaking to third
parties prohibiting disclosure.
(l) Debtor shall (i) notify Secured Party of any material
claim made or asserted against the Collateral by any Person and of any change in
the composition of the Collateral or other event which could materially
adversely affect the value of the Collateral or Secured Party's lien thereon;
(ii) furnish to Secured Party such statements and schedules further identifying
and describing the Collateral and such other reports and other information in
connection with the Collateral as Secured Party may reasonably request, all in
reasonable detail; and (iii) upon reasonable request of Secured Party make such
demands and requests for information and reports as Debtor is entitled to make
in respect of the Collateral.
(m) If and when Debtor shall obtain rights to any new patents,
trademarks, service marks, trade names or copyrights, or otherwise acquire or
become entitled to the benefit of, or apply for registration of, any of the
foregoing, Debtor (i) shall promptly notify Secured Party thereof and (ii)
hereby authorizes Secured Party to modify, amend, or supplement Schedule 2 and
from time to time to include any of the foregoing and make all necessary or
appropriate filings with respect thereto.
(n) Debtor shall not enter into any agreement (including any
license or royalty agreement) pertaining to any of its patents, copyrights,
trademarks, service marks and trade names without the prior written consent of
the Secured Party, except for non-exclusive licenses in the ordinary course of
business.
(o) Debtor shall give Secured Party immediate notice of the
establishment of any new deposit account and any new securities account with
respect to any investment property.
6.
<PAGE>
SECTION 6 Collection of Accounts. At the request of Secured
Party, upon the occurrence and during the continuance of any Default, all
remittances received by Debtor shall be held in trust for Secured Party and, in
accordance with Secured Party's instructions, remitted to Secured Party or
deposited to an account of Secured Party in the form received (with any
necessary endorsements or instruments of assignment or transfer). At the request
of Secured Party, upon and after the occurrence of any Default, Secured Party
shall be entitled to receive all distributions and payments of any nature with
respect to any investment property or instruments, and all such distributions or
payments received by the Debtor shall be held in trust for Secured Party and, in
accordance with Secured Party's instructions, remitted to Secured Party or
deposited to an account with Secured Party in the form received (with any
necessary endorsements or instruments of assignment or transfer). Following the
occurrence of an Default any such distributions and payments with respect to any
investment property held in any securities account shall be held and retained in
such securities account, in each case as part of the Collateral hereunder.
SECTION 7 Authorization; Secured Party Appointed
Attorney-in-Fact. Secured Party shall have the right to, in the name of Debtor,
or in the name of Secured Party or otherwise, upon notice to but without the
requirement of assent by Debtor, and Debtor hereby constitutes and appoints
Secured Party (and any of Secured Party's officers, employees or agents
designated by Secured Party) as Debtor's true and lawful attorney-in-fact, with
full power and authority to: (i) sign any of the financing statements and other
documents and instruments which Secured Party deems necessary or advisable to
perfect or continue perfected, maintain the priority of or provide notice of
Secured Party's security interest in the Collateral (including any notices to or
agreements with any securities intermediary); (ii) assert, adjust, sue for,
compromise or release any claims under any policies of insurance; and (iii)
execute any and all such other documents and instruments, and do any and all
acts and things for and on behalf of Debtor, which Secured Party may deem
reasonably necessary or advisable to maintain, protect, realize upon and
preserve the Collateral and Secured Party's security interest therein and to
accomplish the purposes of this Agreement. Secured Party agrees that, except
upon and during the continuance of a Default, it shall not exercise the power of
attorney, or any rights granted to Secured Party, pursuant to clauses (ii) and
(iii). The foregoing power of attorney is coupled with an interest and is
irrevocable so long as the Obligations have not been paid and performed in full.
Debtor hereby ratifies, to the extent permitted by law, all that Secured Party
shall lawfully and in good faith do or cause to be done by virtue of and in
compliance with this Section 7.
SECTION 8 Events of Default. Any of the following events which
shall occur and be continuing shall constitute a "Default":
(a) There shall be an Event of Default under the terms
of the Loan Agreement.
(b) Any material impairment in the value of the Collateral or
the priority of Secured Party's lien hereunder.
(c) Any levy upon, seizure or attachment of any of the
Collateral.
(d) Any loss, theft or substantial damage to, or destruction
of, any material portion of the Collateral (unless within 3 days after the
occurrence of any such event, Debtor
7.
<PAGE>
furnishes to Secured Party evidence satisfactory to Secured Party that the
amount of any such loss, theft, damage to or destruction of the Collateral is
adequately insured for its replacement value insured under policies naming
Secured Party as an additional named insured or loss payee).
SECTION 9 Remedies.
(a) Upon the occurrence and continuance of any Default,
Secured Party may declare any of the Obligations to be immediately due and
payable and shall have, in addition to all other rights and remedies granted to
it in this Agreement or any other Document, all rights and remedies of a secured
party under the UCC and other applicable laws. Without limiting the generality
of the foregoing, Secured Party may sell, resell, lease, use, assign, license,
sublicense, transfer or otherwise dispose of any or all of the Collateral in its
then condition or following any commercially reasonable preparation or
processing (utilizing in connection therewith any of Debtor's assets, without
charge or liability to Secured Party therefor) at public or private sale, by one
or more contracts, in one or more parcels, at the same or different times, for
cash or credit, or for future delivery without assumption of any credit risk,
all as Secured Party deems advisable; provided, however, that Debtor shall be
credited with the net proceeds of sale only when such proceeds are finally
collected by Secured Party. Secured Party shall have the right upon any such
public sale, and, to the extent permitted by law, upon any such private sale, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption, which right or equity of redemption Debtor hereby
releases, to the extent permitted by law. Debtor hereby agrees that the sending
of notice by ordinary mail, postage prepaid, to the address of Debtor set forth
herein, of the place and time of any public sale or of the time after which any
private sale or other intended disposition is to be made, shall be deemed
reasonable notice thereof if such notice is sent ten days prior to the date of
such sale or other disposition or the date on or after which such sale or other
disposition may occur, provided that Secured Party may provide Debtor shorter
notice or no notice, to the extent permitted by the UCC or other applicable law.
(b) For the purpose of enabling Secured Party to exercise its
rights and remedies under this Section 9, Debtor hereby grants to Secured Party
an irrevocable, non-exclusive and assignable license (exercisable without
payment or royalty or other compensation to Debtor) to use, license or
sublicense any intellectual property Collateral.
(c) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied first, to the payment of the costs and expenses of
Secured Party in exercising or enforcing its rights hereunder and in collecting
or attempting to collect any of the Collateral, and to the payment of all other
amounts payable to Secured Party pursuant to Section 13 hereof; and second, to
the payment of the Obligations. Any surplus thereof which exists after payment
and performance in full of the Obligations shall be promptly paid over to Debtor
or otherwise disposed of in accordance with the UCC or other applicable law.
Debtor shall remain liable to Secured Party for any deficiency which exists
after any sale or other disposition or collection of Collateral.
SECTION 10 Certain Waivers. Debtor waives, to the fullest
extent permitted by
8.
<PAGE>
law, (i) any right of redemption with respect to the Collateral, whether before
or after sale hereunder, and all rights, if any, of marshalling of the
Collateral or other collateral or security for the Obligations; (ii) any right
to require Secured Party (A) to proceed against any Person, (B) to exhaust any
other collateral or security for any of the Obligations, (C) to pursue any
remedy in Secured Party's power, or (D) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(iii) all claims, damages, and demands against Secured Party arising out of the
repossession, retention, sale or application of the proceeds of any sale of the
Collateral
SECTION 11 Notices. All notices or other communications
hereunder shall be in writing (including by facsimile transmission) and mailed,
sent or delivered to the respective parties hereto at or to their respective
addresses or facsimile numbers set forth below their names on the signature
pages hereof, or at or to such other address or facsimile number as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and other communications shall be effective (i) if delivered by
hand, when delivered; (ii) if sent by mail, upon the earlier of the date of
receipt or five business days after deposit in the mail, first class; and (iii)
if sent by facsimile transmission, when sent.
SECTION 12 No Waiver; Cumulative Remedies. No failure on the
part of Secured Party to exercise, and no delay in exercising, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, remedy, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to Secured Party.
SECTION 13 Secured Party's Duties. Notwithstanding any
provision contained in this Agreement, the Secured Party shall have no duty to
exercise any of the rights, privileges or powers afforded to it and shall not be
responsible to Debtor or any other Person for any failure to do so or delay in
doing so. Beyond the exercise of reasonable care to assure the safe custody of
Collateral in the Secured Party's possession and the accounting for moneys
actually received by the Secured Party hereunder, the Secured Party shall have
no duty or liability to exercise or preserve any rights, privileges or powers
pertaining to the Collateral.
SECTION 14 Costs and Expenses. Debtor agrees to pay on demand
all costs and expenses of Secured Party, and the fees and disbursements of
counsel, in connection with the enforcement or attempted enforcement of, and
preservation of any rights or interests under, this Agreement and any other
Document, including in any out-of-court workout or other refinancing or
restructuring or in any bankruptcy case, and the protection, sale or collection
of, or other realization upon, any of the Collateral, including all expenses of
taking, collecting, holding, sorting, handling, preparing for sale, selling, or
the like, and other such expenses of sales and collections of Collateral.
SECTION 15 Binding Effect. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by Debtor, Secured Party and
their respective successors and assigns.
9.
<PAGE>
SECTION 16 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
New York.
SECTION 17 Entire Agreement; Amendment. This Agreement
contains the entire agreement of the parties with respect to the subject matter
hereof and shall not be amended except by the written agreement of the parties.
SECTION 18 Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 19 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
SECTION 20 Termination. Upon payment and performance in full
of all Obligations, this Agreement shall terminate and Secured Party shall
promptly execute and deliver to Debtor such documents and instruments reasonably
requested by Debtor as shall be necessary to evidence termination of all
security interests given by Debtor to Secured Party hereunder; provided,
however, that the obligations of Debtor under Section 14 hereof shall survive
such termination.
10.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
GIGA INFORMATION GROUP, INC.
By: /s/ Daniel M. Clarke
____________________________________
Name: Daniel M. Clarke
Title: Senior Vice President
One Longwater Circle
Norwell, Massachusetts 02061
Attn: Daniel M. Clarke
Fax: (781) 871-4098
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Gerald S. Backman
Fax: (212) 310-8007
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
By: /s/ Russell Ramsey
_____________________________________
Name: Russell Ramsey
Title: President
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
Attention: Robert Smith
Suzanne Richardson
Fax: (703) 312-9601
S-1.
<PAGE>
EXHIBIT 10.16
November 13, 1995
Mr. Gideon Gartner
0126 Magnifico Drive
Aspen, CO 81611
Re: Non-Competition
---------------
Dear Gideon:
As you know, Giga Information Group, Inc. (the "Company") has agreed to
sell shares of its Series B Preferred Stock (the "Shares") to certain investors
(the "Investors") under the Series B Preferred Stock Purchase Agreement between
the Company and such Investors. One condition of the Investors' obligation to
purchase the Shares is your agreement to be bound by the terms of this letter
agreement; the Investors will make their investment in the Company in reliance
upon your agreement to be so bound. Please signify your acceptance of the terms
of this letter agreement and your understanding that the Investors will purchase
Shares in reliance upon this agreement by counter-signing this letter agreement
in the place indicated.
1. For the Non-Competition Period (as defined below), you will not,
directly or indirectly:
a. as an individual proprietor, partner, stockholder, officer, employee,
director, joint venture, investor, lender, or in any other capacity
whatsoever (other than as the holder of less five percent (5%) of the total
outstanding stock of a publicly held company), engage in the business of
developing, providing, marketing or selling Continuous IT Information
Services.
b. recruit, solicit or induce, or attempt to induce, any employee or
employees to the Company or any subsidiary thereof to terminate their
employment with, or otherwise cease their relationship with, the Company or
any subsidiary thereof; or
c. solicit, divert or take away, or attempt to divert or to take away,
the business or patronage of any of the clients, customers, subscribers or
accounts, or prospective clients, customers or accounts, of the Company or
any subsidiary thereof which were contacted, solicited or served by you
while you were employed by the Company.
2. For the purposes of this letter agreement:
<PAGE>
(a) "Continuous IT Information Services" means the performance or
development of original research or analysis with respect to information
technology industries and the marketing and sales of the results of such
research and analysis through subscription or retainer relationships which
(i) have a stated term (which may be subject to renewal or extension) and
(ii) which involve the delivery of analysis in a number of formats and
vehicles, including oral, written, and on-line vehicles and through events;
provided that Continuous IT Information Services shall not include
consulting services intended to address specific problems or issues of
specific clients.
(b) the "Non-Competition Period" shall mean (i) the period for which you
are employed by the Company or a subsidiary thereof, and (ii) so long
thereafter as the Company continues to pay to you compensation of at least
$120,000 per year (whether as an employee, a consultant or in the form of
severance or post-employment benefits, but excluding dividends, interest or
other income or gains attributable to your investment in the Company or
upon the exercise of stock options).
3. You acknowledge that the type and period of restriction imposed
pursuant to this letter agreement are fair and reasonable and are reasonably
required for the protection of the Company and the goodwill, trade secrets,
proprietary information and other intangible assets associated with the business
of the Company. The parties desire that the restirctions be reasonable both now
and at any time they are sought to be enforced, and accordingly agree that if
any restriction set forth in this agreement is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area,
it shall be interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable. You agree that
any remedy available to the Company at law for the breach of this agreement may
be inadequate and therefore, in the event of any such breach, in addition to
such other remedies which may be available, the Company shall have the right to
seek specific performance and injunctive relief.
<PAGE>
4. This letter agreement will be construed and enforced in accordance with
and governed by the law of the State of Massachusetts.
Very truly yours,
GIGA INFORMATION GROUP, INC.
By: /s/ Michael J. Kolesar
--------------------------------------
Name: Michael Kolesar
Title: Vice President-Finance
ACCEPTED AND AGREED
/s/ Gideon Gartner
- -------------------------------
Gideon Gartner
<PAGE>
EXHIBIT 10.17(a)
July 12, 1996
Mr. Richard Crandall
2129 Devonshire Road
Ann Arbor, MI 48401
Dear Rick:
Effective July 1, 1996, you will be granted 20,000 non-qualified stock
options at the then current exercise price subject to the Board of Directors'
approval, in exchange for your services for the next twelve months as an
Advising Cabinet member to Giga Information Group. These options will be issue
under the 1995 Stock Option/Stock Issuance Plan, exercisable to purchase shares
of Common Stock and will provide for 25% vesting after one year from initial
date of grant (July 1, 1996) and continued monthly vesting thereafter over the
next thirty-six (36) months ensuring that you will be fully vested after forty-
eight (48) months. In the event that you discontinue your role as a cabinet
member, but continue as a board member, your shares will continue to vest at
this rate.
You will receive the formal Stock Option Agreement following approval of
this grant after the next board meeting.
If you have any questions, please call me at 617-577-4800.
Sincerely,
/s/ Kenneth E. Marshall
Kenneth Marshall
President & COO
Giga Information Group, Inc.
<PAGE>
EXHIBIT 10.18
LEASE
-----
1. PARTIES. CAMBRIDGE 1400 LIMITED PARTNERSHIP, a Massachusetts limited
-------
partnership, ("LESSOR"), which expression shall include its successors and
assigns where the context so permits, do hereby lease to GIGA INFORMATION GROUP,
INC., a Massachusetts corporation, ("LESSEE"), which expression shall include
its successors and assigns, and the LESSEE hereby leases and shall peaceably
hold and enjoy the following described premises.
2. LEASED PREMISES. On the Commencement Date, or such earlier date as
---------------
LESSEE shall take occupancy thereof, the "Leased Premises" shall consist of that
portion of the first floor in Building No. 1400 (the "Building"), located at One
Kendall Square, Cambridge, Massachusetts, located in the mixed use retail and
office complex known as "One Kendall Square" (the "Complex") which first floor
space contains Seven Thousand Eight Hundred and Sixty-Eight (7,868) square feet
of space, more or less, and outlined on the sketch contained in Exhibit A1
(herein called the "Leased Premises").
The Leased Premises shall have as appurtenant thereto: (a) the right to use
in common with others entitled thereto, the entrances, lobbies, hallways,
stairways, walkways, sidewalks, driveways, loading docks, elevators and other
common facilities in the Building containing any portion of the Leased Premises
and on the land constituting the Lot more particularly described in Exhibit B
hereto (herein called the "Lot") necessary for access to and enjoyment of the
Leased Premises, or portion, and (b) the pipes, conduits, wires, and appurtenant
equipment serving the
<PAGE>
Leased Premises, or portion thereof, in common with other portions of the
Building containing any part of the Leased Premises, subject, however, to the
following rights which are expressly excepted and reserved by LESSOR: (i) the
right, from time to time, to install, maintain, use, repair, relocate, place and
replace utility lines, pipes, ducts, conduits, wires, gas, electric, or any
other meters and fixtures located on or passing through any portion of the
Leased Premises to serve other portions of the LESSOR's property of which the
Leased Premises, or a portion thereof, are a part, provided, however, LESSOR
shall not unreasonably interfere with LESSEE's occupancy and use of the Leased
Premises; (ii) the right to enter into, upon and across any portion of the
Leased Premises to exercise any reserved right of LESSOR hereunder or to
complete LESSOR's construction of the Leased Premises, or part thereof, and the
Building, provided, however, LESSOR shall not unreasonably interfere with
LESSEE's occupancy and use of the Leased Premises; and (iii) the right from time
to time to make alterations or additions to the Building and to construct other
buildings or improvements on the Lot and to make additions to such buildings or
improvements, and to permit others to do so from time to time all as LESSOR may
determine in its sole discretion, and without LESSEE's consent in any instance;
any such alterations or additions or construction of other buildings or
improvements on the Lot, being performed to the greatest possible extent in a
manner so as not unreasonably to interfere with the LESSEE's use and occupancy
of the Leased Premises.
Subject to LESSOR's reserved rights specified above, there shall be
appurtenant
2
<PAGE>
to the Leased Premises the right to park forty (40) passenger motor vehicles in
the One Kendall Square parking garage. LESSOR reserves the right to designate
the locations of the spaces to be utilized for such parking rights by written
notice to LESSEE, and to change the location of any or all of such spaces by
notice to LESSEE at any time and from time to time as LESSOR shall reasonably
determine. The parking spaces provided hereunder need not be contiguous.
3.1 TERM. The term (the "Term") of this Lease shall be for a period of
----
five (5) years following the "Commencement Date." The "Commencement Date" shall
be the later to occur of (a) November 1, 1995 or (b) the completion of LESSOR's
work on the initial Five Thousand Five Hundred (5,500) square feet of space as
outlined in Exhibit C. Notwithstanding the above, base rent, and common
area/real estate tax reimbursements on Two Thousand Three Hundred and Sixty-
Eight (2,368) rentable square feet of the Leased Premises shall not commence
until all of the LESSOR's work under Paragraph 3.2 is complete or until LESSEE
has occupied that portion of the Leased Premises.
As soon as may be convenient after the Commencement Date has been
determined, the LESSOR and the LESSEE agree to join with each other in the
execution, in recordable form, of a written declaration in which the
Commencement Date shall be stated.
3.1.1 PHASED OCCUPANCY. In the event a portion of the Leased Premises are
----------------
substantially completed and ready for occupancy, and LESSOR shall have given
notice to LESSEE thereof, then LESSEE shall have the right to commence use and
3
<PAGE>
occupancy of such portion of the Leased Premises subject to the terms and
conditions of this Lease. During the period of such partial use and occupancy,
Base Rent and additional rent payable under Paragraphs 4 and 5 hereof shall be
payable on a pro rata basis in the same proportion as the square footage of the
space being used and occupied bears to the total square footage of the Leased
Premises, and LESSEE shall perform, comply with and abide by all of its
obligations, undertakings and covenants as if, and to the same extent, as though
the Term had commenced.
3.2 COMPLETION OF IMPROVEMENTS. The Two Thousand Three Hundred and Sixty-
--------------------------
Eight (2,368) rentable square feet of the Leased Premises that will be rebuilt
shall be considered "ready for occupancy" on the date upon which the
improvements described in Exhibit C - Column 2 hereto to be constructed by
LESSOR with respect to the Leased Premises are substantially completed, and
LESSEE is given a copy of a certificate of occupancy issued by the City of
Cambridge Building Department covering the Leased Premises. The Leased Premises
shall be deemed substantially completed notwithstanding that completion of work
and adjustment of equipment and fixtures or minor items of uncompleted work (so-
called "punch list" work items) remain to be done, if such work can be completed
after occupancy has been taken without causing unreasonable interference with
LESSEE's use of the Leased Premises. Except for latent defects and except to
the extent to which the LESSEE shall have given the LESSOR written notice, not
later than thirty (30) days after LESSEE occupies the Two Thousand Three Hundred
and Sixty-Eight (2,368) square feet of space, of matters or items as to which
the LESSOR has not
4
<PAGE>
properly performed its obligations with respect to the construction and
installation of the improvements called for under the Lease, the LESSEE shall
have no claim that the LESSOR has failed to perform such obligations, and
LESSEE's taking possession shall be conclusive evidence as against LESSEE that
said space and improvements were in good order and satisfactory condition when
LESSEE took possession. The LESSOR shall complete all items of work not properly
performed as to which the LESSEE shall have given the LESSOR such timely written
notice as soon as conditions practicably permit thereafter in such a manner as
not to unreasonably disturb the LESSEE or its business operations carried out in
the Leased Premises.
4. RENT. LESSEE covenants and agrees to pay to LESSOR annual base rent
----
("Base Rent") in the amounts set forth or provided for below, by equal payments
of one-twelfth (1/12) of such annual rate on the first day of each calendar
month in advance, the first monthly payment to be made on the Commencement Date,
and by payment in advance of a pro-rata portion of a monthly payment for any
portion of a month at the beginning or end of the Term based on the actual
number of days in any such month; all payments to be made to LESSOR or such
agent, and at such place, as LESSOR shall from time to time in writing
designate, the following being now so designated:
CAMBRIDGE 1400 LIMITED PARTNERSHIP
c/o THE ATHENAEUM GROUP
215 First Street
Cambridge, MA 02142-1268
The annual Base Rent for each of the first and second years of the Term
shall be One Hundred and Ten Thousand and One Hundred Fifty-Two Dollars
5
<PAGE>
($110,152.00). The annual Base Rent for third year of the Term shall be One
Hundred and Sixteen Thousand and Fifty-Three Dollars ($116,053.00). The annual
Base Rent for each of the fourth and fifth years of the Term shall be One
Hundred and Twenty-One Thousand Nine Hundred and Fifty-Four Dollars
($121,954.00). In addition, on a monthly basis the LESSEE shall pay to the
LESSOR the fair rental value of LESSEE's parking spaces (currently $115.00 per
month per space) in the parking garage as reasonably determined by LESSOR
("Garage Parking").
5. RENT ADJUSTMENTS.
----------------
5.1 RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE LOT.
------------------------------------------------------------
Commencing as of the Commencement Date but as limited by the provisions of
Paragraph 3.1 and with respect to any calendar year or any fraction of a
calendar year thereafter falling within the Term, the LESSEE shall pay to the
LESSOR as additional rent, the "LESSEE's Proportionate CAO Lot Share" (defined
below) of all costs and expenses incurred by the LESSOR in connection with the
maintenance, repair, upkeep, and cleaning of those common areas and facilities
of the Lot delineated or described in Exhibit B hereto, which LESSEE has the
right to use in common with others such as but not limited to common walkways,
accessways and parking facilities and the costs of heating and electricity,
snow-plowing and snow and ice removal, trash removal services, janitorial and
security services, landscaping and lawn care services, walkway, driveway,
parking, and common entryway upkeep and paving costs, and all other costs
reasonably incurred by or for LESSOR in connection with the insurance,
maintenance and operation of the common areas and
6
<PAGE>
facilities of the Lot to keep the same in safe, secure and first-class order and
condition (hereinafter called "CAO Lot").
LESSEE's Proportionate CAO Lot Share means that percentage which is equal
to the ratio of the square footage of space constituting the Leased Premises to
the aggregate square footage of space within the Complex which is completed and
as to which a Certificate of Occupancy has issued. As additional buildings are
completed within the Complex, LESSEE'S Proportionate CAO Lot Share shall be
adjusted to that percentage which is equal to the ratio of the square footage
constituting the Leased Premises to the aggregate square footage of space within
the complex which is completed and as to which a certificate of occupancy has
issued. As of the date hereof, the parties have agreed that LESSEE's
Proportionate CAO Lot Share (on the 7,868 rentable square feet) shall initially
be l.29%.
Notwithstanding anything contained in this Lease to the contrary, LESSEE
shall not be responsible for any costs, fees or expenses associated with
construction of additional buildings in the Complex, including, but not limited
to, demolition and grading costs, management fees, contractor fees,
architectural fees, material and building costs, permit fees and costs incurred
due to damage to the existing Complex and Common Areas caused by such new
construction.
5.2 RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE BUILDING.
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Commencing as of the Commencement Date but as limited by the provisions of
Paragraph 3.1 and with respect to any calendar year falling within the term, or
fraction of a calendar year at the beginning or end of the term, the
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LESSEE shall pay to the LESSOR, as additional rent, the "LESSEE's Proportionate
Building Share" (defined below) of operating expenses attributable to the
Building ("CAO Building"). CAO Building shall include, but is not limited to
the following: all costs and expenses incurred by the LESSOR in connection with
the insurance, operation, repair, maintenance and cleaning of or for the
Building and heating, plumbing, elevators, electrical, air-conditioning and
other systems thereof, trash removal, janitorial services, security systems and
general expenses incurred by the LESSOR in connection with the insurance,
operation and maintenance of the Building, to keep the same in safe, secure and
first-class order and condition.
LESSEE's Proportionate Building Share shall be that percentage, which is
equal to the ratio of the square footage of space constituting the Leased
Premises to the aggregate square footage of space in the Building.
The LESSEE's Proportionate Building Share with respect to the Leased
Premises is 6.26%.
The following shall not constitute Common Area Operating Expenses for the
Lot or Common Area Operating Expenses for the Building (collectively, "Common
Area Operating Expenses") for the purposes of this Lease, and nothing contained
herein shall be deemed to require LESSEE to pay any of the following as Common
Area Operating Expenses: (i) damage and repairs attributable to condemnation,
fire or other casualty; (ii) damage and repairs covered under any warranty or
insurance policy carried by LESSOR in connection with the Building, Complex or
Common Areas; (iii) damage and repairs necessitated by the negligence or willful
misconduct
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of LESSOR or LESSOR's employees, contractors or agents; (iv) executive salaries
of LESSOR; (v) LESSOR's general overhead expenses not related to the Building;
(vi) payments of principal or interest on any mortgage or other encumbrance
including ground lease payments and points, commissions and legal fees
associated with financing; (vii) depreciation; (viii) any cost or expense
related to the testing for, removal, transportation or storage of hazardous
materials from the Leased Premises, Building, Complex or Common Areas; and (ix)
interest, penalties or other costs arising out of LESSOR's failure to make
timely payments of its obligations.
LESSOR shall not collect in excess of one hundred percent (100%) of Common
Area Operating Expenses for the Lot or Common Area Operating Expenses for the
Building or any item of cost more than once. Any Common Area Operating Expenses
charged LESSOR by any of its affiliates for goods and service provided to the
Building, Leased Premises, Complex or Common Areas shall not exceed the
prevailing cost thereof that would be charged to LESSOR by non-affiliated
parties. All Common Area Operating Expenses shall be directly attributable to
the operations, maintenance, management and repair of the Leased Premises,
Building, Complex or Common Areas.
5.3 MONTHLY PAYMENTS. Beginning with the calendar year in which the
----------------
Commencement Date occurs, and in subsequent years during the Term of this Lease,
the LESSEE shall pay to the LESSOR pro rata monthly installments of amounts due
under Paragraphs 5.1 and 5.2 on account of projected CAO Lot and CAO Building
for such year, calculated by the LESSOR on the basis of the best and most
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recent budget or data available. Appropriate adjustments of estimated amounts
shall be made between LESSOR and LESSEE promptly after the close of each
calendar year to account for actual CAO Lot and CAO Building for such year,
except that LESSOR may, at its option, credit any amounts due from it to LESSEE
as provided above against any sums then due from LESSEE to LESSOR under this
Lease. The balance of any amounts due shall be paid within thirty (30) days
after written notice thereof.
5.4 RENT ADJUSTMENT - TAXES.
-----------------------
5.4.1 LESSOR TO PAY TAXES. The LESSOR shall be responsible for the
-------------------
payment, before the same becomes delinquent, of all general and special taxes of
every kind and nature, 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.
If at any time during the Term the present system of ad valorem taxation of
real property shall be changed to that in lieu of the whole or any part of the
ad valorem tax on real property, there shall be assessed on LESSOR a capital
levy or other tax on the gross rents received with respect to the Lot or the
Building or a federal, state, county, municipal, or other local income,
franchise, excise or similar tax, assessment, levy or charge (distinct from any
now in effect) measured by or based, in whole or in part, upon any such gross
rents, then any and all of such taxes, assessments, levies or charges to the
extent so measured or based, shall be deemed to be included within the term
"Taxes" but only to the extent that the same would be payable if the Lot and the
Building were the only property of LESSOR.
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5.4.2 LESSEE'S SHARE OF TAXES. As limited by the provisions of
-----------------------
Paragraph 3.1, the LESSEE shall pay to the LESSOR, as additional rent, the
LESSEE's Proportionate Building Share of that portion of the Taxes solely
attributable to the Building and LESSEE's Proportionate CAO Lot Share of that
portion of the Taxes solely attributable to the land which constitutes the Lot.
Notwithstanding anything to the contrary in this Lease, the following shall
not constitute Taxes for the purpose of this Lease, and nothing contained herein
shall be deemed to require LESSEE to pay any of the following: (i) any
franchise, succession or transfer taxes, or (ii) interest on taxes or penalties
resulting from LESSOR's failure to pay taxes. LESSOR shall cause any Taxes
which may be evidenced by improvement or other bonds or which may be paid in
annual or other periodic installments to be paid in installments over the
maximum period provided by law.
5.4.3 RENT ADJUSTMENT - PAYMENT. Beginning with the calendar year in
-------------------------
which the Commencement Date occurs and in subsequent years during the Term of
this Lease, LESSEE shall pay to the LESSOR monthly installments of one-twelfth
(1/12) of the amounts due to LESSOR under Paragraphs 5.4.1 and 5.4.2 on account
of projected Taxes for such year, calculated by the LESSOR on the basis of the
best and most recent data available as set forth in a statement from LESSOR
(and, when available, based upon the real estate tax bill covering any such
period). Appropriate adjustments of estimated amounts shall be made between
LESSOR and LESSEE promptly after LESSOR shall have received the tax bill
covering any such period.
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5.4.4 TAX ADJUSTMENT. If the LESSOR or any other tenant (excluding
--------------
LESSEE) in the Building shall construct an addition to the Building, or
construct improvements within the Building of unusual value so as to result in
an increase in Taxes over the Taxes which would have been assessed to that
Building but for such construction, there shall not be included in Taxes for
purposes of this Lease the amount of such increase in Taxes unless such
additions or improvements directly benefit the LESSEE. If the LESSEE, or the
LESSOR at the direction of the LESSEE, shall construct improvements within the
Leased Premises, or any part thereof, of unusual value so as to result in an
increase in Taxes over the Taxes which would have been assessed to the Building,
or part, but for such unusually valuable improvements, the LESSEE shall be
responsible for the payment of the full amount of such increase.
6. UTILITIES AND OTHER SERVICES.
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(a) The LESSOR shall provide and the LESSEE shall pay charges for all heat,
air-conditioning, electricity, and water and sewer use charges and all other
utilities separately metered or sub-metered to the Leased Premises, and LESSEE
shall be responsible for all utility company deposits applicable to the supply
of such services to the Leased Premises. LESSEE shall also be responsible for
the payment of its proportionate share of such utilities not separately metered
or sub-metered to the Leased Premises but which serve the Leased Premises, all
as reasonably determined by LESSOR. Upon request by the LESSOR, the LESSEE
shall provide the LESSOR with evidence of payment of such charges. LESSEE shall
defend, indemnify and hold
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LESSOR harmless from and against any claim or liability arising out of LESSEE's
failure to pay for such charges for which LESSEE is responsible.
(b) LESSOR agrees to furnish reasonable heat to the stairways, elevators
and other common areas in the Building, or portions thereof, as necessary for
comfortable occupancy twenty-four (24) hours, seven (7) days per week of the
heating season of each year and to provide lighting to passageways and stairways
and all parking areas and walkways providing access from the Building to the
parking area in the evening twenty-four (24) hours, seven (7) days per week and
to furnish ordinary repairs and cleaning of the common areas and facilities of
the Complex and removal of snow and ice reasonably promptly after snowfall and
ice accumulation have ended to all walkways, accessways and approaches to the
Building and the parking facility as is customary in or about similar buildings
in Cambridge. LESSOR shall not be liable to LESSEE for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from the necessity of LESSOR or its agents entering the Leased
Premises, or for LESSEE's repairing the Leased Premises if such repair is not
performed by LESSOR, or for making repairs or renovations to any portion of the
Building, however the necessity may occur. In case LESSOR is prevented or
delayed from making any such repairs or alterations, or supplying the utilities
or services provided for herein, or performing any other covenant or duty to be
performed on LESSOR's part, by reason of any cause beyond LESSOR's control,
LESSOR shall not be liable to LESSEE therefor, nor shall LESSEE be entitled to
any abatement or reduction of rent by reason thereof, nor
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shall the same give rise to a claim in LESSEE's favor that such failure
constitutes actual or constructive, total or partial, eviction from the Leased
Premises, or any portion thereof. LESSOR reserves the right to stop any service
or utility system, when necessary by reason of accident or emergency, until
necessary repairs have been completed.
(c) LESSOR has installed at its own expense separate meters for all
utilities including heat, electricity, water and sewer, and air conditioning.
The LESSEE shall pay its utility chargzes directly to the suppliers of such
utility services, as billed by the LESSOR within ten (10) days of receipt of
said bill and at least before the same become delinquent. The LESSEE and LESSOR
shall have the right to audit said charges and payments upon reasonable notice.
7. USE OF LEASED PREMISES. The LESSEE may use the Leased Premises only
----------------------
for the purpose of general office.
8. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or
--------------------
occupation shall be conducted in the Leased Premises or use made thereof which
shall be unlawful, improper, noisy or offensive, or be contrary to any law or
any municipal by-law or ordinance in force in the City of Cambridge. LESSEE
shall keep the Leased Premises equipped with all safety appliances and shall
procure and keep in force all licenses and permits required by law or ordinance
of any public authority because of the uses made of the Leased Premises by
LESSEE and shall maintain in good condition on the Leased Premises all safety
and fire protection devices required by the Board of Fire Underwriters, or other
body having similar functions, and of
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every insurance company and policy by which LESSOR or LESSEE is insured. If any
use of the Leased Premises by LESSEE results in the cancellation of any
insurances carried by LESSOR, or increases the cost thereof, the LESSEE shall on
demand reimburse the LESSOR all extra insurance premiums incurred as a result of
such use of the Leased Premises by the LESSEE.
9. RISK OF LOSS OF PERSONAL EFFECTS. LESSEE acknowledges and agrees that
--------------------------------
all of the furnishings, equipment, effects and property of LESSEE and of all
persons claiming by, through or under LESSEE which may be on the Leased Premises
or elsewhere in any building in the Complex, shall be at the sole risk and
hazard of LESSEE and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by LESSOR, except that
LESSOR shall in no event be indemnified or held harmless or exonerated from any
liability to LESSEE or to any other person, arising from any injury, loss,
damage or liability caused by LESSOR's negligence or willful misconduct.
9A. INSURANCE - WAIVER OF SUBROGATION. LESSOR agrees to keep the Building
---------------------------------
and LESSEE agrees to keep the Leased Premises, and all equipment, machinery and
fixtures therein insured in amounts equal to the actual cash value of the same,
against fire and other perils included in a standard extended coverage
endorsement, and against breakdown of boilers and other machinery and equipment,
and LESSEE agrees to procure and keep in force comprehensive general liability
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insurance indemnifying LESSOR against all claims and damages for any injury to
or death of person or damage to property which may be claimed to have occurred
upon or to have been caused by activities or conditions within the Leased
Premises and indemnifying LESSOR to the extent any such claims and demands are
the responsibility or obligation of LESSEE pursuant to this Lease or as a matter
of law, in amounts not less than One Million Dollars ($1,000,000) for property
damage, Five Hundred Thousand Dollars ($500,000) for injury or death of one
person, and One Million Dollars ($1,000,000) for injury or death of more than
one person in a single accident.
All insurance required hereunder shall be written by insurance carriers
qualified to do business and in good standing in Massachusetts and approved by
LESSOR, which approval shall not be unreasonably withheld. All policies of
insurance, shall name LESSOR and LESSEE as the insured parties. Each required
policy of insurance shall provide that, notwithstanding any act or omission of
LESSEE which might otherwise result in forfeiture of said insurance: (a) it
shall not be cancelled nor its coverage reduced without at least ten (10) days
prior written notice to each insured named therein, and (b) any proceeds shall
be first payable to LESSOR or to the holder of any mortgage encumbering the
Leased Premises, as their respective interests may appear.
As of the commencement of the Term hereof, and thereafter not less than
fifteen (15) days prior to the expiration dates of the expiring policies, the
original policies to be obtained by LESSEE hereto issued by the respective
insurers or
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certificates thereof including photocopies of the original policies, shall be
delivered to LESSOR.
Any insurance carried by either party with respect to the Leased Premises
or property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury of loss due to
hazards covered by such insurance to the extent of the indemnification received
thereunder.
10. MAINTENANCE OF LEASED PREMISES. The LESSEE agrees to maintain the
------------------------------
Leased Premises in the same condition as they are at the commencement of the
Term or as they may be put in during the Term of this Lease, reasonable wear and
tear, damage by fire, other casualty and eminent domain, and matters for which
the LESSOR is responsible hereunder only excepted, to provide its own interior
janitorial service, to install and maintain its own security system as it
considers appropriate and, whenever necessary, to replace plate glass and other
glass therein with that of the same quality as that damaged or injured. LESSOR
shall maintain and LESSEE shall pay its proportionate share of the maintenance
of the HVAC System servicing the Leased Premises, but LESSEE shall be
responsible for all repairs and replacements to said system if the same is
caused by any act or omission of LESSEE or its agents. The LESSEE shall not
permit the Leased Premises to be overloaded, damaged, stripped, or defaced, nor
suffer any waste. LESSEE shall
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obtain written consent of LESSOR before erecting any sign on or about the Leased
Premises, which consent shall not be unreasonably withheld or delayed. LESSEE
further covenants and agrees: to take all reasonably necessary actions to insure
that smoke, fumes, vapors and odors will not permeate any building containing
the Leased Premises and will not be removed only through the exhaust and
ventilating system servicing the Leased Premises; to keep all trash garbage and
debris stored on the Leased Premises (and not in any other portions of the Lot
or the Building) in adequate covered containers, approved by LESSOR and placed
in locations or areas approved by LESSOR in writing and to arrange for the
regular removal thereof once each day; to provide for the frequent and adequate
cleaning of the Leased Premises and all walls, floors, fixtures and equipment
therein consistent with its use. LESSOR shall maintain in good condition the
structural elements and the roof of the Building, the mechanical equipment and
systems in the Building (other than such equipment and systems which are located
within or exclusively serve the Leased Premises, and other than LESSEE's
maintenance obligations otherwise provided herein), and the common areas of the
Building. LESSEE shall pay its proportionate share for these expenses and
services as set out in Paragraph 5 above.
Notwithstanding anything to the contrary in this Lease, in no event shall
LESSEE's obligation to repair under this section extend to (i) damage and
repairs covered under any insurance policy carried by LESSOR in connection with
the Leased Premises or Building; (ii) damage caused by any defects in the
design, construction or materials of the Building, including the Leased
Premises, and
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improvements installed therein by LESSOR; (iii) damage caused in whole or in
part by the negligence or willful misconduct of LESSOR or LESSOR's agents,
employees, invitees or licensees; (iv) repairs covered under any Common Area
Operating Expenses; (v) reasonable wear and tear; (vi) conditions covered under
any warranties of LESSOR's contractors.
11. ALTERATIONS - ADDITIONS. The LESSEE shall not make structural
-----------------------
alterations or additions to the Leased Premises, but may make nonstructural
alterations and improvements, provided the LESSOR consents thereto in advance in
writing in each instance, which consent shall not be unreasonably withheld or
delayed provided that LESSOR is furnished with detailed plans and specifications
reasonably approved by LESSOR. Notwithstanding the foregoing, LESSEE shall not
be required to obtain LESSOR's consent (but will provide LESSOR with prior
written notice of, and to the extent required, permits for) any alterations to
the Leased Premises by LESSEE that (i) cost less than Ten Thousand Dollars
($10,000), (ii) do not affect the electrical, mechanical, plumbing, sewage,
heating, ventilating or air conditioning systems serving the Building, and (iii)
are not structural in nature. All such allowed alterations or additions shall
be at LESSEE's expense and shall be in quality at least equal to the present
construction. LESSEE shall not permit any mechanics' liens, or similar liens,
to remain upon the Leased Premises for labor and materials furnished to LESSEE
or claimed to have been furnished to LESSEE in connection with the work of any
character performed or claimed to have been performed at the direction of
LESSEE, and shall cause any such lien to be released of
19
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record forthwith without cost to LESSOR. Any alterations, additions or
improvements made by the LESSEE, except for moveable partitions and furnishings,
installed at the LESSEE's cost, shall become the property of the LESSOR at the
termination of the Lease as provided herein.
With respect to all such LESSEE work, LESSEE further agrees as follows:
that such work shall commence only after all required municipal and other
governmental permits and authorizations have been obtained (the LESSOR agreeing
to join in any application therefor at the LESSEE's expense, whenever necessary)
and all such work shall be done in a good and workmanlike manner in compliance
with building and zoning laws and with all other laws, ordinances, regulations
and requirements of all federal, state and municipal agencies, and in accordance
with the requirements and policies issued by any insurer of LESSOR or LESSEE;
that all such work shall be prosecuted with reasonable dispatch to completion;
that at all times when any such work is in progress, LESSEE shall maintain or
cause to be maintained adequate workers' compensation insurance for those
employed in connection therewith with respect to whom death or injury claims
could be asserted against LESSOR, the LESSEE or the Leased Premises and
comprehensive general liability or builder's risk insurance (for mutual benefit
of LESSEE and LESSOR) in coverages reasonably approved by LESSOR: and that all
such work of LESSEE shall be coordinated with any work being performed by LESSOR
and other tenants of the Building in which the work is taking place in such
manner as to maintain harmonious labor relations and not to interfere with the
operation of the Building or the Complex or the construction
20
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work of others.
12. ASSIGNMENT - SUBLETTING. The LESSEE shall not assign or sublet the
-----------------------
whole or any part of the Leased Premises without the LESSOR's prior written
consent, which consent shall not be unreasonably withheld or delayed.
Notwithstanding such consent, LESSEE shall remain liable to LESSOR for the
payment of all rent and for the full performance of the covenants and conditions
of this Lease (which following assignment shall be joint and several with
assignee). Notwithstanding the foregoing, LESSOR's consent shall not be required
in the event LESSEE transfers this Lease to an entity which purchases all or
substantially all of the assets of LESSEE. In the event LESSEE sub-leases all
or a portion of the Leased Premises and the rent to be paid by the Sublessor is
greater than the rent paid by LESSEE pursuant to the Lease, LESSEE and LESSOR
shall share in such excess rent on a 50/50 basis; provided LESSEE is first
reimbursed out of such excess rent for any expenses associated with the sublease
of the Leased Premises, including but not limited to brokerage commission,
attorneys' fees and alterations.
12. QUIET ENJOYMENT, COVENANT OF TITLE. The LESSEE, on paying the rent
----------------------------------
and other charges hereunder, as and when the same shall become due and payable
and observing and performing the covenants, conditions and agreements contained
in this Lease on the part of the LESSEE to be observed and performed, all as
herein provided, shall and may lawfully, peaceably and quietly have, hold and
enjoy the Leased Premises during the Term, subject to all of the terms and
provisions hereof, without hindrance, ejection or disturbance by the LESSOR by
or by any
21
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person or persons claiming by, through or under the LESSOR or by anyone claiming
paramount title.
13. SUBORDINATION. The Lease and LESSEE's interest hereunder, subject to
-------------
the provisions of this Paragraph 13, shall be subordinate to the lien of any
present or future mortgage or mortgages upon the Leased Premises or any property
of which the Leased Premises are a part, irrespective of the time of execution
or the time of recording of any such mortgage or mortgages, and to each advance
made or to be made thereunder and to all renewals, modifications,
consolidations, and extensions thereof, and all substitutions therefor. Any
subordination of this Lease pursuant to the provisions of this Paragraph 13 is
made and granted upon the condition that, in the event of any entry by the
holder of any such mortgage to foreclose, a default under any such mortgage, a
foreclosure of any such mortgage of LESSOR'S interest under this Lease or in the
Leased Premises through foreclosure or otherwise, the LESSEE shall (provided the
LESSEE is not then in default beyond any applicable cure period) peaceably hold
and enjoy the Leased Premises as a lessee of such holder, during the Term upon
the terms, covenants and conditions as set forth in this Lease without any
hindrance or interruption from such holder. In the event of such entry,
foreclosure, acquisition or other action by such holder, LESSEE shall recognize
the holder of the mortgage with respect to which such action is taken as the
LESSOR under this Lease. As used in this Paragraph 13, the word "holder"
includes any person claiming through or under any such mortgage, including any
purchaser at a foreclosure sale, and the word "LESSEE" shall include LESSEE's
successors and
22
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assigns. The word "mortgage" as used in this Paragraph shall mean mortgages,
deeds of trust, and other similar instruments held by any institutional lender
and all modifications, extensions, renewals and replacements thereof. This
Paragraph 13 is self-operative, and no further instrument of subordination shall
be required.
Notwithstanding the self-operative effect of this Paragraph 13, the LESSEE
agrees to execute such further documents in recordable form as the LESSOR or any
lender may reasonably require, consistent with the terms of this Paragraph 13
and 21. Should the LESSEE fail to execute and deliver to the LESSOR any such
reasonable document within twenty (20) days of a written notice requesting the
LESSEE to execute and deliver such document, LESSEE shall pay to LESSOR (as
liquidated damages and not as a penalty) the sum of Five Hundred Dollars ($500)
per day for each day after such twentieth (20th) day during which such failure
to deliver such instrument continues.
14. LESSOR'S ACCESS. The LESSOR or agents of the LESSOR may, at
---------------
reasonable times and upon twenty-four (24) hours reasonable prior written notice
to the LESSEE, (and in a manner so as not to unreasonably interfere with
LESSEE's business operation), enter to view the Leased Premises, or any part
thereof and may remove placards and signs not approved and affixed as herein
provided, and make repairs and alterations which LESSOR may deem necessary or
desirable and, at LESSEE's expense, to remove any alterations, additions, signs,
or other improvements made by LESSEE and not consented to by LESSOR; to show
the Leased Premises to others, upon twenty-four (24) hours reasonable prior
written notice, in a manner so
23
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as not to unreasonably interfere with the normal conduct of the LESSEE's
business, at any time within the four (4) month period prior to the expiration
of the Term; to affix to any suitable part of the Leased Premises a notice for
letting or selling the Leased Premises are a part and keep the same so affixed
without hindrance or molestation.
15. INDEMNIFICATION AND LIABILITY. The LESSEE shall defend, save harmless
-----------------------------
and indemnify LESSOR from any claims of liability for injury, loss, accident or
damage to any person or property while on the Leased Premises, if not due to the
negligence or willful misconduct of LESSOR, or LESSOR's employees or agents, and
to any persons or property while in the Building or Complex occasioned by any
omission, fault, negligence or other willful misconduct of LESSEE and persons
for whose conduct LESSEE is legally responsible.
LESSOR shall defend, hold harmless and indemnify LESSEE from any claims of
liability for injury, loss, accident or damage to any person or property while
in the Building, Complex or Common Areas, unless due to the omission, fault,
negligence or willful misconduct of LESSEE or LESSEE's employees or agents.
16. HOLDING OVER. LESSEE agrees to pay to LESSOR one and one-half times
------------
the total of the Base Rent set forth in Paragraph 4 in effect for the period
immediately prior to LESSEE's holding over and one and one-half times the
additional rent provided for under this Lease then applicable for each month or
portion thereof LESSEE shall retain possession of the Leased Premises or any
part thereof after the termination of this Lease, whether by lapse of time or
otherwise, and also to pay all damages sustained by LESSOR on account thereof;
the provisions of
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this Paragraph shall not operate as a waiver by LESSOR of any right of re-entry
provided in this Lease.
16A. FURTHER LESSEE COVENANTS. LESSEE further covenants and agrees during
------------------------
the Term and such further time as LESSEE holds any part of the Leased Premises:
(a) to pay when due all rent and other sums herein specified, without
offset, deduction set off or counterclaim except as otherwise specifically
provided in this Lease;
(b) not to obstruct in any manner any portion of any building not hereby
leased or the sidewalks or approaches to such building or any inside windows or
doors;
(c) that neither the original LESSOR nor any successor LESSOR who or which
is trustee or a partnership, nor any beneficiary of the original LESSOR or any
successor LESSOR nor any partner, general or limited, of such partnership shall
be personally liable under any term, condition, covenant, obligation or
agreement expressed herein or implied hereunder or for any claim or damage or
cause at law or in equity arising out of the occupancy of the Leased Premises or
the use or maintenance of the Building and LESSEE specifically agrees to look
solely to the LESSOR's interest in the Complex for the recovery of any judgment
against LESSOR; and
(d) if any payment of rent or other sums due hereunder is not paid within
ten days of when due, LESSEE shall pay to LESSOR a late charge equal to five
(5%)
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percent of the unpaid amount per month, or part thereof, that such amount
remains unpaid.
17. FIRE, CASUALTY.
--------------
17.1 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 the same cannot, in ordinary course, be expected to be repaired
within ninety (90) calendar days from the time that such repair work would
commence. Any damage which is not "substantial damage" is "partial damage." In
the event of substantial damage to the Building, the LESSOR shall notify the
LESSEE as soon as is practicable and in no event later than thirty (30) days
after such damage of LESSOR's estimated time for repair of such damage.
17.2 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 LESSEE's use of the Leased Premises as
contemplated by this Lease, the LESSOR shall, to the extent insurance proceeds
are available to LESSOR, promptly proceed to restore the Building to
substantially the condition in which it was immediately prior to the occurrence
of such damage. Notwithstanding the foregoing, if there shall be partial damage
to the Building, and if such damage shall materially interfere with the LESSEE's
use of the Leased Premises as contemplated by this Lease occurring during the
last twelve (12) months of the Lease Term of such a character that the same
cannot, in ordinary course, be expected to be repaired within thirty (30) days
from the time such repair work would begin,
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the LESSOR or LESSEE may, withing ten (10) days of the date of such damage,
elect to terminate this Lease. If such election is not made, the LESSOR shall
promptly proceed with such restoration.
17.3 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 LESSEE's use of the Leased
Premises as contemplated by this Lease, the LESSOR shall, to the extent
insurance proceeds are available to LESSOR, promptly restore the Building to an
architectural unit that is not less suitable than that which existed prior to
such fire or casualty, unless the LESSOR or the LESSEE, within forty-five (45)
days after the occurrence of such damage, shall give notice to the other of its
election to terminate this Lease. If at any time during such forty-five (45)
day period the LESSOR notifies the LESSEE of its intention to restore the
Building, the LESSEE must then give notice to the LESSOR, within ten (10) days
of its receipt of the LESSOR's notice of intention to restore the Building, as
to whether the LESSEE will elect to terminate the Lease. Should the LESSEE fail
to elect to terminate the Lease within such ten (10) day period, the LESSEE's
right to terminate under this Paragraph 17.3 shall expire. If the LESSOR
proceeds with the restoration of the Building and if such damage shall not have
been repaired to the extent necessary for the LESSEE to resume its normal
business operations at the Leased Premises by the end of the 180th day following
the date of such fire or casualty, or if the LESSOR shall fail diligently to
cause such repair and restoration work to be performed, then the LESSEE may, at
any time thereafter while
27
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the damage remains unrepaired, terminate this Lease upon notice to the LESSOR.
If the LESSOR or the LESSEE 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.
17.4 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 LESSEE's use of the Leased Premises as contemplated by this Lease, a just
proportionate amount of the rent, additional rent and other charges payable by
the LESSEE hereunder shall abate proportionately for the period in which, by
reason of such damage, there is such interference with the LESSEE's use of the
Leased Premises.
17A. EMINENT DOMAIN. If the Building is totally taken by condemnation or
--------------
right of eminent domain, this Lease shall terminate as of the date of such
taking. If the Building, or such portion thereof as to render the balance (if
reconstructed to the maximum extent practicable in the circumstances) physically
unsuitable in the LESSEE's reasonable judgment for the LESSEE's purposes, shall
be taken by condemnation or right of eminent domain (including a temporary
taking in excess of 180 days), the LESSEE or the LESSOR 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 ten (10) days after the LESSEE has been
deprived of possession.
Should any part of the Building be so taken or condemned or receive such
damage and should this Lease not be terminated in accordance with the foregoing
28
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provisions, the LESSOR shall, to the extent condemnation proceeds are available
to LESSOR, promptly restore the Leased Premises to an architectural unit that is
suitable to the uses to the LESSEE permitted hereunder.
In the event of a taking described in this Paragraph 17A, the rent,
additional rent, and other charges payable hereunder, or a fair and just
proportion thereof according to the nature and extent of the loss of use, shall
be suspended or abated.
The LESSOR reserves, and the LESSEE grants to the LESSOR, all rights which
the LESSEE may have for damages or injury to the Leased Premises for any taking
by eminent domain, except for damage to the LESSEE's trade fixtures, personal
property or equipment, if any, the LESSEE's right to relocation expenses, if
any, and the LESSEE's right for business interruption, if any.
18. DEFAULT AND BANKRUPTCY. In the event that:
----------------------
(a) The LESSEE, or any guarantor of LESSEE's obligations hereunder, shall
default in the payment of any installment of rent or other sum herein specified;
or
(b) The LESSEE shall default in the observance or performance of the
LESSEE's covenants, agreements, or obligations hereunder (except as provided in
Paragraph 18(a) above) and the LESSEE shall not cure such default within thirty
(30) days after written notice thereof or if such default cannot be cured within
thirty (30) days, then if LESSEE shall not commence to cure the same within
thirty (30) days and diligently pursue the curing of the same; or
(c) LESSEE or any guarantor of LESSEE's obligations under this Lease makes
any assignment for the benefit of creditors, commits any act of bankruptcy or
29
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files a petition under any bankruptcy or insolvency law; or if such a petition
is filed against LESSEE or any guarantor of LESSEE's obligations under this
Lease and is not dismissed within ninety (90) days; or if a receiver or similar
officer becomes entitled to LESSEE's leasehold hereunder and it is not returned
to LESSEE within ninety (90) days, or if such leasehold is taken on execution or
other process of law in any action against LESSEE;
then in any such case the LESSOR shall have the right thereafter, while
such default continues, to re-enter and take complete possession of the Leased
Premises, to declare the Term of this Lease ended, and remove the LESSEE's
effects at LESSEE's sole cost and expense, without prejudice to any remedies
which might be otherwise used for arrears of rent or other default. The LESSEE
shall indemnify the LESSOR against all loss and reasonable payment of rent and
other payments which the LESSOR may incur by reason of such termination during
the residue of the Term. In the event of default, LESSOR shall use its
reasonable efforts to re-let the Leased Premises so as to mitigate any damages
to the LESSEE hereunder. If LESSOR re-lets the Leased Premises, LESSEE may off-
set its payable rent by the amount of rent received by LESSOR.
If the LESSEE shall default, after written notice thereof as provided
herein, in the observance or performance of any conditions or covenants on its
part to be observed or performed under or by virtue of any of the provisions of
this Lease and after the expiration of any period within which the LESSEE is
entitled to cure such default as is provided above in this Paragraph 18, the
LESSOR, without being under
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any obligation to do so and without thereby waiving such default, may remedy
such default for the account and at the expense of the LESSEE. If the LESSOR
makes any expenditures or incurs any obligations for the payment of money in
connection therewith, including, but not limited to, reasonable attorneys' fees
(except for unsuccessful suits against the LESSEE) in instituting, prosecuting
or defending any action or proceeding, such sums paid or obligations incurred,
with interest at the rate of twelve (12%) percent per annum and costs, shall be
paid to the LESSOR by the LESSEE as additional rent.
Nothing contained in this Lease shall limit or prejudice the right of
LESSOR to claim and obtain in proceedings for bankruptcy, insolvency or like
proceedings by reason of the termination of this Lease an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which the damages are to be claimed or proved,
whether or not the amount be greater, equal to, or less than the amount of the
loss or damages referred to above.
19. RULES AND REGULATIONS. The LESSOR shall have the right to institute
---------------------
and to change from time to time, rules and regulations for the use of the
Building and the Lot by commercial office lessees, and by commercial retail
lessees, which shall be reasonable in all instances and shall be uniformly
applicable to all commercial lessees in the Building and the LESSEE agrees to
abide thereby.
19A. PARAGRAPH HEADINGS. The paragraph 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,
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construction or meaning of the provisions of this Lease.
20. BROKER. The LESSOR and LESSEE each represent and warrant to the other
------
that each has had no dealings with any Brokers concerning this Lease, except
Spaulding and Slye (Robert Burr) and ROBERT A. JONES AND COMPANY and each party
agrees to indemnify and hold the other harmless for any damages occasioned to
the other by reason of a breach of this representation and warranty. LESSOR
shall pay a commission to Spaulding & Slye.
21. ESTOPPEL CERTIFICATE. LESSOR and LESSEE each agree at any time from
--------------------
time to time, upon not less than ten (10) days' prior notice to execute,
acknowledge and deliver to the other, a statement in writing, certifying to the
extent possible that this Lease is unmodified and in full force and effect, or
if there have been modifications, that the same is in full force and effect as
modified and stating such modifications and otherwise certifying if there exists
any default under the terms of this Lease and such other information as may be
reasonably requested concerning this Lease by the other party or any other third
party with a bona fide interest. Should either party fail to deliver to the
other party any such statement within twenty (20) days of receipt of a written
notice requesting any such statement, the party failing to deliver any such
statement shall pay to the requesting party, the sum of Five Hundred Dollars
($500) per day (as liquidated damages and not as a penalty), for each day after
such twentieth (20th) day during which such failure continues.
22. NOTICE. Any notice from the LESSOR to the LESSEE relating to the
------
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Leased Premises or to the occupancy thereof shall be deemed duly served, if in
writing and mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to the LESSEE,
GIGA Information Group, Inc.
One Kendall Square - Building 1400
Cambridge, MA 02139
Any notice from the LESSEE to the LESSOR relating to the Leased Premises or to
the occupancy thereof, shall be deemed duly served, if in writing and mailed to
the LESSOR by registered or certified mail, return receipt requested, postage
prepaid, addressed to the LESSOR at such address as the LESSOR may from time to
time advise in writing, the following now being designated:
CAMBRIDGE 1400 LIMITED PARTNERSHIP
c/o THE ATHENAEUM GROUP
215 First Street
Cambridge, MA 02142-1268
23. SURRENDER. The LESSEE shall at the expiration or other termination of
---------
this Lease yield up and peaceably surrender all portions of the Leased Premises
to LESSOR and shall remove all LESSEE's goods and effects therefrom (including,
without hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by the LESSEE, either inside or outside the Leased Premises).
LESSEE shall deliver to the LESSOR the Leased Premises and all keys, locks
thereto, and all fixtures, alterations and additions made to or upon the Leased
Premises, except for moveable partitions and furnishings installed at the
LESSEE's expense, in the same condition as they were at the commencement of the
term, or as they were put in during the Term hereof, reasonable wear and tear
and damage by fire, other casualty
33
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or eminenet domain and matters for which the LESSOR is responsible hereunder
only excepted. All moveable partitions and furnishings, installed in the Leased
Premises at the LESSEE's expense prior to or during the Term of the Lease may be
removed by the LESSEE at the expiration or other termination of the Lease. The
LESSEE shall, at its expense, promptly repair any and all damage to the Leased
Premises resulting from such removal. In the event of the LESSEE's failure to
remove any of the LESSEE's property from the Leased Premises, LESSOR is hereby
authorized, upon fifteen (15) days' written notice to the LESSEE without
liability to LESSEE for loss or damage thereto, and at the sole risk of LESSEE,
to remove and store any of the property at LESSEE's sole cost and expense.
24. OPTION TO EXTEND. If the LESSEE is not then in default, LESSOR does
----------------
hereby grant to LESSEE the option to extend this Lease for one (1) additional
five (5) year term, commencing on the expiration of the initial Term upon the
same terms and conditions as herein contained except the annual base rent set
forth in Paragraph 4 hereof shall be at the fair market rate. The option shall
be exercised by written notice from LESSEE and received by LESSOR at least four
(4) months prior to the expiration of the initial term.
In the event LESSEE gives timely extension notice in accordance with the
provisions of this Paragraph 24 and the parties are unable to agree as to the
fair market rent within thirty (30) days after the receipt of LESSEE's extension
notice, then LESSOR and LESSEE may initiate the appraisal process provided for
herein by giving notice to that effect to the other, and the party so initiating
the appraisal
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process (the "Initiating Party") shall specify in such notice the name and
address of the person designated to act as an appraiser on its behalf. Within
thirty (30) days after the designation of the appraiser, the other party (the
"Other Party") shall give notice to the Initiating Party specifying the name and
address of the person designated to act as an appraiser on its behalf. The two
appraisers as chosen shall meet within ten (10) days after the second appraiser
is appointed and if, within ten (10) days after the second appraiser is
appointed, the two appraisers shall not agree on a fair market rent, then on the
second Business Day following the close of such ten (10) day period, the two
appraisers shall, within thirty (30) days after the second appraiser is
appointed, together appoint a third appraiser. In the event of their being
unable to agree upon such appointment within forty (40) days after the
appointment of the second appraiser, the third appraiser shall be selected by
the parties themselves if they can agree thereon within a further period of
fifteen (15) days. If the parties do not so agree, then either party, on behalf
of both and on notice to the other, may request such appointment by the Boston
Office of the American Arbitration Association (or successor organization) in
accordance with its rules then prevailing. Within five (5) days after the
appointment of the third appraiser, the first appraiser and second appraiser
shall submit to such third appraiser their respective determinations of the fair
market rent as described in the immediately preceding clause. Such third
appraiser shall, within fifteen (15) days after the end of such five (5) day
period, choose the fair market rent specified by either the first appraiser or
the second appraiser in such submissions and the fair market rent selected by
the
35
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third appraiser from the fair market rents submitted by the first appraiser
and the second appraiser shall conclusively be deemed to be the fair market
rent.
Each party shall pay the fees and expenses of the appraiser selected by it.
The fees and expenses of the third appraiser and all other expenses (not
including the attorney's fees, witness fees and similar expenses of the parties
which shall be borne equally by the parties thereto) shall be borne equally
50/50 by the parties.
Under no circumstances may the appraisers modify or disregard any provision
of this Lease and the jurisdiction of the appraisers is restricted accordingly.
The appraisers shall include the fair market rent such cost escalators as are
then customary and appropriate. Fair Market Rental Value is intended to be
calculated in a fair and comprehensive manner so that Landlord shall achieve,
and Tenant shall pay based upon, an amount which is no less than the same net
rental which Landlord would actually receive upon a re-letting of the applicable
space in an arms'-length transaction to an unrelated third party tenant where
neither party is under any compulsion or undue influence. Fair Market Value
shall not include alterations or improvements made to the Leased Premises at
LESSEE's expense during the initial Lease Term.
In the event LESSOR or LESSEE initiates the appraisal process pursuant to
this Paragraph and as of the commencement of the Extension Term the amount of
the fair market rent has not been determined, LESSEE shall pay the amount
specified by the LESSOR's appraiser, and when such determination has been made,
it shall be retroactive as of the commencement date of the Extension Term and
any excess shall
36
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be credited by LESSOR to LESSEE as against the next monthly Base Rent payment or
payments.
25. SECURITY DEPOSIT. Not required.
----------------
26. SIGNAGE ALLOWANCE. LESSOR shall provide LESSEE with a Two Thousand
-----------------
Dollar ($2,000) signage allowance to be used at Leased Premises. All signage
shall be subject to LESSOR's reasonable approval.
27. MISCELLANEOUS.
-------------
(a) Upon LESSOR's request, LESSEE shall submit annual financial statements
to the LESSOR containing statements of cash flow. If the LESSEE is a publicly
traded corporation it shall supply LESSOR, on a quarterly basis, with its 10Q
filings.
(b) The LESSOR reserves the right to assign or transfer any and all of its
right, title and interest under the Lease, including but not limited to the
benefit of all covenants of the LESSEE hereunder. Notwithstanding anything
contained in this Lease to the contrary, it is specifically understood and
agreed that the obligations imposed upon the LESSOR hereunder shall be binding
upon the LESSOR and LESSOR's successors' ownership of LESSOR's interest
hereunder the LESSOR and its said successors in interest shall not be liable for
acts and occurrences arising from and after the transfer of their interest as
LESSOR hereunder, provided such successor fully assumes the obligations of the
LESSOR hereunder from and after the date of such assignment or transfer.
(c) This Lease shall be governed by and construed in accordance with the
37
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laws of the Commonwealth of Massachusetts, as the same may from time to time
exist.
(d) This Lease contains all of the agreements of the parties with respect
to the subject matter thereof and supersedes all prior oral and written
negotiations and dealings between them with respect to such subject matter. The
agreement of the parties contained in this Lease shall not be modified or
amended unless such modification or amendment is in writing and signed by the
parties.
(e) The LESSEE acknowledges that LESSEE has not been influenced to enter
into this Lease nor has it relied upon any warranties or representations not set
forth or incorporated in this Lease or previously made in writing.
The undersigned General Partner of CAMBRIDGE 1400 LIMITED PARTNERSHIP does
hereby certify that it is authorized by all of the beneficiaries of said
Partnership to execute and acknowledge the within Lease on behalf of the
Partnership.
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands and
common seals this 31st day of October, 1995.
CAMBRIDGE 1400 LIMITED PARTNERSHIP
By Its General Partner
CAMBRIDGE 1400 INC.
/s/ Allen R. Jones /s/
- ------------------------------ ------------------------------
By: Allan R. Jones, President Witness
38
<PAGE>
GIGA INFORMATION GROUP, INC.
/s/ David Thor /s/ Kathleen M. Doyle
- ------------------------------ ------------------------------
By: David Thor, President Witness
Duly Authorized
/s/ Michael J. Kolesar /s/ Kathleen M. Doyle
- ------------------------------ ------------------------------
By: Vice President, Finance Witness
Duly Authorized
39
<PAGE>
EXHIBIT 10.19
LEASE
Lease made this 6th day of October, 1987 by Charles A. Pesko, Jr. as he is
Trustee of Longwater Circle Trust established u/d/t dated October 6, 1987, and
not individually, of Marshfield, Plymouth County, Massachusetts, as landlord
(hereinafter called "Landlord"), and CAP International, Inc., a Massachusetts
corporation having a business office in Marshfield, Massachusetts as tenant
(hereinafter called "Tenant").
PREMISES 1. In consideration of the rents, agreements and conditions
herein reserved and contained on the part of Tenant to be paid,
performed and observed, Landlord does hereby demise and lease to
Tenant, for the term hereinafter set forth, premises hereinafter
described ("the demised premises") in Norwell, Plymouth County,
Massachusetts, as shown upon a certain plan ("the lease plan")
attached to this lease and marked Exhibit A. The demised premises
consist of the building shown upon the lease plan containing
approximately 27,100 square feet of floor area ("the Building")
and the area outlined by a bold line on the lease plan and are
more fully described in Exhibit A-1 hereto.
CONSTRUCTION 2.1 Landlord agrees that the work described in Exhibit B
attached hereto as "Landlord's construction work" will be
prosecuted to completion with due diligence and that said work,
except as provided in Exhibit B, will be done at its own cost and
expense. Landlord agrees that Landlord's construction work shall
be substantially completed and the demised premises suitable for
occupancy on or before April 4, 1988. The demised premises shall
be deemed "substantially completed" when (i) the Building shall be
completely enclosed with all openings secure; (ii) heating, air
conditioning, electric, gas (if any), sprinkler and water systems
of the demised premises shall be installed and operational; (iii)
parking areas and walkways shown upon the lease plan shall be
paved; (iv) interior ceilings, floors, floor coverings, lighting
and toilet facilities of the demised premises shall be installed;
and (v) a temporary or permanent certificate of occupancy shall
have been issued for the demised premises by the appropriate
authority of the Town of Norwell; provided, however, if any
construction which shall not be part of Landlord's construction
work shall be required upon the demised premises as a condition
precedent to the issuance of any such certificate of occupancy,
the issuance of such certificate of occupancy shall not be a
requirement for substantial completion of the demised premises.
Landlord shall deliver possession of the demised premises to
Tenant upon subtantial completion of Landlord's construction work
by delivering the keys to the demised premises to Tenant.
<PAGE>
2.2 Landlord agrees to give Tenant at least ten (10) days prior
written notice of the date upon which Landlord estimates that
Landlord's construction work shall be substantially completed.
Landlord further agrees that Landlord shall diligently proceed to
fully complete Landlord's construction work if the same shall not
have been fully completed prior to delivery of possession of the
demised premises to Tenant.
TERM 3.1 The original term of this lease shall be a period of ten
(10) years commencing upon the first to occur of (i) May 1, 1988,
(ii) the date that Landlord's construction work shall be
substantially completed or (iii) the date upon which Tenant shall
commence business operations upon the demised premises and
expiring upon the tenth (10th) anniversary of such commencement
date.
3.2 Tenant agrees that it will not record this lease. Upon the
written request of either party hereto, Landlord and Tenant will
execute an instrument, recordable in form, setting forth the term
and commencement date and such other information as may be
necessary to constitute a "Notice of Lease" under Massachusetts
laws. Tenant will pay the cost of recording said notice of lease.
If this lease is terminated before the expiration of the term
hereof, the parties shall execute, deliver and record an
instrument acknowledging such fact and the actual date of
termination of this lease and Tenant hereby appoints Landlord its
attorney-in-fact in its name and behalf to execute such
instrument.
SECURITY 4. Landlord acknowledges that it has received from Tenant the
sum of Thirty Thousand Dollars ($30,000) as security for the
payment of rents and the performance and observance of the
agreements and conditions in this lease contained on the part of
Tenant to be performed and observed. In the event of any default
or defaults in such payment, performance or observance Landlord
may apply said sum or any part thereof towards the curing of any
such default or defaults. Tenant further covenants that it will
not assign or encumber or attempt to assign or encumber said sum
or any part thereof and that neither Landlord nor its successors
or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. Upon the yielding
up of the demised premises at the expiration or other termination
of the term of this lease, if Tenant shall not then be in default
or otherwise liable to
2
<PAGE>
Landlord, the unapplied balance of said sum shall be returned to
Tenant. It is understood and agreed that Landlord shall always
have the right to apply said sum, or any part thereof, as
aforesaid, in the event of any such default or defaults, without
prejudice to any other remedy or remedies which Landlord may
have, or Landlord may pursue any other such remedy or remedies in
lieu of applying said sum or any part thereof. No interest shall
be payable on said sum or any part thereof. If Landlord shall
apply said sum or any part thereof as aforesaid, Tenant shall
upon demand pay to Landlord the amount so applied by Landlord, to
restore the security in its full amount. Whenever the holder of
Landlord's interest in this lease, whether it be the Landlord
named in this lease or any transferee of said Landlord, immediate
or remote, shall transfer its interest in this lease, said holder
shall turn over to its transferee said sum or the unapplied
balance thereof, and thereafter such holder shall be released
from any and all liability to Tenant with respect to said sum or
its application or return, it being understood that Tenant shall
thereafter look only to such transferee with respect to said
mortgage upon property which includes the demised premises shall
never be responsible to Tenant for said sum or its application or
return unless said sum shall actually have been received in hand
by such holder.
MINIMUM RENT 5.1 During the first five years of the original term of this
lease Tenant agrees to pay to Landlord a minimum rent at the rate
of Three Hundred Fifty-Nine Thousand Seventy-Five Dollars
($359,075.00), per year. During the second five years of this
lease Tenant agrees to pay to Landlord a minimum rent at the rate
above as such amount may be adjusted pursuant to the provisions
of Section 5.2 hereof. All such minimum rent shall be payable in
equal monthly installments of one-twelfth thereof and shall be
payable in advance upon the first day of each calendar month
included within the term of this lease. Rent for any fraction of
a month at the commencement or termination of the term of this
lease shall be prorated. If the original term shall commence on a
day other than the first day of a month, the installment of
minimum rent payable for the months during which each additional
period, if any, for which the original term of this lease may be
extended, as aforesaid, shall occur shall be prorated on a per
diem basis to reflect the change, if any, in annual rate becoming
effective during that month. All rent and other payments to be
made by Tenant to Landlord shall be made payable to Landlord and
sent to Landlord at the place in which
3
<PAGE>
notices to Landlord are required to be sent unless Landlord shall
direct otherwise by notice to Tenant. If any installment of
minimum rent or additional rent payable under this lease shall
not be paid within fifteen (15) days after the due date thereof,
Tenant shall pay to Landlord together with such late payment, as
a late charge, in additional to all other amounts payable under
this lease, an amount equal to four (4) percent of the amount not
paid within such fifteen (15) day period.
5.2 The first day of the sixth year of this lease is herein
referred to as an "Adjustment Date." As of each Adjustment Date
the minimum rent (referred to in Section 5.1) shall be increased,
but not decreased, to reflect changes in the Consumer Price Index
for Urban Consumers, Seasonally Adjusted U.S. City Average, All
Items (1967=100) as published by the Bureau of Labor ("the Price
Index") in the same proportion that the Price Index as last
reported prior to such Adjustment Date has increased above the
Price Index for the month of May, 1988 ("Base Year Price Index
Number"). If the Price Index shall cease to use the 1967 average
of 100 as the basis of calculation, or if a substantial change is
made in the terms or number of items contained in the Price
Index, the Base Year Price Index Number shall be adjusted to the
figure that would have been arrived at if the manner of computing
the Base Year Price Index Number had not been altered. If the
Price Index is not available, a reliable governmental or other
non-partisan publication evaluating the information theretofore
used in determining the Price Index shall be used. If the parties
shall be unable to agree upon the dollar amount of the minimum
rent, they shall promptly resolve such dispute by arbitration in
Boston, Massachusetts, by the American Arbitration Association or
its successor, and such arbitration shall be submitted,
commenced, held and determined in accordance with the rules and
regulations of said Arbitration Association or its successors at
the time of any such submission. The expenses thereof shall be
borne equally between Landlord and Tenant unless the arbiters
determine that some other division shall under the circumstances
be more equitable and the determination of the arbiters shall be
conclusive and binding upon the parties. Until the dollar amount
of the minimum rent for any period shall be determined,[??] Until
the dollar amount of the minimum rent after an Adjustment Date is
determined, Tenant shall pay rent at the rate provided in this
Lease immediately prior to such Adjustment Date, and when rent is
determined in accordance with this Section 5.2, Tenant shall pay
Landlord any excess rent
4
<PAGE>
due for the period which shall have expired since the Adjustment
Date. Tenant shall thereafter pay rent at the rate determined in
accordance with this Section 5.2.
REAL ESTATE 6.1 Tenant shall pay to Landlord as additional rent the
TAXES real estate taxes upon the demised premises for each tax year
included within the term of this lease and a pro rata part of
said real estate taxes for the tax years during which the term of
this lease shall commence and terminate. The expression "real
estate taxes" used herein shall mean all ad valorem taxes and
betterment assessments (and all taxes substituted therefor at any
time during the term hereof) imposed or assessed upon or against
real estate by any public authority having jurisdiction, except
only that if any betterments assessment is payable in
installments, the real estate taxes for any tax year shall
include only such installments of such betterments assessment as
are payable during such tax year; provided only in the case of
each respective betterments assessment that Landlord shall have
elected to pay such assessment in installments over the longest
period permitted by law but not otherwise.
6.2 Promptly upon receipt of any tax bill for any tax year the
party receiving the same shall deliver a copy of the same to the
other party hereto but failure to do so shall not constitute a
default hereunder unless such failure continues for 10 days after
written notice thereof. Tenant shall pay directly to the taxing
authority the amount of real estate taxes payable by Tenant
pursuant to this Article at least ten (10) days prior to the time
that such real estate taxes shall be required to be paid to the
taxing authority for said tax year without the accrual of
interest or the payment of a penalty, but, if Tenant shall not
have received a tax bill therefor at least twenty (20) days prior
to said time for payment, Tenant shall not be required to make
payment until ten (10) days after the receipt of said bill. (If
real estate taxes are payable to any tax authority for any tax
year in installments, the amount payable by Tenant hereunder
shall be payable in similar installments. If real estate taxes
are payable to different taxing authorities for any tax year at
different times, an appropriate apportionment shall be made if
the amount payable by Tenant for said tax year and the
apportioned amount shall be payable at such times). Tenant shall
provide Landlord with a copy of each such tax bill receipted by
the taxing authority to indicate full payment of the amount due
not more than fifteen (15) days after the due date of each
installment of real estate taxes
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payable hereunder, it being understood and agreed that if Tenant
shall fail to provide a copy of any such tax bill so receipted
and Tenant has not made timely payment of such taxes, Landlord
shall thereafter have the right to require Tenant to make all
payments of real estate taxes payable under this lease to
Landlord, rather than the taxing authority, within the aforesaid
time periods. If the time for payment of taxes with respect to
any real estate taxes payable in whole or in part by Tenant
hereunder shall have occurred prior to commencement of the term
or shall occur after termination of the term, Tenant shall pay to
Landlord upon commencement or termination of the term, as the
case may be, the portion of such tax bill payable by Tenant
pursuant to this lease.
Notwithstanding the foregoing, in the event that the holder of
a mortgage on the demised premises requires that real estate
taxes be paid to it in escrow by Landlord, Tenant shall pay,
together with each monthly payment of minimum rent, an amount
equal to one-twelfth (1/12) of the amount of real estate taxes
upon the demised premises and Landlord shall pay the real estate
taxes directly to the taxing authority from the escrowed funds.
Appropriate adjustments shall be made after receipt of the tax
bill for any tax year during the term of this lease for any
increase or decrease in said real estate taxes with a
reconciliation to be made within 10 days after receipt of such
tax bill.
6.3 The real estate taxes upon the demised premises for any tax
year shall mean such amounts as shall be finally determined,
after deducting abatements, refunds or rebates, if any, to be the
real estate taxes payable with respect to the demised premises
for said tax year. For the purposes of determining payments due
from Tenant to Landlord in accordance with the provisions of this
Article 6, the real estate taxes upon the demised premises for
any tax year shall be deemed to be the real estate taxes assess
for such year until such time as an abatement, refund or rebate
shall be made for any tax year, and, if any abatement, rebate or
refund shall be made for any tax year, an appropriate adjustment
or refund shall be made in the amount payable from or paid by
Tenant to Landlord on account real estate taxes dependent upon
the amount of such abatement, rebate or refund less the cost and
expense of obtaining the same.
6.4 If at least twenty (20) days prior to the last day for
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filing application for abatement of real estate taxes for any tax
year Tenant shall give notice to Landlord that it desires to file
an application for abatement of real estate taxes for said tax
year and, if within ten (10) days after the receipt of said
notice Landlord shall not give notice to Tenant that Landlord
shall file such notice by Tenant, Landlord shall give Tenant
notice that it shall file such application, Landlord shall file
same prior to the expiration of the time for filing of the same
at its own cost and expense. If Tenant shall file an application
for the abatement pursuant to the provisions of this Section,
Tenant will prosecute the same to final determination with due
diligence and shall not, without Landlord's consent, settle,
compromise or discontinue the same except, however, Tenant may
discontinue prosecution of the same at any time after giving
Landlord reasonable notice thereof and an opportunity to take
over prosecution of the same. If Landlord shall file an
application for abatement for any tax year after having received
notice from Tenant that Tenant desires to file an application for
abatement for said tax year, Landlord shall prosecute the same to
final determination with due diligence and shall not, without
Tenant's written consent, settle, compromise or discontinue the
same except, however, Landlord may discontinue the prosecution of
the same at any time after giving Tenant notice thereof and an
opportunity to take over the prosecution of the same.
6.5 All taxes levied on the personal property of Tenant shall
be the obligation of and be paid by Tenant, whether the same
shall be considered part of the realty or personalty and Tenant
agrees to indemnify Landlord against and hold harmless the
Landlord from any loss, damage, debt or claim resulting
therefrom.
REPAIRS AND 7.1 Landlord agrees to make all necessary repairs or
ALTERNATIONS alternations to the property which Landlord is required to
maintain, as hereinafter set forth. The property which Landlord
is required to maintain is the foundation, the roof, the exterior
walls (excluding glass, windows, doors, window sashes and frames
or door frames) and the structural columns, members and beams of
the Building. Notwithstanding the foregoing, if any of said
repairs or alterations shall be made necessary by reason of
repairs, installations, alterations, additions or improvements
made by Tenant or anyone claiming under Tenant, by reason of the
fault or negligence of Tenant or anyone claiming under Tenant, by
reason of a default on the performance or observance of any
7
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agreements, conditions or other provisions on the part of Tenant
to be performed or observed, or by reason of any special use to
which the demised premises may be put, Tenant shall make all such
repairs or alterations as may be necessary. Landlord shall not be
deemed to have committed a breach of any obligation to make
repairs or alterations or perform any other act unless (1) it
shall have made such repairs or alterations or performed such
other act negligently, or (2) it shall have received notice from
Tenant designating the particular repairs or alterations needed
or the other act of which there has been failure of performance
and shall have failed to make such repairs or alterations or
performed such other act within a reasonable time after the
receipt of such notice; and in the latter event Landlord's
liability shall be limited to the cost of making such repairs or
alterations or performing such other act.
7.2 Tenant agrees that it will during the term of this lease
make all repairs and alterations to the property which Tenant is
required to maintain, as hereinafter set forth, which may be
necessary to maintain the same in good repair and condition or
which may be required by any laws, ordinances, regulations or
requirements of any public authorities having jurisdiction,
subject only to the provisions of Article 9 and 10. Tenant agrees
that it will upon the expiration or other termination of the term
of this lease remove its property and that of all persons
claiming under it and will yield up peaceably to Landlord the
demised premises and all property therein other than property of
Tenant or persons claiming under Tenant, broom clean and in good
repair and condition, subject only to the provisions of Articles
9 and 10 and that Tenant's obligation to perform and observe this
covenant shall survive the expiration or termination of the term
of this lease. The property which Tenant is required to maintain
is the demised premises and every part thereof including but
without limitation all walls, floors and ceilings, the heating
system, the air-conditioning system, including rooftop heating
and air-conditioning units if the same are used, all utilities
(water, gas, electricity, drainage, and septic) conduits,
fixtures and equipment within the demised premises, all meters
and all other fixtures and equipment within or appurtenant to the
demised premises, all Tenant's signs (interior and exterior), all
interior and exterior glass, windows, doors, window sashes and
frames and door frames and all driveways, walkways, parking areas
and landscaped areas. Tenant agrees to enter into maintenance
contracts with experienced maintenance
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contractor(s) for the performance of periodic maintenance upon
the heating, ventilating and air conditioning systems of the
Building and to provide Landlord with inspection reports from
such contractors at least annually, the first report to be
furnished not later than the first anniversary of the
commencement of the original term of this lease. Tenant shall
provide Landlord with copies of reinspection reports or holes.
Tenant agrees to pay promptly when due all charges for labor and
materials in connection with any work done by Tenant or anyone
claiming under Tenant upon the demised premises so that the
demised premises shall at all times be free of liens. Tenant
agrees to save Landlord harmless from, and indemnify Landlord
against, any and all claims for injury, loss or damage to person
or property caused by or resulting from the doing of any such
work.
UTILITIES 8.1 Landlord agrees that as of the date of delivery of
possession of the demised premises the Building shall be
connected to the electric and gas lines serving the municipality
wherein the demised premises are located and to the water system
of said municipality. Tenant agrees to pay (or to reimburse
Landlord for) all meter fees assess by such utilities and said
municipality for the connection or metering of the demised
premises.
8.2 Tenant agrees to pay all charges for heat, air-
conditioning, water, gas, electricity and other utilities used by
the demised premises. If a charge shall be made from time to time
by the public authority having jurisdiction for the use of the
sanitary sewer system and/or for the use of the storm sewer
system, Tenant shall pay the same. Tenant agrees that it will at
all times keep sufficient heat in the demised premises to prevent
the pipes therein from freezing. Tenant shall also pay for any
sprinkler stand-by service charge apportionable to the demised
premises.
FIRE OR OTHER 9.1 If the demised premises, or any part thereof, shall
CASUALTY be damaged or destroyed by fire or other casualty, then Tenant
shall promptly thereafter give Landlord written notice thereof
and Landlord shall within a reasonable time after its receipt of
such notice from Tenant, repair or restore the demised premises
to substantially the same condition they were in immediately
prior to the casualty. Landlord shall not be obligated to expend
an amount in excess of the insurance proceeds or damages payable
on account of such damage or destruction in making
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such repair or restoration. In the event of any such damage or
destruction by fire or other casualty, the insurance proceeds or
damages recovered on account of any damage or destruction shall
be made available for the payment of the cost of the aforesaid
repair or restoration. If the insurance proceeds shall be greater
than the cost of repair or restoration, the excess shall belong
to Landlord. A just proportion of the minimum rent according to
the nature and extent of the injury to the demised premises shall
be suspended or abated until the demised premises shall be
repaired or stored by Landlord as aforesaid.
9.2 Insurance against any or all of the risks, including, but
without limitation, fire insurance with extended coverage in an
amount at least equal to the replacement cost of the Building,
insurance against loss or rental income, insurance against loss
or damage from sprinklers, leakage, explosion or cracking of
boilers, pipes, or both, and insurance against such other
casualties as shall be required by the holder of any mortgage
upon the demised premises, may be maintained by Landlord and the
same may be maintained under a blanket policy covering the
demised premises and other real estate of Landlord and/or its
affiliated business organizations. The policies of such insurance
shall be payable in case of loss to the holders of any mortgages
upon the property of which the demised premises are a part as
their interests may appear. Nothing in reasonable evidence that
repairs or replacements were made, if any such repairs or
replacements were recommended in any such inspection report, with
ninety (90) days after the issuance of any such report.
Notwithstanding the foregoing, Tenant shall not be under any
obligation to make any repairs or alterations to the foundation,
the roof, the exterior walls or structural columns, members or
beams of the Building except to the extent provided in Section
7.1. Tenant specifically agrees to replace all glass damaged with
glass of the same kind and quality. Tenant also agrees to paint,
varnish and otherwise redecorate the Interior and exterior of the
building when required to keep the Building attractive in
appearance, but at least once during the first five years and
thereafter on a maintenance basis.
7.3 Tenant agrees that neither it nor anyone claiming under it
will make any installations, alterations, additions or
improvements to or upon the demised premises, except only the
installations, alterations, additions and improvements
specifically described in Exhibit B-1 hereto, without the prior
written
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approval of Landlord. All installations, alterations, additions
and improvements made to or upon the demised premises whether
made by Landlord or Tenant or any other person (except only signs
and movable trade fixtures and equipment installed in the demised
premises prior to or during the term of this lease at the cost of
Tenant or any person claiming under Tenant), shall be deemed part
of the demised premises and upon the expiration or other
termination of the term of this lease shall be surrendered with
the demised premises as a part thereof without disturbance,
molestation or injury unless Landlord shall give notice to Tenant
within fifteen (15) days after termination of the term of this
lease that it elects to have Tenant remove any of the same, in
which event Tenant shall remove those installations, alterations,
additions and improvements so designated within fifteen (15) days
of the giving of such notice or upon termination of the term of
this lease, whichever shall first occur. Said signs, movable
trade fixtures and equipment shall not be deemed part of the
demised premises and may be removed by Tenant at any time or
times during the term of this lease or upon the termination of
the term of this lease, if, and only if, Tenant shall not then be
in default in the performance or observance of any of the
agreements or conditions in this lease contained on the part of
Tenant to be performed or observed. Movable trade fixtures and
equipment shall include trade fixtures, equipment and other
installations not affixed to the realty and trade fixtures,
equipment and other installations affixed only by nails, screws
or other similar means. Movable trade fixtures shall not include
linoleum or other floor covering cemented or otherwise adhesively
affixed to the floor.
7.4 Tenant agrees that it will procure all necessary permits
before making any repairs, installations, alterations, additions,
improvements or removals. Landlord agrees it will cooperate with
Tenant in obtaining such permits. Tenant agrees that all repairs,
installations, alterations, improvements and removals done by it
or anyone claiming under it shall be done in a good and
workmanlike manner, that the same shall be done in conformity
with all laws, ordinances and regulations of all public
authorities and all insurance inspection or rating bureaus having
jurisdiction, that the structure of the Building will not be
endangered or impaired and that Tenant will repair any and all
damage caused by or resulting from any such repairs,
installations, alterations, additions, improvements or removals,
including, but without limitation, the filling of holes. Tenant
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agrees to pay promptly when due all charges for labor and
materials in connection with any work done by Tenant or anyone
claiming under Tenant upon the demised premises so that the
demised premises shall at all times be free of liens. Tenant
agrees to save Landlord harmless from, and indemnify Landlord
against, any and all claims for injury, loss or damage to person
or property caused by or resulting from the doing of any such
work.
UTILITIES 8.1 Landlord agrees that as of the date of delivery of
possession of the demised premises the Building shall be
connected to the electric and gas lines serving the municipality
wherein the demised premises are located and to the water system
of said municipality. Tenant agrees to pay (or to reimburse
Landlord for) all meter fees assessed by such utilities and said
municipality for the connection or metering of the demised
premises.
8.2 Tenant agrees to pay all charges for heat, air-
conditioning, water, gas, electricity and other utilities used by
the demised premises. If a charge shall be made from time to time
by the public authority having jurisdiction for the use of the
sanitary sewer system and/or for the use of the storm sewer
system, Tenant shall pay the same. Tenant agrees that it will at
all times keep sufficient heat in the demised premises to prevent
the pipes therein from freezing. Tenant shall also pay for any
sprinkler stand-by service charge apportionable to the demised
premises.
FIRE OR OTHER 9.1 If the demised premises, or any part thereof, shall
CASUALTY be damaged or destroyed by fire or other casualty, then Tenant
shall promptly thereafter give Landlord written notice thereof
and Landlord shall within a reasonable time after its receipt of
such notice from Tenant, repair, or restore the demised premises
to substantially the same condition they were in immediately
prior to the casualty. Landlord shall not be obligated to expend
an amount in excess of the insurance proceeds or damages payable
on account of such damage or destruction in making such repair or
restoration. In the event of any such damage or destruction by
fire or other casualty, the insurance proceeds or damages
recovered on account of any damage or destruction shall be made
available for the payment of the cost of the aforesaid repair or
restoration. If the insurance proceeds shall be greater than the
cost of repair or restoration, the excess shall belong to
Landlord. A just proportion of the minimum rent
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according to the nature and extent of the injury to the demised
premises shall be suspended or abated until the demised premises
shall be repaired or restored by Landlord as aforesaid.
9.2 Insurance against any or all of the risks, including, but
without limitation, fire insurance with extended coverage in an
amount at least equal to the replacement cost of the Building,
insurance against loss or rental income, insurance against loss
or damage from sprinklers, leakage, explosion or cracking of
boilers, pipes, or both, and insurance against such other
casualties as shall be required by the holder of any mortgage
upon the demised premises, may be maintained by Landlord and the
same may be maintained under a blanket policy covering the
demised premises and other real estate of Landlord and/or its
affiliated business organizations. The policies of such insurance
shall be payable in case of loss to the holders of any mortgages
upon the property of which the demised premises are a part as
their interests may appear. Nothing in this lease contained shall
be deemed to create in Tenant any interest in said insurance
policies or the proceeds thereof or any right to participate in
the adjustment of loss. Tenant agrees to pay to Landlord, as
additional rent, the cost to Landlord of keeping the demised
premises insured under the coverages hereinabove mentioned.
Payment on account of such cost shall be paid, as part of
Tenant's total rent, monthly, and at the times and in the fashion
herein provided for the payment of minimum rent. For an initial
period from the commencement of the term of this lease until the
December 31st of the calendar year in which the term hereof shall
commence, the amount so to be paid shall be one-twelfth (1/12) of
the product of ten cents ($.10) and the number of square feet of
floor area in the demised premises. Promptly after the end of
said partial calendar year and promptly after the end of each
calendar year thereafter, Landlord shall make a determination of
such cost on the basis hereinabove set forth, and if the
aforesaid payments theretofore made for such period by Tenant
exceed such cost, Landlord shall make a suitable refund to
Tenant; and if such cost is greater than such payments
theretofore made on account for such period, Tenant shall make a
suitable payment to Landlord. The initial monthly payment on
account of such cost shall be replaced after Landlord's
determination of the preceding accounting period's cost by a
payment which is one-twelfth (1/12) of such immediately preceding
period's cost, with adjustments as appropriate where such
preceding period is less than a full twelve (12) month period.
Appropriate adjustments
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shall be made for any partial month at the commencement of the
term and for any partial month or year at the end of the term.
9.3 Notwithstanding anything in this Article to the contrary,
it is agreed and understood that (i) if during the second annual
period preceding the expiration of the term of this lease the
demised premises shall be damaged or destroyed by fire or other
casualty to the extent of thirty Percent (30%) or more of their
insurable value, or (ii) if during the annual period preceding
the expiration of the term of this lease the demised premises
shall be damaged or destroyed by fire or other casualty to the
extent of twenty percent (20%) or more of their insurable value,
either Landlord or Tenant may, if either shall so elect,
terminate the term of this lease by notice to the other within
thirty (30) days after such damage or destruction. It is further
agreed that if at any time during the term of this lease the
demised premises shall be substantially damaged or destroyed as
aforesaid, Landlord, at its election, may terminate the term of
this lease by a notice to Tenant within thirty (30) days after
such damage or destruction. For purposes of this Article, the
demised premises shall be deemed to have been substantially
damaged or destroyed if the damage or destruction is of such a
character that the same cannot reasonably be expected to be
repaired or restored within thirty (30) days after the repair or
restoration work would be commenced. In the event of any
termination of the term of this lease pursuant to the provisions
of this Section, the termination shall become effective on the
twentieth (20th) day after the giving of the notice or
termination, rent shall be apportioned and adjusted as of the
time of termination, Landlord shall not be obligated to repair or
restore any damage or destruction caused by fire or other
casualty and the insurance proceeds shall belong to Landlord.
EMINENT 10.1 If after the execution of this lease and prior to
DOMAIN the expiration of the term of this lease the whole of the demised
premises shall be taken under the power of eminent domain, then
the term of this lease shall cease as of the time when Landlord
shall be divested of its title in the demised premises, and rent
shall be apportioned and adjusted as of the time of termination.
10.2 If only a part of the demised premises shall be taken
under the power of eminent domain and if as a result thereof the
floor area of the Building shall be reduced by more than thirty
percent, or if more than thirty percent of the parking areas of
the
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demised premises shall be taken and not replaced by Landlord
within sixty (60) days thereafter, either Landlord or Tenant may,
at its election, terminate the term of this lease by giving
notice of the exercise of its election to the other of them
within twenty (20) days after it shall receive notice of such
taking (or in the case of a taking of parking areas within twenty
days after such sixty day period), and the termination shall be
effective as of the time that possession of the part so taken
shall be required for public use (or in the case of parking areas
being taken upon the tenth day after the giving of such notice),
and rent shall be apportioned and adjusted as of the time of
termination. If only a part of the demised premises shall be
taken under the power of eminent domain and if the term of this
lease shall not continue in full force and effect and Landlord
shall, within a reasonable time after possession is required for
public use, repair and rebuild what may remain of the demised
premises and the remainder of the Building so as to put the same
into condition for use and occupancy by Tenant, and a just
proportion of the minimum rent according to the nature and extent
of the injury to the demised premises shall be suspended or
abated until what may remain of the demised premises shall be put
into such condition by Landlord, and thereafter a just proportion
of the minimum rent according to the nature and extent of the
part so taken shall be abated for the balance of the term of this
lease.
10.3 Landlord reserves to itself, and Tenant grants and assigns
to Landlord, all rights to damages accruing on account of any
taking under the power of eminent domain or by reason of any act
of any public or quasi-public authority for which damages are
payable irrespective of the form in which recovery may be had by
law. Tenant agrees to execute such instruments by assignment as
may be reasonably required by Landlord in any proceeding for the
recovery of such damages if requested by Landlord, and to turn
over to Landlord any damages that may be recovered in such
proceedings. It is agreed and understood, however, that Landlord
does not reserve to itself, and Tenant does not assign to
Landlord, any damages payable for movable trade fixtures
installed by Tenant or anybody claiming under Tenant at its own
cost and expense or for relocation expenses; provided that the
same do not reduce the damages which Landlord would otherwise
recover.
INDEMNITY AND 11.1 Tenant agrees to save Landlord harmless from,
INSURANCE and indemnify Landlord against, to the extent permitted by law,
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any and all injury, loss or damage and any and all claims for
injury, loss or damage of whatever nature (i) caused by or
resulting from, or claimed to have been caused by or to have
resulted from, any act, omission or negligence of Tenant or
anyone claiming under Tenant (including, but without limitation,
subtenants and concessionaires of Tenant and employees and
contractors of Tenant or its subtenants or concessionaires), no
matter where occurring, or (ii) occurring upon about the demised
premises, no matter how caused. This indemnity and hold harmless
agreement shall include indemnity against all costs, expenses and
liabilities, incurred in connection with any such injury, loss or
damage or any such claim, or any proceeding brought thereon or
the defense thereof. To the maximum extent that this agreement
may be made effective according to law, Tenant agrees to use and
occupy the demised premises at its sole risk. Without limiting
the generality of the immediately preceding sentence, if Tenant
or anyone claiming under Tenant or the whole or any part of the
property of Tenant or anyone claiming under Tenant shall be
injured, lost or damaged by theft, fire, water or steam or in any
other way or manner, whether similar or dissimilar to the
foregoing, no part of said injury, loss or damage is to be borne
by Landlord or its agents. Tenant agrees that Landlord shall not
be liable to Tenant or anyone claiming under Tenant for any
injury, loss or damage that may be caused by or result from the
fault or negligence of any persons occupying adjoining premises.
11.2 Tenant will maintain general comprehensive public
liability insurance, with respect to the demised premises and its
appurtenances, issued by insurance companies acceptable to
Landlord and authorized to do business in the Commonwealth of
Massachusetts, naming Landlord and Tenant as insureds, in amounts
which shall, at the beginning of the term, be not less than One
Million Dollars ($1,000,000.00) with respect to injuries to any
one person and not less than One Million Dollars ($1,000,000.00)
with respect to injuries suffered in any one accident, and not
less than One Million Dollars ($1,000,000.00) with respect to
property and, from time to time during the term of this lease,
such insurance coverage shall be in such higher amounts, if any,
as are customarily carried in the metropolitan Boston area on
property similar to the demised premises used for similar
purposes or as required by the mortgagee. Tenant shall deliver to
Landlord the policies of such insurance, or certificates thereof,
at least fifteen (15) days prior to the commencement of
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the term of this lease, and each renewal policy or certificate
thereof, at least fifteen (15) days prior to the expiration of
the policy it renews. Tenant may maintain such insurance under a
blanket policy affecting other premises of Tenant and/or its
affiliated business organizations.
ACCESS TO 12. Landlord shall have the right to enter upon the
PREMISES demised premises or any part thereof without charge at all
reasonable times and in case of emergency, at any time, to
inspect the same, to show the demised premises to prospective
purchasers or tenants, to make or facilitate any repairs,
alterations, additions or improvements to the demised premises
and other portions of the Building (but nothing in this Article
12 contained shall obligate Landlord to make any repairs,
alterations, additions or improvements); and Tenant shall not be
entitled to any abatement or reduction of rent or damages by
reason of any of the foregoing. No forcible entry shall be made
by Landlord unless such entry shall be reasonably necessary to
prevent serious injury, loss or damage to persons or property.
Landlord shall repair any damage to property by Tenant or anyone
claiming under Tenant caused by or resulting from Landlord's
making any such repairs, alterations, additions or improvements
except only such damage as shall result from the making of such
repairs, alterations, additions or improvements which Landlord
shall make as a result of the default, fault or negligence of
Tenant or anyone claiming under Tenant. For the period commencing
nine months prior to the expiration of the term of this lease,
Landlord may maintain "For Rent" signs on the demised premises.
DEFAULTS 13.1 If Tenant shall default in the payment of rent or other
payments required of Tenant, and if Tenant shall fail to cure
said default within seven (7) days after the giving of notice of
said default by Landlord, or (2) if Tenant shall default in the
performance or observance of any other agreement or condition on
its part to be performed or observed and if Tenant shall fail to
cure said default within fifteen days after the giving of notice
of said default by Landlord, or (3) if any person shall levy
upon, or take this leasehold interest or any part thereof upon
execution, attachment or other process or law, or (4) if Tenant
shall make an assignment of its property for the benefit of
creditors, or (5) if Tenant shall be declared bankrupt or
insolvent according to law, or (6) if any bankruptcy or
insolvency proceedings shall be commenced by or against Tenant or
(7) if a receiver, trustee or assignee shall be appointed for the
whole or any part of Tenant's
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property, then in any of said cases, Landlord lawfully may
immediately, or at any time thereafter, and without any further
notice or demand, enter into and upon the demised premises or any
part thereof in the name of the whole, by force or otherwise, and
hold the demised premises as if this lease had not been made, and
expel Tenant and those claiming under it and remove its or their
property (forcibly, if necessary) without being taken or deemed
to be guilty of any manner of trespass (or Landlord may send
written notice to Tenant of the termination of the term of this
lease), and upon entry as aforesaid (or in the event that
Landlord shall send to Tenant notice of termination as above
provided, on the fifth (5th) day next following the date of the
sending of the notice), the term of this lease shall terminate.
Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the
event Landlord terminates this lease as provided in this Article.
13.2 In case of any such termination, Tenant will indemnify
Landlord each month against all loss of rent and all obligations
which Landlord may incur by reason of any such termination
between the time of termination and the expiration of the term of
this lease; or at the election of Landlord, exercised at the time
of the termination or at any time thereafter, Tenant will
indemnify Landlord each month until the exercise of the election
against all loss of rent and other obligations which Landlord may
incur by reason of such termination during the period between the
time of the termination and the exercise of the election, and
upon the exercise of the election Tenant will pay to Landlord as
damages such amount as at the time of the exercise of the
election represents the amount by which the rental value of the
demised premises for the period from the exercise of the election
until the expiration of the term shall be less than the amount of
rent and other payments provided herein to be paid by Tenant to
Landlord during said period. In any event, Tenant shall indemnify
the Landlord against all loss of rent and all obligations which
Landlord may incur by reason of Tenant's default hereunder prior
to such entry or termination, whichever shall first occur. It is
understood and agreed that at the time of the termination or at
any time thereafter Landlord may rent the demised premises, and
for a term which may expire after the expiration of the term of
this lease, without releasing Tenant from any liability
whatsoever, that Tenant shall be liable for any expenses incurred
by Landlord in connection with obtaining
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possession of the demised premises, with removing from the
demised premises property of Tenant and person claiming under it
(including warehouse charges), with putting the demised premises
into good condition for reletting, and with any reletting,
including but without limitation, reasonable attorneys' fees and
brokers' fees, and that any monies collected from any reletting
shall be applied first to the foregoing expenses and then to the
payment of rent and all other payments due from Tenant to
Landlord.
14.1 Tenant agrees that upon the request of Landlord it will
subordinate this lease and the lien hereof to the lien of any
present or future mortgage or mortgages upon the demised premises
of any property of which the demised premises are a part,
irrespective of the time of execution or time of recording of any
such mortgage or mortgages; provided that the holder of any such
mortgage shall agree with Tenant that this lease and the rights
of Tenant hereunder shall not be disturbed except in accordance
with the terms of this lease. Tenant agrees that it will upon the
request of Landlord execute, acknowledge and deliver any and all
instruments deemed by Landlord necessary or desirable to give
effect to or notice of such subordination. The word "mortgage" as
used herein includes mortgages, deeds of trust or other similar
instruments and modifications, consolidations, extensions,
renewals, replacements and substitutes thereof. Whether the lien
of any mortgage upon the demised premises or any property of
which the demised premises are a part shall be superior or
subordinate to this lease and the lien hereof, Tenant agrees that
it will, upon request, attorn to the holder of such mortgage or
any one claiming under such holder and their respective
successors and assigns in the event of foreclosure of or similar
action taken under such mortgage.
14.2 After the commencement of the term of this lease and
within five (5) days after written request therefore by Landlord,
Tenant agrees to execute, acknowledge and deliver to Landlord or
to any mortgagee a certificate stating that Tenant has entered
into occupancy of the demised premises in accordance with the
provisions of this lease, that this lease is unmodified and in
full force and effect, that Landlord has performed Landlord's
construction work, that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the minimum rent and
additional rent and any other charges and to perform its other
covenants under this lease (or, if there has been any
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modifications, that the same is in full force and effect as
modified and stating the modifications and, if there are any
defenses, offsets or counterclaims, setting them forth in
reasonable detail), and the dates to which the minimum and
additional rent and other charges have been paid. Any such
statement delivered pursuant to this Section 14.2 may be relied
upon by any prospective purchaser or mortgagee of the demised
premises, or one or more of them, or any prospective assignee of
any such mortgage.
14.3 After receiving notice from Landlord or from any person,
firm or other entity that such person, firm or other entity holds
a mortgage, as hereinbefore defined, which includes the demised
premises as part of the mortgaged premises, no notice from Tenant
to Landlord shall be effective unless and until a copy of the
same is given by certified or registered mail to such holder, and
the curing of any of Landlord's defaults by such holder shall be
treated as performance by Landlord, it being understood and
agreed that such holder shall be afforded a reasonable period of
time after the receipt of such notice in which to effect such
cure.
WAIVER OF 15. Both Landlord and Tenant hereby releases the
SUBROGATION other, to the extent of its insurance coverage, from any and all
liability for any loss or damage caused by fire or any of the
extended coverage casualties or any other casualty insured
against, even if such fire or other casualty shall be brought
about by the fault or negligence of the other party or its
agents, provided, however, this release shall be in force and
effect only with respect to loss or damage occurring during such
time as releasor's policies covering such loss or damage shall
contain a clause to the effect that this release shall not affect
said policies or the right of releasor to recover thereunder, it
being understood and agreed that the waiving party reserves any
rights with respect to any excess loss or injury over the amount
recovered by such insurance. Each of Landlord and Tenant agrees
that its fire and other casualty insurance policies will include
such a clause so long as the same is includable without extra
cost, or if extra cost is chargeable therefor, so long as the
other party pays such extra cost. If extra cost is chargeable
therefor, each party will advise the other thereof and the amount
thereof. The other party at its election, may pay the same, but
shall not be obligated to do so.
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FAILURE OF 16.1 If Tenant shall default in the performance of any
PERFORMANCE agreement or condition in this lease contained on its part to
AND WAIVERS be performed or observed other than an obligation to pay money,
and shall not cure such default within ten (10) days after notice
from Landlord specifying the default (or shall not within said
period commence to cure such default and thereafter prosecute the
curing of such default to completion with due diligence),
Landlord may, at its option, without waiving any claim for
damages for breach of agreement, at any time thereafter cure such
default for the account of Tenant and any amount paid or any
contractual liability incurred by Landlord in so doing shall be
deemed paid or incurred for the account of Tenant and Tenant
agrees to reimburse Landlord therefor or save Landlord harmless
therefrom; provided that Landlord may cure any such default as
aforesaid prior to the expiration of said waiting period but
after notice to Tenant, if the curing of such default prior to
the expiration of said waiting period is reasonably necessary to
protect the real estate or Landlord's interest therein, or to
prevent injury or damage to persons or property. All amounts so
paid by Landlord, all contractual liabilities so incurred by
Landlord and all necessary incidental costs and expenses in
connection with the performance of any such act by Landlord shall
be deemed to be additional rent under this lease and shall be
payable by Tenant to Landlord immediately on demand.
16.2 Failure of either party to complain of any act or omission
on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any
of its rights hereunder. No waiver by either party at any time,
express or implied, of any breach of any provision of this lease
shall be deemed a waiver of a breach of any other provision of
this lease or a consent to any subsequent breach of the same or
any other provision. If any action by either party shall require
the consent or approval of the other party, the other party's
consent to or approval of such action on any one occasion shall
not be deemed a consent to or approval of said action on any
subsequent occasion or any consent to or approval of any other
action on the same or any subsequent occasion. Any and all rights
and remedies which either party may have under this lease or by
operation of law, either at law or in equity, upon any breach,
shall be distinct, separate and cumulative and shall not be
deemed inconsistent with each other; and no one of them, whether
exercised by said party or not, shall be deemed to be in
exclusion of any other; and any two or more or all of such rights
21
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and remedies may be exercised at the same time.
BROKERS 17. Tenant hereby represents and warrants to Landlord that,
except to the extent, if any, hereinafter set forth, it has dealt
with no broker in connection with this lease and there are no
brokerage commissions or other finders' fees in connection
herewith. Tenant hereby agrees to hold Landlord harmless from,
and indemnified against, all loss or damage (including, without
limitation, the cost of defending same) arising from any claim by
any broker claiming to have dealt with Tenant.
HOLDING OVER If Tenant or anyone claiming under Tenant shall remain in
possession of the demised premises or any part thereof after the
expiration of the term of this lease without any agreement in
writing between Landlord and Tenant with respect thereto, prior
to acceptance of rent by Landlord, the person remaining in
possession shall be deemed a tenant at sufferance and after
acceptance of rent by Landlord the person remaining in possession
shall be deemed a tenant at will, subject to the provisions of
this lease insofar as the same may be made applicable to a
tenancy at will; provided, however, that if minimum rent shall be
payable during the term of this lease at different rates at
different times, minimum rent during such period as such person
shall continue to hold the demised premises or any part thereof
shall be payable at twice the highest rate payable during the
term hereof.
QUIET 19. Landlord agrees that upon Tenant's paying the rent
ENJOYMENT and performing and observing the agreements, conditions and other
provisions on its part to be performed and observed, Tenant shall
and may peaceably and quietly have, hold and enjoy the demised
premises during the term of this lease without any manner of
hindrance or molestation from Landlord or anyone claiming under
Landlord, subject, however, to the terms of this lease and any
instruments having a prior lien.
USE 20. Tenant agrees that during the term of this lease the
demised premises will be used and occupied for the following
purposes and for no other purposes without the written consent of
Landlord, which Landlord may withhold at Landlord's sole
discretion: general business offices.
ASSIGNMENT 21. Tenant agrees that it will not assign, mortgage,
22
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pledge or otherwise encumber this lease or any interest therein,
or sublet the whole or any part of the demised premises without
obtaining on each occasion the written consent of the Landlord,
which Landlord may withhold at Landlord's sole discretion.
DELAYS 22. In any case where either party hereto is required to do any
act, delays caused by or resulting from Act of God, war, civil
commotion, fire or other casualty, labor difficulties, shortages
of labor, materials or equipment, government regulations or other
causes beyond such party's reasonable control shall not be
counted in determining the time during which such work shall be
completed, whether such time be designated by a fixed date, a
fixed time or "a reasonable time." In any case where work is to
be paid for out of insurance proceeds or condemnation awards, due
allowance shall be made, both to the party required to perform
such work and to the party required to make such payment, for
delays in the collection of such proceeds and awards.
NOTICES 23. All notices and other communications authorized or required
hereunder shall be in writing and shall be given by mailing the
same by certified or registered mail, return receipt requested,
postage prepaid. If given to Tenant the same shall be mailed to
Tenant at One Snow Road, Marshfield, Massachusetts 02050, or to
such other person at such other address as Tenant may hereafter
designate by notice to Landlord; and if given to Landlord the
same shall be mailed to Landlord at 366 Moraine Street,
Marshfield, Massachusetts 02050, or to such other person or at
such other address as Landlord may hereafter designate by notice
to Tenant.
DEFINITIONS 24.1 The words "Landlord" and "Tenant" and the
AND INTERPRE- pronouns referring thereto, as used in this lease, shall mean,
TATIONS where the context requires or admits, the persons named herein as
Landlord and as Tenant, respectively, and their respective heirs,
legal representatives, successors and assigns, masculine,
feminine or neuter. Except as hereinafter provided otherwise, the
agreements and conditions in this lease contained on the part of
Landlord to be performed and observed shall be binding upon
Landlord and its heirs, legal representatives, successors and
assigns and shall enure to the benefit of Tenant and its heirs,
legal representatives, successors and assigns; and the agreements
and conditions on the part of Tenant to be performed and observed
shall be binding upon Tenant and its heirs, legal
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representatives, successors and assigns and shall enure to the
benefit of Landlord and its heirs, legal representatives,
successors and assigns. The word "Landlord", as used herein,
means only the owner for the time being of Landlord's interest in
this lease, that is, in the event of any transfer of Landlord's
interest in this lease the transferor shall cease to be liable,
and shall be released from all liability for the performance or
observance of any agreements or conditions on the part of
Landlord to be performed or observed subsequent to the time of
said transfer, it being understood and agreed that from and after
said transfer the transferee shall be liable for the performance
and observance of said agreements and conditions.
24.2 It is agreed that if any provisions of this lease shall be
determined to be void by any court of competent jurisdiction then
such determination shall not affect any other provisions of this
lease, all of which other provisions shall remain in full force
and effect; and it is the intention of the parties hereto that if
any provision of this lease is capable of two constructions, one
of which would render the provision void and the other which
would render the provision valid, then the provision shall have
the meaning which renders it valid.
24.3 This instrument contains the entire and only agreement
between the parties, and no oral statements or representations or
prior written matter not contained in this instrument shall have
any force or effect. This lease shall not be modified in any way
except by a writing subscribed by both parties.
24.4 Wherever in this lease provision is made for the doing of
any act by any person it is understood and agreed that said act
shall be done by such person at its own cost and expense unless a
contrary intent is expressed.
24.5 If all or any part of Landlord's interest in this lease
shall be held by a trust, no trustee, shareholder or beneficiary
of said trust shall be personally liable for any of the
covenants, or agreements, express or implied, hereunder.
Landlord's covenants and agreements shall be binding upon the
trustees of said trust as trustees as aforesaid and not
individually and upon the trust estate. Without limiting the
generality of the foregoing, and whether or not all or any part
of Landlord's interest in this lease shall be held by a trust,
Tenant specifically agrees to look solely
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to Landlord's interest in the demised premises for recovery of
any judgment from Landlord; it being specifically agreed that
Landlord shall never otherwise be personally liable for any such
judgment.
24.6 Wherever in this lease provision is made that either party
shall have the right to terminate this lease, then, unless in
said provision it is expressly provided otherwise, neither party
hereto shall thereafter have any claim against the other under
this lease or on account of the termination thereof.
24.7 The marginal notes used as headings for the various
articles of this lease are used only as a matter of convenience
for reference, and are not to be considered a part of this lease
or to be used in determining the intent of the parties of this
lease. Whenever in this lease any portion, or part thereof, has
been stricken out, whether or not any provision has been
substituted therefor, this lease shall be read and construed as
if the words so stricken out were never included herein and no
implication shall be drawn from the words so stricken out.
24.8 This lease shall be governed by the laws of the
Commonwealth of Massachusetts.
TENANTS 25. Tenant agrees that during the term of this lease:
COVENANTS no nuisance will be permitted on or about the demised premises;
nothing will be done upon or about the demised premises which
shall be unlawful, improper, noisy or offensive or contrary to
any public authority or insurance inspection or rating bureau or
similar organization having jurisdiction, or which may be
injurious to or adversely affect the quality or tone of the
demised premises or any abutting or adjacent property of the
Landlord; the demised premises will not be overloaded, damaged or
defaced; Tenant will not drill or make any holes in the stone or
brickwork; Tenant will not permit the omission of any
objectionable noise or odor from the demised premises; no placard
or sign shall be placed on the exterior of the Building or
elsewhere on the demised premises without the prior written
consent of Landlord; Tenant will procure all licenses and permits
which may be required for any use made of the demised premises;
and all waste and refuse will be stored upon and removed from the
demised premises in accordance with all applicable governmental
codes and regulations. Tenant will not do, or suffer to be done,
or keep, or suffer to be kept, or omit to
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<PAGE>
do anything in, upon or about the demised premises which may
prevent the obtaining of any insurance on the demised premises or
on any property therein, including, but without limitation, fire,
extended coverage and public liability insurance, or which may
make void or voidable any such insurance, or which may create any
extra premiums for, or increase the rate of, any such insurance.
If anything shall be done or kept or omitted to be done in, upon
or about the demised premises which shall create any extra
premiums for, or increase the rate of, any such insurance, Tenant
will pay the increased cost of the same to Landlord upon demand.
EXPANSION 26.1 Subject to all then applicable building and zoning codes
and the requirements of the subdivision restrictions contained in
the deed of the demised premises to Landlord, and provided Tenant
shall not then be in default under this lease, Tenant shall have
the right, exercisable by notice to Landlord, by January 31,
1990, to request that Landlord construct upon the demised
premises an addition (the "Addition") to the Building within the
Expansion Area. The Addition shall contain at least twenty-five
thousand (25,000) square feet. Such notice shall be accompanied
by outline plans and specifications for the construction of the
Addition and information concerning the exact size and location
thereof desired by Tenant. Within one hundred twenty (120) days
after the receipt by Landlord of such notice from Tenant,
Landlord shall obtain from the current holder of the first
mortgage upon the demised premises and alternate financing
sources, estimates of terms which would be granted to finance the
Addition, shall prepare detailed plans and detailed
specifications for the construction of the Addition, shall use
its reasonable efforts to obtain two competitive bids from
contractors of Landlord's choice for construction of the Addition
and shall present the same to Tenant; provided, however, that
Landlord shall have the right to select the contractor to be used
for construction of the Addition, in Landlord's reasonable
discretion. Landlord agrees to use reasonable efforts to obtain
the lowest possible estimates of such financing terms. If Tenant
shall be unwilling to accept the bid selected by Landlord,
Landlord shall not be obliged to construct the Addition; this
lease shall continue in full force and effect unmodified by the
provision of this Article 26; and Tenant shall reimburse to
Landlord upon being billed therefor for Landlord's reasonable
out-of-pocket expenses incurred in obtaining any such bid of
bids, including but without limitation the cost to Landlord of
preparing said detailed plans
26
<PAGE>
and detailed specifications in connection therewith as additional
rent under this lease. Tenant shall accept or reject any such bid
within thirty (30) days of its receipt thereof by written notice
to Landlord. If Tenant shall be unwilling to accept such
financing terms, Tenant shall have the right to abandon the
Addition, in which event the provisions of the immediately
preceding sentence shall apply. If Tenant shall accept such bid
and give Landlord notice thereof as aforesaid, then (i) the date
upon which Landlord shall substantially complete construction of
the Addition (substantial completion being defined as in Section
2.1 hereof provided) or (ii) the date that Tenant shall first
commence to utilize the Addition in connection with its business,
whichever shall first occur, shall be known as the "effective
date", and from and after the effective date the Addition shall
constitute a portion of the demised premises and be subject to
and have the benefit of the provisions of this lease, except as
hereinafter provided.
26.2 From and after the effective date the annual rate of
minimum rent payable hereunder shall be increased by an amount
which shall be the Determined Percentage (hereinafter defined) of
the product obtained by multiplying (a) the Financed Amount by
(b) the "new annual constant" (hereinafter defined). The
Determined Percentage shall be: one hundred thirty-five (135%) it
being understood and agreed, however, that 135% is based upon the
assumption that the entity providing such financing will adjust
the annual minimum rent payable with respect to the Addition
downward by an aggregate of 9% to reflect a structural reserve,
management costs and a vacancy factor and will require such
annual minimum rent, as so adjusted downward, to be equal to 123%
or more of new annual constant and that if such entity shall
require a smaller downward adjustment in such annual minimum rent
and/or a lower percentage of coverage with respect to the new
annual constant, the 135% amount provided for in this section
shall be reduced to that percentage which shall satisfy the lower
requirements of such entity. Notwithstanding the provisions of
the previous sentence to the contrary, in no event shall the rent
under this Lease be less on a square foot basis than $15.00 per
square foot per annum, triple net. In no event shall said rent be
less than that currently being paid on a per square foot basis on
the current lease. The Financed Amount shall be the "total cost
of constructing the Addition" (hereinafter defined). The new
annual constant shall be the product obtained by multiplying the
Financed Amount by that percentage which will produce the sum
27
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of twelve equal monthly installments of principal and interest
(at the rate per annum initially payable under such mortgage
loan) --required to fully liquidate the Financed Amount if one
such installment is paid each month, in arrears, over the longer
of (i) the term of said loan for the Financed Amount, (ii) the
amortization period utilized in such loan for the Financed Amount
to compute the monthly constant payments required to be paid by
the Borrower thereunder or (iii) if such loan shall initially
provide for the payment of interest only, a period equal to the
length of time for which no principal payments are required plus
the amortization period utilized in such loan for the Financed
Amount to compute the monthly constant payments required to be
paid once amortization of principal commences. The loan for the
Financed Amount shall be Landlord's proposed financing for the
total cost of constructing the Addition. The total cost of
constructing the Addition shall be the sum of the cost to
Landlord of all "hard" and "soft" costs of every kind and nature,
direct and indirect, incurred by Landlord in constructing the
Addition, including without limitation, (i) construction work for
the Addition, including but without limitation, site work and
additional utilities and parking areas required therefor paid to
the contractors whose bids were accepted as aforesaid, (ii)
construction interest and loan commitment fees upon money
borrowed to finance construction of the Addition, (iii) insurance
premiums and real estate taxes with respect to the Addition for
any period prior to the effective date, (iv) a reasonable
development fee to Landlord or any affiliate of Landlord, (v)
architect's and engineering fees, relating to the Addition, (vi)
Landlord's attorneys' fees incurred in connection with obtaining
permits and approvals for the Addition, the construction and
architects contract for the Addition and such loan for the
Financed Amount, (vii) fees for permits and approvals in
connection with the Addition; (viii) other direct and indirect
out-of-pocket expenses of Landlord paid by Landlord for the
construction of the Addition and (ix) the Expansion Area Value as
at the effective date.
26.3 It is agreed that, notwithstanding anything in the Lease
to the contrary, the minimum rent payable on account of the
Addition (or any phase thereof) shall never exceed fair market
rent for such Addition (or phase) by more than 10%. If Landlord
or Tenant dispute whether the minimum rent payable on account of
the Addition (or phase) exceeds fair market rent by more than
10%, then either party may submit the matter to arbitration
28
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before a panel of 3 arbitrators chosen by the American
Arbitration Association, Boston office, and the decision of such
arbitrators shall resolve the matter.
26.4 In connection with the construction of the Addition
Landlord may use any adjoining wall as a party or petition wall,
may close any opening in any adjoining wall and may demolish any
part of any adjoining wall of the Building and also tie into the
sewer, water and utility lines of the Building so as to integrate
the Addition and the remainder of the Building.
26.5 Landlord's plans and specifications for the Addition (or
any phase thereof) shall be subject to Tenant's prior approval,
which approval shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as a sealed instrument as of the day and year first above written.
As Trustee )
of Longwater )
Circle Trust, )
and not )
Individually. )
/s/ Charles A. Pesko, Jr.
------------------------------
Charles A. Pesko, Jr., Trustee
CAP International, Inc.
By: /s/ Charles A. Pesko, Jr.
---------------------------
President
By: /s/ Charles A. Pesko, Jr.
---------------------------
Treasurer
29
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June 21, 1993
Mr. Graham Cooper
Chief Executive Officer
BIS Strategic Decisions
One Longwater Circle
Norwell, Massachusetts 02061
Re: Second Five Year Term of Original Lease
One Longwater Circle
Norwell, Massachusetts
Dear Graham:
The BIS Strategic Decisions lease at One Longwater Circle entered its sixth year
of a ten year term on June 1, 1993. The lease provided for a rent increased
based upon the change in the CPI Index from May 1988 to May 1993. That increase
was the subject of my proposal to BIS back in January to mitigate the rent
increase in return for a lease extension (copy enclosed). We are still open to
discussion of that proposal. In the interim, however, we must institute the
rent increase as provided for in the lease.
The CPI base being utilized is the May, 1988 Urban Consumer's U.S. City Average
(1982-84 = 100). That base is 117.5. The May 1993 CPI Index was 144.2, giving
us a 1.227 multiplier factor (144.2 / 117.5 = 1.227 factor). The current base
rent of $359,075 times 1.227 equals a new rent of $440,669.06 or $36,722.42 per
month.
Please adjust your payment systems accordingly to pay the $36,722.42 amount
beginning July 1, 1993 and remit the $6,799.50 difference due for June, 1993.
We thank you for your cooperation in this matter and look forward to discussing
our January proposal.
Very truly yours,
/s/ Ronald A. Davis
Ronald A. Davis
RAD/ca
cc: Pam Sullivan
30
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EXHIBIT 10.24
Final Plan
----------
GIGA INFORMATION GROUP, INC.
1997 DIRECTOR OPTION PLAN
1. Purpose.
The purpose of this 1997 Director Option Plan (the "Plan") of Giga
Information Group, Inc. (the "Company") is to encourage ownership in the
Company by outside directors of the Company whose continued services are
considered essential to the Company's future progress and to provide them with
a further incentive to remain as directors of the Company.
2. Administration.
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all
questions concerning interpretation of the Plan or any options granted under
it shall be resolved by the Board of Directors and such resolution shall be
final and binding upon all persons having an interest in the Plan.
3. Participation in the Plan.
Directors of the Company who are not full-time employees of the Company
or any subsidiary of the Company ("Non-Employee Directors") shall be eligible
to receive options under the Plan. The Non-Employee Directors who have become
directors of the Company solely as a consequence of rights granted by the
Company to certain of the Stockholders of the Company to designate persons to
serve as members of the Board of Directors shall be referred to as "Investor
Directors." All Non-Employee Directors other than Investor Directors shall be
referred to as "Company Directors."
4. Stock Subject to the Plan.
(a) The maximum number of shares of the Company's Common Stock, $.001 par
value ("Common Stock"), which may be issued under the Plan shall be [150,000]
shares, subject to adjustment as provided in Section 7.
<PAGE>
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grant Dates. Options shall automatically be granted to all Non-
Employee Directors as follows:
(i) On July 1 of each year, commencing on July 1, 1997, options to
purchase 6,000 shares of Common Stock will be granted to each Non-Employee
Director of the Company then serving as a Non-Employee Director; and
(ii) In addition to the options granted pursuant to Subsection 5(a)(i)
above, options to purchase 6,000 shares of Common Stock will be granted to
each Company Director who first becomes a Company Director coincident with or
after, the date this Plan is first approved by the Directors of the Company,
upon such Company Director's initial election to the Board of Directors.
(b) Option Exercise Price. The option exercise price per share for each
option described in Section 5(a) shall be determined as follows: (i) if the
Common Stock is listed on the Nasdaq National Market or another nationally
recognized exchange or trading system as of the date of grant of such option
(the "Option Grant Date"), the option exercise price shall be deemed to be the
last reported sale price per share of Common Stock thereon on such date (or if
no such price is reported on such date, such price on the nearest preceding
date on which such a price is reported); and (ii) if the Common Stock is not
listed on the Nasdaq National Market or another nationally recognized exchange
or trading system as of the Option Grant Date, the exercise price per share
shall be deemed to be the fair market value of the Common Stock as of the
Option Grant Date as determined in good faith by the Board of Directors.
(c) Options Non-Transferable. Except as the Board of Directors may
otherwise determine or provide in the applicable option agreement, any option
granted under the Plan to an optionee shall not be transferable by the
optionee other
- 2 -
<PAGE>
than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and shall be
exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative.
(d) Vesting Period.
(i) General. Each option described in Section 5(a) shall vest in four
equal annual installments beginning on the first anniversary of the date of
grant provided that the optionee continue to serve as a director on such
dates.
(ii) Acceleration Upon Change in Control. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full in the event a Change in Control (as defined in
Section 8) of the Company occurs.
(e) Termination. Each option shall terminate, and may no longer be
exercised, on the earlier of the (i) the date 10 years after the Option Grant
Date or (ii) the date 60 days after the optionee ceases to serve as a director
of the Company; provided that, in the event an optionee ceases to serve as a
director due to his or her death or disability (within the meaning of Section
22(e)(3) of the Code or any successor provision), then the exercisable portion
of the option may be exercised, within the period of 180 days following the
date the optionee ceases to serve as a director (but in no event later than 10
years after the Option Grant Date), by the optionee or by the person to whom
the option is transferred by will, by the laws of descent and distribution, or
by written notice pursuant to Section 5(g).
(f) Exercise Procedure. An option may be exercised only by written notice
to the Company at its principal office accompanied by payment in cash of the
full consideration for the shares as to which the option is exercised.
(g) Exercise by Representative Following Death of Director. An optionee,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the
right to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
- 3 -
<PAGE>
6. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain the optionee as a director for any
period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
as a stockholder with respect to the shares covered by his or her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
Transactions.
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common
Stock are exchanged for a different number or kind of securities of the
Company or of another entity, or (ii) additional shares or new or different
shares or other securities of the Company or of another entity are distributed
with respect to such shares of Common Stock, the Board of Directors shall make
an appropriate and proportionate adjustment in (x) the maximum number and kind
of shares reserved for issuance under the Plan, (y) the number and kind of
shares or other securities subject to then outstanding options under the Plan,
and/or (z) the price for each share subject to any then outstanding options
under the Plan (without changing the aggregate purchase price for such
options), to the end that each option shall be exercisable, for the same
aggregate exercise price, for such securities as such optionholder would have
held immediately following such event if he had exercised such option
immediately prior to such event. No fractional shares will be issued under the
Plan on account of any such adjustments.
8. Change in Control. For purposes of the Plan, a "Change in Control" shall be
deemed to have occurred only if any of the following events occurs: (i) any
"person", as such term is used in Sections 13(d) and 14(d) of 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 defined in 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; (ii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company
- 4 -
<PAGE>
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; or (iii) 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.
9. Modification, Extension and Renewal of Options.
The Board of Directors shall have the power to modify or amend
outstanding options; provided, however, that no modification or amendment may
(i) have the effect of altering or impairing any rights or obligations of any
option previously granted without the consent of the optionee, or (ii) modify
the number of shares of Common Stock subject to the option (except as provided
in Section 7).
10. Termination and Amendment of the Plan.
The Board of Directors may suspend, terminate or discontinue the Plan or
amend it in any respect whatsoever; provided, however, that without approval
of the stockholders of the Company, no amendment may (i) increase the number
of shares subject to the Plan (except as provided in Section 7), (ii)
materially modify the requirements as to eligibility to receive options under
the Plan, or (iii) materially increase the benefits accruing to participants
in the Plan.
11. Notice.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the President of the Company and shall become
effective when it is received.
12. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on
June 13, 1997
- 5 -
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
------------------------------
Jurisdiction of
Name Organization/Incorporation
- ---------------------------------------------- --------------------------
Giga Information Group Investment Corporation Massachusetts
Giga Information Group Ltd. England
Giga Information Group GmbH Germany
BIS Italy SRL Italy
Giga Information Group S.A.R.L. France
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 to
register shares of Common Stock of our report dated April 17,
1998, except for the information in the final paragraph of Note 20, as to
which the date is May 1, 1998, on our audits of the consolidated financial
statements of Giga Information Group, Inc.
We also consent to the inclusion in this registration statement of our report
dated April 17, 1998 on our audit of the combined statements of operations and
cash flows of BIS Strategic Decisions for the period January 1, 1995 to April
5, 1995.
We also consent to the references to our firm under the captions "Selected
Financial Data" and "Experts."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 15, 1998
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