-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BLUWGi2vaFean1nKq6hdry9bLR1YCHx4xt/+wO046DHu6M9Y33VEUH+uLI0zJK37 9m/1l/OJHifMol/6UOQGTg== 0000950109-96-003319.txt : 19960523 0000950109-96-003319.hdr.sgml : 19960523 ACCESSION NUMBER: 0000950109-96-003319 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19960522 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUSINESS WEB INC CENTRAL INDEX KEY: 0001011255 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-04235 FILM NUMBER: 96570823 BUSINESS ADDRESS: STREET 1: ONE ARSENAL MARKETPLACE CITY: WATERTWON STATE: MA ZIP: 02172 BUSINESS PHONE: 6179239500 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- BUSINESS@WEB, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ----------------
DELAWARE 7379 04-3249618 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.) ORGANIZATION) CODE NUMBER)
---------------- ONE ARSENAL MARKETPLACE WATERTOWN, MASSACHUSETTS 02172 (617) 923-6500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- KLAUS P. BESIER PRESIDENT AND CHIEF EXECUTIVE OFFICER BUSINESS@WEB, INC. ONE ARSENAL MARKETPLACE WATERTOWN, MASSACHUSETTS 02172 (617) 923-6500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO:
WILLIAM E. KELLY, ESQ. JOHN J. EGAN III, ESQ. MARK G. BORDEN, ESQ. PEABODY & ARNOLD GOODWIN, PROCTER & HOAR LLP HALE AND DORR 50 ROWES WHARF EXCHANGE PLACE 60 STATE STREET BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109
---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - --------------------------------------------------------------------------------------------- Common Stock, $.001 par value.... 4,312,500 $15.00 $64,687,500 $22,307 - ---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Includes 562,500 shares of Common Stock which the Underwriters have the option to purchase from the Company to cover over-allotments. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BUSINESS@WEB, INC. CROSS-REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS OF THE RESPONSES TO THE ITEMS OF FORM S-1 (PURSUANT TO ITEM 501 OF REGULATION S-K)
FORM S-1 ITEM NUMBER OF CAPTION LOCATION OR HEADING IN PROSPECTUS ------------------------------- --------------------------------- 1.Forepart of Registration Statement and Outside Front Cover of Prospectus...................... Outside Front Cover Page 2.Inside Front and Outside Back Cover Pages of Prospectus..................................... Inside Front Cover Page and Outside Back Cover Page of Prospectus; Prospectus Summary; Risk Factors 3.Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges...................... Outside Front Cover Page; Inside Front Cover Page; Prospectus Summary; The Company; Risk Factors; Business 4.Use of Proceeds.................................. Use of Proceeds 5.Determination of Offering Price.................. Outside Front Cover Page; Underwriting 6.Dilution......................................... Dilution 7.Selling Security Holders......................... Management; Principal and Selling Stockholders 8.Plan of Distribution............................. Outside Front Cover Page; Inside Front Cover Page; Underwriting 9.Description of Securities to be Registered....... Description of Capital Stock 10.Interests of Named Experts and Counsel........... Not Applicable 11.Information with Respect to the Registrant a.Description of Business....................... Risk Factors; The Company; Use of Proceeds; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business b.Description of Property....................... Business--Facilities c.Legal Proceedings............................. Not Applicable d.Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters........................ Front Cover Page; Dividend Policy; Underwriting; Principal and Selling Stockholders; Shares Eligible for Future Sale; Description of Capital Stock e.Financial Statements.......................... Financial Statements f.Selected Financial Data....................... Selected Financial Data g.Supplementary Financial Information........... Not Applicable h.Management's Discussion and Analysis of Financial Condition and Results of Operations................................. Management's Discussion and Analysis of Financial Condition and Results of Operations i.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.... Not Applicable j.Directors and Executive Officers.............. Management k.Executive Compensation........................ Management; Certain Transactions l.Security Ownership of Certain Beneficial Owners and Management...................... Principal and Selling Stockholders m.Certain Relationships and Related Transactions............................... Certain Transactions 12.Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................................... Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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 22, 1996 3,750,000 SHARES BUSINESS@WEB, INC. COMMON STOCK (PAR VALUE $.001 PER SHARE) ----------- Of the 3,750,000 shares of Common Stock offered hereby, 3,000,000 shares are being sold by the Company and 750,000 shares are being sold by the Selling Stockholders. See "Principal and Selling Stockholders". The Company will not receive any of the proceeds from the sale of the shares being sold by the Selling Stockholders. Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price per share will be between $13.00 and $15.00. For factors to be considered in determining the initial public offering price, see "Underwriting". SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. Application has been made for quotation of the Common Stock on the Nasdaq National Market under the symbol "BATW". ----------- 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. -----------
PROCEEDS INITIAL PUBLIC UNDERWRITING TO PROCEEDS TO SELLING OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS -------------- ------------ ---------- ------------------- Per Share........... $ $ $ $ Total(3)............ $ $ $ $
- ----- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting". (2) Before deducting estimated expenses of $800,000 payable by the Company. (3) The Company has granted the Underwriters an option for 30 days to purchase up to an additional 562,500 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to Company will be $ , $ and $ , respectively. See "Underwriting". ----------- The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the shares will be ready for delivery in New York, New York, on or about , 1996, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. HAMBRECHT & QUIST ----------- The date of this Prospectus is , 1996. [Graphic entitled "Business@Web Multi-Tier Architecture" depicts a three dimensional rectangular platform angled from the upper left to bottom right of the page, divided into three segments. There is a small gap between each of the platform segments. The front edges of these segments are labeled, from right to left, "Data Access", "Functionality" and "Presentation". The left end of the platform ends in a low brick wall, labeled "Firewall." On the left side of the firewall is a cloud labeled "Internet". Beyond the "Internet" cloud are three personal computers, labeled "Distributor", "Partner" and "Customer". The screen of each computer says "Web Browser", and the top of each computer is labeled "B@W WebEngine Client". There are arrows from each computer to the "Firewall". On the "Presentation" platform segment there are two computers. One is labeled "B@W WebEngine Client", with the words "Web Browser" on its screen, and the other is labeled B@W WebEngine Client, with the words "Desktop Application" on its screen. There are arrows between the Firewall and each of these computers to the box on the "Functionality" platform segment. The "Functionality" segment is entirely occupied by a box labeled "B@W Distributed WebEngine Data Integration & Analysis". Attached to this box and extending across the gap and over a small portion of the "Data Access" segment is a rectangular box with four cylinders extending farther out over the "Data Access" segment labeled B@W OpenExtension". Placed on the "Data Access" segment, in front of each of these cylinders, are four small rectangular boxes labeled (from back to front) "Legacy System", "Client/Server System", "Database" and "Emerging Technologies". There is an arrow from each of the "OpenExtension" cylinders to the box directly in front of it. Behind the "Presentation" segment is the label "Intranet"; behind the "Functionality" segment is the label "Enterprise"; and behind the "Data Access" segment is the label "Current IT System."] The Company's OpenScape products allow organizations to Web-enable business applications through use of a distributed component, multi-tier client/server architecture, where presentation, functionality and data access layers are developed and deployed independently of each other. OpenScape products provide the high-volume and real-time performance capabilities required by businesses through the utilization of standard Internet protocols, component-based, object-oriented technology, a scalable, multi-tier architecture and an intuitive point-and click development environment. The Company believes that its products will enable organizations to achieve significant competitive advantages by increasing responsiveness to changing business conditions, and exploiting the low cost, flexibility and ease-of-use of Internet technologies. --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. --------------------- "Business@Web" and all of the Company's logos and product names are trademarks of the Company and are used throughout this document as such. This prospectus also contains trademarks of other companies. [Graphic entitled "Business@Web Solution" depicts a map of the United States, with images of buildings labeled as "Company Headquarters", "Company Sales Office", Company Manufacturing Plant", "Company Distribution Center", "Company R&D Center" and "Company Southeast Regional Office", placed at various locations around the map, and encircled by arrows labeled "intranet" in two places. Another arrow leads from "Company Headquarters" to "Company Sales Office". Another arrow leads from "Company Headquarters" to a brick wall labeled "Firewall" located in the upper left quarter of the graphic. Beyond the "Firewall" there is a cloud labeled "Internet". Beyond the cloud farther to the left and top of the picture, there are nine buildings, arranged in three lines of three buildings each, with each building in the first line labeled "Distributors", in the second line labeled "Business Partners" and in the third line labeled "Customers". There are arrows leading from each of the buildings which is first in each line into the "Internet" cloud.] Business@Web, Inc. is a provider of "Web-enabled" software for the development and deployment of mission-critical business applications across an organization's disparate information technology ("IT") systems and the extension of those applications to Intranets and the Internet. The Company's OpenScape products enable organizations to extend their current IT capabilities to conduct new, dynamic and interactive communications and transactions with key audiences in their extended enterprise, including customers, suppliers, distributors and business partners. PROSPECTUS SUMMARY The following summary should be read in conjunction with, and qualified in its entirety by, the more detailed information and the Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Except as otherwise noted, all information contained in this Prospectus, including share and per share information, (i) assumes no exercise of the Underwriters' over-allotment option, (ii) reflects the conversion upon the consummation of this offering of all outstanding shares of the Company's Series B Redeemable Convertible Preferred Stock ("Series B Preferred Stock") and Series C Convertible Preferred Stock ("Series C Preferred Stock") into 1,775,194 shares of Common Stock, and (iii) reflects a two-for-three reverse stock split of the Company's Common Stock to be effected in May 1996. THE COMPANY Business@Web, Inc. ("Business@Web" or the "Company") is a provider of "Web- enabled" software for the development and deployment of mission-critical business applications across an organization's disparate information technology ("IT") systems and the extension of those applications to Intranets and the Internet. The Company's OpenScape products enable organizations to extend their current IT capabilities to conduct new, dynamic and interactive communication and transactions with key audiences in their "extended enterprise", including customers, suppliers, distributors and business partners. OpenScape products provide the high-volume and real-time performance capabilities required by businesses through the utilization of standard Internet protocols, component- based, object-oriented technology, a scaleable, multi-tier architecture and an intuitive point-and-click development environment. The Company believes that its products will enable organizations to achieve significant competitive advantages by increasing responsiveness to changing business conditions, and exploiting the low cost, flexibility and ease-of-use of Internet technologies. In response to increased competitive pressures, businesses have engaged in the reengineering of critical business processes in an attempt to realize productivity and efficiency gains. A critical enabler of these reengineering efforts has been the strategic use of information technology, such as legacy and client/server systems. To date, the development and deployment of effective enterprise-wide business applications have been limited by the proliferation of multiple IT systems. The recent emergence of the World Wide Web and Internet technologies offers businesses the opportunity to significantly improve collaboration and communication both within the enterprise and with the extended enterprise. Accordingly, organizations are increasingly seeking a cost-effective IT solution which maximizes the value of their existing IT infrastructure, while simultaneously capturing the strategic business benefits of the Internet. Organizations are able to address this need through the use of the Company's OpenScape development environment and its Distributed WebEngine, WebEngine Client and OpenExtension products. The Company's objective is to be a leading provider of software which supports the development and deployment of Web-enabled business applications. The Company intends to integrate emerging technologies in future OpenScape product releases and to continually introduce additional OpenExtensions, specific preconfigured add-on products which enable communications with proprietary environments. The Company also intends to develop multiple distribution channels, focusing primarily on the Company's direct sales force, and its strategic relationships with leading technology companies including BBN, Baan, Deloitte & Touche/ICS, Hewlett-Packard, Informix, NEC, PeopleSoft and SAP. The Company was incorporated in Delaware in January 1994. The Company's executive offices are located at One Arsenal Marketplace, Watertown, MA 02172 and its telephone number is (617) 923-6500. THE OFFERING Common Stock offered by the Company....... 3,000,000 shares Common Stock offered by the Selling Stock- holders....... 750,000 shares Common Stock to be outstanding after the of- fering........ 14,844,890 shares(1) Proposed Nasdaq National Mar- ket symbol.... BATW Use of pro- For working capital, ceeds......... repayment of debt and other general corporate purposes, including possible acquisitions.
3 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
JANUARY 19, 1994 (INCEPTION) TO YEAR ENDED THREE MONTHS DECEMBER 31, 1994 DECEMBER 31, 1995 ENDED MARCH 31, ----------------- ----------------- ---------------- 1995 1996 ------- -------- STATEMENT OF OPERATIONS DATA: Total revenues.......... $ -- $6,070 $ 416 $ 2,381 Gross profit............ -- 2,669 222 1,118 Operating loss.......... (1,180) (2,621) (290) (8,497) Net loss................ (1,180) (2,698) (290) (8,515) Pro forma net loss per common and common equivalent share(2).... $(.21) $ (.65) Pro forma weighted average number of common and common equivalent shares outstanding(2)......... 12,871 13,141
MARCH 31, 1996 ------------------------------------ PRO FORMA AS ACTUAL PRO FORMA(3) ADJUSTED(3)(4) ------- ----------- -------------- BALANCE SHEET DATA: Cash and cash equivalents.................. $ 4,822 $ 4,792 $43,052 Working capital (deficit).................. (925) (955) 37,305 Total assets............................... 8,939 8,909 47,169 Redeemable preferred stock................. 7,380 -- -- Stockholders' equity (deficit)............. (6,933) 417 38,677
- -------- (1) Based upon the number of shares of Common Stock outstanding as of May 1, 1996 after giving effect to the conversion of all outstanding shares of Series C Preferred Stock into 799,994 shares of Common Stock and all outstanding shares of Series B Preferred Stock into 975,200 shares of Common Stock, in each case upon the consummation of this offering and, with respect to the Series B Preferred Stock, assuming an initial public offering price of $14.00 per share. If the initial public offering price varies from $14.00 per share, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock is subject to adjustment from a maximum of 1,103,137 shares of Common Stock (in the event that the initial public offering price is $12.375 per share or less) to a minimum of 888,085 shares of Common Stock (in the event that the initial public offering price is $15.375 per share or greater). Excludes (i) 3,500,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans, under which options for the purchase of an aggregate of 2,404,133 shares were outstanding as of May 1, 1996, (ii) 150,000 shares of Common Stock reserved for issuance pursuant to the Company's Employee Stock Purchase Plan and (iii) 23,333 shares of Common Stock that may be issued upon the exercise of an outstanding Common Stock purchase warrant. See "Management--Stock Plans", "Description of Capital Stock--Authorized and Outstanding Capital Stock", "--Employee Stock Purchase Plan" and "-- Warrant" and Note 6 of Notes to Financial Statements. (2) See Note 1(k) of Notes to Financial Statements for an explanation of the determination of the number of shares used in computing pro forma net loss per common and common equivalent share. (3) Presented on a pro forma basis to give effect to (i) the sale subsequent to March 31, 1996 of 1,200,000 shares of Series C Preferred Stock and the receipt of $5,970,000 in net proceeds therefrom, (ii) the repurchase and retirement subsequent to March 31, 1996 of 800,000 shares of Common Stock for $6,000,000 and (iii) the automatic conversion of all outstanding shares of Series B Preferred Stock and Series C Preferred Stock into 1,775,194 shares of Common Stock upon the consummation of this offering. See "Description of Capital Stock--Authorized and Outstanding Capital Stock". (4) Adjusted to give effect to the sale of 3,000,000 shares of Common Stock offered by the Company at an assumed public offering price of $14.00 per share, after deduction of the estimated underwriting discount and estimated offering expenses payable by the Company. 4 RISK FACTORS This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements as a result of certain of the risk factors set forth below and elsewhere in this Prospectus. In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Common Stock offered by this Prospectus. LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT The Company was founded in January 1994 and introduced its first OpenScape products on a commercial basis in late December 1995. Most of the Company's revenues to date have been attributable to consulting and education services. Accordingly, the Company has only a limited operating history upon which an evaluation of the Company and its products and prospects can be based. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. To address these risks, the Company must, among other things, respond to competitive developments, continue to attract, retain and motivate qualified management and other employees, continue to upgrade its technologies and commercialize products and services which incorporate such technologies and achieve market acceptance for its OpenScape products. There can be no assurance that the Company will be successful in addressing such risks. The Company has incurred net losses since inception and expects to continue to operate at a loss for the foreseeable future. As of March 31, 1996, the Company had an accumulated deficit of approximately $12,400,000. There can be no assurance that the Company will achieve or sustain profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS The Company may experience significant fluctuations in future quarterly operating results that may be caused by many factors, including demand for the Company's products, introduction, enhancement or announcement of products by the Company and its competitors, market acceptance of new products, size and timing of significant orders, budgeting cycles of its customers, mix of distribution channels, mix of products and services sold, mix of international and North American revenues, changes in the level of operating expenses, changes in the Company's sales incentive plans, customer order deferrals in anticipation of enhancements or new products offered or announced by the Company or its competitors, and general economic conditions. The Company believes that a significant portion of its revenues may be derived from a limited number of large orders, and the timing of such orders and their fulfillment can be expected to cause material fluctuations in the Company's operating results, particularly on a quarterly basis. In addition, the Company intends to continue to expand its direct sales force. The timing of such expansion and the rate at which new salespeople become productive could also cause material fluctuations in the Company's quarterly financial condition and operating results. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In addition, it is typical for software companies to recognize a substantial portion of their revenues during the last few weeks of each quarter; therefore, any delays in orders or shipments are likely to result in revenues not being recognized until the following quarter. The Company's current expense levels are based in part on its expectations of future revenues and, as a result, net income for a given period could be disproportionately affected by any reduction in revenues. There can be no assurance that the Company will be able to achieve significant revenues, that the level of revenues in the future will not decrease from past levels or that in some future quarter the Company's revenues or operating results will not be below the expectations of stock market securities analysts and investors. In such event, the 5 Company's profitability and price of its Common Stock could be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". RECENT INTRODUCTION OF OPENSCAPE PRODUCTS; PLANNED NEW RELEASES The Company introduced its first OpenScape products in late December 1995. Sales of OpenScape products accounted for $488,000, or 20% of total revenues, in the three months ended March 31, 1996. The Company's future success will depend in large part on the Company's ability to increase sales of the OpenScape product line which, in turn, will depend in part on the successful development, introduction and market acceptance of new releases of OpenScape products. To date, only a limited number of the Company's customers have developed and deployed Internet applications using the Company's software. In June 1996, the Company plans to introduce Version 2.0 of its OpenScape product, which is expected to provide additional capabilities for the effective development of Internet applications. The Company anticipates that its future revenues will depend to a significant degree on the successful introduction and market acceptance of its OpenScape Version 2.0. In addition, the Company's future success will depend on its ability to develop new OpenExtensions that enable applications developed with the Company's products to integrate with various back-end systems, applications and databases from vendors such as Baan, Informix, PeopleSoft and SAP. There can be no assurance that any of the Company's planned products will be successfully introduced or will achieve market acceptance, and such failure to do so could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S PRODUCTS The market for the Company's software and services has only recently begun to develop, is rapidly evolving and is characterized by an increasing number of market entrants who have introduced, developed or announced products and services for communication, collaboration and commerce over Intranets and the Internet. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. The industry is evolving and has few proven products. While the Company believes that its software products offer significant advantages for communication, collaboration and commerce over Intranets and the Internet, there can be no assurance that the market for the Company's products and services will develop, that the Company's products and services will achieve market acceptance, or that Intranets, the Internet and related technologies will achieve widespread acceptance by businesses. If the market for the Company's software and services fails to develop, develops more slowly than expected or becomes saturated with competitors, or if the Company's products do not achieve market acceptance, the Company's business, prospects, financial condition and results of operations will be materially adversely affected. DEPENDENCE ON THE INTERNET Sales of the Company's products will depend to a significant degree upon development of robust demand for, and the infrastructure necessary to support, commercial Internet access and traffic. The Internet may not prove to be a viable commercial marketplace because of inadequate development of the necessary infrastructure, such as a reliable network backbone or timely development of complementary products, such as high speed modems. Because communication, collaboration and commerce over Intranets and the Internet is new and evolving, it is difficult to predict with any certainty whether the infrastructure or complementary products necessary to make such applications commercially viable will develop or, if developed, that there will be sufficient commercial demand for the use of Intranets and the Internet. In addition, critical issues concerning the commercial use of the Internet, including security, reliability, cost, ease-of-use, access, and quality of service, remain 6 unresolved and may impact the growth of such use by businesses. Moreover, the adoption of Intranets and the Internet for communications, collaboration and commerce may be slowed as a result of enterprises that have already invested substantial resources in other IT systems being particularly reluctant or slow to adopt a new strategy or technology. If the infrastructure or complementary products necessary for widespread business use of Intranets and the Internet are not developed, or if Intranets or the Internet does not otherwise become commercially viable, the Company's business, prospects, financial condition and results of operations will be materially adversely affected. COMPETITION The market for Internet-based software and services is new, intensely competitive and subject to rapid technological change. The Company expects competition to persist and intensify in the future. Almost all of the Company's current and potential competitors have significantly greater financial, technical and marketing resources than the Company. The Company's competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources than the Company to the development, promotion and sale of their products. Also, many current and potential competitors have greater name recognition and more extensive customer bases that could be leveraged to gain market share to the Company's detriment. The Company expects to face additional competition as other established and emerging companies enter the market for Internet-based solutions and new products and technologies are introduced. Increased competition could result in price reductions, fewer customer orders, reduced profitability and loss of market share, any of which could materially adversely affect the Company's business, prospects, financial condition and results of operations. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing their ability to deliver products which address the needs of the Company's prospective customers. Current and potential competitors may also be more successful than the Company in having their products or technologies widely accepted. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. Such competition could materially adversely affect the Company's ability to obtain and retain market acceptance for its products and services. There can be no assurance that the Company will be able to compete successfully against current and future competitors, and the failure to do so could have a material adverse effect upon the Company's business, prospects, financial condition and results of operations. See "Business-- Competition". NEW PRODUCT DEVELOPMENT A substantial portion of the Company's future revenues is expected to be derived from the license of its OpenScape software and the sale of related services. Accordingly, broad acceptance of the Company's software products and services by customers is critical to the Company's future success, as is the Company's ability to design, develop, test and support new software products and enhancements on a timely basis that meet changing customer needs and respond to technological developments and emerging industry standards. There can be no assurance that the Company will be successful in developing and marketing new software products and enhancements that meet changing customer needs and respond to such technological changes or evolving industry standards. In addition, there can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of new products and enhancements, or that its new products and enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. If any of the Company's future enhancements or products experience delays in release dates, or if they fail to achieve market acceptance, the Company's business, prospects, financial condition and results of operations could be materially adversely affected. In addition, the introduction or announcement of new product offerings or 7 enhancements by the Company or the Company's competitors may cause customers to defer or forgo purchases of current versions of the Company's products which could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business-- Products" and "--Research and Development". RISK OF SOFTWARE DEFECTS Software products as internally complex as the Company's products frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. The Company plans to introduce Version 2.0 of OpenScape in June 1996. There can be no assurance that, despite testing by the Company, defects and errors will not be found in the Company's current products, OpenScape Version 2.0, or future products and enhancements, resulting in loss of revenues or delay in market acceptance, which in turn could have a material adverse effect upon the Company's business, prospects, financial condition and results of operations. See "Business--Research and Development". RELIANCE ON STRATEGIC RELATIONSHIPS A key element of the Company's business strategy is to develop relationships with leading industry organizations in order to increase the Company's market presence, expand distribution channels and broaden the Company's product line. The Company believes that its continued success depends in large part on its ability to develop and maintain such relationships. Many of the Company's strategic relationships are informal and non-exclusive, and do not require the other party to sell the Company's products or expend resources toward the promotion of the Company's products. In addition, these relationships generally can be terminated by either party at any time. There can be no assurance that the Company's existing or future strategic partners will not develop and market products in direct competition with the Company or otherwise discontinue their relationships with the Company, or that the Company will be able to successfully develop additional strategic relationships. The failure of the Company's strategic partners to augment the sales of the Company's products could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business--Strategic Alliances". MANAGEMENT OF GROWTH The rapid execution necessary for the Company to fully exploit the market window for its products and services requires an effective planning and management process. The Company's rapid growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. The senior members of the Company's management, including Klaus P. Besier, the Company's Chairman of the Board, President and Chief Executive Officer, John Burke, the Company's Vice President of Sales, Carolyn LoGalbo, the Company's Vice President of Marketing, and Joseph Grattadauria, the Company's Vice President of Support Services and Quality, have joined the Company during 1996. In addition, most of the Company's development and engineering staff was only recently hired. To manage its growth, the Company must continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The Company's future operating results will also depend on its ability to expand its sales and marketing organizations, implement and manage new distribution channels, penetrate different and broader markets, and grow its services and support organizations commensurate with the increasing base of its installed products. Further strain could also be placed on the Company's resources should the Company choose to make acquisitions of complementary businesses, products or technologies. If the Company is unable to plan and manage its growth effectively, the Company's business, prospects, financial condition and results of operations could be materially adversely affected. See "Business--Research and Development" and "-- Employees". 8 DEPENDENCE ON KEY PERSONNEL The Company's performance is substantially dependent on the performance of its executive officers and key employees, most of whom have worked together for only a short period of time. Given the Company's early stage of development, the Company is dependent on its ability to retain and motivate high quality personnel, especially its management and highly skilled development teams. The loss of the services of Klaus P. Besier, the Company's Chairman of the Board, President and Chief Executive Officer, or any of its executive officers or other key employees could have a material adverse effect on the Company. The Company's future success also depends on its continuing ability to identify, hire, train and retain other highly qualified technical and managerial personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The inability to attract and retain the necessary technical and managerial personnel could have a material adverse effect upon the Company's business, prospects, financial condition and results of operations. See "Business--Employees" and "Management". EVOLVING DISTRIBUTION STRATEGY The Company's distribution strategy includes leveraging its strategic relationships and expanding its direct sales force. The Company has received limited commitments to assist in the marketing and sale of its products from the organizations with which it has established strategic relationships, but there can be no assurance that any such commitments will lead to sales of such products. The Company plans to expand its direct sales and support organization to pursue prospects generated through its strategic relationships and marketing initiatives. There can be no assurance that such internal expansion will be successfully completed, that the cost of such expansion will not exceed the revenues generated, or that the Company's sales and marketing organization will be able to successfully compete against the significantly more extensive and well-funded sales and marketing operations of many of the Company's current or potential competitors. The Company's inability to effectively manage its internal expansion could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. The Company also expects to augment its direct sales efforts by adding value-added resellers ("VARs") and independent software vendors ("ISVs"). The Company expects that any material increase in sales through VARs and ISVs as a percentage of total revenues, especially in the percentage of sales through VARs, will adversely affect the Company's average selling prices and gross margins due to the lower unit prices that are typically received by the vendor when selling through indirect channels. Agreements with VARs and ISVs typically do not restrict VARs and ISVs from distributing competing products, and in many cases may be terminated by either party without cause. The Company's inability to recruit, manage or retain qualified VARs and ISVs, or their inability to penetrate their respective market segments, could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business--Sales and Marketing". PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY The Company's success and ability to compete is dependent in part upon its proprietary technology. While the Company relies on a combination of trademark, copyright and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect its technology, the Company believes that factors such as the skills of its development personnel are more essential to establishing and maintaining a technology leadership position. The Company presently has no patents or patent applications pending. There can be no assurance that competitors will not develop technologies that are similar or superior to the Company's technology. The Company generally enters into confidentiality or license agreements with its employees and consultants, and generally controls access to and distribution of its source code and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's products or technology without authorization, or to develop similar technology independently. In 9 addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries, and the global nature of the Internet makes it virtually impossible to control the ultimate destination of the Company's products. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult. There can be no assurance that the steps taken by the Company will prevent misappropriation of its technology or that such agreements will be enforceable. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. DEPENDENCE ON THIRD-PARTY TECHNOLOGY Certain of the Company's products contain software that is licensed to the Company by third parties. There can be no assurance that these third-party software licenses will continue to be available to the Company on commercially reasonable terms. For example, certain technology incorporated in the Company's software, including InterGroup Technologies, Inc.'s VisualWare for Windows and Mystic River Software, Inc.'s Softbridge Basic Language, is licensed from third parties on a nonexclusive basis. The termination of any of such licenses, or the failure of the third-party licensors to adequately maintain or update their products, could result in significant delay in the Company's ability to ship certain of its products while it seeks to implement technology offered by alternative sources. In addition, any required replacement licenses could prove more costly than the Company's current license relationships and might not provide technology as powerful and functional as the third-party technology currently licensed by the Company. Also, any such delay could have a material adverse effect on the Company's results of operations for that quarter. While it may be necessary or desirable in the future to obtain other licenses relating to one or more of the Company's products or relating to current or future technologies, there can be no assurance that the Company will be able to do so on commercially reasonable terms or at all. The loss of, or inability to maintain, any such software could result in shipment delays or reductions until equivalent software could be developed, identified, licensed and integrated which could materially adversely affect the Company's business, prospects, financial condition and results of operations. See "Business--Strategic Alliances" and "--Proprietary Rights". PRODUCT LIABILITY The Company markets its products and services to customers for the development, deployment and management of critical business applications. The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. The Company may not, however, always be able to obtain adequate contractual limitations on liability from its customers and end users and, in any event, such provisions may not be effective as a result of existing or future federal, state or local laws or ordinances or unfavorable judicial decisions. Although the Company has not experienced any material product liability claims to date, the sale and support of the Company's products may entail the risk of such claims, which could be significant. A successful product liability claim brought against the Company could have a material adverse effect upon the Company's business, prospects, financial condition and results of operations. RISKS ASSOCIATED WITH GLOBAL OPERATIONS Since its inception, the Company has derived less than 17% of its total revenues in each year from sales to customers outside of the United States. The Company intends to expand its operations outside of the United States and enter additional international markets, which will require significant 10 management attention and financial resources. The Company's ability to expand the acceptance and use of its core technologies internationally is limited by the general acceptance of the Internet and Intranets in other countries. The Company expects to commit additional time and development resources to customizing its products for selected international markets and developing international sales and support channels. There can be no assurance that such efforts will be successful. In addition, as the Company increases its international sales, its total revenues may also be affected to a greater extent by seasonal fluctuations resulting from lower sales that typically occur during the summer months in Europe and other parts of the world. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition, the use of encryption technologies in the Company's products could subject such products to export and/or import restrictions. Any such export or import limitations could have a material adverse effect on the ability to sell the Company's products outside the United States. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES The Company is not currently subject to direct regulation by any governmental agency, other than regulations applicable to business generally, and there are currently few laws or regulations directly applicable to access to or commerce on the Internet. Due to the increasing popularity and use of the Internet, however, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing and characteristics and quality of products and services. The adoption of any such laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for the Company's products and increase the Company's cost of doing business or otherwise have a material adverse effect on the Company's business, prospects, financial condition and results of operations. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain. CONCENTRATION OF STOCK OWNERSHIP Upon completion of this offering, the present directors, executive officers, holders of 5% or more of the Common Stock, and their respective affiliates will beneficially own approximately 66% of the outstanding Common Stock assuming no exercise of the Underwriters' over-allotment option and 63% of the outstanding Common Stock assuming full exercise of the Underwriters' over- allotment option. As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of the Company. See "Principal and Selling Stockholders" and "Description of Capital Stock--Delaware Law and Certain Charter Provisions". NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or be sustained after the offering. The initial offering price was determined by negotiation between the Company and the Underwriters based upon several factors. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The market price of the Company's Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, changes in financial estimates by securities analysts, or other events or factors. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies and that have been unrelated to the operating performance of such companies. In the past, following periods of volatility in the market price of a company's securities, securities class 11 action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, prospects, financial condition and results of operations. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. See "Underwriting". SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market following this offering could adversely affect the market price for the Common Stock. See "Description of Capital Stock" and "Shares Eligible for Future Sale". EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF RESTATED CERTIFICATE OF INCORPORATION, RESTATED BY-LAWS AND DELAWARE LAW The Board of Directors has the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the 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 any Preferred Stock that may be issued in the future. 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 a majority of the outstanding voting stock of the Company. The Company has no present plans to issue shares of Preferred Stock. Further, certain provisions of the Company's Restated Certificate of Incorporation, including provisions that create a classified board of directors, and of the Company's Restated By-laws and of Delaware law could delay or make difficult a merger, tender offer or proxy contest involving the Company. See "Management--Executive Officers and Directors", "Description of Capital Stock--Preferred Stock" and "--Delaware Law and Certain Charter Provisions". DILUTION Investors in this offering will incur immediate, substantial dilution. To the extent outstanding options to purchase the Company's Common Stock are exercised, there will be further dilution. See "Dilution". 12 USE OF PROCEEDS The net proceeds to the Company from the sale of the 3,000,000 shares of Common Stock being offered by the Company in this offering are estimated to be $38,260,000 ($45,583,750 if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $14.00, and after the deduction of the estimated underwriting discount and estimated offering expenses payable by the Company. The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders". The principal purposes of this offering are to increase the Company's equity capital, to create a public market for the Company's Common Stock, to facilitate future access by the Company to public equity markets, to provide liquidity to existing stockholders, to provide increased visibility and credibility in a marketplace where many of its current and potential competitors are or will be publicly held companies, and to enhance the ability of the Company to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees. The Company intends to use a portion of the net proceeds for the repayment of a $2,000,000 principal amount term loan from State Street Bank and Trust Company which matures in September 1996. The term loan bears interest at the bank's prime rate plus 1% and the proceeds thereof were used to fund the license fees due under a certain source code license agreement. The remainder of the net proceeds will be used for working capital and other general corporate purposes. The amount actually expended by the Company for working capital purposes will vary significantly depending upon a number of factors, including future revenue growth, the amount of cash generated by the Company's operations and the progress of the Company's product development efforts. The Company may also use a portion of the net proceeds to fund possible acquisitions of, or investments in, businesses, products and technologies that are complementary to those of the Company. The Company has no specific agreements, commitments or understandings with respect to any such acquisitions or investments. Pending such uses, the Company intends to invest the net proceeds of this offering in investment-grade, interest bearing instruments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". DIVIDEND POLICY The Company has never declared or paid cash dividends on its Common Stock. The Company currently intends to retain all of its earnings to finance future growth and therefore does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company is prohibited by its term loan agreement from paying cash dividends. 13 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996: (i) on an actual basis, (ii) on a pro forma basis as described in Note 2 below and (iii) on a pro forma basis, as adjusted to give effect to the sale of 3,000,000 shares of Common Stock offered by the Company at an assumed initial public offering price of $14.00 per share. See "Use of Proceeds". The capitalization information set forth in the table below is qualified by the more detailed Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
MARCH 31, 1996(1) ---------------------------------- PRO PRO FORMA ACTUAL FORMA(2) AS ADJUSTED(2) -------- -------- -------------- (IN THOUSANDS) Short-term debt............................. $ 2,000 $ 2,000 $ 2,000 ======== ======== ======== Series B Redeemable Convertible Preferred Stock, $1.00 par value; 1,332,127 shares authorized, issued or outstanding (actual); no shares authorized, issued or outstanding (pro forma and pro forma as adjusted)...... 7,380 -- -- Stockholders' equity (deficit)(3): Series C Convertible Preferred Stock, $1.00 par value; 1,220,000 shares authorized, no shares issued or outstanding (actual); no shares authorized, issued or outstanding (pro forma and pro forma as adjusted)...... -- -- -- Preferred Stock, $1.00 par value; 447,873 shares authorized, no shares issued or outstanding (actual); 5,000,000 shares authorized, no shares issued or outstanding (pro forma and pro forma as adjusted)...... -- -- -- Common Stock, $.001 par value; 30,000,000 shares authorized, 10,803,030 shares issued and outstanding (actual); 50,000,000 shares authorized, 11,778,224 and 14,778,224 shares issued and outstanding (pro forma and pro forma as adjusted)(3).............. 11 12 15 Additional paid-in capital.................. 8,145 15,494 53,751 Note receivable from executive officer...... (2,560) (2,560) (2,560) Deferred compensation....................... (135) (135) (135) Accumulated deficit......................... (12,394) (12,394) (12,394) -------- -------- -------- Total stockholders' equity (deficit)........ (6,933) 417 38,677 -------- -------- -------- Total capitalization........................ $ 447 $ 417 $ 38,677 ======== ======== ========
- -------- (1) The Company's Board of Directors and stockholders have approved the amendment and restatement of the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock and Preferred Stock to 50,000,000 and 5,000,000 shares, respectively. See "Description of Capital Stock" and Note 6 of Notes to Financial Statements. (2) Presented on a pro forma basis to give effect to (i) the sale subsequent to March 31, 1996 of 1,200,000 shares of Series C Preferred Stock and the receipt of $5,970,000 in net proceeds therefrom, (ii) the repurchase and retirement subsequent to March 31, 1996 of 800,000 shares of Common Stock for $6,000,000 and (iii) the automatic conversion of all outstanding shares of Series C Preferred Stock into 799,994 shares of Common Stock and all outstanding shares of Series B Preferred Stock into 975,200 shares of Common Stock, in each case upon the consummation of this offering and, with respect to the Series B Preferred Stock, assuming an initial public offering price of $14.00 per share. If the initial public offering price varies from $14.00 per share, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock is subject to adjustment from a maximum of 1,103,137 shares of Common Stock (in the event that the initial public offering price is $12.375 per share or less) to a minimum of 888,085 shares of Common Stock (in the event that the initial public offering price is $15.375 per share or greater). See "Description of Capital Stock--Authorized and Outstanding Capital Stock" and "Statement of Redeemable Convertible Stock and Stockholders' Equity (Deficit)" contained on page F-5 of the Financial Statements. (3) Excludes (i) 3,500,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plans, under which options for the purchase of an aggregate of 2,404,133 shares were outstanding as of May 1, 1996, (ii) 150,000 shares of Common Stock reserved for issuance pursuant to the Company's Employee Stock Purchase Plan and (iii) 23,333 shares of Common Stock that may be issued upon the conversion of an outstanding common stock warrant. See "Management--Stock Plans" and "--Employee Stock Purchase Plan", "Description of Capital Stock--Warrant" and Note 6 of Notes to Financial Statements. 14 DILUTION As of March 31, 1996, the Company had a pro forma net tangible book value of approximately $417,000 or $.04 per share of Common Stock. Pro forma net tangible book value per share represents the Company's total tangible assets less its total liabilities, divided by the aggregate pro forma number of shares of Common Stock outstanding (after giving effect to the conversion of the outstanding shares of Series C Stock and Series B Preferred Stock into 1,775,194 shares of Common Stock as described in Note 1 below, and the repurchase of 800,000 shares of Common Stock by the Company). After giving effect to the sale of the 3,000,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $14.00 per share and after deducting the estimated underwriting discount and estimated offering expenses payable by the Company, the pro forma net tangible book value at March 31, 1996 would have been approximately $38,677,000 or $2.62 per share of Common Stock. This represents an immediate increase in pro forma net tangible book value per share of $2.58 to existing stockholders and an immediate dilution of $11.38 per share to the investors purchasing the shares of Common Stock offered hereby. The following table illustrates such dilution per share: Assumed initial public offering price per share............... $14.00 Pro forma net tangible book value per share as of March 31, 1996........................................................ $ .04 Increase per share attributable to this offering............. 2.58 Pro forma net tangible book value per share after this offer- ing.......................................................... 2.62 ------ Dilution per share to new investors........................... $11.38 ======
The following table summarizes, on a pro forma basis as of March 31, 1996, the total number of shares of Common Stock purchased from the Company, the total consideration paid, and the average price per share paid, by existing stockholders and by new investors, based (for new investors) upon an assumed initial public offering price of $14.00 per share (before deducting the estimated underwriting discount and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockhold- ers(2)(3) 11,778,224 79.7% $14,440,784 25.6% $ 1.23 New investors(3)........ 3,000,000 20.3 42,000,000 74.4 14.00 ---------- ----- ----------- ----- Total................... 14,778,224 100.0% $56,440,784 100.0% ========== ===== =========== =====
- -------- (1) All outstanding shares of Series C Preferred Stock convert into 799,994 shares of Common Stock and all outstanding shares of Series B Preferred Stock convert into 975,200 shares of Common Stock, in each case upon the consummation of this offering and, with respect to the Series B Preferred Stock, assuming an initial public offering of $14.00 per share. If the initial public offering price varies from $14.00 per share, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock is subject to adjustment from a maximum of 1,103,137 shares of Common Stock (in the event that the initial public offering price is $12.375 per share or less) to a minimum of 888,085 shares of Common Stock (in the event that the initial public offering price is $15.375 per share or greater). See "Description of Capital Stock--Authorized and Outstanding Capital Stock". (2) Does not includes an aggregate of 3,673,333 shares reserved for issuance under the Company's stock option plans, the Company's Employee Stock Purchase Plan and upon exercise of an outstanding Common Stock warrant. See "Management--Stock Plans" and "Description of Capital Stock--Warrant". (3) Sales by the Selling Stockholders in this offering will reduce the number of shares held by existing stockholders to 11,028,224, or 74.6% (71.9% if the over-allotment option is exercised in full) of the total shares outstanding after this offering, and will increase the number of shares held by new investors to 3,750,000, or 25.4% of the total number of shares of Common Stock outstanding after this offering (4,312,500 or 28.1% of the total number of shares of Common Stock after this offering if the over- allotment option is exercised in full). 15 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements of the Company, including the Notes thereto, included elsewhere in this Prospectus. The statement of operations data set forth below for the period from inception (January 19, 1994) to December 31, 1994, and for the fiscal year ended December 31, 1995 and the balance sheet data as of December 31, 1994 and 1995 are derived from the Company's audited financial statements which have been audited by Arthur Andersen LLP, independent public accountants, and which are included elsewhere in this Prospectus. The statement of operations data for the three months ended March 31, 1995 and 1996 and the balance sheet data as of March 31, 1996 are derived from unaudited financial statements of the Company and include, in the opinion of the Company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's results of operations for those periods. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the year ending December 31, 1996. The historical results are not necessarily indicative of the results of operations to be expected in the future.
JANUARY 19, 1994 THREE MONTHS ENDED (INCEPTION) TO YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, ------------------- 1994 1995 1995 1996 ---------------- ------------ --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Software license and main- tenance................... $ -- $ 2,151 $ 43 $ 710 Consulting and education services.................. -- 3,919 373 1,671 ------- ------- ------- ------- Total revenues........... -- 6,070 416 2,381 Cost of Revenues: Software license and main- tenance................... -- 717 22 289 Consulting and education services.................. -- 2,684 172 974 ------- ------- ------- ------- Total cost of revenues... -- 3,401 194 1,263 Gross profit............. -- 2,669 222 1,118 Operating Expenses: Selling, general and admin- istrative................. 286 2,108 337 1,701 Research and development... 894 3,182 175 399 Compensation to executive officer................... -- -- -- 7,515 ------- ------- ------- ------- Total operating ex- penses.................. 1,180 5,290 512 9,615 ------- ------- ------- ------- Operating loss........... (1,180) (2,621) (290) (8,497) Interest Expense, net........ -- (77) -- (18) ------- ------- ------- ------- Net loss................. $(1,180) $(2,698) $ (290) $(8,515) ======= ======= ======= ======= Pro forma net loss per common and common equivalent share(1).................... $ (.21) $ (.65) Pro forma weighted average number of common and common equivalent shares outstanding(1).............. 12,871 13,141 DECEMBER 31, PRO FORMA ----------------------------- MARCH 31, MARCH 31, 1994 1995 1996 1996(2) ---------------- ------------ --------- --------- BALANCE SHEET DATA: Cash and cash equivalents.... $ -- $ 105 $ 4,822 $ 4,792 Working capital (deficit).... (932) (1,967) (925) (955) Total assets................. 63 2,626 8,939 8,909 Redeemable convertible pre- ferred stock................ -- -- 7,380 -- Stockholders' equity (defi- cit)........................ (868) (2,804) (6,933) 417
- ------- (1) See Note 1(k) of Notes to Financial Statements for an explanation of the determination of the number of shares used in computing pro forma net loss per common and common equivalent share. (2) Presented on a pro forma basis to give effect to (i) the sale subsequent to March 31, 1996 of 1,200,000 shares of Series C Preferred Stock and the receipt of $5,970,000 in net proceeds therefrom, (ii) the repurchase and retirement subsequent to March 31, 1996 of 800,000 shares of Common Stock for $6,000,000 and (iii) the automatic conversion of all outstanding shares of Series C Convertible Preferred Stock into 799,994 shares of Common Stock and all outstanding shares of Series B Preferred Stock into 975,200 shares of Common Stock, in each case upon the consummation of this offering and, with respect to the Series B Preferred Stock, assuming an initial public offering price of $14.00 per share. If the initial public offering price varies from $14.00 per share, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock is subject to adjustment from a maximum of 1,103,137 shares of Common Stock (in the event that the initial public offering price is $12.375 per share or less) to a minimum of 888,085 shares of Common Stock (in the event that the initial public offering price is $15.375 per share or greater). See "Description of Capital Stock--Authorized and Outstanding Capital Stock". 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company was incorporated in Delaware in January 1994 (under the name Object Power, Incorporated) and changed its name to Business@Web, Inc. in February 1996. In 1994, the Company focused on research and development and did not generate revenues. In 1995, the Company began generating revenues through the reselling of software licenses of a related party and associated maintenance and providing consulting and education services. These revenues contributed to the funding of increased research and development and the creation of market awareness for its OpenScape product line. The Company began shipping OpenScape products in late December 1995. Total revenues from the sale of OpenScape products in 1995 were $609,000, which included a sale to Hewlett-Packard of $490,000, or 80% of total 1995 OpenScape revenues. For the three months ended March 31, 1996, the Company generated total revenues of $2,381,000, of which $710,000, or 30%, were software license and maintenance revenues and $1,671,000, or 70%, were consulting and education services revenues. The OpenScape product line accounted for 69% of total software license and maintenance revenues for the three months ended March 31, 1996, with the remaining software license and maintenance revenues generated through reselling related party software licenses and maintenance. In June 1996, the Company plans to introduce Version 2.0 of its OpenScape product, which is expected to provide additional capabilities for the effective development of Internet applications. As a result, the Company anticipates that its future revenues will depend to a significant degree on successful introduction and market acceptance of OpenScape Version 2.0. In 1996, the Company intends to increase its research and development expenses and selling, general and administrative expenses. The Company's expected levels of research and development expenditures are based on a plan for current product enhancements and new product development. Selling and marketing expenses are expected to increase significantly as a result of continued expansion of distribution channels, strategic relationships, headcount, and marketing programs. Increases in general and administrative expenses are planned as the Company expands its executive management, finance and administration support, information systems and other administrative functions required to support the Company's operations. The Company has a limited operating history upon which an evaluation of the Company and its prospects can be based. The Company and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets and technologies. To address these risks, the Company must, among other things, respond to competitive developments, continue to attract, retain and motivate qualified management and other employees, continue to upgrade its technologies and commercialize products and services which incorporate such technologies, and achieve market acceptance for its OpenScape products. There can be no assurance that the Company will be successful in addressing such risks. The Company has achieved only limited revenues to date and its ability to generate significant revenues is subject to substantial uncertainty. The limited operating history of the Company makes the prediction of future results of operations difficult or impossible, and therefore, there can be no assurance that the Company will sustain revenue growth or achieve profitability. The Company has incurred net losses since inception and expects to continue to incur losses on a quarterly and annual basis for the foreseeable future. Due to all of the foregoing factors, it is possible that in some future quarter, the Company's operating results may be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock may be materially adversely affected. RESULTS OF OPERATIONS The following table sets forth certain operational data as a percentage of total revenues for the year ended December 31, 1995 and the three months ended March 31, 1995 and 1996. The table does not set forth such operational data as a percentage of total revenues for the period from inception 17 to December 31, 1994, as the Company did not generate revenues in such period and therefore such information is not meaningful.
THREE MONTHS YEAR ENDED ENDED MARCH 31, DECEMBER 31, ------------------- 1995 1995 1996 ------------ ------- -------- Revenues: Software license and maintenance........... 35% 10% 30% Consulting and education services.......... 65 90 70 --- ------- -------- Total revenues........................... 100 100 100 Cost of Revenues: Software license and maintenance........... 12 5 12 Consulting and education services.......... 44 41 41 --- ------- -------- Total cost of revenues................... 56 47 53 Gross profit............................. 44 53 47 Operating Expenses: Selling, general and administrative........ 35 81 71 Research and development................... 52 42 17 Compensation to executive officer.......... -- -- 316 --- ------- -------- Total operating expenses................. 87 123 404 --- ------- -------- Operating loss........................... (43) (70) (357) Interest Expense, net........................ 1 -- 1 --- ------- -------- Net loss................................. (44)% (70)% (358)% === ======= ========
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1995 REVENUES. Total revenues increased $1,965,000 to $2,381,000, for the three months ended March 31, 1996 from $416,000 for the comparable quarter in 1995. The increase was due primarily to the introduction and expansion of the Company's product offerings, including consulting and education services, related party software licenses and the OpenScape product line. For the three months ended March 31, 1996, revenues consisted of 30% from software license and maintenance revenues and 70% from consulting and education services revenues compared with 10% and 90%, respectively, for the comparable period for the prior year. For the three months ended March 31, 1996, OpenScape software license and maintenance revenues were $488,000, representing 69% of software license and maintenance revenues and 20% of total revenues. For the three months ended March 31, 1995, the Company's software license and maintenance revenues consisted solely of sales of software licenses of a related party and associated maintenance. The Company has achieved only limited revenues from OpenScape products and there can be no assurance that the Company will sustain revenue growth or market acceptance for these or other products which it markets. COST OF REVENUES. Cost of software license and maintenance revenues consists of the cost of software and maintenance purchased for resale from a related party, distribution costs and support personnel costs. The cost of consulting and education services consists primarily of consulting and support personnel salaries, related costs and fees to third-party service providers. Total cost of revenues increased $1,069,000 to $1,263,000 for the three months ended March 31, 1996 from $194,000 for the comparable prior period. Total cost of revenues as a percentage of total revenues was 47% and 53% for the three months ended March 31, 1995 and 1996, respectively. The cost of revenues as a percentage of associated software license and maintenance revenues for the three months ended March 31, 1996 and 1995 were 41% and 52%, respectively. The cost of software license and maintenance revenues as a percentage of associated revenues has decreased due to an increase in revenues derived from the sale of the Company's OpenScape products, which have a lower cost of revenues than the resale of related party software licenses and maintenance. The cost 18 of revenues as a percentage of associated consulting and education services revenues for the three months ended March 31, 1996 and 1995 were 58% and 46%, respectively. The cost of consulting and education services revenues increased as a percentage of associated revenues due to the greater costs associated with consulting services, which the Company commenced offering in the third quarter of 1995. Consulting service revenues generally have a higher cost of associated revenue as compared with education service revenues. The Company believes that cost of revenues comparisons are not meaningful or representative of future results. In future periods, cost of revenues may be affected by several factors, including distribution channels, price reductions, competition, increases in cost of revenues, changes in product mix and other factors. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses consist of payroll costs related to executive management, finance, administration, sales and marketing personnel, and costs for advertising, marketing and related administrative support. Selling, general and administrative expenses increased to $1,701,000 for the three months ended March 31, 1996 from $337,000 for the comparable prior period, representing 71% and 81% of total revenues, respectively. The total dollar increase reflects the Company's increased sales, marketing and distribution efforts through increased headcount and related staffing expenditures. The Company expects such total dollar increases to continue throughout 1996 and future periods. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses primarily consist of payroll-related costs, fees to independent contractors and purchases of technology. To date, the Company has expensed all software development costs as incurred. Research and development expenses increased to $399,000 for the three months ended March 31, 1996 from $175,000 for the comparable prior period, representing 17% and 42% of total revenues, respectively. The total dollar increase is attributable to increased headcount and related costs which reflect the Company's efforts to enhance the functionality of its products. The Company believes that it will be necessary to make continued significant expenditures on research and development to remain competitive. COMPENSATION TO EXECUTIVE OFFICER. During the three months ended March 31, 1996, certain of the Company's controlling stockholders sold 960,000 shares of Common Stock to Klaus Besier for an aggregate purchase price of $1,440,000, and agreed to make certain payments to Mr. Besier to secure his services as the Company's Chief Executive Officer. In accordance with generally accepted accounting principles, the Company recorded a non-cash expense of $7,515,000 relating to these transactions. This non-cash expense consists of: (i) $5,760,000, which represents the difference between the purchase price paid by Mr. Besier for the shares of Common Stock that he purchased and the fair market value of those shares at that time; (ii) $1,000,000, relating to a payment received by Mr. Besier from one of the Company's controlling stockholders; and (iii) $755,000, representing the value of a payment that such stockholder agreed to make to Mr. Besier in the event of a decline in the value of certain stock appreciation rights held by Mr. Besier on capital stock of his former employer. In the event of fluctuations in the value of these stock appreciation rights, the Company may record additional non-cash charges or credits, which could be significant, through September 30, 1996. See Note 10 of Notes to the Financial Statements. INTEREST EXPENSE, NET. For the three months ended March 31, 1996, the Company recorded net interest expense of $18,000. This expense is comprised of interest on the Company's $1,000,000 notes payable to stockholders and $2,000,000 advance under its secured term note with a bank, offset by interest income of approximately $16,000 on the Company's cash and cash equivalents. The Company did not have any outstanding debt for the comparable period in the prior year. In March 1996, the outstanding notes payable to stockholders were repaid in full. FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE PERIOD FROM INCEPTION (JANUARY 19, 1994) TO DECEMBER 31, 1994 REVENUES. In 1994, the Company focused on research and development and did not generate revenues. In 1995, the Company began generating revenues through the reselling of related-party 19 software licenses and associated maintenance and providing consulting and education services. These revenues contributed to the funding of increased research and development and creation of market awareness for its OpenScape product line. The Company began shipping OpenScape in late December 1995. Total revenues in 1995 were $6,070,000, of which 35%, or $2,151,000, were software license and maintenance revenues and 65%, or $3,919,000, were consulting and education services revenues. Software license revenues includes $500,000 from a non-recurring sale of source code for an application unrelated to the OpenScape product line to a related party. See "Certain Transactions" and Note 7 of Notes to Financial Statements. In 1995, OpenScape software license and maintenance revenues were $609,000, which represented 28% of total software license and maintenance revenues for the year. Total 1995 OpenScape revenues included a sale to Hewlett-Packard of $490,000, or 80% of total 1995 OpenScape revenues. The Company has achieved only limited revenues from OpenScape products and there can be no assurance that the Company will sustain revenue growth or market acceptance for these or other products which it markets. COST OF REVENUES. The Company did not generate revenues in 1994 and therefore did not incur cost of revenues in this period. Total cost of revenues as a percentage of total revenues was 56% in 1995. Total software license and maintenance costs and consulting and education services costs as a percentage of associated revenues were 33% and 68%, respectively, in 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $2,108,000 in 1995 from $286,000 for the prior year. Selling, general and administrative expenses represented 35% of total revenues in 1995. The total dollar increase in selling, general and administrative expenses reflected the Company's increased sales, marketing and distribution efforts from increased headcount and related staffing. The Company expects such total dollar increases to continue throughout 1996 and future periods. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased to $3,182,000 in 1995 from $894,000 for the prior year. Research and development expenses represented 52% of total revenues in 1995. To date, the Company has expensed all software development costs as incurred. Research and development expenses in 1994 included $350,000 relating to the purchase of technology rights and $373,000 for independent contractors. The total dollar increase is attributable to increased headcount and related costs which reflect the Company's efforts to enhance the functionality of products. During 1995, the Company recorded non-recurring expenses of $2,550,000 for purchases of technology rights to incorporate in its OpenScape products. See Note 1 of Notes to Financial Statements. INTEREST EXPENSE, NET. For the year ended December 31, 1995, the Company recorded net interest expense of $77,000. This expense is comprised of interest on the Company's $1,000,000 debt to stockholders. The Company did not have any outstanding debt for the period from inception to December 31, 1994. 20 SELECTED QUARTERLY OPERATING RESULTS The following table sets forth statement of operations data for each of the five quarters in the period ended March 31, 1996, as well as the percentage of the Company's total revenues represented by each item. This unaudited quarterly information has been prepared on the same basis as the audited financial statements appearing elsewhere in this Prospectus and in the opinion of management, all necessary adjustments (consisting only of normal recurring adjustments) have been included to present fairly the unaudited quarterly results when read in conjunction with the Company's audited financial statements and the notes thereto appearing elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of the results for any future period.
THREE MONTHS ENDED -------------------------------------------------- DEC. MARCH 31, JUNE 30, SEPT. 30, 31, MARCH 31, 1995 1995 1995 1995 1996 --------- -------- --------- ------- --------- (IN THOUSANDS) STATEMENT OF OPERATIONS: Revenues: Software license and main- tenance................... $ 43 $ -- $ 400 $ 1,708 $ 710 Consulting and education services.................. 373 598 1,629 1,319 1,671 ----- ----- ------ ------- ------- Total revenues........... 416 598 2,029 3,027 2,381 Cost of Revenues: Software license and main- tenance................... 22 -- 208 487 289 Consulting and education services.................. 172 407 1,170 935 974 ----- ----- ------ ------- ------- Total cost of revenues... 194 407 1,378 1,422 1,263 Gross profit............. 222 191 651 1,605 1,118 Operating Expenses: Selling, general and admin- istrative................. 337 313 440 1,018 1,701 Research and development... 175 139 331 2,537 399 Compensation to executive officer................... -- -- -- -- 7,515 ----- ----- ------ ------- ------- Total operating ex- penses.................. 512 452 771 3,555 9,615 Operating loss........... (290) (261) (120) (1,950) (8,497) Interest Expense, net........ -- 17 20 40 18 ----- ----- ------ ------- ------- Net loss................. $(290) $(278) $ (140) $(1,990) $(8,515) ===== ===== ====== ======= ======= PERCENTAGE OF TOTAL REVENUES: Revenues: Software license and main- tenance................... 10% -- % 20% 56% 30% Consulting and education services.................. 90 100 80 44 70 ----- ----- ------ ------- ------- Total revenues........... 100 100 100 100 100 Cost of Revenues: Software license and main- tenance................... 5 -- 10 16 12 Consulting and education services.................. 41 68 58 31 41 ----- ----- ------ ------- ------- Total cost of revenues... 47 68 68 47 53 Gross profit............. 53 32 32 53 47 Operating Expenses: Selling, general and admin- istrative................. 81 52 22 34 71 Research and development... 42 23 16 84 17 Compensation to executive officer................... -- -- -- -- 316 ----- ----- ------ ------- ------- Total operating ex- penses.................. 123 76 38 117 404 Operating loss........... (70) (44) (6) (64) (357) Interest Expense, net........ -- 3 1 1 1 ----- ----- ------ ------- ------- Net loss................. (70)% (46)% (7)% (66)% (358)% ===== ===== ====== ======= =======
Software license and maintenance revenues and consulting and education services revenues commenced in the three months ended March 31, 1995, and increased significantly in the second half 21 of 1995. Software license and maintenance revenues increased in the three months ended December 31, 1995 as a result of the $500,000 non-recurring sale of source code for an application unrelated to the OpenScape product line to a related party; the $490,000 license of OpenScape to Hewlett-Packard; and increased revenues from the resale of software licenses from a related party and associated maintenance. Software license and maintenance revenues for the three months ended March 31, 1996 decreased from the prior three month period due to the $500,000 nonrecurring sale in the prior three month period, and a decrease in revenues from resale activities, partially offset by an increase in OpenScape software license revenues. Consulting and education services revenues increased significantly in the three months ended September 30, 1995 primarily as a result of increased consulting activities and to a lesser extent an increase in education services. Consulting and education services revenues decreased in the three months ended December 31, 1995 and increased in the three months ended March 31, 1996, primarily due to seasonal fluctuations in education service activities, while consulting activities remained relatively stable. Operating expenses increased in the second half of 1995 primarily due to the increase in personnel and the purchase of technology in the three months ended December 31, 1995. The Company may experience significant fluctuations in future quarterly operating results that may be caused by many factors including, among others, the timing or introduction of, or enhancement to, the Company's products or services, the demand for the Company's products or services, the distribution of the Company's products and services, the timing of introduction of products or services by the Company's competition, the mix of products and services that the Company provides, the rate of market acceptance of Internet technology, the timing and rate at which the Company increases its expenses to support projected growth, competitive conditions in the industry and general economic conditions. The Company believes that period-to-period comparisons of its operating results are not meaningful and should not be relied upon as any indication of future performance. Due to the foregoing factors, among others, it is possible that the Company's future quarterly operating results from time to time will not meet the expectations of market analysts or investors, which may have an adverse effect on the price of the Company's Common Stock. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has funded its cash requirements principally through the sale of its equity securities, borrowings from its stockholders and bank borrowings. From inception through March 31, 1996, the Company had raised net proceeds of approximately $7,842,000 from the private sale of equity securities, including approximately $6,780,000 in the three months ended March 31, 1996. The Company, as of March 31, 1996, had cash and cash equivalents of $4,822,000 and a working capital deficit of $925,000. In April 1996, the Company issued 1,200,000 shares of Series C Preferred Stock at a price of $5.00 per share for net proceeds of $5,970,000 and repurchased and retired 800,000 shares of outstanding Common Stock at $7.50 per share. In addition, in April 1996, the Company received $100,000 upon the exercise of an option to purchase 66,666 shares of Common Stock at $1.50 per share. In February 1996, the Company entered into a financing agreement with a bank. The agreement provides for a revolving line of credit, an equipment line of credit and a secured term note. As of May 1, 1996, the Company had no outstanding balances under the revolving line of credit or the equipment line of credit. Borrowings under the revolving line of credit are limited to the lesser of $2,500,000 or 80% of qualified accounts receivable and bear interest at either the bank's prime rate plus 1% or LIBOR. Borrowings under the equipment line are limited to $500,000 for the purchase of new equipment. Advances under the equipment line of credit will be repaid over a three-year period. Borrowings under the equipment line bear interest at either the bank's cost of funds plus 3 1/2% or the bank's prime rate plus 1 1/2%. In March 1996, the Company borrowed the $2,000,000 under the secured term note, which was used to pay for source code technology purchased from a related party. The secured term note is repayable on September 30, 1996. Borrowings under the secured term note bear interest at the bank's prime rate plus 1%. The revolving line of credit and equipment line of credit 22 expire on June 30, 1997. The financing agreement contains certain restrictive covenants regarding, among other items, minimum levels of tangible net worth. The agreement is collateralized by all assets of the Company and is guaranteed by certain stockholders. The Company's operating activities utilized cash and cash equivalents of approximately $236,000, $1,495,000 and $1,801,000 in the period from inception to December 31, 1994, the year ended December 31, 1995 and the three months ended March 31, 1996, respectively. The Company's investing activities, which consisted of purchases of property and equipment, utilized cash and cash equivalents of approximately $76,000, $150,000 and $1,261,000 in the period from inception to December 31, 1994, the year ended December 31, 1995 and the three months ended March 31, 1996, respectively. The Company's financing activities provided cash and cash equivalents of approximately $312,000, $1,750,000 and $7,780,000 in the period from inception to December 31, 1994, the year ended December 31, 1995 and the three months ended March 31, 1996, respectively, primarily from the private issuance of equity securities, borrowings under its secured term note payable and borrowings under its long term debt agreements with stockholders. The Company has agreed to loan to an executive officer up to $2,560,000 for payment of his anticipated income tax liability resulting from his purchase of 960,000 shares of the Company's Common Stock from a significant stockholder for a purchase price less than its then current fair market value. The Company believes that it will fund the amounts under the loan agreement in the first quarter of 1997. See "Certain Transactions". The Company has no other significant commitments other than obligations under its secured term note payable and operating leases. At December 31, 1995, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $3,020,000. These losses are available to reduce federal and state taxable income, if any, in future years. See Note 4 of Notes to Financial Statements. The Company estimates that capital expenditures in 1996 will be approximately $2,000,000 to $3,000,000. In the event that the public offering contemplated by this Prospectus is not consummated, the Company believes that its existing capital resources are adequate to meet its cash requirements through December 31, 1996. In addition, certain stockholders have committed, in the event that the public offering is not consummated, to provide the necessary funding to allow the Company to operate through December 31, 1996 if the existing capital resources are not sufficient to fund the Company's operations. See "Certain Transactions". The Company currently anticipates that the net proceeds of this offering, existing cash balances and borrowings available under the Company's bank agreement will be sufficient to meet its anticipated working capital and capital expenditure requirements for the next 18 months. Thereafter, the Company may need to raise additional funds. The Company may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced products or services, to respond to competitive pressures or to acquire complementary businesses or technologies. If additional funds are raised through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's Common Stock. There can be no assurance that additional financing will be available when needed on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may be unable to develop or enhance products or services, take advantage of future opportunities, or respond to competitive pressures, which could have a material adverse effect on the Company's business, financial condition or operating results. 23 BUSINESS Business@Web, Inc. ("Business@Web" or the "Company") is a provider of "Web- enabled" software for the development and deployment of mission-critical business applications across an organization's disparate information technology ("IT") systems and the extension of those applications to Intranets and the Internet. The Company's OpenScape products enable organizations to extend their current IT capabilities to conduct new, dynamic and interactive communication and transactions with key audiences in their "extended enterprise" including customers, suppliers, distributors and business partners. OpenScape products provide the high-volume and real-time performance capabilities required by businesses through the utilization of standard Internet protocols, component-based, object-oriented technology, a scaleable, multi-tier architecture and an intuitive point-and-click development environment. The Company believes that its products will enable organizations to achieve significant competitive advantages by increasing responsiveness to changing business conditions, and exploiting the low cost, flexibility and ease-of-use of Internet technologies. INDUSTRY BACKGROUND BUSINESS REENGINEERING AND THE USE OF INFORMATION TECHNOLOGY In response to increased competitive pressures, businesses in recent years have engaged in the extensive reengineering of critical business processes in an attempt to reduce operating costs, shorten product development cycles and time-to-market, improve product quality and increase responsiveness to the demands of customers and business partners. To date, these reengineering efforts have primarily focused on realizing productivity and efficiency gains within internal business processes, such as finance, order entry, manufacturing and resource planning. Businesses have begun to shift the focus of their reengineering efforts from internal to external business processes, such as supply chain and distribution channel management. A key enabler of reengineering efforts has been the deployment and effective use of IT systems to manage critical business processes and information. Historically, most organizations addressed their IT requirements through legacy systems, which are highly customized, proprietary mainframe or mini-computer systems. The limitations of legacy systems, such as cost and lack of flexibility, have led organizations to utilize powerful and relatively inexpensive personal computers and networking technologies to deploy departmental client/server IT systems. Organizations' ability to develop and deploy effective, enterprise-wide business applications has been limited by the proliferation of disparate IT systems. The lack of interoperability across different systems has introduced inefficiencies by creating isolated islands of information which are inaccessible from certain locations within an organization. Such problems are dramatically compounded when organizations attempt to extend business applications to connect their IT systems with the disparate IT systems of their "extended enterprise", including customers, suppliers, distributors and business partners. THE EMERGENCE OF THE INTERNET AND INTRANETS The recent emergence of the World Wide Web ("Web") and Internet technologies offers businesses the opportunity to significantly improve collaboration and communication both within the enterprise and with the extended enterprise. Unlike current legacy and client/server IT solutions, Internet technologies enable data exchange and collaboration based on cost-effective, easily deployable and non-proprietary technology. The Company believes that businesses will be able to realize substantial productivity and efficiency gains by using the Internet to conduct business transactions with key audiences of the extended enterprise. The Company also believes that significant gains will be realized by organizations deploying "Intranets", internal networks that utilize the same 24 Internet technologies and protocols. Intranets exploit the openness, ease-of- use and cross-platform functionality of Internet technologies to facilitate information dissemination, communication and collaboration within the enterprise. MARKET OPPORTUNITY The Company believes that significant demand exists for a solution which not only integrates business applications with legacy systems, client/server systems and databases, but also seamlessly extends those applications across the enterprise to internal users via Intranets or to users in the extended enterprise through the Internet. The Company believes that an effective IT solution must address the following challenges: . LACK OF ENTERPRISE-WIDE SOLUTIONS FOR THE EXTENDED ENTERPRISE. Current legacy and client/server systems generally do not adequately integrate an organization's enterprise-wide business applications with the constituents of its extended enterprise. Historically, business-to- business electronic transactions have been limited to inflexible, platform-specific electronic data interchange ("EDI") links. The emergence of the Internet has made the development of more dynamic applications for business-to-business communication and transactions possible. However, current Internet business applications addressing the extended enterprise require expertise in multiple, complex Web-related programming languages, the costly use of multiple Web servers and the difficult integration of those servers and applications across disparate IT systems. . ABSENCE OF FLEXIBLE DEVELOPMENT ENVIRONMENT. Most current development and application frameworks are designed for specific IT systems and do not provide a migration path for extending business applications from one IT infrastructure to another. For example, a business application developed for a client/server system would typically require substantial redevelopment in order to be deployed in an Intranet or Internet environment. . LACK OF HIGH-PERFORMANCE INTERNET BUSINESS SOLUTIONS. Effective use of the Internet for mission-critical business processes requires that existing Web technologies be enhanced to accommodate the high volume and performance requirements of most business transactions. For example, most current Web technologies rely on the retrieval of "static" Web pages from a dedicated Web server. As a result, such technologies do not allow the development of a business application with a robust, real- time, direct connection between a business user in the extended enterprise and the necessary database, application server, legacy or client/server system within an enterprise, Intranet or Internet environment. . SIGNIFICANT CONTINUED USE OF LEGACY SYSTEMS. Many businesses seeking to implement Web-enabled solutions must do so while preserving their significant investments in legacy systems. Legacy systems continue to play an integral role in IT infrastructures of numerous organizations due to the importance of the functions managed by those systems, the desire to preserve the integrity and validity of the data in those systems, and the cost and/or time constraints of migrating those systems to a client/server framework. . EXISTENCE OF INACCESSIBLE ISLANDS OF INFORMATION. Businesses with IT infrastructures based on legacy or client/server frameworks often deploy several different hardware, software and networking technologies in the attempt to capture the benefits of the best components from multiple vendors. Current development environments have limited ability to address this "best-of-breed" approach, which results in limited operability across systems and applications and has created isolated islands of information throughout an organization. . NEED TO ACCELERATE APPLICATION DEVELOPMENT. Organizations are increasingly seeking flexible IT solutions that enable the rapid development and deployment of robust business 25 applications. Rapid application development is currently limited by the need for recoding each time a new application is developed. Object- oriented computing provides the benefit of reusable software, but is limited by the necessity of using complex programming languages. Although current object-oriented application development tools enable the creation of shareable, reusable software components, few such tools offer rapid development and deployment capabilities across the enterprise, Intranet and Internet environments. THE BUSINESS@WEB SOLUTION The Company's OpenScape product line enables organizations to develop and deploy business applications which take advantage of the low cost, ease-of-use and flexibility of Internet technologies. OpenScape solutions not only integrate existing legacy systems, client/server systems and databases within the enterprise, but also extend applications on those systems through Intranet and Internet environments. The Company's products allow organizations to reach beyond the enterprise and conduct new, dynamic and interactive transactions with key audiences in the extended enterprise. The Company believes that its products and services offer businesses a number of key benefits, including the following: . ENABLE RAPID ADOPTION AND MIGRATION OF INTRANET AND INTERNET STRATEGIES. The Company's OpenScape development environment, based upon a distributed component, multi-tiered architecture, allows the development of enterprise-wide applications which can be easily integrated with disparate legacy and client/server systems, existing business applications and emerging technologies. The integration and extension capabilities of OpenScape provide organizations with the ability to rapidly adopt an Intranet or Internet strategy which is highly customized to current business needs and flexible enough to be reconfigured to meet future business requirements and evolving technology standards. . SUPPORT HIGH PERFORMANCE INTERNET BUSINESS APPLICATIONS. Unlike current Web technologies, OpenScape allows development of applications with the high volume and real-time performance capabilities required by businesses. For example, using OpenScape and a Web browser, suppliers in the extended enterprise can directly access the necessary business application on their manufacturer's legacy or client/server system without being routed through a Web server. This direct access can provide the speed and robustness required for high performance business transactions. . LEVERAGE EXISTING IT INVESTMENTS. The open, standards-based nature of the Company's products allows businesses to maximize the value of their existing IT systems. The Company's "Web-enabled" application framework provides organizations with an inexpensive and efficient method for developing new applications and modifying existing applications to access current legacy and client/server systems and extend those applications to Intranets and the Internet. The Company's powerful and easy-to-use development and deployment products also allow organizations to extend their IT capabilities while preserving investments in training and personnel. . CONNECT ISOLATED ISLANDS OF INFORMATION. Through OpenScape's open, standards-based architecture and its broad, cross-platform operability, the Company is able to bridge the traditional communication gaps between disparate systems within an organization. In addition, organizations are able to rapidly develop and deploy enterprise-wide business applications that access multiple information sources and business applications through an Intranet or Internet environment. . ACCELERATE APPLICATION DEVELOPMENT. The Company's OpenScape development products utilize distributed component, object-oriented technology which provides an intuitive point-and-click development environment. These products enable organizations to rapidly develop 26 shareable, reusable software components by utilizing existing skills without requiring mastery of complex programming languages. Once business applications have been developed, they can be easily modified with little or no recoding through component sharing and reuse. The use of OpenScape components can create competitive advantages for organizations by reducing the time-to-market of future business applications, increasing responsiveness to changing business conditions and increasing return on IT investments. THE BUSINESS@WEB STRATEGY Business@Web's objective is to be a leading provider of "Web-enabled" software that supports the development and deployment of mission-critical business applications across disparate IT systems and extends those applications to Intranets and the Internet. To achieve this objective, the Company is focusing on the following key elements of its business strategy: . CONTINUALLY RELEASE NEW PRODUCTS TO INTEGRATE EMERGING TECHNOLOGIES. The Company's OpenScape products are able to access a wide variety of environments and applications. Due to the modular nature of the Company's core OpenScape technology, the Company can rapidly develop OpenExtensions--specific add-on products which enable communication with proprietary environments, such as SAP R/3--and continually integrate new capabilities such as improved security mechanisms and component repositories. The Company intends to release OpenExtensions for Baan and PeopleSoft applications during 1996 and regularly introduce additional OpenScape products for emerging environments and applications. . SUPPORT MULTIPLE POINTS OF ENTRY. The Company's OpenScape products have been designed to provide organizations with a flexible and comprehensive Internet solution regardless of their current IT infrastructure. Business applications developed with OpenScape products support multiple points of entry due to their ability to function in enterprise, Intranet and Internet environments. The Company's products utilize Internet protocols and a scalable multi-tier architecture which provide organizations with the built-in capability of extending an enterprise solution to an Intranet or the Internet at a later date. This flexibility allows the Company's solution to be adapted to changing business needs and the evolving Internet environment. . LEVERAGE RELATIONSHIPS WITH LEADING TECHNOLOGY COMPANIES. The Company believes that a key element to the success of delivering a complete Web- enabled business solution is to leverage the use of its technologies through the development of strategic relationships with leading technology companies. To this end, the Company has developed relationships with third-party technology implementors such as Deloitte & Touche/ICS, software application vendors such as Baan, PeopleSoft and SAP, an Internet service provider, BBN, and other technology providers such as Hewlett-Packard, NEC and Informix. These strategic relationships provide the Company with the opportunity to market its products to a large installed base of organizations in need of Web-enabling extensions and enhancements for their current IT infrastructure. . DEVELOP MULTIPLE CHANNELS OF DISTRIBUTION. To reach a broad potential customer base, the Company believes that it must develop multiple distribution channels. The Company anticipates that its direct sales force will focus on large and mid-sized customers and leverage the Company's strategic relationships to access particular vertical markets of target organizations. Through its strategic relationships with system integrators, hardware vendors, application providers and database vendors, the Company expects to gain access to a large installed based of potential customers. Over time, the Company intends to extend the depth and breadth of its product penetration by augmenting its direct selling efforts and strategic relationships with additional indirect distribution channels, including VARs and ISVs. 27 TECHNOLOGY OVERVIEW The Company's OpenScape products allow organizations to Web-enable business applications through the use of a distributed component architecture employing a multi-tier client/server infrastructure, where presentation, functionality and data access are developed and deployed as independent layers. In this multi-tier architecture, each tier may be expanded in a modular fashion by adding components which are reusable and shareable across applications. Client-based components are handled by the Company's WebEngine Client and the server-based components are run using the Company's Distributed WebEngine. OpenScape components can be partitioned, or split apart, placing the appropriate application logic on the server or client. [Graphic entitled "Business@Web Multi-Tier Architecture" depicts a three dimensional rectangular platform angled from the upper left to bottom right of the page, divided into three segments. There is a small gap between each of the platform segments. The front edges of these segments are labeled, from right to left, "Data Access", "Functionality" and "Presentation". The left end of the platform ends in a low brick wall, labeled "Firewall." On the left side of the firewall is a cloud labeled "Distributor", "Partner" and "Customer". The screen of each computer says "Web Browser", and the top of each computer is labeled "B@W WebEngine Client". There are arrows from each computer to the "Firewall". On the "Presentation" platform segment there are two computers. One is labeled "B@W WebEngine Client", with the words "Web Browser" on its screen, and the other is labeled B@W WebEngine Client, with the words "Desktop Application" on its screen. There are arrows between the Firewall and each of these computers to the box on the "Functionality" platform segment. The "Functionality" segment is entirely occupied by a box labeled "B@W Distributed WebEngine Data Integration & Analysis". Attached to this box and extending across the gap and over a small portion of the "Data Access" segment is a rectangular box with four cylinders extending farther out over the "Data Access" segment labeled B@W OpenExtension". Placed on the "Data Access" segment, in front of each of these cylinders, are four small rectangular boxes labeled (from back to front) "Legacy System", "Client/Server System", "Database" and "Emerging Technologies". There is an arrow from each of the "OpenExtension" cylinders to the box directly in front of it. Behind the "Presentation" segment is the label "Intranet"; behind the "Functionality" segment is the label "Enterprise"; and behind the "Data Access" segment is the label "Current IT System."] Presentation components within the WebEngine Client run on the client machine and provide the screens and dialogs needed for highly interactive applications. When deployed, OpenScape presentation components require minimal processing power from the client machine, allowing standard desktop PCs to access an organization's business applications. The presentation layer implemented in OpenScape may be used in multiple Web browsers as well as other client environments to allow for support of multiple deployment environments and migration of enterprise applications towards Web-enabled solutions. Functionality components implement the business logic of an application and support several types of requesting clients such as enterprise, Intranet or Internet users. The separation of the functionality layer from the presentation and data access layers allows modification of the functionality layer independent from the other layers. Functionality components run on either the WebEngine Client or the Distributed WebEngine, but are typically server-based to simplify management and to leverage the server's processing capabilities. 28 Data access components running in the Distributed WebEngine are used to retrieve data from databases and other sources such as legacy applications. Functionality components which utilize this information are not dependent on the actual data source, but only the results which are supplied by the data access components. This independence allows data sources to be changed without requiring modifications to the business logic. The Distributed WebEngine supports data translation and local calculations with retrieved data, thereby facilitating the creation of consistent results from different data sources. To reduce the amount of traffic between the client and the server, and thereby increase the performance of the Web-enabled application, the Distributed WebEngine transfers only necessary data to the client. OpenScape's distributed component architecture allows disparate back-end information systems to be "plugged-in" to the same application framework. For example, Business@Web products allow development of an application with seamless access to data from both an SAP R/3 system and a mainframe database. Access to each system is provided through the Company's Distributed WebEngine, which regulates, manages and secures all application traffic from the clients. The Company's OpenExtensions provide pre-configured connectivity to each back- end system managed by the Distributed WebEngine. The code libraries and processes that are typically required for integrating with a target back-end IT system need only reside on the server with the OpenExtension, which simplifies licensing and management and eliminates the need for installation on the client machine. Any number of OpenExtensions may be incorporated into an application as required. OpenExtensions also may be used to support access to connectivity standards such as Microsoft's OLE (Object Linking and Embedding) and the Open Software Foundation's DCE (Distributed Computing Environment). The Company will continually develop additional OpenExtensions to support connectivity to new systems and standards as they evolve. DEVELOPMENT Components for all application tiers are developed and defined within the OpenScape Workbench, a graphical environment designed to simplify and accelerate application development by minimizing, and often eliminating, programming tasks. The OpenScape development environment is extensible to accommodate rapid changes in technology. OpenScape provides the following capabilities during the development process: . RAPID APPLICATION DEVELOPMENT. Components may be run and debugged within the Workbench to facilitate testing and iterative development. Most aspects of the OpenScape scripting language and visual components are similar to Visual Basic for Applications ("VBA"), allowing an organization to leverage the existing programming skills of its application developers. . VISUAL COMPONENT REUSE. OpenScape utilizes a modular building block approach to development where complex components are assembled from sets of more basic components. Once a visual component has been developed for an application, the same component can be embedded in additional components or deployed in the original application for use in the enterprise, Intranet or Internet without any additional recoding. . EASE OF INTEGRATION. OpenExtensions directly import function definitions from back-end systems using point-and-click operations. The same scripting language can be used to access all back-end systems and components regardless of the original development environment. This significantly reduces the complexity typically involved in creating applications with numerous back-end systems. . LOCAL AND REMOTE TRANSPARENCY. The scripting language used to access a client-based or server-based component with OpenScape is the same. Applications that have been configured for a specific environment, such as Microsoft's desktop environment, do not have to be significantly rewritten to accommodate a different configuration, such as NetScape's Navigator. 29 . THIRD-PARTY COMPONENTS. Components from other vendors, such as Microsoft's ActiveX controls, may be used as part of an OpenScape project for enhanced functionality. In addition, interoperability with productivity applications, such as Microsoft Excel, allows these applications to be utilized as part of an OpenScape solution. DEPLOYMENT Once developed, an application's components are deployed onto an organization's server platforms. The visual components of an application are deployed onto the Web server, and are stored there with the organization's Web pages. The components in the functionality and data access layers are typically deployed onto a separate server that hosts the Distributed WebEngine. Once an application has been deployed, it can be accessed over the Internet through an organization's Web site. The visual components are downloaded on demand to a Web browser using the standard Internet HTTP protocol. This process ensures that the client always runs the most current version of an application. To minimize download time, only the necessary components need be downloaded initially; additional components may be transferred and run by an application as needed. Multiple browser standards are supported for running components, such as ActiveX from Microsoft and the plug-in capabilities of Netscape. An external viewer is also available for browsers that do not support component standards or to run downloaded applications independently from a browser. Desktop environments are also supported by OpenScape components using OLE or OCX standards. Once the client application is downloaded, the Web server does not need to be contacted for further application functions. Web page access and delivery is separated from back-end integration and multiple geographically dispersed servers may be accessed directly from the client. All application communication occurs via an encrypted, secure connection between the WebEngine Client on the Internet client machine and the Distributed WebEngine on the application server hardware. The Distributed WebEngine supports multiple security standards for different customer needs and can be expanded to accommodate additional standards as they emerge. The Distributed WebEngine is multi-threaded, which enables high performance for many simultaneous users. While the current release of OpenScape has certain limited development capabilities for Internet applications, the Company plans in June 1996 to introduce OpenScape Version 2.0, which is expected to provide additional capabilities for the effective development of Internet applications. See "Risk Factors-- Recent Introduction of OpenScape Products; Planned New Releases". PRODUCTS DEVELOPMENT PRODUCTS The Company's development products are designed to facilitate the rapid development of multi-tiered enterprise, Intranet and Internet applications from a single platform. OpenScape development products include the following: OPENSCAPE. OpenScape provides a single environment for building all tiers of a distributed enterprise, Intranet or Internet business application. OpenScape includes the OpenScape Workbench, the Visual Component Builder, the OpenExtension for OLE Automation and the OpenExtension for Open Database Connectivity ("ODBC"). The OpenScape Workbench acts as a repository for storing and managing multiple applications while providing the ability to share and reuse components between applications. The Visual Component Builder provides a point-and-click development environment for the creation of reusable graphical user interface screens. The Visual Component Builder's integrated development environment, with application programming and debugging features, provides the ability to write application code in a VBA compatible language. Application components built with the Visual Component Builder can also incorporate off-the-shelf user interface controls, such as Microsoft's ActiveX controls, and can integrate with off-the-shelf productivity applications, such as Microsoft Excel and Lotus Notes. The OpenExtension for OLE Automation automatically imports function and interface 30 information from existing OLE Automation servers. The OpenExtension for ODBC provides graphical database browsing and query-building tools for quickly exposing ODBC-compliant data sources as logical components. OPENSCAPE OPENEXTENSIONS. OpenExtensions communicate with targeted back-end systems using each system's native protocols, while providing a single, standard interface to the end-users of integrated OpenScape business applications. The following environments are currently accessible via OpenExtensions: Open Software Foundation's DCE, ODBC, OLE Automation, SAP R/3 and Open Environment's Entera. Business@Web is currently developing additional OpenExtensions, which will allow OpenScape applications to communicate with Baan and PeopleSoft applications, the Illustra multimedia database from Informix, and CORBA systems. OPENSCAPE VIRTUAL DATABASE SOLUTION. The OpenScape Virtual Database solution, to be available with Version 2.0, allows multiple disparate data sources to be accessed through a unified view, which simplifies the development and deployment of applications that access multiple data sources. The Virtual Database does not rely upon batch feeds or data extracts to provide the common data view. Instead, live connections are maintained with master production data to ensure that OpenScape applications access current data. DEPLOYMENT PRODUCTS The OpenScape deployment architecture enables reusable components to be managed, stored and accessed across an enterprise; provides organizations with the flexibility to create applications on demand through a Web server; and encrypts application data for transmission over an Intranet or the Internet. While the current release of OpenScape has certain limited development capabilities for Internet applications, the Company plans in June 1996 to introduce OpenScape Version 2.0, which is expected to provide additional capabilities for the effective development of Internet applications. See "Risk Factors--Recent Introduction of OpenScape Products; Planned New Releases". OpenScape deployment products include the following: OPENSCAPE WEBENGINE CLIENT. The OpenScape WebEngine Client is a freely distributable runtime library that allows Intranet or Internet users to execute OpenScape user interfaces within leading Web browsers. The WebEngine Client also allows OpenScape visual components to run in other desktop applications, such as Visual Basic and Lotus Notes. In addition, the WebEngine Client facilitates secure communications over the Internet to and from an OpenScape visual component. Other key features of the WebEngine Client include: 16-bit and 32-bit platform support; the exposure of visual components such as Netscape plug-ins, ActiveX Internet controls or Desktop OLE objects; the ability of individual users to restrict downloaded applications from performing unwanted actions (such as local file access); and facilitation of secure, encrypted Internet connections with Distributed WebEngines. OPENSCAPE DISTRIBUTED WEBENGINE. The OpenScape Distributed WebEngine is a server-based runtime process that provides application and integration services to OpenScape WebEngine Clients. The Distributed WebEngine manages all network communication in OpenScape applications and facilitates the appropriate levels of security for applications on the Internet. Because all WebEngine Clients access information via the Distributed WebEngine, third- party networking or client software is only necessary on the application server, and not on Internet client machines. Other key features of the Distributed WebEngine include: multi-threaded operation for high-performance and scaleability; the ability to facilitate RSA-encrypted communications with the Web; the ability to distribute onto multiple application servers for optimal load-balancing; and the ability to support single-log-on for systems which integrate multiple enterprise applications and databases. The Company is also integrating NEC's workflow product that will plug into the Distributed WebEngine and allow multiple organizations to participate in integrated workflow processes over the Internet. 31 PRICING OpenScape development license fees are priced on a per developer basis. Each developer on a corporate application development team is required to purchase an OpenScape license. Each developer who accesses specific back-end systems is required to purchase an appropriate OpenExtension license. Total development license fees are expected to range from $5,000 and $35,000 per named developer for a specific project. For enterprise and Intranet applications, OpenScape deployment license fees are priced on a simultaneous user basis. For Internet applications, OpenScape deployment license fees are based on server hardware capacity. All costs are associated with the Distributed WebEngine on the server; there is no deployment fee for the WebEngine Client. Depending on the size of the system, the license fees for OpenScape deployment products are expected to range from $25,000 to $250,000. CUSTOMER SUPPORT AND MAINTENANCE The Company offers a wide range of customer support options which can be packaged to meet the specific needs of customers and business partners. The Company's Professional Services Group ("PSG") provides technical support to customers, distributors and strategic partners throughout the implementation cycle of a Business@Web solution as well as on an on-going basis. Support service offerings include direct telephone consulting support by experienced technical account representatives, toll-free telephone customer support, 24- hour pager access, e-mail and fax support, Internet access to the Company's knowledge repository, case study updates and discussion group access. The Company's maintenance support services are typically charged at an annual maintenance fee equal to approximately 20% of the then-current list price of the licensed products. In addition, this maintenance fee entitles customers to receive software enhancements to their licensed versions of software. SERVICES The Company's consulting and education services are designed to educate the Company's potential customers and support its customers and strategic alliance partners in implementing the Company's software solutions. The Company believes that its services play a significant role in generating demand for its solutions by demonstrating the capabilities and advantages of its software solutions. Historically, the Company's consulting and education services have generated the vast majority of the Company's revenues, representing 65% of the Company's revenues in 1995. The Company expects that the percentage of its revenues resulting from sales of software licenses will increase over time, resulting in a corresponding decrease in the percentage of revenues derived from its services. CONSULTING SERVICES Business@Web's consulting services are designed to minimize the implementation cycle of the Company's software solutions. The range of services offered includes the scoping, design and implementation of the Company's products and comprehensive solutions. A critical portion of the Company's consulting service strategy is to leverage the skills and reach of the Company's strategic alliance partners, supplemented by the Company's internal consulting personnel. The Company's consulting services personnel are highly trained and experienced in identifying and delivering system architecture analysis, design plans and implementation strategies for organizations worldwide. 32 EDUCATION SERVICES Business@Web's education services are used primarily to educate potential customers on the strategic business benefits of the Company's technologies and to support current customers at any stage of the implementation cycle of the Company's software solutions. The Company's education services may be purchased individually or in a packaged form through open enrollment sessions or focused programs delivered at on-site customer locations. The Company anticipates broadening its education services offerings to support future product releases and target specific industry segments. A key responsibility of the education services group is to actively engage in certifying third- party implementation providers to facilitate accelerated adoption of its software-based business solutions and to assure that the highest quality of service is provided to the Company's customers. STRATEGIC ALLIANCES The Company is actively developing a network of strategic relationships in order to accelerate the adoption of the Company's products and to assist the Company in delivering complete business solutions to its customers. The Company believes that these relationships allow it to focus on developing, marketing, distributing and supporting its core software products, while also accelerating the introduction of those products into major customer accounts and providing those customers with additional sources of established implementation support and consulting services. The Company believes that its relationships with hardware systems vendors, such as Hewlett-Packard and NEC, help to accelerate the introduction of the Company's products to new customers. For example, Hewlett-Packard trained over 100 of its Information Integration Solutions Practice consultants to deliver solutions on the Company's software. Additional Hewlett-Packard service groups are marketing the Company's software in connection with their Internet, Baan, PeopleSoft and SAP practices. Hewlett-Packard is sponsoring numerous one-day seminars around the world to market the use of the Company's products to major Hewlett-Packard customers, and Hewlett-Packard and the Company have jointly developed service engagements as an immediate follow-on to the seminars. NEC and the Company are jointly developing workflow application software for the Internet based on OpenScape and NEC's current workflow application StarOffice. NEC will be marketing, selling and supporting the installation of this workflow software in the Pacific Rim. Both Hewlett-Packard and NEC have made equity investments in the Company. The Company believes that its relationships with major applications providers such as Baan, PeopleSoft and SAP will help such providers improve the speed and flexibility of their implementations. Baan, PeopleSoft and SAP are educating their organizations on the Company's products, as well as marketing the products externally to their customers through trade shows, user group meetings and joint demonstrations. In addition, the Company believes that these application providers benefit from these relationships because the Company provides an effective means for them to bring their applications onto the Web. The Company is seeking to establish relationships with major and regional systems integrators. The objective of these alliances with solutions providers is to establish a large number of trained experts who will incorporate the Company's products into their business solutions projects. Deloitte & Touche/ICS, for example, has trained a group of consultants to offer the Company's solutions to its installed base of SAP users. Deloitte & Touche/ICS is sponsoring marketing seminars jointly implementing the Company's solutions. The Company is seeking to establish relationships with other industry software leaders. For instance, the Company has developed a sales, marketing and technology alliance with Informix based upon Informix's new Illustra server. The Company is engaged in joint development efforts with Informix, will be showcased at their user conference and plans to introduce their joint capabilities to Informix channel partners. Informix has made an equity investment in the Company. The Company is seeking to establish relationships with major Internet service providers ("ISPs"). ISPs offer managed Internet access and value-added services to corporations planning to establish and maintain an Internet presence. The Company believes that its technology can be published by 33 ISPs as part of their Internet service, further expanding the reach and reuse of the Company's component technology. In particular, the Company has a strategic alliance with BBN and is marketing its capabilities with BBN through a series of seminars. SALES AND MARKETING To reach a broad potential customer base, the Company believes that it must pursue multiple distribution channels. The Company's direct sales force will focus on large and mid-sized customers and leverage the Company's strategic relationships to access target organizations within particular vertical markets of target organizations. The Company will also seek to develop and maintain a sales force with expertise in specific industries and intends to open two additional U.S. regional offices to support its sales force. The Company's strategic relationships with hardware vendors, systems integrators, application providers and database vendors are expected to provide the Company with access to a large installed based of potential customers. The Company will engage in joint marketing programs and targeted industry events. Over time, the Company intends to extend the depth and breadth of its product penetration by augmenting direct selling efforts and strategic relationships with additional indirect distribution channels including VARs and ISVs. The Company also intends to promote general awareness for its products and services among business and trade press and industry analysts and to advertise in selected business media and target industry press. CUSTOMERS AND MARKETS As of May 1, 1996, the Company has sold software, consulting services and education services to customers in a wide variety of industries. In an effort to generate demand for its solutions by demonstrating the capabilities and advantages of its software solutions, the Company has provided consulting and education services to over 80 customers. Although the Company expects that the number of purchasers of its software will increase over time, to date the Company has had limited software sales. In 1994, no individual customer accounted for more than 10% of the Company's total revenues. In 1995, approximately 21% and 10% of the Company's revenues were derived from sales of services and products to Hewlett-Packard and Shell Oil, respectively. The following examples illustrate how organizations are using Business@Web products to provide "Web-enabled" IT solutions for their extended enterprises: WHOLESALE SALES AND DISTRIBUTION Associated Foods, a large, regional food wholesaler and distributor, is working with the Company to create an on-line Intranet application to analyze retail sales. The purpose of the application is to provide the wholesaler with the capability to quickly consolidate store purchase data from the over 700 independent stores which it services and transform the data into useable, easily accessible information. Using OpenScape's reusable object-oriented technology, the wholesaler will be able to efficiently distribute an accurate database of store performance. The application will enable accurate reporting, providing valuable statistical analysis of buying trends and performance while presenting the information in a clear, easy-to-use manner for store managers, regional directors, managers and executives. EDUCATION Babson College, a New England college with over 1,600 undergraduate students and various graduate and executive education programs, is working with the Company to implement an on-line grading system via an Intranet which will eliminate all forms and enable faculty members to submit grades electronically. In addition, the college is implementing a workflow process which will route the "virtual forms" to the appropriate faculty members for input and approval. It is anticipated that the workflow application will be expanded to include a "to do" list of activities that will circulate to relevant 34 faculty members as workflow processes are completed. The new system will interact with the college's existing reengineering initiatives. A college official anticipates that the new system will improve communication between departments by sharing existing information, eliminating redundancy of data and reducing both faculty and administrative time. Currently, the college is completing the implementation and is expecting a fully operational on-line grading system in 1996. Following this Intranet implementation, the college plans to extend the system to the Internet by building an on-line college handbook that allows any student on or off campus to review course material and register for classes. RESEARCH AND DEVELOPMENT The Company believes that its future success will depend in large part on its ability to enhance its OpenScape product line, develop new products, maintain technological leadership, and satisfy continually changing customer requirements for Web-based business application development. The Company's product management and development groups are responsible for product architecture, functionality and quality assurance. This group is also responsible for expanding OpenScape's ability to integrate with emerging industry standards, additional third-party application packages and leading database management systems as well as for new product definition and development. The Company has made substantial investments in product development and technology integration. The OpenScape product line has been developed primarily by the Company's internal development staff. Certain technologies also have been purchased and integrated into OpenScape products. The Company spent approximately $894,000 and $3,182,000 on research and development activities in 1994 and 1995, respectively (including purchased technology rights of approximately $350,000 in 1994 and $2,550,000 in 1995). See "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company currently intends to extend OpenScape's functionality by adding support for Macintosh and UNIX browser platforms, creating additional OpenExtensions for Baan, PeopleSoft, CORBA and Informix Illustra applications, and enabling the product to accommodate Japanese character sets. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of new products and enhancements, or that its new products and enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. COMPETITION The market for Internet-based technologies is new, intensely competitive and subject to rapid technological change. The Company expects competition to persist and intensify in the future. The Company has experienced and expects to continue to experience increased competition from current and future competitors, many of whom have significantly greater financial, technical, marketing and other resources than the Company. The Company's current and potential competitors include, among others: software companies which offer proprietary all-in-one development tools, such as Dynasty, Forte, NeXT and Spider; established client/server tools and database vendors who may transfer their technology to take advantage of the Internet, such as Borland (which has recently announced its intention to acquire Open Environment), Parc Place and Sybase; companies which develop electronic commerce and automated service software products and services, such as Edify, Open Market and Premenos; major systems vendors such as DEC, IBM and Sun Microsystems; packaged application 35 developers such as Baan and SAP; software industry leaders such as Microsoft, Netscape and Oracle; and emerging alliances between industry participants such as the recently announced alliances between Microsoft and SAP; Digital, MCI and Microsoft; and GE and Netscape. The Company's competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than the Company. Also, many current and potential competitors have greater financial or management resources or name recognition or more extensive customer bases that could be leveraged, thereby gaining market share to the Company's detriment. The Company expects to face additional competition as other established and emerging companies enter the market for Internet-based technologies and new products and technologies are introduced. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market shares, any of which could materially adversely affect the Company's business, operating results and financial condition. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing the ability of their products to address the needs of the Company's prospective customers. Current and potential customers may also be more successful than the Company in having their products or technologies accepted as industry standards. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. Such competition could materially adversely affect the Company's ability to obtain and retain support for the Company's products and services. There can be no assurance that the Company will be able to compete successfully against current and future competitors and the failure to do so could have a material adverse effect upon the Company's business, operating results and financial condition. The principal competitive factors affecting the market for the Company's products and services are ease of application development, deployment and management functionality and features, product architecture, product performance, reliability and scaleability, product quality, price and customer support. The Company believes it presently competes favorably with respect to each of these factors. However, the Company's market is still evolving and there can be no assurance that the Company will be able to compete successfully against current and future competitors. The failure to compete successfully could have a material adverse affect upon the Company's business, operating results and financial condition. PROPRIETARY TECHNOLOGY The Company relies on a combination of trademark, copyright and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect its proprietary rights in its products. Many products are distributed in object code form only, and all end-user license agreements prohibit the reverse engineering or decompiling of the Company's software. The Company is considering the possibility of obtaining patents covering its technology, and the Company intends to file applications for registration of its various trademarks in the near future. There can be no assurance that any trademark or patent applications will result in issued patents or trademarks or that, if issued, such patents or trademarks would be upheld if challenged. There can be no assurance that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. There can also be no assurance that the measures taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. In addition, the laws of various countries in which the Company's products may be sold may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. There can be no assurance that third parties will not assert intellectual property infringement claims against the Company or that any such claims will not require the Company to enter into royalty 36 arrangements or result in costly litigation. The Company is not the subject of any legal action alleging that the Company's products infringe on any copyright or trademark rights of any person, or of any violation of trade secrets or other proprietary rights claimed by any third party relating to the Company or the Company's products. However, the computer software market is characterized by frequent and substantial intellectual property litigation. Intellectual property litigation is complex and expensive, and the outcome of such litigation is difficult to predict. The Company believes that, due to the rapid pace of technological innovation for software products, the Company's ability to establish and maintain a position of technology leadership in the industry is dependent more upon the skills of its development personnel than upon the legal protections afforded its existing technology. Certain of the Company's products contain software that is licensed to the Company by third parties. There can be no assurance that these third-party software licenses will continue to be available to the Company on commercially reasonable terms. The loss of, or inability to maintain, any such software could result in shipment delays or reductions until equivalent software could be independently developed or licensed from a third party and integrated, which could materially adversely affect the Company's business operating results and financial condition. EMPLOYEES As of May 1, 1996, the Company had a total of 102 employees, 29 of whom were engaged in sales, marketing and alliance management, 25 were in research and development, 29 were in professional services and 19 were in general and administration. The Company's future success depends in significant part upon the continued service of its key technical and senior management personnel and its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for highly qualified personnel is intense and there can be no assurance that the Company will be able to retain its key managerial and technical employees or that it will be able to attract and retain additional and highly technical and managerial personnel in the future. None of the Company's employees is represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. The rapid execution necessary for the Company to fully exploit the market opportunity for its products and services requires an effective planning and management process. The Company's rapid growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. The senior members of the Company's management, including Klaus P. Besier, the Company's Chairman of the Board, President and Chief Executive Officer, John Burke, the Company's Vice President of Sales, Carolyn LoGalbo, the Company's Vice President of Marketing, and Joseph Gruttadauria, the Company's Vice President of Support Services and Quality, joined the Company during 1996. In addition, most of the Company's development and engineering staff was only recently hired. To manage its growth, the Company must continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The Company's future operating results also will depend on its ability to expand its sales and marketing organizations, implement and manage new distribution channels to penetrate different and broader markets and expand its support organization commensurate with the increasing base of its installed products. If the Company is unable to manage growth effectively, the Company's business, operating results and financial condition could be materially adversely affected. FACILITIES The Company leases approximately 26,000 square feet of office space in Watertown, Massachusetts under a five-year lease agreement which commenced in March, 1996. Management believes that although its current facilities are sufficient to meet its requirements for the foreseeable future, the Company may need to expand its existing facilities or obtain additional space in the future. Management believes that adequate facilities for expansion will be available, if necessary, in the greater Boston area at competitive rates. 37 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers, key employees and directors of the Company are as follows:
NAME AGE POSITION - ---- --- -------- Klaus P. Besier.............. 44 Chairman of the Board, President and Chief Executive Officer John Burke................... 36 Vice President of Sales William Cullen............... 37 Director of Product Development Joseph Gruttadauria.......... 36 Vice President of Support Services and Quality Carolyn LoGalbo.............. 45 Vice President of Marketing Craig Newfield............... 36 General Counsel and Secretary James Nondorf................ 28 Vice President of Strategic Alliances Eric Sockol.................. 35 Chief Financial Officer and Treasurer Albert Carnesale(1).......... 59 Director Manuel Diaz.................. 62 Director Stephen R. Levy(2)........... 56 Director Ofer Nemirovsky(2)........... 38 Director Sundar Subramaniam(1)........ 30 Director
- -------- (1) Member of Compensation Committee (2) Member of Audit Committee Klaus P. Besier has served as Chairman, President and Chief Executive Officer of the Company since February 1996. Mr. Besier has more than 20 years of experience in international management and computer services. From 1994 to 1996, Mr. Besier was the Chief Executive Officer of SAP America, Inc., a business application software vendor. From 1992 to 1993, Mr. Besier served as the President of SAP America, Inc. From 1991 to 1992, Mr. Besier was Vice President of Sales of SAP America, Inc. From 1977 to 1990, Mr. Besier held various senior management positions, including General Manager and Corporate Vice President, with various affiliates of Hoechst Celanese in Germany, Italy and the U.S. John Burke has served as Vice President of Sales of the Company since April 1996. From 1994 to 1996, Mr. Burke served as Senior Vice President of SAP America, Inc. and was responsible for the Midwest region. From 1990 to 1994, Mr. Burke held various senior sales management positions with SAP America, Inc. From 1981 to 1990, Mr. Burke held management and sales positions at Dun and Bradstreet Software (formerly Management Science America, Inc.) and International Business Machines. William Cullen has served as Director of Product Development of the Company since May 1995. From May 1994 to April 1995, Mr. Cullen served as a Software Architect for Progress Software Corporation, a 4GL software tools provider. From June 1993 to April 1994, Mr. Cullen served as Project Leader/Senior Software Engineer of Information Resources, Inc. From January 1991 to May 1993, Mr. Cullen was a software consultant at Softbridge Microsystems, Inc. Joseph Gruttadauria has served as Vice President of Support Services and Quality of the Company since April 1996. From March 1995 to April 1996, Mr. Gruttadauria served as Director of Customer Services for SAP America, Inc. Mr. Gruttadauria was responsible for building and managing SAP America's worldwide customer service and support organization. From 1989 to 1995, Mr. Gruttadauria served as Vice President of Services and Manufacturing for SoftSwitch, Inc., a supplier of enterprise electronic mail products. 38 Carolyn LoGalbo has served as Vice President of Marketing of the Company since March 1996. From 1993 to 1995, Ms. LoGalbo served as Chief Marketing Officer of MFS Intelenet Inc., a wholly owned subsidiary of MFS Communications Company. From 1990 to 1993, Ms. LoGalbo served as Category Manager at Kraft General Foods and was responsible for segmented coffee brands. From 1988 to 1990, Ms. LoGalbo served as Group Product Manager at Kraft General Foods and was responsible for Maxwell House Coffee. Prior to Kraft General Foods, Ms. LoGalbo served as Marketing Manager at Nestle Corporation. Craig Newfield has served as General Counsel to the Company since April 1996 and as Secretary of the Company since May 1996. From February 1993 to April 1996, Mr. Newfield served as in-house counsel for Marcam Corporation, a business application software vendor. From 1990 to 1993, Mr. Newfield was employed as an associate at the law firm of Jager, Smith, Stetler & Arata, P.C. From 1987 to 1990, Mr. Newfield was employed as an associate at the law firm of Brown, Rudnick, Freed & Gesmer. James Nondorf has served as Vice President of Strategic Alliances of the Company since February 1996. From 1995 to 1996, Mr. Nondorf served as the President and a director of the Company. From 1994 to 1996, Mr. Nondorf served as the Company's Chief Executive Officer. From 1990 to 1994, Mr. Nondorf served as the Chief Operating Officer of Cambridge Technology Group, a provider of technology seminars and executive training services. Mr. Nondorf also serves as a director of Open Environment Corporation. Eric Sockol has served as Chief Financial Officer and Treasurer of the Company since October 1995. From May 1995 to October 1995, Mr. Sockol served as Finance Director for Stream International Inc. (a merger of Corporate Software and Global Software Services), a manufacturer and reseller of PC software and related services. From June 1990 to May 1995, Mr. Sockol served as Finance Director and Corporate Controller for Corporate Software. Mr. Sockol is a Certified Public Accountant. Albert Carnesale has served as a director of the Company since April 1996. Dr. Carnesale is the Don K. Price Professor of Public Policy at Harvard University. Since July 1994, Dr. Carnesale has been Provost of Harvard University. From July 1991 through December 1995, Dr. Carnesale served as the Dean of the John F. Kennedy School of Government at Harvard University. From 1981 to 1991, Dr. Carnesale served as the Academic Dean of the John F. Kennedy School of Government of Harvard University. Dr. Carnesale has held positions with Martin Marietta Corporation from 1957 to 1962 and the United States Arms Control and Disarmament Agency from 1969 to 1972. He is also a member of the Council on Foreign Relations and of the International Institute for Strategic Studies. Dr. Carnesale also serves as a director of Open Environment Corporation and Teradyne, Inc. Manuel Diaz has served as a director of the Company since May 1996. Since 1993, Mr. Diaz has been a Vice President for Hewlett-Packard Company and general manager of worldwide sales, marketing and services for its Computer Systems Organization ("CSO"). Mr. Diaz joined HP Mexicana in Mexico City as its general manager in 1982, and was promoted to managing director of HP Latin America in 1986. In 1991, Mr. Diaz was named sales and marketing manager of CSO for the US, Canada and Latin America, and in 1993 named to his current position. Prior to joining HP, Mr. Diaz was director general of Infodinamica S.A. de C.V. in Mexico City, executive vice president of Bancomer, S.A. and general manager of IBM Corporation's Northern Latin America Region. Stephen R. Levy has served as a director of the Company since May 1996. Since 1995, Mr. Levy has been a private investor. Mr. Levy is presently a director of BBN Corporation (formerly Bolt Beranek and Newman Inc.) and previously served BBN as President and Chief Executive Officer from 1976 to 1983, as Chairman of the Board and Chief Executive Officer from 1983 to 1993, as Chairman of the Board, President and Chief Executive Officer in 1993, and as Chairman of the Board from 1994 to 1995. Mr. Levy also serves as a director of ThermoOptek Corporation. 39 Ofer Nemirovsky has served as a director of the Company since March 1996. Since December 1988, Mr. Nemirovsky has been a Vice President of, and a general partner of the respective general partners of several investment funds managed by, Hancock Venture Partners, Inc. ("HVP"). Prior to joining HVP in 1986, Mr. Nemirovsky held various computer sales and marketing positions at Hewlett-Packard. He is currently a director of NETCOM On-Line Communications Services, Inc. and AXENT Technologies, Inc., as well as several privately held companies. Sundar Subramaniam has been a director of the Company since January 1994. Since 1994, Mr. Subramaniam has been President of Cambridge Technology Enterprise, a group of companies which focus on the development of emerging technology and new markets. He is also Chairman of International Integration Incorporated ("I-Cube") and of Integrated Computing Engines ("ICE") and Adjunct Assistant Professor of Finance at Brandeis University. He served as Chairman of Business@Web from 1995 to 1996. From 1993 to 1994, Mr. Subramaniam was President and Chief Executive Officer of Open Environment Corporation, and from 1990 through 1993 he held various executive and management positions with Cambridge Technology Group. Officers of the Company are elected by, and serve at the discretion of, the Board of Directors. There are no family relationships among any of the executive officers or directors of the Company. BOARD OF DIRECTORS Each director holds office until that director's successor has been elected and qualified. The Company's Board of Directors is divided into three classes. Messrs. Nemirovsky and Subramaniam serve in the class whose term expires in 1997; Messrs. Carnesale and Levy serve in the class whose term expires in 1998; and Messrs. Besier and Diaz serve in the class whose term expires in 1999. Upon expiration of the term of each class of director, directors comprising such class will be elected for a three-year term at the annual meeting of stockholders in the year of which such term expires. Mr. Nemirovsky was nominated and elected to the Board of Directors pursuant to a voting agreement among certain stockholders of the Company. This agreement will terminate upon consummation of this offering. See "Certain Transactions". The Company's Board of Directors has established an Audit Committee (the "Audit Committee") and a Compensation Committee (the "Compensation Committee"). The Audit Committee recommends the firm to be appointed as independent accountants to audit the Company's financial statements and to perform services related to the audit, reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants the Company's year-end operating results and considers the adequacy of the Company's internal accounting procedures. The Audit Committee consists of Messrs. Levy and Nemirovsky. The Compensation Committee, which consists of Messrs. Carnesale and Subramanian, reviews and recommends the compensation arrangements for all directors and officers and approves such arrangements for other senior level employees. The Compensation Committee also administers and takes such other action as may be required in connection with the incentive plans of the Company, including the 1995 Stock Plan and the 1996 Stock Plan. DIRECTOR COMPENSATION Non-employee directors receive $1,250 for each Board of Directors meeting attended in addition to reimbursement for reasonable out-of-pocket expenses incurred. Non-employee directors are eligible to participate in the Company's 1996 Stock Plan under which each non-employee director will receive an initial option to purchase 7,000 shares upon first joining the board and thereafter receive an automatic grant to purchase 1,700 shares on each January 1, beginning in 1997, that such director is 40 a member of the Board of Directors. In addition, all of the current non- employee directors who joined the Board of Directors in 1996 shall be entitled to receive an option to purchase 7,000 shares of Common Stock upon consummation of this offering at a per share exercise price equal to the initial public offering price. All such options will vest equally over four years and have an exercise price equal to the fair market value of the Common Stock on the date of grant. See "--Stock Plans". EXECUTIVE COMPENSATION The following table sets forth all compensation paid by the Company during the fiscal year ended December 31, 1995 to the person who was employed during the fiscal year ended December 31, 1995 as the Company's Chief Executive Officer (the "Named Executive Officer"). No officer or employee of the Company received annual compensation exceeding $100,000 in 1995. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS(1) ------------ ------------ SECURITIES UNDERLYING YEAR SALARY OPTIONS ---- ------------ ------------ James Nondorf................................... 1995 $39,086 266,666 Former President and Chief Executive Officer(2)
- -------- (1) The Company did not grant any restricted stock awards or stock appreciation rights (SARs) or make any long-term incentive plan payouts during the fiscal year ended December 31, 1995. (2) Mr. Nondorf became Vice President of Strategic Alliances in February 1996. His current annual base salary is $110,000. The following information with regard to executive compensation is provided for the Company's current Chief Executive Officer and for the four other current most highly compensated officers of the Company: Klaus P. Besier joined the Company as Chairman, President and Chief Executive Officer in February 1996. Mr. Besier's annual salary is set at $200,000 for the years 1996 through 1998. Mr. Besier has been granted options to purchase 330,000 shares of Common Stock, at an exercise price of $7.50 per share, in lieu of receiving cash bonuses for the years 1996 through 1998. The options vest as follows: (i) an option for 180,000 shares vesting equally over three years and (ii) an option for 150,000 shares vesting equally in six annual installments subject, in each case, to accelerated vesting upon the occurrence of certain events. In connection with his employment, Mr. Besier purchased 960,000 shares of Common Stock from a principal stockholder of the Company for an aggregate purchase price of $1,440,000. At the time of that purchase, the fair market value of the Common Stock that Mr. Besier purchased exceeded the purchase price paid by him and the Company agreed to lend Mr. Besier up to $2,560,000 to fund his income tax liability on account of such purchase. See "Certain Transactions". Mr. Besier also received (i) a $1,000,000 payment from a principal stockholder of the Company and (ii) an agreement from such stockholder to provide him with a payment related to changes in the value of his interest in the SAP Phantom Convertible Debenture Appreciation Rights 1994/2004 Program. See "Certain Transactions". John Burke joined the Company as Vice President of Sales in April 1996. Mr. Burke's annual salary is set at $200,000 for the years 1996 through 1998. Mr. Burke has been granted an option to purchase 70,000 shares of Common Stock, at an exercise price of $7.50 per share, in lieu of receiving 41 cash bonuses for the years 1996 through 1998. In addition Mr. Burke was granted an option to purchase 333,333 shares of Common Stock at an exercise price of $7.50 per share. The options vest as follows: (i) an option for 220,000 shares vesting over three years; and (ii) an option for 183,333 shares vesting equally in six annual installments subject, in each case, to accelerated vesting at varying rates upon the occurrence of certain events. Joseph Gruttadauria joined the Company as Vice President of Support Services and Quality in April 1996. Mr. Gruttadauria's current base salary is $132,000 with a bonus of $80,000 for 1996. Mr. Gruttadauria was granted an option to purchase 46,666 shares of Common Stock at an exercise price of $7.50 per share, of which options for 13,333 shares vest within six months of grant and the remaining options vest in equal installments over four years. Carolyn LoGalbo joined the Company as Vice President of Marketing in March 1996. Ms. LoGalbo's annual salary is $200,000 plus a guaranteed cash bonus of $50,000 for 1996. Ms. LoGalbo was granted an option to purchase, in the aggregate, 233,333 shares of Common Stock at an exercise price of $7.50 per share. The options vest as follows: (i) an option for 200,000 shares vesting over two years and (ii) an option for 33,333 shares vesting equally in six annual installments subject, in each case, to accelerated vesting upon the occurrence of certain events. Craig Newfield joined the Company as General Counsel in March 1996. Mr. Newfield's current annual base salary is $110,000 plus a potential cash bonus of $15,000 for 1996. Mr. Newfield was granted an option to purchase 33,333 shares of Common Stock at an exercise price of $7.50 per share. The options granted have the following vesting provisions: (i) an option for 6,666 shares vesting in six months and (ii) the remaining option, for 26,667 shares, vesting over four years beginning on the first anniversary of the grant date. 42 OPTION GRANTS The following table sets forth certain information regarding stock options granted during the fiscal year ended December 31, 1995 by the Company to the Named Executive Officer. The Company granted no SARs during the fiscal year ended December 31, 1995. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS(1) FOR OPTION TERM(2) -------------------------------------------------- ----------------------------- PERCENT OF NUMBER OF TOTAL OPTIONS EXERCISE SECURITIES GRANTED PRICE UNDERLYING TO EMPLOYEES PER EXPIRATION OPTIONS GRANTED IN FISCAL YEAR SHARE(3) DATE(4) 5% 10% --------------- -------------- -------- ---------- ----------------------------- James Nondorf........... 66,666 5.41% $1.50 03/01/05 $ 62,889 $ 159,373 200,000 16.22% $4.50 10/01/05 $566,055 $1,434,368
- -------- (1) All options were granted at an exercise price equal to market value as determined by the Board of Directors of the Company on the date of grant. The Board of Directors determined the market value of the Common Stock based on various factors, including the illiquid nature of an investment in the Company's Common Stock, the Company's historical financial performance, the preferences (including liquidation) of the Company's outstanding Preferred Stock, the Company's future prospects and the price paid for securities of the Company in arms-length transactions with third parties. (2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based upon assumed rates of share price appreciation set by the Securities and Exchange Commission of 5% and 10% compounded 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, are dependent on the performance of the Common Stock and the date on which the option is exercised. There can be no assurance that the amounts reflected will be achieved. (3) The exercise price equals the fair market value of the Common Stock on the date of grant as determined by the Company's Board of Directors. (4) The vesting schedule for the option to purchase 66,666 shares of Common Stock was accelerated so as to become fully exercisable on February 19, 1996. The option to purchase 200,000 shares of Common Stock became exercisable with respect to 66,666 shares on March 8, 1996, and with respect to the remaining 133,333 shares will become exercisable when the Common Stock is listed for trading on the Nasdaq National Market. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth certain information with respect to the unexercised stock options held as of December 31, 1995 by the Named Executive Officer.
VALUE OF UNEXERCISED IN- NUMBER OF UNEXERCISED THE-MONEY OPTIONS OPTIONS AT DECEMBER 31, AT DECEMBER 31, 1995(1) 1995(1) ------------------------- ------------------------- NAME - ---- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE James Nondorf............... 16,666 250,000 $100,000 $900,000
- -------- (1) Calculated on the basis of the fair market value of the underlying securities at December 31, 1995 of $7.50 per share, as determined by the Company's Board of Directors, minus the per share exercise price. 43 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to May 1996, the Company did not have a Compensation Committee and decisions relating to executive compensation were made by the Board of Directors. On May 10, 1996, the Board of Directors established a Compensation Committee, consisting of Messrs. Carnesale and Subramaniam and delegated to the Compensation Committee responsibility for decisions concerning executive compensation. STOCK PLANS The Company's 1995 Stock Plan (the "1995 Plan") was adopted by the Board of Directors and approved by the stockholders of the Company in March 1995. The Company's 1996 Stock Plan (the "1996 Plan", and collectively with the 1995 Plan, the "Stock Plans") was adopted by the Board of Directors in May 1996 and approved by the stockholders in May 1996. The Company has reserved an aggregate of 3,500,000 shares of Common Stock for issuance under the Stock Plans. The Company's Stock Plans permit the grant of (i) options to purchase shares of Common Stock intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code"), (ii) options that do not so qualify, and (iii) shares of Common Stock. Each non-employee director first joining the Board of Directors in the future will receive an automatic option grant to purchase 7,000 shares of Common Stock when such director is first elected or appointed to the Board of Directors. In addition, each non-employee director will receive an automatic option grant to purchase 1,700 shares of Common Stock on each January 1 that such director is a member of the Board of Directors. All option shares granted to non-employee directors will vest in equal annual installments over a four-year period. All option grants to non-employee directors will be at a per share exercise price equal to the fair market value of the Common Stock at the time of grant. The Stock Plans are designed and intended as a performance incentive for officers, directors, employees, consultants and other key persons performing services for the Company to encourage such persons to acquire or increase a proprietary interest in the success of the Company. The Stock Plans are administered by the Compensation Committee as appointed by the Board of Directors from time to time. The Compensation Committee determines the terms of each individual stock option and stock award, subject to the terms of the Stock Plans, including the exercise price or purchase price of such awards. The exercise price for incentive stock options must be equal to the fair market value of the Common Stock on the date of grant. The exercise price for non-qualified stock options and the purchase price for Common Stock awards is determined at the discretion of the Compensation Committee. As of May 1, 1996, options to purchase 2,404,133 shares of Common Stock were outstanding and an additional 1,095,867 shares of Common Stock were available for issuance under the Stock Plans. EMPLOYEE STOCK PURCHASE PLAN The Company's Employee Stock Purchase Plan ("ESPP") was adopted by the Board of Directors and approved by the stockholders of the Company in May 1996. The Company has reserved a total of 150,000 shares of Common Stock for issuance under the ESPP. The ESPP, which is intended to qualify under Section 423(b) of the Code permits eligible employees of the Company to purchase Common Stock through payroll deductions of up to ten percent of their salaries. The price of Common Stock purchased under the ESPP will be 85% of the lower of the fair market value of the Common Stock on the first or last day of each six-month purchase period. The ESPP will be administered by the Compensation Committee of the Board of Directors. Employees are eligible to participate if they are customarily employed by the Company or any designated subsidiary for at least 20 hours per week. 44 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth the beneficial ownership of the Company's Common Stock as of May 1, 1996, and as adjusted to reflect the sale of the Company's Common Stock offered hereby at an assumed initial public offering price of $14.00 per share, by (i) each person or entity known to the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) each of the Company's directors, (iii) the Named Executive Officer, (iv) all directors and executive officers of the Company as a group and (v) each of the other Selling Stockholders. Except as indicated in the footnotes to this table, the Company believes that the persons named in this table have sole voting and investment power with respect to the shares of Common Stock indicated.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO THIS OWNED AFTER THIS OFFERING(1)(2) OFFERING(1)(2)(3) -------------------- -------------------- NUMBER OF DIRECTORS, OFFICERS SHARES AND 5% STOCKHOLDERS NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE - ------------------- --------- ---------- --------- --------- ---------- Sundar Subramaniam(4)...... 3,332,000 28.13% 200,000 3,132,000 21.10% 219 Vassar Street Cambridge, MA 02139 Moongate Holdings Ltd...... 3,009,697 25.41 311,641 2,698,056 18.17 Cedar House, 41 Cedar Ave- nue Hamilton, Bermuda HM 12 J&S Limited Partner- ship(5)................... 1,100,000 9.29 118,022 981,978 6.61 219 Vassar Street Cambridge, MA 02139 Legacy Investment Partner- ship(6)................... 1,333,333 11.26 -- 1,333,333 8.98 219 Vassar Street Cambridge, MA 02139 Klaus P. Besier............ 1,026,667 8.67 -- 1,026,667 6.92 c/o Business@Web, Inc One Arsenal Marketplace Watertown, MA 02172 James Nondorf(7)........... 66,666 * -- 66,666 * Albert Carnesale........... -- -- -- -- -- Manuel Diaz................ -- -- -- -- -- Stephen R. Levy(8)......... 33,333 * -- 33,333 * Ofer Nemirovsky(9)......... 528,567 4.46 -- 528,567 3.56 All directors and executive officers as a group (10 persons)(7)............... 4,987,233 41.87 200,000 4,787,233 32.10 OTHER SELLING STOCKHOLDERS - -------------------------- Pantio Holding Ltd.(10).... 132,142 1.12 120,337 11,805 *
45 * Less than one percent (1%). - -------- (1) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Shares of Common Stock subject to options currently exercisable or exercisable within 60 days after May 1, 1996 ("Currently Exercisable Options") are deemed outstanding for computing the percentage of a person holding such options but are not deemed outstanding for computing the percentage of any other person. For purposes of this table, stock options subject to acceleration upon the occurrence of events other than the passage of time are not deemed to be Currently Exercisable Options. (2) The conversion of the Series B Preferred Stock is based on an assumed initial public offering price of $14.00 per share. If the initial public offering price varies from $14.00 per share, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock is subject to adjustment from a maximum of 1,103,137 shares (in the event that the initial public offering price is $12.375 per share or less) to a minimum of 888,085 shares (in the event that the initial public offering price is $15.375 per share or greater). (3) Assumes no exercise of the Underwriters' over-allotment option. (4) Does not include 1,100,000 shares held by J&S Limited Partnership in which Mr. Subramaniam holds a 50% beneficial interest but over which Mr. Subramaniam exercises no voting or investment power. (5) John J. Donovan, Sr. is the president and sole stockholder of Controller Corp., Inc., the general partner of J&S Limited Partnership, and, as such, may be deemed the beneficial owner of these shares. (6) John J. Donovan, Jr. is the managing partner of Legacy Investment Partnership and, as such, has exclusive voting and investment power over these shares. (7) Includes 66,666 shares of Common Stock which may be purchased within 60 days of May 1, 1996 upon the exercise of stock options. (8) Includes 33,333 shares of Common Stock issuable upon conversion of Series C Preferred Stock. (9) Includes (i) 502,139 shares of Common Stock issuable upon conversion of Series B Preferred Stock held by Hancock Venture Partners IV-Direct Fund L.P. and (ii) 26,428 shares of Common Stock issuable upon conversion of Series B Preferred Stock held by Falcon Ventures II, L.P., of which partnerships Mr. Nemirovsky is a general partner of the respective general partners, but as to which Mr. Nemirovsky disclaims beneficial ownership. (10) Includes 132,142 shares of Common Stock issuable upon conversion of Series B Preferred Stock. 46 CERTAIN TRANSACTIONS Certain of the Company's principal stockholders are affiliated with each other through family and other relationships. Sundar Subramaniam, a director of the Company, and John J. Donovan, Sr., are limited partners, and Mr. Donovan, Sr. is the sole stockholder and president of the corporate general partner, of J&S Limited Partnership ("J&S"). Mr. Donovan Sr.'s adult children are the ultimate beneficial owners of the shares of Common Stock held by Moongate Holdings Ltd. ("Moongate") and Legacy Investment Partnership ("Legacy") and one of his sons, John J. Donovan, Jr., was the President of the Company from its inception through June 1995 and a director of the Company from its inception through March 1996. The shares of Common Stock currently held by Moongate were previously held by Harrington Trust Limited, as Trustee of the Appleby Trust ("Appleby"), the beneficiaries of which are Mr. Donovan Jr. and his siblings. See "Principal and Selling Stockholders". On May 3, 1995, the Company issued 6% 5-year convertible subordinated notes to each of J&S (in the original principal amount of $250,000) and Appleby (in the original principal amount of $750,000). On November 30, 1995, Appleby converted the promissory note held by it into 1,136,363 shares of Common Stock. In March 1996, the Company repaid in full the promissory note held by J&S. On December 29, 1995, Appleby loaned the Company the principal sum of $750,000 under a 9% 5-year subordinated note. The Company prepaid this note, in full, in March 1996. From its inception through March 1, 1996, the Company shared office facilities in Cambridge, Massachusetts with Cambridge Technology Group, Inc. ("CTGroup"). John J. Donovan, Sr. is the President, sole director and sole stockholder of CTGroup. During the period from the Company's inception until December 1995, CTGroup provided a variety of technical and support services for the Company and, from time to time, advanced funds to meet the Company's operating expenses. The Company has reimbursed CTGroup, at cost, for all services rendered and has repaid in full all amounts advanced for its benefit by CTGroup. For use of the shared office facilities in Cambridge, the Company reimbursed CTGroup for the Company's pro rata share (based on head count) of the lease and maintenance costs of the facilities. The Cambridge facilities are owned by a partnership in which Messrs. Donovan Sr. and Jr. are the partners. A number of the Company's employees are former employees of CTGroup. On July 28, 1995, in connection with the establishment by CTGroup of a credit facility for $2,500,000 with the State Street Bank and Trust Company ("State Street"), the Company gave an unlimited guaranty of all of CTGroup's obligations to State Street. The Company's obligations under the unlimited guaranty were terminated on February 16, 1996. In connection with the establishment by the Company of credit facilities in the aggregate amount of $5,000,000 with State Street on February 16, 1996, John J. Donovan, Sr., John J. Donovan, Jr. and J&S each gave an unlimited guaranty of all of the Company's obligations to State Street. The guaranty of J&S is secured by a pledge of 520,000 shares of common stock of Open Environment Corporation ("OEC"). At April 30, 1996, the total amount outstanding under the Company's credit facilities with State Street was $2,000,000. Upon completion of this offering, the Company intends to request that State Street terminate the guaranty obligations of Messrs. Donovan Sr. and Jr. and J&S. The Company intends to use a portion of the proceeds of this offering to repay the amounts borrowed under the $2,000,000 term loan portion of this credit facility upon maturity in September 1996. See "Use of Proceeds". John J. Donovan, Sr. has also personally guaranteed the performance by the Company of its obligations under the lease of the Company's headquarters in Watertown, Massachusetts. Mr. Donovan's obligation under the lease guaranty will terminate upon consummation of this offering. Legacy, J&S and Mr. Subramaniam have also agreed with the Company that, in the event this offering is not successful, they will provide the funding, if any, necessary to sustain the Company's operations through December 31, 1996. The terms on which such funding would be provided would be determined by negotiation between such stockholders and the Company at the time of any such funding. 47 In connection with the Company's offer of employment to Klaus P. Besier as President and Chief Executive Officer, J & S made a $1,000,000 payment to Mr. Besier. The Company incurred no liability for such payment. As a former employee of SAP America, Mr. Besier continues to be a participant in the SAP Phantom Convertible Debenture Appreciation Right 1994/2004 Program (the "SAP Plan") pursuant to which he holds a phantom stock appreciation right evidencing the right to receive the appreciation in value of a specified number of shares of SAP Preferred Stock. In connection with the Company's offer of employment and as an inducement to Mr. Besier, J&S also agreed to pay Mr. Besier an amount equal to the amount, if any, by which the value of his stock appreciation right decreases between the date of such offer and September 30, 1996. The Company has no liability or responsibility to make any payment to Mr. Besier in connection with the SAP Plan. In addition, Appleby sold 960,000 shares of Common Stock to Mr. Besier for a purchase price of $1.50 per share, for an aggregate purchase price of $1,440,000. At the time of this stock purchase, the Common Stock had a fair market value of $7.50 per share. As an inducement to Mr. Besier to accept the Company's employment offer, the Company agreed to lend Mr. Besier up to $2,600,000 to fund the amount of income tax liability incurred by Mr. Besier in connection with this stock purchase based upon the difference between the purchase price for the shares and the fair market value of the shares at the time of such purchase. The Company and OEC are parties to a Software, Education, Services Distribution Agreement dated June 21, 1995 (as amended, the "Distribution Agreement"), pursuant to which the Company is authorized to distribute, on a non-exclusive basis, worldwide (except Japan) OEC's software products and services. The Distribution Agreement expires on June 21, 1997, subject to annual renewals by mutual consent. Under the Distribution Agreement, the Company purchased, for $260,000, a master copy of OEC's software products and received the right to make 25 copies of such software for resale during the term of the Distribution Agreement. The Company is entitled to purchase for resale additional copies of OEC software products at a discount of 50% below OEC's list price, and to resell OEC services and education products at a discount of 25% below OEC's list price. Under the Distribution Agreement, the Company is prohibited from marketing, reselling or advocating products or services competitive with the products or services of OEC. At the time the Company entered into the Distribution Agreement, John J. Donovan, Jr. was President and a director of the Company and a director of OEC and John J. Donovan, Sr. was the Chairman of the Board of OEC. Sundar Subramaniam is a former President and former director of OEC. James G. Nondorf, formerly President and a director of the Company and currently the Company's Vice President of Strategic Alliances, is a director of OEC. Appleby, Legacy, J&S and Mr. Subramaniam are principal stockholders of OEC. A number of the Company's employees are former employees of OEC. On October 31, 1995, the Company sold to OEC the source code for certain software technology relating to the customization and enhancement of SAP software products. OEC paid the Company an initial fee of $500,000 under the agreement by which the source code was transferred, and agreed to pay the Company a royalty in an amount equal to 20% of the first $1,000,000 of sales revenue recognized by OEC related to products incorporating components of the transferred source code and 10% of such sales revenues in excess of $1,000,000. OEC's royalty obligations expire on the earlier of October 1, 1997 or the date on which OEC's aggregate sales revenues related to products incorporating components of the transferred source code exceed $3,000,000. The Company and OEC are also parties to an OEM Source Code License Agreement dated as of December 29, 1995 (the "OEM Agreement"), pursuant to which the Company holds a perpetual, non-exclusive license to incorporate certain OEC software products into, or bundle such products with, the Company's software products and has received the source code for such OEC products. The Company paid a license fee of $2,200,000 to OEC under the OEM Agreement. The Company has allocated the cost of the source code to research and development expenses in 1995. 48 The Company, from time to time, sub-contracts consulting services from International Integration Incorporated, in which Sundar Subramanian is a significant stockholder and the Chairman of the Board of Directors. During the fiscal year ended December 31, 1995, fees for these consulting services totaled $662,000. During April 1996, the Company repurchased an aggregate of 800,000 shares of Common Stock from four stockholders, at a price of $7.50 per share. Of these shares, 66,667 shares were repurchased from James Nondorf, a former President and director of the Company and the current Vice President of Strategic Alliances, for an aggregate price of $500,000; 233,333 shares were repurchased from J&S, for an aggregate price of $1,750,000; and 233,333 shares were repurchased from Appleby, for an aggregate price of $1,750,000. The remaining 266,667 shares were repurchased from Len Hafetz for an aggregate price of $2,000,000, pursuant to a Stock Purchase Agreement between Mr. Hafetz and John Donovan, Sr., who assigned his rights and obligations under such agreement to the Company. Since February 29, 1996, the Company has sold 1,332,127 shares of Series B Preferred Stock at a purchase price per share of $5.54 and 1,200,000 shares of Series C Preferred Stock at a purchase price per share of $5.00. Such shares of Preferred Stock will be converted into shares of Common Stock as provided by a formula set forth in the Company's Restated Certificate of Incorporation. See "Description of Capital Stock--Authorized and Outstanding Capital Stock". All of the Convertible Preferred Stock has been granted registration rights by the Company. See "Description of Capital Stock--Registration Rights". In connection with the purchase of Series B Preferred Stock, certain purchasers of such stock and certain common stockholders agreed that such stockholders would vote their shares to elect one director to the Board of Directors designated by the holders of the Series B Preferred Stock. Pursuant to such agreement, Ofer Nemirovsky, a general partner of the general partners of certain investment funds which participated in such offering, was nominated and elected to the Board of Directors. This Agreement will terminate upon consummation of this offering. In connection with its purchase of Series B Preferred Stock, Hewlett-Packard Company was granted a right of first refusal, for as long as it owns at least 36,603 shares of Common Stock, with respect to securities of the Company which the Company proposes to sell in private placements to designated computer hardware manufacturers and other companies that derive a majority of their revenues from the sale of computer hardware. 49 DESCRIPTION OF CAPITAL STOCK The description of the capital stock below is qualified in its entirety by reference to the Company's Third Amended and Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") and Amended and Restated By-Laws ("Restated By-Laws" together with the Restated Certificate of Incorporation, the "Charter Documents"), copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. See "Additional Information". AUTHORIZED AND OUTSTANDING CAPITAL STOCK Immediately following the consummation of this offering, the authorized capital stock of the Company will consist of 50,000,000 shares of Common Stock, par value $.001 per share ("Common Stock"), and 5,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"). Prior to the commencement of this offering, the Company's authorized capital stock included the following shares: 30,000,000 shares of Common Stock, of which 10,069,696 shares were issued and outstanding, 1,332,127 shares of Series B Redeemable Convertible Preferred Stock, par value $1.00 per share ("Series B Preferred Stock"), of which 1,332,127 shares were issued and outstanding, and 1,220,000 shares of Series C Convertible Preferred Stock, par value $1.00 per share ("Series C Preferred Stock"), of which 1,200,000 were issued and outstanding. Upon consummation of this offering, all of the issued and outstanding shares of Series C Preferred Stock will convert into 799,994 shares of Common Stock. Upon consummation of this offering at an offering price of $14.00 per share, all of the issued and outstanding shares of Series B Preferred Stock will convert into 975,200 shares of Common Stock. If the initial public offering price varies from $14.00 per share, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock is subject to adjustment from a maximum of 1,103,137 shares (in the event that the initial public offering price is $12.375 per share or less) to a minimum of 888,085 shares (in the event that the initial public offering price is $15.375 per share or greater). Immediately following such conversion, all such shares of the Preferred Stock shall have been cancelled, retired and eliminated from the Company's authorized capital stock. At May 1, 1996, the Company's Series B Preferred Stock, Series C Preferred Stock and Common Stock were held of record by 32 stockholders. COMMON STOCK Holders of Common Stock are entitled to one vote per share on all matters to be voted on by stockholders. Holders of Common Stock are not entitled to cumulative voting rights. Therefore, the holders of a majority of the shares voted in the election of directors can elect all of the Directors then standing for election, subject to the rights of the holders of Preferred Stock, if and when issued. The holders of Common Stock have no preemptive or other subscription rights. The holders of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors from funds legally available therefor, with each share of Common Stock sharing equally in such dividends. The possible issuance of Preferred Stock with a preference over Common Stock as to dividends could impact the dividend rights of holders of Common Stock. See "Dividend Policy". There are no redemption or sinking fund provisions with respect to the Common Stock. All outstanding shares of Common Stock, including the shares offered hereby, are, or will be upon completion of this offering, fully paid and non-assessable. The Restated By-laws provide, subject to the rights of the holders of the Preferred Stock, if and when issued, that the number of directors shall be fixed by the Board of Directors. The directors, other than those who may be elected by the holders of Preferred Stock, if and when issued, are divided into three classes, as nearly equal in number as possible, with each class serving for a three-year term, 50 except with respect to the initial term of each class of directors which shall be for the period described under "Management--Board of Directors". Subject to any rights of the holders of Preferred Stock, if and when issued, to elect directors, and to remove any director whom the holders of any such stock had the right to elect, any director of the Company may be removed from office only with cause and by the affirmative vote of at least two-thirds of the total votes eligible to be cast by stockholders in the election of such director. UNDESIGNATED PREFERRED STOCK Upon consummation of this offering, the Board of Directors of the Company will be authorized, without further action of the stockholders of the Company, to issue up to 5,000,000 shares of Preferred Stock in classes or series and to fix the designation, voting powers, preferences and the relative, participating optional and other special rights of the shares of each series and any qualifications, limitations and restrictions thereon as set forth in the Restated Certificate of Incorporation. Any such Preferred Stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preferences or both, may have full or limited voting rights and may be convertible into shares of Common Stock. The purpose of authorizing the Board of Directors to issue Preferred Stock is, in part, to eliminate delays associated with a stockholder vote on specific issuances. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring or seeking to acquire, a significant portion of the outstanding stock of the Company. WARRANT On February 16, 1996, in connection with the establishment of a bank credit facility, the Company issued to SSB Investments, Inc. a warrant (the "Warrant") to purchase 23,333 shares of Common Stock at an exercise price per share of $8.31. The Warrant is exercisable in whole or in part, at any time on or before February 15, 2003. CERTAIN PROVISIONS OF THE COMPANY'S CHARTER DOCUMENTS A number of provisions of the Company's Restated Certificate of Incorporation and Restated By-laws concern matters of corporate governance and the rights of stockholders. Certain of these provisions, as well as the ability of the Board of Directors to issue shares of Preferred Stock and to set the voting rights, preferences and other terms thereof, may be deemed to have an anti-takeover effect and may discourage takeover attempts not first approved by the Board of Directors (including takeovers which certain stockholders may deem to be in their best interests). These provisions, together with the classified Board of Directors and the ability of the Board of Directors to issue Preferred Stock without further stockholder action, also could delay or frustrate the removal of incumbent directors or the assumption of control by stockholders, even if such removal or assumption would be beneficial to stockholders of the Company. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the interests of stockholders, and could potentially depress the market price of the Common Stock and deprive stockholders of an opportunity to receive a premium for their shares. The Board of Directors of the Company believes that these provisions are appropriate to protect the interests of the Company and all of its stockholders. The Board of Directors has no present plans to adopt any other measures or devices which may be deemed to have an "anti-takeover effect". MEETINGS OF STOCKHOLDERS. The Restated By-laws provide that a special meeting of stockholders may be called only by the Chief Executive Officer or the Board of Directors unless otherwise required by law. The Restated By-laws provide that only those matters set forth in the notice of the special meeting may be considered or acted upon at that special meeting, unless otherwise provided by law. In addition, the Restated By-laws set forth certain advance notice and informational requirements and time limitations on any director nomination or any new business which a stockholder wishes to propose for consideration at an annual meeting of stockholders. 51 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Restated Certificate of Incorporation provides that any action required or permitted to be taken by the stockholders of the Company at an annual or special meeting of stockholders must be effected at a duly called meeting and may not be taken or effected by a written consent of stockholders in lieu thereof. INDEMNIFICATION AND LIMITATION OF LIABILITY. The Restated By-laws provide that directors and officers of the Company shall be, and in the discretion of the Board of Directors non-officer employees may be, indemnified by the Company to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended, against all expenses and liabilities reasonably incurred in connection with service for or on behalf of the Company. The Restated By-laws also provide that the right of directors and officers to indemnification shall be a contract right and shall not be exclusive of any other right now possessed or hereafter acquired under any by-law, agreement, vote of stockholders or otherwise. The Restated Certificate of Incorporation contains a provision permitted by Delaware law that generally eliminates the personal liability of directors for monetary damages for breaches of their fiduciary duty, including breaches involving negligence or gross negligence in business combinations, unless the director has breached his or her duty of loyalty failed to act in good faith, engaged in intentional misconduct or a knowing violation of law, paid a dividend or approved a stock repurchase in violation of the Delaware General Corporation Law or obtained an improper personal benefit. This provision does not alter a director's liability under the federal securities laws. In addition, this provision does not affect the availability of equitable remedies, such as an injunction or rescission, for breach of fiduciary duty. AMENDMENT OF RESTATED CERTIFICATE. The Restated Certificate of Incorporation provides that an amendment thereof must first be approved by a majority of the Board of Directors and (with certain exceptions) thereafter approved by the holders of a majority of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal; provided however, that the affirmative vote of not less than 80% of the total votes eligible to be cast by holders of voting stock, voting together as a single class, is required to amend the provisions described above. AMENDMENT OF RESTATED BY-LAWS. The Restated Certificate of Incorporation provides that the Restated By-laws may be amended or repealed by the Board of Directors or by the stockholders. Such action by the Board of Directors requires the affirmative vote of a majority of the directors then in office. Such action by the stockholders requires the affirmative vote of the holders of at least two-thirds of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal at an annual meeting of stockholders or a special meeting called for such purpose, unless the Board of Directors recommends that the stockholders approve such amendment or repeal at such meeting, in which case such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast by holders of voting stock with respect to such amendment or repeal. STATUTORY BUSINESS COMBINATION PROVISION Upon completion of the offering, the Company will be subject to the provisions of Section 203 of the Delaware General Corporation Law ("Section 203"). Section 203 provides, with certain exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person, or affiliate or associate of such person, who is an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless: (i) the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, (ii) the interested stockholder acquired 85% or more of the outstanding voting stock of the corporation in the 52 same transaction that makes it an interested stockholder (excluding shares owned by persons who are both officers and directors of the corporation, and shares held by certain employee stock ownership plans) or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. Under Section 203, an "interested stockholder" is defined (with certain limited exceptions) as any person that is (i) the owner of 15% or more of the outstanding voting stock of the corporation or (ii) an affiliate or associate of the corporation that was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. A corporation may, at its option, exclude itself from the coverage of Section 203 by amending its certificate of incorporation or by-laws by action of its stockholders to exempt itself from coverage, provided that such charter or by-law amendment shall not become effective until twelve months after the date it is adopted. Neither the Restated Certificate of Incorporation nor the Restated By-laws of the Company contains any such exclusion. REGISTRATION RIGHTS The holders of the Company's Series B Preferred Stock (the "Series B Investors") and the holders of the Company's Series C Preferred Stock (with the Series B Investors, the "Preferred Registration Rights Holders") who collectively will own a total of 1,654,857 shares of Common Stock (the "Preferred Registrable Securities") upon the closing of this offering at an initial offering price of $14.00 per share, and SSB Investments, Inc. the Warrant Holder (with the Preferred Registration Rights Holders, the "Registration Rights Holders") who will have the right to under the Warrant to acquire 23,333 shares of Common Stock (with the Preferred Registrable Securities, the "Registrable Securities"), are parties to agreements with the Company under which each has certain rights with respect to the registration under the Securities Act, for resale to the public, of such Registrable Securities. If the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders, the Registration Rights Holders are entitled to notice of such registration and to include their shares of Registrable Securities therein, subject to certain conditions and limitations, which include the right of the managing underwriter of any such offering to exclude some or all of such shares from such registration. Each of the Preferred Registration Rights Holders had these so-called "piggy-back" registration rights with respect to this offering and the shares of Common Stock being sold in this offering by Pantio Holding Ltd. have been included pursuant to the exercise of such rights. Additionally, the Series B Investors have certain demand registration rights pursuant to which they may require the Company on two occasions to register all or part of their shares of Registrable Securities for resale to the public under the Securities Act, subject to certain conditions and limitations, including the requirement that the anticipated aggregate price of the shares to be registered exceeds $10,000,000 and the right of the Company not to effect such requested registration within 180 days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering of the securities of the Company under the Securities Act. Further, the Series B Investors may require the Company to file additional registration statements on Form S-3 if the Company qualifies for the use of such form, subject to certain conditions and limitations. The Company is required to bear the expenses of all such registrations (except underwriting discounts and commissions) and to use its best efforts to effect such registrations. TRANSFER AGENT AND REGISTRAR The Company has selected Boston EquiServe Limited Partnership as the transfer agent and registrar for the Common Stock. 53 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 14,844,890 shares of Common Stock (assuming no exercise of outstanding options after May 1, 1996). Of these shares, the 3,000,000 shares sold in this offering will be freely transferable without restriction or further registration under the Securities Act unless purchased by "affiliates" of the Company as that term is defined in Rule 144 of the Securities Act (an "Affiliate"), which shares will be subjected to the resale limitations of Rule 144 adopted under the Securities Act. The remaining 11,844,890 shares outstanding upon completion of this offering and held by existing stockholders will be "Restricted Securities" as that term is defined under 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 or 701 promulgated under the Securities Act, which rules are summarized below. As a result of the contractual restrictions described below, and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows: (i) 108,113 shares issuable upon the exercise of stock options granted under the 1995 Plan and the 1996 Plan that are vested or will vest and, if exercised, will become eligible for sale without lock-up restrictions on various dates prior to 180 days following the date of this Prospectus, (ii) 6,098,667 currently outstanding shares will be eligible for sale upon expiration of lock-up agreements 180 days after the date of this Prospectus (as well as 749,111 additional shares issuable upon the exercise of stock options granted under the 1995 Plan and the 1996 Plan that will be vested as of such date) and (iii) 11,844,890 currently outstanding shares will be eligible for sale upon expiration of their respective two-year holding periods, subject in the case of shares held by affiliates to compliance with certain volume restrictions. 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 two years (and, with respect to non-affiliates of the Company, a person who has beneficially owned Restricted Securities less than three years), will be entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Company's Common Stock (approximately 148,448 shares immediately after the offering) or (ii) the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Such sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned Restricted Shares for at least three years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. The Securities and Exchange Commission has recently proposed to reduce the two and three year holding periods under Rule 144 to one and two years, respectively. If enacted, such modification will have a material effect on the timing of when certain shares of Common Stock become eligible for resale. In addition, following the offering, the holders of 1,775,194 shares of outstanding Common Stock and 23,333 shares of Common Stock issuable upon exercise of a certain warrant will have rights under certain circumstances to require the Company to register their shares for future sale. See "Description of Capital Stock--Registration Rights of Certain Holders". Rule 701 permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director of or consultant to the Company who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 54 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this Prospectus before selling such shares. Persons who hold approximately 8,412,394 shares of the Company's Common Stock after completion of the offering, including all officers, directors and existing stockholders of the Company, have agreed with the Representatives and/or the Company that, for a period of 180 days following the date of this Prospectus, they will not sell, offer to sell, contract to sell, grant any option to purchase, make any short sale or otherwise dispose of any shares of Common Stock of the Company, or any options or warrants to purchase any shares of Common Stock of the Company, or any securities convertible into or exchangeable for shares of Common Stock of the Company, whether now owned or hereinafter acquired, by such holders or with respect to which they have beneficial ownership within the rules and regulations of the SEC. The Company has also agreed not to sell, offer to sell, contract to sell, grant any option to purchase or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or any rights to acquire Common Stock for a period of 180 days following the date of this Prospectus without the prior written consent of Goldman, Sachs & Co. on behalf of the Underwriters, subject to certain limited exceptions. The lockup agreements may be released at any time as to all or any portion of the shares subject to such agreements at the sole discretion of Goldman, Sachs & Co. on behalf of the Underwriters. Promptly following the consummation of this offering, the Company intends to file a Registration Statement on Form S-8 to register the shares of Common Stock issuable upon exercise of options granted under the 1995 Plan, the 1996 Plan and the ESPP. Following the filing of the Form S-8, shares of Common Stock issued under the 1995 Plan, the 1996 Plan and the ESPP will be available for sale in the public market upon vesting and exercise of such options, subject to lock-up restrictions described above and the Rule 144 volume limitations applicable to affiliates. Prior to this offering, there has been no prior public market for the Common Stock and there is no assurance a significant public market for the Common Stock will develop or be sustained after this offering. Sales of a substantial amount of 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 the sale of its equity securities. See "Risk Factors". 55 LEGAL MATTERS The validity of the shares of Common Stock offered by this Prospectus will be passed upon for the Company and the Selling Stockholders by Peabody & Arnold, Boston, Massachusetts. Certain other legal matters in connection with this offering will be passed upon for the Company by Goodwin, Procter & Hoar llp, Boston, Massachusetts, for the Selling Stockholders by Peabody & Arnold and for the Underwriters by Hale and Dorr, Boston, Massachusetts. EXPERTS The financial statements and schedule for the period from inception (January 19, 1994) to December 31, 1994 and the year ended December 31, 1995 included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (of which this Prospectus is a part) under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information about the Company and the securities offered by this Prospectus, reference is made to the Registration Statement, including the exhibits and schedules filed as a part thereof. Statements made in this Prospectus as to the contents of any document referred to are not necessarily complete, and in each instance, if such document is filed as an exhibit, reference is made to such exhibit and each such statement is qualified in its entirety by such reference. The Registration Statement, including exhibits and schedules thereto, filed by the Company with the Commission may be inspected, without charge, and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024; 7 World Trade Center, New York, New York 10048, Room 1400; and 500 West Madison Street, Chicago, Illinois 60661, Suite 1400. Copies of such materials also may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates. 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. The Company intends to furnish its stockholders with annual reports containing audited financial statements and an opinion thereon expressed by independent auditors and with quarterly reports for the first three quarters of each fiscal year containing unaudited summary financial information. 56 BUSINESS@WEB, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................................. F-2 Balance Sheets as of December 31, 1994 and 1995, March 31, 1996 (unau- dited) and Pro Forma as of March 31, 1996 (unaudited)............................... F-3 Statements of Operations for the Period from Inception (January 19, 1994) to December 31, 1994 for the Year Ended December 31, 1995 and for the Three- Months Ended March 31, 1995 and 1996 (unaudited)......................... F-4 Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Period from Inception (January 19, 1994) to December 31, 1994, for the Year Ended December 31, 1995, for the Three-Months Ended March 31, 1996 (unaudited) and Pro Forma as of March 31, 1996 (unaudited)...... F-5 Statements of Cash Flows for the Period from Inception (January 19, 1994) to December 31, 1994, for the Year Ended December 31, 1995 and the Three- Months Ended March 31, 1995 and 1996 (unaudited)......................... F-6 Notes to Financial Statements............................................. F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Business@Web, Inc.: We have audited the accompanying balance sheets of Business@Web, Inc. (a Delaware corporation) as of December 31, 1994 and 1995, and the related statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for the period from inception (January 19, 1994) to December 31, 1994 and for the year ended December 31, 1995. 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 financial position of Business@Web, Inc. as of December 31, 1994 and 1995, and the results of its operations and its cash flows for the period from inception (January 19, 1994) to December 31, 1994 and for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts March 12, 1996 (except with respect to the matters discussed in Note 6 as to which the date is May 20, 1996) F-2 BUSINESS@WEB, INC. BALANCE SHEETS
DECEMBER 31, MARCH 31, 1996 ------------------------ -------------------------- PRO FORMA 1994 1995 ACTUAL (NOTE 1) ----------- ----------- ------------ ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equiva- lents (Note 1)......... $ 70 $ 104,622 $ 4,822,127 $ 4,792,127 Accounts receivable, less reserve of $100,000 and $150,000 at December 31, 1995 and March 31, 1996, respectively........... -- 1,908,541 1,775,199 1,775,199 Inventories (Note 1).... -- 292,000 227,000 227,000 Prepaid expenses and other current assets... -- 157,333 573,329 573,329 Due from affiliates (Note 7)............... -- -- 168,793 168,793 ----------- ----------- ------------ ------------ Total current as- sets............... 70 2,462,496 7,566,448 7,536,448 ----------- ----------- ------------ ------------ Property and Equipment, at cost (Note 1): Computer and office equipment.............. 76,078 226,550 1,074,336 1,074,336 Furniture and fix- tures.................. -- -- 371,978 371,978 Leasehold improve- ments.................. -- -- 41,252 41,252 ----------- ----------- ------------ ------------ 76,078 226,550 1,487,566 1,487,566 Less--Accumulated depreciation and amortization........... 12,680 63,118 115,483 115,483 ----------- ----------- ------------ ------------ Net property and equipment.......... 63,398 163,432 1,372,083 1,372,083 ----------- ----------- ------------ ------------ Total assets........ $ 63,468 $ 2,625,928 $ 8,938,531 $ 8,908,531 =========== =========== ============ ============ LIABILITIES AND STOCK- HOLDERS' EQUITY (DEFI- CIT) Current Liabilities: Accounts payable........ $ 275,000 $ 575,575 $ 2,153,072 $ 2,153,072 Note payable to a bank (Note 2)............... -- -- 2,000,000 2,000,000 Due to affiliates (Note 7)..................... 656,844 2,938,086 553,302 553,302 Accrued expenses........ -- 637,613 3,467,396 3,467,396 Deferred revenues (Note 1)..................... -- 278,572 317,421 317,421 ----------- ----------- ------------ ------------ Total current lia- bilities........... 931,844 4,429,846 8,491,191 8,491,191 ----------- ----------- ------------ ------------ Long-Term Debt to Stockholders (Note 3)... -- 1,000,000 -- -- Commitments (Note 9) Redeemable Convertible Preferred Stock (Note 5)...................... -- -- 7,379,984 -- ----------- ----------- ------------ ------------ Stockholders' Equity (Deficit) (Note 6): Preferred stock, $1.00 par value-- Authorized--5,000,000 shares Issued and outstand- ing--no shares....... -- -- -- -- Common stock, $.001 par value-- Authorized--50,000,000 shares Issued and outstanding-- 7,933,333 shares at December 31, 1994, 10,803,030 shares at December 31, 1995 and March 31, 1996 and 11,778,224 shares at March 31, 1996 pro forma............ 7,933 10,803 10,803 11,778 Additional paid-in cap- ital................... 303,967 1,230,597 8,145,597 15,494,606 Note receivable from executive officer...... -- -- (2,560,000) (2,560,000) Deferred compensation... -- (166,594) (135,480) (135,480) Accumulated deficit..... (1,180,276) (3,878,724) (12,393,564) (12,393,564) ----------- ----------- ------------ ------------ Total stockholders' equity (deficit)... (868,376) (2,803,918) (6,932,644) 417,340 ----------- ----------- ------------ ------------ Total liabilities and stockholders' equity (deficit)... $ 63,468 $ 2,625,928 $ 8,938,531 $ 8,908,531 =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements. F-3 BUSINESS@WEB, INC. STATEMENTS OF OPERATIONS
PERIOD FROM INCEPTION (JANUARY 19, 1994) THREE MONTHS ENDED TO YEAR ENDED MARCH 31, DECEMBER 31, DECEMBER 31, ---------------------- 1994 1995 1995 1996 ------------------ ------------ --------- ----------- (UNAUDITED) Revenues (Note 1): Software license and maintenance... $ -- $ 2,150,735 $ 42,940 $ 710,181 Consulting and education services.. -- 3,918,927 373,495 1,670,520 ----------- ----------- --------- ----------- Total revenues.................. -- 6,069,662 416,435 2,380,701 ----------- ----------- --------- ----------- Cost of Revenues (Note 1): Software license and maintenance... -- 716,392 22,400 288,980 Consulting and education services.. -- 2,684,216 171,920 974,244 ----------- ----------- --------- ----------- Total cost of revenues.......... -- 3,400,608 194,320 1,263,224 ----------- ----------- --------- ----------- Gross profit.................... -- 2,669,054 222,115 1,117,477 ----------- ----------- --------- ----------- Operating Expenses: Selling, general and administrative.................... 285,962 2,107,956 337,488 1,701,196 Research and development (Note 1).. 894,314 3,181,972 174,723 398,592 Compensation to executive officer (Note 10)......................... -- -- -- 7,515,000 ----------- ----------- --------- ----------- Total operating expenses........ 1,180,276 5,289,928 512,211 9,614,788 ----------- ----------- --------- ----------- Operating loss.................. (1,180,276) (2,620,874) (290,096) (8,497,311) Interest Expense, net............... -- 77,574 -- 17,529 ----------- ----------- --------- ----------- Net loss........................ $(1,180,276) $(2,698,448) $(290,096) $(8,514,840) =========== =========== ========= =========== Pro Forma Net Loss per Common and Common Equivalent Share (Note 1)... $ (.21) $ (.65) =========== =========== Pro Forma Weighted Average Number of Common and Common Equivalent Shares Outstanding (Note 1)............... 12,871,554 13,140,961 =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 BUSINESS@WEB, INC. STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE CONVERTIBLE PREFERRED STOCK ----------------------- NUMBER OF CARRYING SHARES VALUE ---------- ----------- Initial issuance of stock at inception at $.0015 per share........... -- $ -- Contribution from stockholders for purchase of Series A preferred stock.......... -- -- Net loss........ -- -- ---------- ----------- Balance, December 31, 1994........ -- -- Issuance of common stock at $.0015 per share.......... -- -- Issuance of Series A preferred stock at $1.20 per share.......... -- -- Conversion of Series A preferred stock into common stock.......... -- -- Conversion of long-term debt to stockholders into common stock at $.66 per share...... -- -- Deferred compensation related to grant of stock options........ -- -- Compensation expense related to stock options........ -- -- Net loss........ -- -- ---------- ----------- Balance, December 31, 1995........ -- -- Issuance of Series B redeemable convertible preferred stock at $5.54 per share, net of issuance costs of $600,000.... 1,332,127 7,379,984 Compensation expense to executive officer........ -- -- Issuance of note receivable from executive officer........ -- -- Compensation expense related to stock options........ -- -- Net loss........ -- -- ---------- ----------- Balance, March 31, 1996 (Unaudited)..... 1,332,127 7,379,984 Pro forma effect of issuance of Series C convertible preferred stock at $5.00 per share, net of issuance costs of $30,000 (unaudited).... -- -- Pro forma effect of repurchase and retirement of common stock at $7.50 per share (unaudited).... -- -- Pro forma effect of conversion of redeemable convertible preferred stock and convertible preferred stock into common stock (unaudited).... (1,332,127) (7,379,984) ---------- ----------- Pro Forma Balance, March 31, 1996 (Unaudited)..... -- $ -- ========== =========== STOCKHOLDERS' EQUITY (DEFICIT) ----------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK COMMON STOCK NOTE ------------------------ --------------------- RECEIVABLE TOTAL NUMBER NUMBER ADDITIONAL FROM STOCKHOLDERS' OF $1.00 OF $.001 PAID-IN EXECUTIVE DEFERRED ACCUMULATED EQUITY SHARES PAR VALUE SHARES PAR VALUE CAPITAL OFFICER COMPENSATION DEFICIT (DEFICIT) ----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- ------------- Initial issuance of stock at inception at $.0015 per share........... -- $ -- 7,933,333 $ 7,933 $ 3,967 $ -- $ -- $ -- $ 11,900 Contribution from stockholders for purchase of Series A preferred stock.......... -- -- -- -- 300,000 -- -- -- 300,000 Net loss........ -- -- -- -- -- -- -- (1,180,276) (1,180,276) ----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- ------------- Balance, December 31, 1994........ -- -- 7,933,333 7,933 303,967 -- -- (1,180,276) (868,376) Issuance of common stock at $.0015 per share.......... -- -- 66,667 67 33 -- -- -- 100 Issuance of Series A preferred stock at $1.20 per share.......... 250,000 250,000 -- -- (250,000) -- -- -- -- Conversion of Series A preferred stock into common stock.......... (250,000) (250,000) 1,666,667 1,667 248,333 -- -- -- -- Conversion of long-term debt to stockholders into common stock at $.66 per share...... -- -- 1,136,363 1,136 748,864 -- -- -- 750,000 Deferred compensation related to grant of stock options........ -- -- -- -- 179,400 -- (179,400) -- -- Compensation expense related to stock options........ -- -- -- -- -- -- 12,806 -- 12,806 Net loss........ -- -- -- -- -- -- -- (2,698,448) (2,698,448) ----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- ------------- Balance, December 31, 1995........ -- -- 10,803,030 10,803 1,230,597 -- (166,594) (3,878,724) (2,803,918) Issuance of Series B redeemable convertible preferred stock at $5.54 per share, net of issuance costs of $600,000.... -- -- -- -- (600,000) -- -- -- (600,000) Compensation expense to executive officer........ -- -- -- -- 7,515,000 -- -- -- 7,515,000 Issuance of note receivable from executive officer........ -- -- -- -- -- (2,560,000) -- -- (2,560,000) Compensation expense related to stock options........ -- -- -- -- -- -- 31,114 -- 31,114 Net loss........ -- -- -- -- -- -- -- (8,514,840) (8,514,840) ----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- ------------- Balance, March 31, 1996 (Unaudited)..... -- -- 10,803,030 10,803 8,145,597 (2,560,000) (135,480) (12,393,564) (6,932,644) Pro forma effect of issuance of Series C convertible preferred stock at $5.00 per share, net of issuance costs of $30,000 (unaudited).... 1,200,000 1,200,000 -- -- 4,770,000 -- -- -- 5,970,000 Pro forma effect of repurchase and retirement of common stock at $7.50 per share (unaudited).... -- -- (800,000) (800) (5,999,200) -- -- -- (6,000,000) Pro forma effect of conversion of redeemable convertible preferred stock and convertible preferred stock into common stock (unaudited).... (1,200,000) (1,200,000) 1,775,194 1,775 8,578,209 -- -- -- 7,379,984 ----------- ------------ ----------- --------- ------------ ------------ ------------ ------------- ------------- Pro Forma Balance, March 31, 1996 (Unaudited)..... -- $ -- 11,778,224 $11,778 $15,494,606 $(2,560,000) $(135,480) $(12,393,564) $ 417,340 =========== ============ =========== ========= ============ ============ ============ ============= =============
The accompanying notes are an integral part of these financial statements. F-5 BUSINESS@WEB, INC. STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED PERIOD FROM INCEPTION YEAR ENDED MARCH 31, (JANUARY 19, 1994) TO DECEMBER 31, ---------------------- DECEMBER 31, 1994 1995 1995 1996 --------------------- ------------ --------- ----------- (UNAUDITED) Cash Flows from Operat- ing Activities: Net loss.............. $(1,180,276) $(2,698,448) $(290,096) $(8,514,840) Adjustments to reconcile net loss to net cash provided by (used in) operating activities-- Depreciation and amortization of property and equipment.......... 12,680 50,438 6,413 52,365 Compensation expense to executive officer............ -- -- -- 7,515,000 Compensation expense related to stock options............ -- 12,806 -- 31,114 Changes in operating assets and liabilities-- Accounts receiv- able............. -- (1,908,541) (224,305) 133,342 Inventories....... -- (292,000) -- 65,000 Prepaid expenses and other current assets........... -- (157,333) -- (415,996) Due from affili- ates............. -- -- -- (168,793) Accounts payable.. 275,000 300,575 (42,846) 1,577,497 Due to affili- ates............. 656,844 2,281,242 463,167 (2,384,784) Accrued expenses.. -- 637,613 104,126 269,783 Deferred reve- nues............. -- 278,572 -- 38,849 ----------- ----------- --------- ----------- Net cash provided by (used in) operating activities...... (235,752) (1,495,076) 16,459 (1,801,463) ----------- ----------- --------- ----------- Cash Flows from Invest- ing Activities: Purchases of property and equipment........ (76,078) (150,472) -- (1,261,016) ----------- ----------- --------- ----------- Net cash used in investing activities...... (76,078) (150,472) -- (1,261,016) ----------- ----------- --------- ----------- Cash Flows from Financ- ing Activities: Proceeds from (pay- ments on) long-term debt to stockhold- ers.................. -- 1,750,000 -- (1,000,000) Proceeds from secured note payable to a bank................. -- -- -- 2,000,000 Net proceeds from issuance of preferred stock................ 300,000 -- -- 6,779,984 Proceeds from issuance of common stock...... 11,900 100 100 -- ----------- ----------- --------- ----------- Net cash provided by financing activities...... 311,900 1,750,100 100 7,779,984 ----------- ----------- --------- ----------- Net Increase in Cash and Cash Equivalents.. 70 104,552 16,559 4,717,505 Cash and Cash Equiva- lents, beginning of period................ -- 70 70 104,622 ----------- ----------- --------- ----------- Cash and Cash Equiva- lents, end of period.. $ 70 $ 104,622 $ 16,629 $ 4,822,127 =========== =========== ========= =========== Supplemental Disclosure of Cash Flow Informa- tion: Cash paid during the period for interest... $ -- $ 25,843 $ -- $ 13,336 =========== =========== ========= =========== Supplemental Disclosure of Noncash Financing Activities: Conversion of long- term debt to stock- holders into common stock................ $ -- $ 750,000 $ -- $ -- =========== =========== ========= =========== Issuance of note re- ceivable from execu- tive officer......... $ -- $ -- $ -- $ 2,560,000 =========== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. F-6 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (1)OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (a) Organization Business@Web, Inc. (the Company), formerly Object Power, Incorporated (a Delaware corporation), was incorporated and commenced operations on January 19, 1994. The Company is a leading provider of "Web-enabled" software which allows the development and deployment of mission- critical business applications across an organization's disparate information technology systems and the extension of those applications to Intranets and the Internet. The Company is subject to risks common to rapidly growing, technology- based companies, including rapid technological change, the need to raise equity capital, competition from substitute products and larger companies, and the successful development and marketing of commercial products and services. At March 31, 1996, the Company had cash and cash equivalents of approximately $4,822,000 and a working capital deficit of approximately $925,000. Based upon its current operating plan, the Company believes that it had sufficient capital resources on hand at March 31,1996 to sustain operations through December 31, 1996. In addition, in the event that the proposed initial public offering is not consummated, certain stockholders have committed to provide the necessary funding to allow the Company to operate through December 31, 1996 if the existing capital resources are not sufficient to fund the Company's operations. (b) Interim Financial Statements The accompanying balance sheet as of March 31, 1996, the statements of operations and cash flows for the three months ended March 31, 1995 and 1996, and the statement of redeemable convertible preferred stock and stockholders' equity (deficit) for the three months ended March 31, 1996 are unaudited, but, in the opinion of management, have been prepared on a basis substantially consistent with the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of these interim periods. The results of the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the year ended December 31, 1996. (c) Unaudited Pro Forma Presentation The unaudited pro forma balance sheet and unaudited statement of redeemable convertible preferred stock and stockholders' equity (deficit) as of March 31, 1996 reflect (i) the issuance of 1,200,000 shares of Series C convertible preferred stock at $5.00 per share to new stockholders for net proceeds of $5,970,000; (ii) the repurchase and retirement of 800,000 shares of common stock from existing stockholders at $7.50 per share, for an aggregate cost of $6,000,000; and (iii) the automatic conversion of all outstanding shares of Series B redeemable convertible preferred stock and Series C convertible preferred stock into an aggregate of 1,775,194 shares of common stock, upon the closing of the Company's proposed initial public offering. (d)Revenue Recognition The Company recognizes revenue in accordance with the provisions of Statement of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. The Company generates software and maintenance revenues from licensing the rights to use its software products and the resale of F-7 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Revenue Recognition (Continued) software products licensed from a related party (see Note 7(b)). The Company also generates service revenues from the sale of consulting and education services. Revenues from software license fees are recognized upon delivery, net of estimated returns, provided there are no significant postdelivery obligations, and payment is due within one year. If acceptance is required, software license revenues are recognized upon customer acceptance. Fees for consulting and education services are recognized upon customer acceptance or over the period in which services are provided if customer acceptance is not required and the revenues are fixed and determinable. Maintenance revenues are deferred at the time of software license revenue recognition and are recognized ratably over the term of the support period, which is typically one year. Deferred revenues primarily relate to prepaid maintenance fees. Cost of software license and maintenance revenues consists of the cost of software and maintenance purchased for resale from a related party; distribution costs; and support personnel costs. Cost of consulting and education services consists primarily of consulting and support personnel salaries and related costs and fees to third party service providers. (e) Cash and Cash Equivalents The Company classifies all short-term, highly liquid investments with original maturities at purchase of three months or less as cash equivalents. The Company accounts for its investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, the Company's cash equivalents are classified as held-to-maturity securities and recorded at amortized cost. At March 31, 1996, cash equivalents consisted of an overnight repurchase agreement with a bank. (f) Property and Equipment Property and equipment are stated at cost. Depreciation and amortization expense is computed using the straight-line method over the estimated useful lives of the assets (three to five years). (g) Research and Development and Software Development Costs In accordance with SFAS No. 86, Accounting for the Costs of Software To Be Sold, Leased or Otherwise Marketed, the Company has evaluated the establishment of technological feasibility of its various products during the development phase. Due to the dynamic changes in the market, the Company has concluded that it cannot determine technological feasibility until a fully functional working model is complete. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is very short, and consequently, the amounts that could be capitalized are not material to the Company's financial position or results of operations. In addition, the Company believes that the estimated useful life of any potential product is uncertain due to the rapid F-8 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Research and Development and Software Development Costs (Continued) technological change in the industry. Therefore, the Company charges all research and development expenses to operations in the period incurred. Included in research and development expenses for the period from inception (January 19, 1994) to December 31, 1994 and the year ended December 31, 1995 is $350,000 and $2,550,000, respectively, relating to purchases of technology, of which $2,200,000 was purchased from a related party in 1995 (see Note 7(b)). (h) Inventories Inventories are stated at the lower of cost or market and consist of purchased software products of a related party held for resale. (See Note 7(b)) (i) Postretirement Benefits The Company has no obligations for postretirement benefits. (j) Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that potentially subject the Company to concentrations of credit risk are accounts receivable. Concentration of credit risk with respect to accounts receivable is limited to two customers that accounted for 21% and 10%, respectively, of total revenues in the year ended December 31, 1995. One of these customers accounted for approximately 14% of total revenues for the three months ended March 31, 1996. In the year ended December 31, 1995 and the three months ended March 31, 1996, sales outside the United States accounted for approximately 17% and 11% of total revenues, respectively. To reduce risk, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for potential credit losses but has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. (k) Pro Forma Net Loss per Common and Common Equivalent Share For the year ended December 31, 1995 and the three months ended March 31, 1996, pro forma net loss per common and common equivalent share is computed by dividing the net loss by the pro forma weighted average number of common and common equivalent shares outstanding during the period, which consist of (i) the weighted average number of common shares outstanding, (ii) the number of shares of common stock issuable upon conversion of all outstanding shares of Series B redeemable convertible preferred stock and Series C convertible preferred stock, and (iii) stock options granted after March 31, 1995, which have been reflected as outstanding for all periods presented using the treasury stock method as required by the Securities and Exchange Commission. Common stock equivalents issued in earlier periods have not been included as their effect would be antidilutive. Historical net loss per share data have not been presented, as such information is not considered to be relevant or meaningful. F-9 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) New Accounting Standard In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation. The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair-value-based method beginning in the year ending December 31, 1996, with comparable disclosures for the year ended December 31, 1995. The Company has not determined the impact of these pro forma adjustments. (n) Financial Instruments The estimated fair value of the Company's financial instruments, which include cash equivalents, accounts receivable and long-term debt, approximates their carrying value. (2) BANK AGREEMENT In February 1996, the Company entered into a financing agreement with a bank. The agreement provides for a revolving line of credit, an equipment line of credit and a secured term note. Borrowings under the revolving line of credit are limited to the lesser of $2,500,000 or 80% of qualified accounts receivable and bear interest at either the bank's prime rate plus 1%, or LIBOR. Borrowings under the equipment line are limited to $500,000 for the purchase of new equipment. Advances under the equipment line of credit will be repaid over a three-year period. Borrowings under the equipment line bear interest at either the bank's cost of funds plus 3 1/2% or the bank's prime rate plus 1 1/2%. The secured term note of $2,000,000 was used for the repayment of the amount payable for purchased technology (see Note 7(b)). In March 1996, the Company borrowed the $2,000,000 under the secured term note. The secured term note is repayable on September 30, 1996. Borrowings under the secured term note bear interest at the bank's prime rate plus 1%. The revolving line of credit and equipment line of credit expire on June 30, 1997. The financing agreement contains certain restrictive covenants, including among other items, minimum levels of tangible net worth. The agreement is collateralized by all assets of the Company and is guaranteed by certain stockholders. (3) LONG-TERM DEBT TO STOCKHOLDERS In May 1995, the Company issued a $250,000 subordinated note payable to a stockholder. The note bore interest at 6% per annum and was payable on April 30, 2000. In December 1995, the Company issued a $750,000 subordinated note payable to a stockholder. The note bore interest at 9% per annum and was payable on December 31, 2000. Both notes were outstanding as of December 31, 1995 and were repaid in full in March 1996. F-10 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (4) INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, a deferred tax asset or liability is measured by the enacted tax rates expected to be in effect when the differences between the financial statement and tax bases of assets and liabilities reverse. As of December 31, 1995, the Company had available net operating loss carryforwards of approximately $3,020,000 to reduce future federal and state income taxes, if any. These carryforwards expire through 2010 and are subject to review and possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains provisions that may limit the amount of net operating loss carryforwards that the Company may utilize in any one year in the event of certain cumulative changes in ownership over a three year period in excess of 50%, as defined. The approximate income tax effect of each type of temporary difference and carryforward is as follows:
DECEMBER 31, -------------------- MARCH 31, 1994 1995 1996 -------- ---------- ---------- Net operating loss carryforwards........... $221,000 $1,208,000 $4,265,000 Other temporary differences................ 268,000 275,000 372,000 -------- ---------- ---------- 489,000 1,483,000 4,637,000 Valuation allowance........................ (489,000) (1,483,000) (4,637,000) -------- ---------- ---------- Net deferred tax asset..................... $ -- $ -- $ -- ======== ========== ==========
It is the Company's objective to become a profitable enterprise and to realize the benefits of its deferred tax assets. However, in evaluating the realizability of these deferred tax assets, management has considered the Company's short operating history, the volatility of the market in which it competes, and the operating losses incurred to date, and believes that, given the significance of this evidence, a full valuation reserve against its deferred tax asset is required as of December 31, 1994 and 1995 and March 31, 1996. (5) REDEEMABLE CONVERTIBLE PREFERRED STOCK In March 1996, the Company authorized and issued 1,332,127 shares of Series B redeemable convertible preferred stock (Series B Preferred Stock) at $5.54 per share, less offering costs of $600,000 for net proceeds of $6,779,984. The Series B Preferred Stock has the following rights, preferences and privileges: Redemption At any time after December 31, 2002, the holders of a majority of the outstanding shares of Series B Preferred Stock may require the Company to redeem all of the outstanding Series B Preferred Stock in three annual installments of 33 1/3% per year. The redemption price per share is $5.54 plus any accrued but unpaid dividends. F-11 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (5) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED) Conversion and Antidilution The Series B Preferred Stock is convertible into common stock at a rate of two shares of common stock for every three shares of preferred stock. The conversion rate of all preferred stock is adjustable for certain dilutive events, including the issuance of shares below $15.375 in an initial public offering. Assuming the sale price of the Company's common stock is $14.00 in the proposed initial public offering, the conversion rate of Series B Preferred Stock adjusts to .732 shares of common stock for each share of Series B Preferred Stock. The actual number of shares issuable upon conversion could vary from a maximum of 1,103,137 to a minimum of 888,085 depending on the price at which the shares of common stock are sold in the proposed initial public offering. The conversion is at the option of a majority of the outstanding stockholders but becomes automatic upon the closing of a an initial public offering at a per share price that is at least $12.375 per share and generates aggregate proceeds to the Company of at least $15,000,000. Voting Rights The holders of the Series B Preferred Stock shall be entitled to vote on all matters and shall be entitled to the number of votes equal to the number of shares of common stock into which each share of the Series B Preferred Stock could be converted. Dividends Dividends accrue on outstanding shares of Series B Preferred Stock at an annual rate of $0.3324 per share. Additional dividends may be paid on the Series B Preferred Stock when declared by the Board of Directors. Liquidation Preference The holders of the preferred stock have preference in the event of liquidation or dissolution of the Company at a rate of $5.54 per share of Series B Preferred Stock and thereafter participate with the holders of the Series C Preferred Stock and common stock on a share for share basis in the distribution of the remaining assets of the Company, as if there were no Series C Preferred Stock liquidation preference. (6) STOCKHOLDERS' EQUITY (DEFICIT) (a) Authorized Capital Stock As of March 31, 1996, the Company's authorized capital stock consisted of 30,000,000 shares of common stock $.001, par value per share, and 3,000,000 of preferred stock, $1.00 par value per share. Of the preferred stock 1,431,412 shares were designated Series B preferred stock (Series B Preferred Stock) and 1,568,588 shares were undesignated. In April 1996, the Company amended its Articles of Incorporation to decrease the number of designated shares of Series B Preferred Stock to 1,332,127 shares, to decrease the number of undesignated shares of preferred stock to 447,873 and to designate 1,220,000 shares for the issuance of Series C convertible preferred stock (Series C Preferred Stock). All shares of preferred stock that had been designated Series A convertible preferred stock had been surrendered for conversion into common stock and retired. F-12 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (6) STOCKHOLDERS' DEFICIT (CONTINUED) (a) Authorized Capital Stock (Continued) On May 20, 1996, the Company's stockholders approved an increase in the number of authorized shares of common stock to 50,000,000 shares, $.001 par value and authorized the issuance of 5,000,000 shares of $1.00 par value preferred stock. (b) Common Stock In May 1995, the Company issued a convertible note payable to a stockholder for $750,000. In accordance with the provisions of the note payable agreement, the outstanding principal of the note was converted into 1,136,362 shares of common stock in November 1995. (c) Preferred Stock In December 1994, certain stockholders contributed $300,000 to the Company for the purchase of 250,000 shares of Series A convertible preferred stock. The shares of Series A convertible preferred stock were issued to the stockholders in February 1995 and were subsequently converted to 1,666,667 shares of common stock in November 1995. In April 1996, the Company issued 1,200,000 shares of Series C Preferred Stock at a price of $5.00 per share, less offering costs of 30,000, for net proceeds of $5,970,000. The Series C Preferred Stock has the following rights, preferences and privileges: Conversion and Antidilution The Series C Preferred Stock is convertible into common stock at a rate of two shares of common stock for every three shares of preferred stock. The conversion rate is adjustable for certain dilutive events, including the issuance of shares below the effective conversion price of the preferred stock. The conversion is at the option of a majority of the outstanding stockholders but becomes automatic upon the closing of a public offering at a per share price that is at least $12.375 per share and generates aggregate proceeds to the Company of at least $15,000,000. Voting Rights The holders of the Series C Preferred Stock are entitled to vote on all matters and shall be entitled to the number of votes equal to the number of shares of common stock into which each share of the preferred stock could be converted. Liquidation Preference The holders of the Series C Preferred Stock have preference in the event of liquidation or dissolution of the Company at a rate of $5.00 per share of Series C Preferred Stock, payable only after the full liquidation preference of the holders of Series B Preferred Stock has been paid or reserved; thereafter the remaining assets of the Company are to be distributed to the holders of Series C Preferred Stock and common stock on a share for share basis. F-13 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (6)STOCKHOLDERS' DEFICIT (CONTINUED) (d) Stock Split In February 1995, the Company effected a 10-for-1 stock split of the common stock in the form of a stock dividend. On May 20, 1996, the Company effected a 2-for-3 reverse stock split. The accompanying financial statements and notes have been retroactively adjusted to reflect the stock splits. (e) 1995 Stock Plan The Company has a stock plan (the 1995 Plan) that provides for the issuance of incentive stock options (ISOs), nonqualified stock options and shares of common stock. Under the terms of the 1995 Plan, nonqualified options may be granted at a price not less than the lesser of (i) the book value per share of common stock as of the end of the fiscal year of the Company immediately preceding the date of such grant, or (ii) 50% of the fair market value per share of common stock on the date of such grant and, in the case of ISOs, not less than the fair market value per share at the date of grant. Options generally vest over a four-year period, commencing one year after the date of the grant. In 1995, the Company granted an option to purchase 40,000 shares of common stock to an employee at an exercise price of $.015 per share. The difference between the estimated fair market value of the common stock and the aggregate exercise price of $179,400 will be charged to operations as these options vest. All other options have been granted at exercise prices that represent the estimated fair market value of the common stock as determined by the Company's Board of Directors at the time of the grant and accordingly the Company has not recorded any compensation on these option grants. In March 1996, the Company granted options to purchase 366,666 shares of common stock at $7.50 per share to several key executives which vest ratably over a 6-year period and are subject to acceleration based on the Company achieving certain levels of market capitalization. In addition, the vesting of options to purchase 133,333 shares of Common Stock held by an officer of the Company will accelerate upon the effectiveness of the Company's proposed initial public offering. The following table summarizes incentive and nonqualified stock option activity under the 1995 Plan:
NUMBER OF PRICE PER SHARES SHARE --------- ----------- Balance, December 31, 1994......................... -- $ -- Options granted.................................... 1,219,533 .015--4.50 --------- ----------- Balance, December 31, 1995......................... 1,219,533 .015--4.50 Options granted.................................... 1,281,333 7.50 Options canceled................................... (23,400) 1.50--4.50 --------- ----------- Balance, March 31, 1996............................ 2,477,467 $.015--7.50 ========= =========== Exercisable, March 31, 1996........................ 199,603 $.015--7.50 ========= ===========
In April 1996, an officer of the Company exercised an option to purchase 66,666 shares at a price of $1.50 per share. (f) Warrants In February 1996, the Company issued a warrant to purchase 23,333 shares of common stock at a price of $8.31 per share in connection with the Company's financing agreement as discussed in Note 2. F-14 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (6) STOCKHOLDERS' DEFICIT (CONTINUED) (g) Employee Stock Purchase Plan On May 17, 1996, the stockholders approved the Company's Employee Stock Purchase Plan (ESPP). The Company has reserved 150,000 shares for issuance under the ESPP. The ESPP permits eligible employees of the Company to purchase common stock through payroll deductions of up to 10% of their total compensation. The price of common stock purchased under the ESPP will be 85% of the lower of the fair market value of the common stock on the first or last day of each six-month purchase period. (h) 1996 Stock Plan On May 17, 1996, the Board of Directors and stockholders approved the Company's 1996 Stock Plan (the 1996 Plan). Each nonemployee director will receive an option grant to purchase 7,000 shares of common stock, at the then fair market value, when such director is first appointed or elected to the Board of Directors. In addition, each nonemployee director will receive an option grant to purchase 1,700 shares of common stock, at the then fair market value, on each June 30 that such director is a member of the Board of Directors. The Company has reserved 3,500,000 shares of Common Stock for issuance under the 1995 Plan and the 1996 Plan. (7) RELATED-PARTY TRANSACTIONS (a) Cambridge Technology Group, Inc. During 1994, 1995 and the first two months of 1996, the Company shared office space with Cambridge Technology Group, Inc. (CTGroup), a company under the control of a significant stockholder of the Company. CTGroup charged the Company for a portion of certain common costs incurred in addition to any specific items paid by CTGroup on the Company's behalf. These costs were allocated based on head count or actual cost incurred. During the years ended December 31, 1994 and 1995 and the three months ended March 31, 1995 and 1996, CTGroup charged the Company $956,844, $1,013,142, $271,702 and $117,442, respectively, for these costs. During 1995, the Company sold software and services to CTGroup amounting to $104,993. In addition, during 1995 and the three months ended March 31, 1996, the Company fulfilled certain obligations of CTGroup under education, service and product contracts, including the resale of software discussed in Note 7(b), for which the Company recorded revenues of $2,403,235 and $100,000, respectively. During the three months ended March 31, 1996, the Company purchased $125,000 of computer equipment from CTGroup. In July 1995, the Company gave an unlimited guarantee of all of CTGroup's obligations under its credit facility. The Company's obligations under the unlimited guaranty were terminated in February 1996. Amounts (due to) from CTGroup for these costs were $(656,844), $(169,939) and $218,793 at December 31, 1994 and 1995 and March 31, 1996, respectively. The Company believes that the transactions described above were at terms no less favorable than the Company would have obtained from unaffiliated third parties. F-15 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (7)RELATED-PARTY TRANSACTIONS (CONTINUED) (b)Open Environment Corporation In 1995, the Company entered into a reseller agreement with Open Environment Corporation (OEC) to license software developed by OEC, an entity that was founded by significant stockholders of the Company. These stockholders continue to hold an ownership interest in OEC at December 31, 1995 and March 31, 1996. In addition, an executive of the Company serves on OEC's Board of Directors. During the year ended December 31, 1995 and the three months ended March 31, 1996, the Company generated software license and maintenance revenues of $1,111,992 and $222,617, respectively, from the resale of OEC products and services. Total expenses relating to purchases of OEC software and OEC software bundled with the Company's product and related maintenance contracts totaled $716,392 and $288,980, in the year ended December 31, 1995 and the three months ended March 31, 1996, respectively. In addition, the Company subcontracted consulting services from OEC totaling $398,271 in 1995. On December 29, 1995, the Company and OEC entered into a $2,200,000 OEM source code license agreement which will provide the Company with a certain source code developed by OEC. At the time of the purchase, the Company intended to embed this source code into certain of the Company's future software products which are currently under development. In accordance with SFAS No. 86, the Company has charged the cost of this source code to research and development expenses in the year ended December 31, 1995. On October 31, 1995, the Company sold to OEC the source code for certain software technology relating to the customization and enhancement of SAP software products. OEC paid the Company an initial software license fee of $500,000 under the agreement by which the source code was transferred, and agreed to pay the Company a royalty in an amount equal to 20% of the first $1,000,000 of sales revenue recognized by OEC related to products incorporating components of the transferred source code and 10% of such sales revenues in excess of $1,000,000. OEC's royalty obligations expire on the earlier of October 1, 1997 or the date on which OEC's aggregate sales revenues related to products incorporating components of the transferred source code exceed $3,000,000. This amount is included in 1995 software license revenues. To date the Company has not received any royalties under this arrangement. The total accounts payable to OEC at December 31, 1995 and March 31, 1996 was $2,490,133 and $375,288, respectively. The Company believes that the transactions described above were at terms no less favorable than the Company would have obtained from unaffiliated third parties. (c)International Integration, Incorporated The Company subcontracted consulting services from International Integration, Incorporated, a company controlled by a significant stockholder of the Company. During 1995, these consulting services totaled $662,000 and are included in cost of revenues. At December 31, 1995 and March 31, 1996, the Company had outstanding accounts payable to this entity of $274,444 and $174,444, respectively. The Company believes that the transactions described above were at terms no less favorable than the Company would have obtained from unaffiliated third parties. F-16 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (8)EMPLOYEE BENEFIT PLAN The Company's employees participate in an employee benefit plan under Section 401(k) of the Internal Revenue Code, sponsored by CTGroup. The plan is available to substantially all employees. The plan allows for employees to make contributions up to a specified percentage of their compensation. For all participants with greater than one year of continuous service, the Company contributes 25% of the first 6% of employees' pay contributed to the plan. The Company contributed $1,851 during the year ended December 31, 1995 and $1,741 during the three months ended March 31, 1996. (9)COMMITMENTS In March 1996, the Company executed a noncancelable operating lease for office space. Future minimum rental payments for this lease are as follows: 1996........................................................... $ 310,000 1997........................................................... 463,000 1998........................................................... 463,000 1999........................................................... 463,000 2000........................................................... 463,000 Thereafter..................................................... 77,000 ---------- Total.......................................................... $2,239,000 ==========
(10)COMPENSATION TO EXECUTIVE OFFICER In January 1996, a significant stockholder of the Company entered into an agreement with the Company's Chief Executive Officer (CEO) under which the CEO purchased 960,000 shares of the Company's common stock held by the stockholder at a price of $1.50 per share. To fund the purchase, the CEO entered into a $1,440,000 note payable agreement with the stockholder. The note payable accrues interest at 6.56% per annum and provides for full recourse against the CEO. At the time of this sale transaction, the fair market value of the Company's common stock was $7.50 per share. The Company has recorded the aggregate difference between the fair market value of the common stock and the price paid by the CEO, $5,760,000, in compensation to executive officer in the accompanying statement of operations for the three months ended March 31, 1996. In connection with this purchase, the Company agreed to loan the CEO $2,560,000 which represents the CEO's estimated tax liability resulting from the compensation on the purchase of shares at less than fair market value. The Company has recorded this commitment as an accrued expense and a corresponding note receivable from executive officer in the accompanying balance sheet as of March 31, 1996. The Company expects to fund this commitment in the first quarter of 1997. Borrowings under the loan will be secured by shares of Common Stock purchased, will accrue interest at 6.21% per annum and will be due and payable no later than December 31, 2001. In connection with the employment of the CEO in January 1996, the CEO received a nonrefundable $1,000,000 cash payment from a significant stockholder. The Company believes the nature of this payment to be a sign- on bonus. Accordingly, the Company has recorded a $1,000,000 charge to compensation to executive officer in the accompanying statement of operations for the three months ended March 31, 1996 with a corresponding contribution to additional paid-in capital. F-17 BUSINESS@WEB, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (10)COMPENSATION TO EXECUTIVE OFFICER (CONTINUED) Also in connection with the employment of the CEO, that significant stockholder agreed to reimburse the CEO for any potential decline in value (from January 1996 to the date of exercise) for certain stock appreciation rights held by the CEO in an unrelated company. At the time this agreement was entered into, the unrealized appreciation on the stock appreciation rights was approximately $4,400,000. The stock appreciation rights are exercisable by the CEO in September 1996. At March 31, 1996, the value of the stock of the unrelated company had declined to the extent that if the stock rights were exercised on that date, the stockholder would be required to reimburse the CEO approximately $755,000 for the decline in appreciation. Accordingly, the Company has recorded a $755,000 charge to compensation to executive officer in the accompanying statement of operations for the three months ended March 31, 1996, with a corresponding contribution to additional paid-in capital. To the extent that the value of the stock fluctuates below the value agreed to by the CEO and the stockholder, the Company will continue to record charges or credits to the accompanying statement of operations until the stock appreciation right is exercised by the CEO. F-18 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Company and the Selling Stockholders have agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co. and Hambrecht & Quist LLC are acting as representatives, has severally agreed to purchase from the Company and the Selling Stockholders, the respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES OF COMMON UNDERWRITER STOCK ----------- --------- Goldman, Sachs & Co.................................................. Hambrecht & Quist LLC................................................ --------- Total............................................................... 3,750,000 =========
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. The Company has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus to purchase up to an aggregate of 562,500 additional shares of Common Stock to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to be purchased by each of them, as shown in the foregoing table, bears to the 3,750,000 shares of Common Stock offered. The Company has agreed that, subject to certain exceptions, during the period beginning from the date of this Prospectus and continuing to and including the date 180 days after the date of this Prospectus, it will not offer, sell, contract to sell or otherwise dispose of any securities of the Company (other than pursuant to employee stock option or purchase plans existing, or on the conversion or exchange of convertible or exchangeable securities outstanding on the date of this Prospectus) which are substantially similar to the shares of Common Stock or which are convertible or exchangeable into securities which are substantially similar to the shares of Common Stock without the prior written consent of the representatives, except for the shares of Common Stock offered in connection with the offering. The Company's executive officers and directors and certain securityholders of the Company, including the Selling Stockholders (who in the aggregate hold approximately 9,162,394 shares of Common Stock at May 1, 1996), have agreed not to offer, sell, contract to sell or otherwise dispose of or agree to dispose of any shares of Common Stock or substantially similar securities owned beneficially by them for a period of 180 days after the date of this Prospectus, without the prior written consent of the representatives, except for the shares of Common Stock offered hereby. See "Shares Eligible for Future Sale". The representatives of the Underwriters have informed the Company that they do not expect sales to accounts over which the Underwriters exercise discretionary authority to exceed five percent of the total number of shares of Common Stock offered by them. U-1 Prior to the offering, there has been no public market for the shares. The initial public offering price will be negotiated among the Company, the Selling Stockholders and the representatives. Among the factors to be considered in determining the initial public offering price of the Common Stock, in addition to prevailing market conditions, will be the Company's historical performance, estimates of the business potential and earnings prospects of the Company, an assessment of the Company's management and the consideration of the above factors in relation to market valuation of companies in related businesses. Application has been made for quotation of the Common Stock on the Nasdaq National Market under the symbol "BATW". The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. U-2 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 5 Use of Proceeds.......................................................... 13 Dividend Policy.......................................................... 13 Capitalization........................................................... 14 Dilution................................................................. 15 Selected Financial Data.................................................. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 17 Business................................................................. 24 Management............................................................... 38 Principal and Selling Stockholders....................................... 45 Certain Transactions..................................................... 47 Description of Capital Stock............................................. 50 Shares Eligible for Future Sale.......................................... 54 Legal Matters............................................................ 56 Experts.................................................................. 56 Additional Information................................................... 56 Index to Financial Statements............................................ F-1 Underwriting............................................................. U-1
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,750,000 SHARES BUSINESS@WEB, INC. COMMON STOCK (PAR VALUE $0.001 PER SHARE) ------------------ PROSPECTUS ------------------ GOLDMAN, SACHS & CO. HAMBRECHT & QUIST REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions payable in connection with the sale of Common Stock being registered. All amounts are estimates, except the registration fee, the NASD filing fee and the Nasdaq National Market listing fee. SEC registration fee............................................. 22,307 NASD filing fee.................................................. 6,969 Nasdaq National Market listing fee............................... 50,000 Printing and distribution expenses............................... 100,000 Accounting fees and expenses..................................... 175,000 Legal fees and expenses.......................................... 400,000 Blue Sky fees and expenses....................................... 20,000 Transfer agent's fees and expenses............................... 10,000 Miscellaneous.................................................... 15,724 -------- Total.......................................................... $800,000 ========
The Registrant intends to pay all expenses of registration, issuance and distribution, excluding the Underwriters' discount and commissions, with respect to shares being sold by the Selling Stockholders. ITEM 14.INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify a director, officer, employee or agent against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in respect of or in successful defense of any action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Article VII of the Registrant's Restated Certificate of Incorporation provides that a director of the Registrant shall not be personally liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except (to the extent provided by applicable law) for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or any amendment or successor provisions thereto, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Registrant shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of Article VII of the Registrant's Restated Certificate of Incorporation shall not adversely affect any right or protection of a director of the Registrant existing at the time of such repeal or modification. Article V of the Registrant's Restated By-laws provides that the Registrant shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director, officer or employee of the Registrant, or is or was serving at II-1 the request of the Registrant, as a director, officer or employee of any subsidiary of the Company or in any other capacity with any other corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement reasonably incurred by him in connection with such action, suit or proceeding to the maximum extent permitted by the Delaware General Corporation Law. The terms of Article V substantially incorporate the provisions of Section 145 of the Delaware General Corporation Law. The indemnification provided for in Article V is expressly not exclusive of any other rights of indemnification to which any such director or officer may be entitled under any by-law, agreement, vote of stockholders or directors or otherwise. In the Underwriting Agreement relating to the securities being offered hereby (the form of which is attached as Exhibit 1.1 to this Registration Statement), the Registrant and the Selling Stockholders have agreed to indemnify each Underwriter and each person, if any, who controls the Underwriter within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, against certain types of civil liabilities arising in connection with the Registration Statement or the Prospectus. ITEM 15.RECENT SALES OF UNREGISTERED SECURITIES. Described below are all unregistered securities which have been issued and sold by the Registrant since the Registrant's incorporation on January 19, 1994. No underwriters were engaged with respect to any of the following transactions and no underwriting discounts or commissions paid in connection with the sale of any such securities, except where specifically noted below. All numbers have been adjusted to give effect to the 2-for-3 reverse stock split to be effected prior to the effectiveness of this offering. 1. On January 19, 1994, the Registrant sold 3,333,333 shares of Common Stock to Sundar Subramaniam at a price of $0.0015 per share. 2. On January 19, 1994, the Registrant sold 1,333,333 shares of Common Stock to J&S Limited Partnership at a price of $0.0015 per share. 3. On January 19, 1994, the Registrant sold 1,333,333 shares of Common Stock to Legacy Investment Partnership at a price of $0.0015 per share. 4. On January 19, 1994, the Registrant sold 1,666,667 shares of Common Stock to Harrington Trust Limited, as Trustee of The Appleby Trust at a price of $0.0015 per share. 5. On January 19, 1994, the Registrant sold 266,667 shares of Common Stock to Len Hafetz at a price of $0.0015 per share. 6. On January 1, 1995, the Registrant sold 66,667 shares of Common Stock to James G. Nondorf at a price of $0.0015 per share. 7. On March 1, 1995, the Registrant sold 250,000 shares of Series A Convertible Preferred Stock to Harrington Trust Limited, as Trustee of The Appleby Trust, at a price of $1.20 per share. All shares of Series A Preferred Stock were subsequently surrendered for conversion into Common Stock (at the rate of 6.67 shares of Common Stock for each share of Series A Convertible Preferred Stock) and retired. Upon the filing of the Registrant's Restated Certificate of Incorporation on March 6, 1996, the series of Preferred Stock designated as Series A Preferred Stock was cancelled and eliminated from the shares which the Registrant is authorized to issue. 8. On May 3, 1995, the Registrant sold, at face value of $750,000, a 6% 5-year convertible subordinated note to Harrington Trust Limited, as Trustee of The Appleby Trust. This Note was converted, at the rate of $0.66 per share, into 1,136,362 shares of Common Stock, on October 30, 1995. II-2 9. On May 3, 1995, the Registrant sold, at face value of $250,000, a 6% 5-year convertible subordinated note to J&S Limited Partnership. This Note, which was convertible into shares of Common Stock at the rate of $0.66 per share, was subsequently repaid in full on March 1996 and no shares of Common Stock were issued in respect thereof. 10. On December 29, 1995, the Registrant sold, at face value of $750,000, a 9% 5-year subordinated note to Harrington Trust Limited, as trustee of The Appleby Trust. This Note was subsequently repaid in full in March 1996. 11. On February 16, 1996, in connection with the establishment of the Registrant's credit facility with State Street Bank and Trust Company, the Registrant issued to SSB Investments, Inc., an affiliate of State Street Bank and Trust Company, a warrant for the purchase 23,333 shares of Common Stock at an exercise price of $8.31 per share. The warrant may be exercised, in whole or in part, at any time on or before February 15, 2003. 12. On March 6, 1996, the Registrant sold an aggregate of 1,146,212 shares of Series B Redeemable Convertible Preferred Stock to Falcon Ventures II, L.P., Hancock Venture Partners IV-Direct Fund L.P., Pantio Holding Ltd., Juilliard Investments, Inc., Jan Baan, J.G. Paul Baan, Lorenzo Cue and Tom C. Tinsley at a price of $8.31 per share. Cowen and Company acted as the Registrant's placement agent in connection with these sales and was paid a fee of $500,000. 13. On March 8, 1996, the Registrant sold 180,506 shares of Series B Redeemable Convertible Preferred Stock to Hewlett-Packard Company at a price of $5.54 per share. 14. On March 30, 1996, the Registrant sold 5,409 shares of Series B Redeemable Convertible Preferred Stock to John C. Howe at a price of $5.54 per share. 15. On April 5, 1996, the Registrant sold 66,667 shares of Common Stock to James G. Nondorf upon the exercise by Mr. Nondorf of an Incentive Stock Option under the Registrant's 1995 Stock Plan at an exercise price of $1.50 per share. 16. On April 15, 1996, the Registrant sold 1,200,000 shares of Series C Convertible Preferred Stock to Maritime Capital Partners, L.P., David A. Duffield Trust, Margaret L. Taylor, Alex. Brown Leasing Services Company, Stephen R. Levy, Onelux, Inc., Anthony Harris, Les Hayman, Juergan Sattler, John McKenna, Randa Pehl, Ulrich Schell and Informix Corporation at a price of $5.00 per share. 17. On April 20, 1996, the Registrant sold 200,000 shares of Series C Convertible Preferred Stock to NEC Corporation at a price of $5.00 per share. All transactions described above were effected in reliance upon the exemption from registration requirements of the Securities Act contained in Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that such transactions did not involve any public offering. All of the foregoing securities are deemed to be restricted securities for purposes of the Securities Act. Other exemptions from registration may also be available for such issuances and sales. 18. The Registrant has granted options to purchase shares of its Common Stock to certain directors, officers, employees and consultants pursuant to the 1995 Stock Plan as follows: (a) Incentive Stock Options for an aggregate of 135,166 shares were granted by the Registrant to twelve employees on March 1, 1995 at an exercise price of $1.50 per share. (b) Non-Qualified Stock Options for an aggregate of 136,666 shares were granted by the Registrant to thirty-seven employees and consultants on March 1, 1995 at an exercise price of $1.50 per share. (c) Incentive Stock Options for an aggregate of 166,933 shares were granted by the Registrant to forty-six employees on August 1, 1995 at an exercise price of $1.50 per share. II-3 (d) Non-Qualified Stock Options for an aggregate of 87,833 shares were granted by the Registrant to fifteen employees and consultants on August 1, 1995 of which, 84,500 shares were granted at an exercise price of $1.50 per share and 3,333 shares were granted at an exercise price of $4.50 per share. (e) Non-Qualified Stock Options for an aggregate of 10,000 shares were granted by the Registrant to three employees of one of the Registrant's strategic partners on September 13, 1995 at an exercise price of $3.00 per share. These grants were subsequently rescinded. (f) Incentive Stock Options for an aggregate of 344,600 shares were granted by the Registrant to sixty employees (including one director and executive officer) on October 1, 1995 at an exercise price of $4.50 per share. (g) Non-Qualified Stock Options for an aggregate of 351,667 shares were granted by the Registrant to sixty-five officers, employees and consultants on October 1, 1995, of which 311,667 shares were granted at an exercise price of $4.50 per share and 40,000 shares were granted at an exercise price of $0.015 per share. Of these, an option for 3,333 shares granted to an employee of one of the Registrant's strategic partners was subsequently rescinded. (h) Incentive Stock Options for an aggregate of 358,000 shares were granted by the Registrant to seventy-three employees on March 15, 1996 at an exercise price of $7.50 per share. (i) Non-Qualified Stock Options for an aggregate of 923,333 shares were granted by the Registrant to fifteen directors, officers, employees and consultants on March 15, 1996 at an exercise price of $7.50 per share. The securities described in paragraphs 18(a) through 18(i) were issued in reliance upon the exemption from registration under the Securities Act contained in Rule 701 promulgated thereunder, in that they were offered and sold pursuant to a written compensatory benefit plan or written contract relating to compensation; however, other exemptions from registration may also be available for such issuances and sales. ITEM 16.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS:
EXHIBIT NO. DESCRIPTION ------- ----------- * 1.1 Proposed Form of Underwriting Agreement * 3.1 Restated Certificate of Incorporation * 3.2 Certificate of Amendment to Restated Certificate of Incorporation ** 3.3 Form of Second Amended and Restated Certificate of Incorporation of the Registrant to be filed with the Secretary of State of Delaware prior to effectiveness of the offering. ** 3.4 Form of Third Amended and Restated Certificate of Incorporation of the Registrant to be filed with the Secretary of State of Delaware upon consummation of the offering * 3.5 By-Laws of the Registrant ** 3.6 Form of Amended and Restated By-laws of the Registrant to be effective prior to the effectiveness of the offering ** 4.1 Specimen Common Stock Certificate ** 5.1 Opinion of Peabody & Arnold with respect to legality of the Common Stock *10.1 1995 Stock Plan, as amended **10.2 1996 Stock Plan **10.3 Employee Stock Purchase Plan *10.4 Lease for One Arsenal Marketplace, Watertown, Massachusetts **10.5 Source Code License Agreement dated as of August 8, 1995 between the Registrant and InterGroup Technologies, Inc. **10.6 Software License Agreement dated as of August 8, 1995 between the Registrant and InterGroup Technologies, Inc. **10.7 Source Code License Agreement dated as of February 8, 1996 between the Registrant and Mentor Communications Limited
II-4
EXHIBIT NO. DESCRIPTION ------- ----------- **10.8 Software License Agreement dated as of August 10, 1995 between the Registrant and Mystic River Software, Inc. **10.9 Software, Education, Services Distribution Agreement dated June 21, 1995 between the Registrant and Open Environment Corporation **10.10 "SAP Customization Software" Agreement dated October 1, 1995 between the Registrant and Open Environment Corporation **10.11 OEM Source License Agreement dated as of December 29, 1995 between the Registrant and Open Environment Corporation **10.12 Joint Marketing Agreement effective as of February 27, 1996 between the Registrant and Hewlett-Packard Company *10.13 Loan Agreement dated February 16, 1996 between the Registrant and State Street Bank and Trust Company, together with Guaranty (unlimited) of J&S Limited Partnership **10.14 Warrant Purchase Agreement dated as of February 16, 1996 between the Registrant and SSB Investments, Inc. **10.15 Common Stock Purchase Warrant dated as of February 16, 1996 issued to SSB Investments, Inc. *10.16 Series B Convertible Preferred Stock Purchase Agreement dated February 27, 1996 between the Company and Hewlett-Packard Company *10.17 Amendment to Series B Convertible Preferred Stock Purchase Agreement dated as of March 6, 1996 between the Registrant and Hewlett-Packard Company *10.18 Series B Convertible Preferred Stock Purchase Agreement dated March 6, 1996 among the Company and the purchasers named therein *10.19 Registration Rights Agreement dated March 6, 1996 among the Company and the investors named therein *10.20 Co-Sale Rights Agreement dated as of March 6, 1996 among the investors and holders of shares of the Company's Common Stock named therein **10.21 Voting Agreement dated March 6, 1996 among the investors and holders of shares of the Company's Common Stock named therein *10.22 Series C Convertible Preferred Stock Purchase Agreement dated as of March 29, 1996 among the Company and the purchasers named therein *10.23 Registration Rights Agreement dated as of March 29, 1996 among the Company and the investors named therein *10.24 Stock Purchase Agreement dated as of February 1996 between John J. Donovan and Len Hafetz *10.25 Assignment and Assumption Agreement dated as of March 15, 1996 between John J. Donovan and the Registrant *10.26 Stock Repurchase Agreement dated as of April 4, 1996 between the Registrant and James Nondorf *10.27 Stock Repurchase Agreement dated as of April 15, 1996 between the Registrant and J&S Limited Partnership *10.28 Stock Repurchase Agreement dated as of April 15, 1996 between the Registrant and Harrington Trust Limited as Trustee of The Appleby Trust *10.29 Five-Year 9% Subordinated Note dated December 29, 1995 issued to Harrington Trust Limited as Trustee of The Appleby Trust in the principle amount of $750,000 *10.30 Five-Year 6% Convertible Subordinated Note dated May 3, 1995 issued to Harrington Trust Limited as Trustee of The Appleby Trust in the principle amount of $750,000 *10.31 Five-Year 6% Convertible Subordinated Note dated May 3, 1995 issued to J&S Limited Partnership in the principle amount of $250,000 **10.32 Loan Agreement dated as of March 31, 1996 between Klaus P. Besier and the Registrant *11 Statement Regarding Computation of Per Share Earnings **23.1 Consent of Peabody & Arnold (included in Exhibit No. 5) *23.2 Consent of Arthur Andersen LLP **23.3 Consent of Goodwin, Procter & Hoar llp *24 Power of Attorney (included in the signature page to this Registration Statement). *27 Financial Data Schedule
- -------- * Filed herewith ** To be filed by amendment II-5 (B) FINANCIAL STATEMENT SCHEDULES: Schedule II--Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are not applicable, and therefore have been omitted. ITEM 17.UNDERTAKINGS (a) 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. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) 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)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (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-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Boston, Commonwealth of Massachusetts, on May 20, 1996. Business@Web, Inc. /s/ Klaus P. Besier By: _________________________________ KLAUS P. BESIER CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Business@Web, Inc. hereby severally constitute Klaus P. Besier, Eric Sockol and Craig Newfield and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Registration Statement filed herewith and any and all amendments to said Registration Statement (or any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and generally to do all such things in our names and in our capacities as officers and directors to enable Business@Web to comply with the provisions of the Securities Act of 1933, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/ Klaus P. Besier Chairman of the Board, May 20, 1996 - ------------------------------------- President and Chief KLAUS P. BESIER Executive Officer (Principal Executive Officer) /s/ Eric Sockol Chief Financial May 20, 1996 - ------------------------------------- Officer and Treasurer ERIC SOCKOL and Principal Accounting Officer) (Principal Financial Officer /s/ Albert Carnesale Director May 10, 1996 - ------------------------------------- ALBERT CARNESALE II-7 Director , 1996 - ------------------------------------- MANUEL DIAZ /s/ Stephen Levy Director May 20, 1996 - ------------------------------------- STEPHEN LEVY /s/ Ofer Nemirovsky Director May 20, 1996 - ------------------------------------- OFER NEMIROVSKY /s/ Sundar Subramaniam Director May 20, 1996 - ------------------------------------- SUNDAR SUBRAMANIAM II-8 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Business@Web, Inc: We have audited, in accordance with generally accepted auditing standards, the balance sheets of Business@Web, Inc. as of December 1994 and 1995 and the related statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for the period from inception (January 19, 1994) to December 31, 1994 and the year ended December 31, 1995, included in this Registration Statement, and have issued our report thereon dated March 12, 1996 (except with respect to the matters discussed in Note 6, as to which the date is May 20, 1996). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in S-2 is the responsibility of the Company's management and is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts March 12, 1996 (except with respect to the matters discussed in 6, as to which the date is May 20, 1996) S-1 SCHEDULE II BUSINESS@WEB, INC. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT BALANCE AT BEGINNING BAD DEBT WRITE- END ALLOWANCE FOR DOUBTFUL ACCOUNTS OF PERIOD EXPENSE OFFS OF PERIOD ------------------------------- ---------- -------- -------- ---------- Period from inception (January 19, 1994) to December 31, 1994 ......... $ -- $ -- $ -- $ -- Year ended December 31, 1995 ........ -- 143,000 (43,000) 100,000
S-2 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ------- ----------- ---- * 1.1 Proposed Form of Underwriting Agreement * 3.1 Restated Certificate of Incorporation * 3.2 Certificate of Amendment to Restated Certificate of Incorporation ** 3.3 Form of Second Amended and Restated Certificate of Incorporation of the Registrant to be filed with the Secretary of State of Delaware prior to effectiveness of the offering. ** 3.4 Form of Third Amended and Restated Certificate of Incorporation of the Registrant to be filed with the Secretary of State of Delaware upon consummation of the offering * 3.5 By-Laws of the Registrant ** 3.6 Form of Amended and Restated By-laws of the Registrant to be effective prior to the effectiveness of the offering ** 4.1 Specimen Common Stock Certificate ** 5.1 Opinion of Peabody & Arnold with respect to legality of the Common Stock *10.1 1995 Stock Plan, as amended **10.2 1996 Stock Plan **10.3 Employee Stock Purchase Plan *10.4 Lease for One Arsenal Marketplace, Watertown, Massachusetts **10.5 Source Code License Agreement dated as of August 8, 1995 between the Registrant and InterGroup Technologies, Inc. **10.6 Software License Agreement dated as of August 8, 1995 between the Registrant and InterGroup Technologies, Inc. **10.7 Source Code License Agreement dated as of February 8, 1996 between the Registrant and Mentor Communications Limited **10.8 Software License Agreement dated as of August 10, 1995 between the Registrant and Mystic River Software, Inc. **10.9 Software, Education, Services Distribution Agreement dated June 21, 1995 between the Registrant and Open Environment Corporation **10.10 "SAP Customization Software" Agreement dated October 1, 1995 between the Registrant and Open Environment Corporation **10.11 OEM Source License Agreement dated as of December 29, 1995 between the Registrant and Open Environment Corporation **10.12 Joint Marketing Agreement effective as of February 27, 1996 between the Registrant and Hewlett-Packard Company *10.13 Loan Agreement dated February 16, 1996 between the Registrant and State Street Bank and Trust Company, together with Guaranty (unlimited) of J&S Limited Partnership **10.14 Warrant Purchase Agreement dated as of February 16, 1996 between the Registrant and SSB Investments, Inc. **10.15 Common Stock Purchase Warrant dated as of February 16, 1996 issued to SSB Investments, Inc. *10.16 Series B Convertible Preferred Stock Purchase Agreement dated February 27, 1996 between the Company and Hewlett-Packard Company *10.17 Amendment to Series B Convertible Preferred Stock Purchase Agreement dated as of March 6, 1996 between the Registrant and Hewlett-Packard Company *10.18 Series B Convertible Preferred Stock Purchase Agreement dated March 6, 1996 among the Company and the purchasers named therein *10.19 Registration Rights Agreement dated March 6, 1996 among the Company and the investors named therein
EXHIBIT NO. DESCRIPTION PAGE ------- ----------- ---- *10.20 Co-Sale Rights Agreement dated as of March 6, 1996 among the investors and holders of shares of the Company's Common Stock named therein **10.21 Voting Agreement dated March 6, 1996 among the investors and holders of shares of the Company's Common Stock named therein *10.22 Series C Convertible Preferred Stock Purchase Agreement dated as of March 29, 1996 among the Company and the purchasers named therein *10.23 Registration Rights Agreement dated as of March 29, 1996 among the Company and the investors named therein *10.24 Stock Purchase Agreement dated as of February 1996 between John J. Donovan and Len Hafetz *10.25 Assignment and Assumption Agreement dated as of March 15, 1996 between John J. Donovan and the Registrant *10.26 Stock Repurchase Agreement dated as of April 4, 1996 between the Registrant and James Nondorf *10.27 Stock Repurchase Agreement dated as of April 15, 1996 between the Registrant and J&S Limited Partnership *10.28 Stock Repurchase Agreement dated as of April 15, 1996 between the Registrant and Harrington Trust Limited as Trustee of The Appleby Trust *10.29 Five-Year 9% Subordinated Note dated December 29, 1995 issued to Harrington Trust Limited as Trustee of The Appleby Trust in the principle amount of $750,000 *10.30 Five-Year 6% Convertible Subordinated Note dated May 3, 1995 issued to Harrington Trust Limited as Trustee of The Appleby Trust in the principle amount of $750,000 *10.31 Five-Year 6% Convertible Subordinated Note dated May 3, 1995 issued to J&S Limited Partnership in the principle amount of $250,000 **10.32 Loan Agreement dated as of March 31, 1996 between Klaus P. Besier and the Registrant *11 Statement Regarding Computation of Per Share Earnings **23.1 Consent of Peabody & Arnold (included in Exhibit No. 5) *23.2 Consent of Arthur Andersen LLP **23.3 Consent of Goodwin, Procter & Hoar llp *24 Power of Attorney (included in the signature page to this Registration Statement). *27 Financial Data Schedule
- -------- * Filed herewith ** To be filed by amendment EX-1.1 2 UNDERWRITING AGREEMENT Draft of May 17, 1996 EXHIBIT 1.1 BUSINESS@WEB, INC. Common Stock (par value $.001 per share) Underwriting Agreement ---------------------- , 1996 Goldman, Sachs & Co. Hambrecht & Quist LLC As representatives of the several Underwriters named in Schedule I hereto c/o Goldman, Sachs & Co. 85 Broad Street, New York, New York 10004 Ladies and Gentlemen: Business@Web, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 3,000,000 shares and, at the election of the Underwriters, up to 562,500 additional shares of Common Stock, $.001 par value ("Stock"), of the Company, and the stockholders of the Company named in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of 750,000 shares of Stock. The aggregate of 3,750,000 shares to be sold by the Company is herein called the "Firm Shares" and the aggregate of 562,500 additional shares to be sold by the Company is herein called the "Optional Shares". The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares". 1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-1 (File No. 333-....) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement") filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to such registration statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement and incorporated by reference in the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement and incorporated by reference in the Rule 462(b) Registration Statement, if any, or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act, is hereinafter called a "Preliminary Prospectus"; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, or the Rule 462(b) Registration Statement, if any, at the time it became effective, each as amended at the time such part of the registration statement became effective, are hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(l) of Form S-1; (iii) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(l) of Form S-1; (iv) The Company has not sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock (other than -2- changes resulting from the exercise of stock options after the respective dates as of which information is given in the Prospectus and prior to the Time of Delivery (as defined below)), or long-term debt of the Company, or any material adverse change, or any development that is reasonably likely to result in a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company, otherwise than as set forth or contemplated in the Prospectus; (v) The Company does not own any real property. The Company has good and valid title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company; and any real property and buildings held under lease by the Company are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company; (vi) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation to do business and is in good standing as a foreign corporation in each jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified would not materially adversely affect the condition (financial or otherwise), business, properties or results of operations of the Company. The Company has no subsidiaries, as such term is defined in Rule 1-02 of Regulation S-X of the Commission; (vii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description of the Stock contained in the Prospectus; (viii) The unissued Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus; (ix) The issue and sale of the Shares to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties; and no consent, approval, authorization, order, registration or qualification -3- of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters and the clearance of the public offering of the Shares by the Underwriters with the National Association of Securities Dealers, Inc. (the "NASD"); (x) The Company is not in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound; (xi) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock are accurate and complete; (xii) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company is a party or of which any property of the Company is the subject which, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the financial position, shareholders' equity or results of operations of the Company; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xiii) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or an entity controlled by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xiv) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (xv) Arthur Andersen LLP, who have certified certain financial statements of the Company, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; and (xvi) Other than as set forth in the Prospectus, the Company has sufficient interests in all patents, trademarks, servicemarks, trade names, copyrights, trade secrets, information, proprietary rights and processes ("Intellectual Property") necessary for its business as now conducted and necessary in connection with the products and services under development and described in the Prospectus without any conflict with or infringement of the interests of others and have taken all reasonable steps necessary to secure interests in such Intellectual Property from their contractors; the Company is not aware of outstanding options, licenses or agreements of any kind relating to the Intellectual Property, and the Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property of any other person or entity; none of the technology employed -4- by the Company has been obtained or is being used by the Company in violation of any contractual fiduciary obligation binding on the Company or any of its directors or executive officers or, to the Company's knowledge, any of its employees or otherwise in violation of the rights of any person; except as disclosed in the Prospectus, neither of the Company nor any of its employees has received any written or, to the Company's knowledge, oral communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the Intellectual Property of any other person or entity; neither the execution nor delivery of this Agreement, nor the operation of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will result in a breach or violation of the terms, conditions or provisions of, or constitute a default under, any material contract, covenant or instrument known to the Company under which any of such employees is now obligated; and the Company has taken and will maintain reasonable measures to prevent the unauthorized dissemination or publication of its confidential information and, to the extent contractually required to do so, the confidential information of third parties in its possession. (b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, each of the Underwriters and the Company that: (i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Power of Attorney and the Custody Agreement hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Power-of-Attorney and the Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; (ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a partnership or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii) Such Selling Stockholder has, and immediately prior to the First Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims, other than the Power of Attorney and the Custody Agreement hereinafter referred to; and, -5- upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters; (iv) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, such Selling Stockholder will not offer, sell contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without your prior written consent; (v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; (vi) To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, such Preliminary Prospectus and the Registration Statement did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (vii) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); (viii) Certificates in negotiable form representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Letter of Transmittal and Custody Agreement, in the form heretofore furnished to you (the "Custody Agreement"), duly executed and delivered by such Selling Stockholder to Business@Web, Inc., as custodian (the "Custodian"), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the "Power of Attorney"), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price -6- to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement; and (ix) The Shares represented by the certificates held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event; if any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. 2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $.............., the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. -7- The Company hereby grants to the Underwriters the right to purchase at their election up to 562,500 Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering overallotments in the sale of the Firm Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co., for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer or certified or official bank check or checks, payable to the order of the Company and the Custodian in federal (same day) funds. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on ............., 1996 or such other time and date as Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(j) hereof, will be delivered at the offices of Goodwin, Procter & Hoar LLP, 53 State Street, Boston, Massachusetts 02109 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 3:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. -8- 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use all reasonable efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with copies of the Prospectus in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; -9- (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option or employee stock purchase plans existing on, or upon the conversion or exchange of convertible or exchangeable securities, or the exercise of warrants, outstanding as of, the date of this Agreement), without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants); (g) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such as financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (i) To use its best efforts to list for quotation the Shares on the Nasdaq National Market; (j) To file with the Commission such reports on Form SR as may be required by Rule 463 under the Act; and (k) If the Company elects to rely on Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. 6. The Company and each of the Selling Stockholders covenant and agree with one another and with the several Underwriters that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and -10- accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on the Nasdaq National Market; (v) the filing fees incident to securing any required review by the NASD of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section and (b) such Selling Stockholder will pay, or cause to be paid, all costs and expenses incident to the performance of such Selling Stockholder's obligations hereunder which are not specifically provided for in this Section, including all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with clause (b) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; -11- (b) Hale and Dorr, counsel for the Underwriters, shall have furnished to you such written opinion or opinions (a draft of such opinion is attached as Annex II (a) hereto), dated such Time of Delivery, with respect to the matters covered in paragraphs (i), (ii), (vii), (xi) and (xiii) of subsection (c) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Goodwin, Procter & Hoar LLP, counsel for the Company, shall have furnished to you their written opinion (a draft of such opinion is attached as Annex II (b) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the Shares being delivered at such Time of Delivery) have been duly and validly authorized and issued and are fully paid and non- assessable; and the Shares conform to the description of the Stock contained in the Prospectus; (iii) The Company has been duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where failure to be so qualified would not materially adversely affect the condition (financial or otherwise), business, properties or results of operations of the Company (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company or certificates of government officials, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificates); (iv) To the best of such counsel's knowledge, the Company has no subsidiaries (such counsel being entitled to rely in respect of the opinion in this clause upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (v) Any real property and buildings held under lease by the Company are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company (in giving the opinion in this clause, such counsel may state that they are relying upon opinions of counsel to the lessors of such property and, in respect of matters of fact, upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); -12- (vi) To the best of such counsel's knowledge, there are no legal or governmental proceedings pending to which the Company is a party or of which any property of the Company is the subject which are required to be described in the Prospectus which are reasonably likely to have a material adverse effect on the current or future financial position, stockholders' equity or results of operations of the Company; and, to the best of such counsel's knowledge, no such proceedings are threatened by governmental authorities or threatened by others; (vii) This Agreement has been duly authorized, executed and delivered by the Company; (viii) The issue and sale of the Shares being delivered at such Time of Delivery to be sold by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of, or constitute a default under, any document filed as an exhibit to the Registration Statement or any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its properties; (ix) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters and the clearance of the public offering of the Shares with the NASD; (x) To the best of such counsel's knowledge, the Company is not in violation of its Certificate of Incorporation; (xi) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock and in paragraph 5 under the caption "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate and complete; provided, however, that such counsel may rely on representations of the Company with respect to factual matters contained in such statements (so long as such counsel shall state that nothing has come to their attention which leads them to believe that such representations are not true and correct in all material respects); (xii) The Company is not an "investment company" or an entity controlled by an "investment company", as such terms are defined in the Investment Company Act; (xiii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements and notes thereto, financial schedules and other financial data included therein, as to which such -13- counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; although they do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except for those referred to in the opinion in subsection (x) of this Section 7(c), they have no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to such Time of Delivery (other than the financial statements and notes thereto, financial schedules and other financial data included therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and notes thereto, financial schedules and other financial data included therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and notes thereto, financial schedules and other financial data included therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and they do not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus which are not filed or described as required; (d) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel (a draft of each such opinion is attached as Annex II(c) hereto), dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) A Power-of-Attorney and a Custody Agreement have been duly executed and delivered by such Selling Stockholder and constitute valid and binding agreements of such Selling Stockholder in accordance with their terms; (ii) This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power-of- Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, -14- nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a partnership or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder, except the registration under the Act of such Shares, such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of such Shares by the Underwriters and the clearance of the public offering of such Shares by the NASD; (iv) Immediately prior to such Time of Delivery, such Selling Stockholder had good and valid title to the Shares to be sold at such Time of Delivery by such Selling Stockholder under this Agreement, free and clear of all liens, encumbrances, equities or claims, and full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; and (v) Good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, has been transferred to each of the several Underwriters who have purchased such Shares in good faith and without notice of any such lien, encumbrance, equity or claim or any other adverse claim within the meaning of the Uniform Commercial Code. In rendering the opinion in paragraph (iv), such counsel may rely upon a certificate of such Selling Stockholder in respect of matters of fact as to ownership of, and liens, encumbrances, equities or claims on, the Shares sold by such Selling Stockholder, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificate; (e) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Arthur Andersen LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance reasonably satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); (f)(i) The Company shall not have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have -15- been any change in the capital stock (other than changes resulting from the exercise of stock options after the respective dates as of which information is given in the Prospectus and prior to the Time of Delivery) or long-term debt of the Company or any change, or any development that is reasonably likely to result in a prospective change, in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of the Company, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (g) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or on the Nasdaq National Market; (ii) a suspension or material limitation in trading in the Company's securities on the Nasdaq National Market; (iii) a general moratorium on commercial banking activities declared by Federal, New York or Massachusetts State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this Clause (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (h) The Shares at such Time of Delivery shall have been duly listed for quotation on the Nasdaq National Market; (i) The Company has obtained and delivered to the Underwriters executed copies of an agreement from each holder of more than ____ shares of Stock, substantially to the effect set forth in Subsection 1(b)(iv) hereof in form and substance satisfactory to you; (j) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section; and (k) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement. 8. (a) The Company and each of the Selling Stockholders, jointly and severally, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) -16- arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company and the Selling Stockholders shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein; and provided, further, that the liability of a Selling Stockholder pursuant to this subsection (a) shall not exceed the product of the number of Shares sold by such Selling Stockholder and the initial public offering price of the Shares as set forth in the Prospectus. (b) Each Underwriter will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of -17- the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. -18- (e) The obligations of the Company and the Selling Stockholders under this Section 8 shall be in addition to any liability which the Company and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company and the Selling Stockholders notify you that they have so arranged for the purchase of such Shares, you or the Company and the Selling Stockholders shall have the right to postpone a Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of -19- the Company and the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company and the Selling Stockholders and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason the any Shares are not delivered by or on behalf of the Company and the Selling Stockholders as provided herein, the Company and each of the Selling Stockholders pro rata (based on the number of Shares to be sold by the Company and such Selling Stockholder hereunder) will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives; and in all dealings with any Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder made or given by any or all of the Attorneys-in-Fact for such Selling Stockholder. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. -20- 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and each of the Representatives plus one for each counsel and the Custodian, if any, counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, Business@Web, Inc. By:.......................... Name: Title: -21- Moongate Holdings Ltd. Sundar Subramaniam Pantio Holding Ltd. J&S Limited Partnership By:.......................... Name: Title: As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II to this Agreement. Accepted as of the date hereof: Goldman, Sachs & Co. Hambrecht & Quist LLC By:................................. (Goldman, Sachs & Co.) On behalf of each of the Underwriters -22- SCHEDULE I Number of Optional Total Number of Shares to be Purchased Firm Shares if Maximum Underwriter to be Purchased Option Exercised --------------- ------------------ Goldman, Sachs & Co................. Hambrecht & Quist LLC.............. Total --------------- ------------------ 3,750,000 562,500 =============== ================== -23- SCHEDULE II Number of Optional Total Number of Shares to be Purchased Firm Shares if Maximum to be Purchased Option Exercised --------------- ----------------------- The Company.......................... 3,000,000 562,500 The Selling Stockholders(a): Moongate Holdings Ltd............ 311,641 0 Sundar Subramaniam............... 200,000 0 Pantio Holding Ltd............... 120,337 0 J&S Limited Partnership.......... 118,022 0 Total --------------- ----------------------- 3,750,000 562,500 =============== ======================= (a) This Selling Stockholder is represented by Peabody & Arnold and has appointed Klaus P. Besier, Eric Sockol and Craig Newfield, and each of them, as the Attorneys-in-Fact for such Selling Stockholder. -24- ANNEX I Pursuant to Section 7(e) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules (and, if applicable, financial forecasts and/or pro forma financial information) examined by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited consolidated interim financial statements, selected financial data, pro forma financial information, financial forecasts and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been separately furnished to the representatives of the Underwriters (the "Representatives"); (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus as indicated in their reports thereon copies of which have been separately furnished to the Representatives and on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the most recent fiscal years included in the Prospectus agrees with the corresponding amounts (after restatements where applicable) in the audited consolidated financial statements for such fiscal years included in the Prospectus; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included in the Prospectus; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived any unaudited condensed financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited consolidated financial statements included in the Prospectus; (D) any unaudited pro forma consolidated condensed financial statements included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest financial statements included in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or stockholders' equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the -2- latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in Clause (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for decreases or increases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives, which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. -3- EX-3.1 3 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF BUSINESS@WEB, INC. Business@Web, Inc. (the "Corporation"), originally incorporated under the name Object Power, Incorporated by original Certificate of Incorporation filed with the office of the Secretary of State of the State of Delaware on January 19, 1994, as amended, and currently organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify that the Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting, has duly adopted a resolution, pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, setting forth an amended and restated Certificate of Incorporation of the Corporation and declaring said amendment and restatement to be advisable. The stockholders of the Corporation have duly approved said amendment and restatement by the required vote of such stockholders, adopted by a written action in lieu of a meeting of such stockholders, all in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and written notice of the taking of such action was given promptly to those stockholders who have not consented in writing, as required by Section 228 of the General Corporation Law of the State of Delaware. The Certificate of Incorporation of the Corporation, as amended and restated in its entirety, is as follows: FIRST: The name of the Corporation is Business@Web, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is thirty-three million (33,000,000) shares, thirty million (30,000,000) of which shall be Common Stock, par value $.001 per share ("Common Stock"), and three million (3,000,000) of which shall be Preferred Stock, par value $1.00 per share ("Preferred Stock"). Of the authorized Preferred Stock, one million four hundred thirty-one thousand four hundred twelve (1,431,412) shares shall be designated Series B Convertible Preferred Stock and one million five hundred sixty-eight thousand five hundred eighty-eight (1,568,588) shares shall be undesignated. All shares of the series of Preferred Stock designated Series A Preferred Stock issued and outstanding prior to the filing of this Restated Certificate of Incorporation have been surrendered for conversion into Common Stock and retired, and the series of Preferred Stock designated as Series A Preferred Stock is hereby cancelled and eliminated from the shares which the Corporation is authorized to issue. Descriptions of the undesignated Preferred Stock, the Series B Convertible Preferred Stock and the Common Stock are as follows: I. PREFERRED STOCK Description of Undesignated Preferred Stock. - ------------------------------------------- 1. Issuance of Preferred Stock in Classes or Series. The undesignated ------------------------------------------------ Preferred Stock of the Corporation may be issued in one or more classes or series at such time or times and for such consideration as the Board of Directors of the Corporation may determine. Each class or series shall be so designated as to distinguish the shares thereof from the shares of all other classes and series. Except as to the relative preferences, powers, dividends, qualifications, rights and privileges referred to in the next paragraph below, in respect of any or all of which there may be variations between different classes or series of Preferred Stock, all shares of Preferred Stock shall be identical. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes unless otherwise specifically set forth herein. 2. Authority to Establish Variations Between Classes or Series of -------------------------------------------------------------- Preferred Stock. The Board of Directors of the Corporation is expressly - --------------- authorized, by a vote of a majority of the members of the Board of Directors then in office, subject to the limitations prescribed by law and the provisions of this Certificate of Incorporation, to provide by adopting a vote or votes, a Certificate of Designation of which shall be filed in accordance with the General Corporation Law of the State of Delaware, for the issue of the undesignated Preferred Stock in one or more classes or series, each with such designations, preferences, voting powers, dividends, qualifications, special or relative rights and privileges as shall be stated in the Certificate of Designation and the resolutions of the Board of Directors creating such class or series. Description of Series B Convertible Preferred Stock. - --------------------------------------------------- 1. Liquidation Rights. ------------------ (a) Treatment at Liquidation, Dissolution or Winding Up. --------------------------------------------------- (i) Except as otherwise provided in Section 1(b) below, in the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, the holders of Series B Convertible Preferred Stock shall be entitled to be paid first out of the assets of the corporation available for distribution to holders of the corporation's capital stock of all classes, before payment or distribution of any of such assets to the holders of any other class or series of the corporation's capital stock designated to be junior to the Series B Convertible Preferred Stock, an amount equal to $5.54 per share of Series B Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to Series B Convertible Preferred Stock and, as so adjusted from time to time, is hereinafter referred to as the "Base Liquidation Price") plus all dividends thereon accrued but unpaid, to and including the date full payment shall be tendered to the holders of Series B Convertible Preferred Stock with respect to such liquidation, dissolution or winding up. (ii) Following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the corporation available for distribution to holders of the corporation's capital stock shall be distributed among the holders of the Common Stock and the holders of the Series B Convertible Preferred Stock on a share for share basis, with each holder of a share of Series B Convertible Preferred Stock receiving the amount that would have been payable to the holder of such share had all shares of Series B Convertible Preferred Stock been converted to Common Stock pursuant to Section 2(a) hereof immediately following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof. (iii) If the assets of the corporation shall be insufficient to permit the payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the corporation available for such distribution shall be distributed ratably among the holders of Series B Convertible Preferred Stock. (b) Treatment of Reorganizations, Consolidations, Mergers and Sales --------------------------------------------------------------- of Assets. A consolidation or merger of the corporation, or a sale of all or - --------- substantially all of the assets of the corporation (other than a merger, consolidation or sale of all or substantially all of the assets of the corporation in a transaction in which the shareholders of the corporation immediately prior to the transaction possess more than 50% of the voting securities of the surviving entity (or parent, if any) immediately after the transaction) shall be regarded as a liquidation, dissolution or winding up of the affairs of the corporation within the meaning of this Section 1. (c) Distributions Other than Cash. Whenever the distribution provided ----------------------------- for in this Section 1 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 of Directors of the corporation. 2. Conversion. The holders of Series B Convertible Preferred Stock shall ---------- have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert; Conversion Price. Each share of Series B ---------------------------------- Convertible Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Series B Convertible Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $5.54 by the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The Conversion Price for purposes of calculating the number of shares of Common Stock deliverable upon conversion without the payment of any additional consideration by the holder of Series B Convertible Preferred Stock (the "Conversion Price") shall initially be $5.54. Such initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which Series B Convertible Preferred Stock is convertible, as hereinafter provided. (b) Mechanics of Conversion. Before any holder of Series B ----------------------- Convertible Preferred Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series B Convertible Preferred Stock, and shall give written notice to the corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of Series B Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Convertible Preferred Stock, or to such holder's nominee or nominees, a-certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (c) Automatic Conversion. -------------------- (i) Each share of Series B Convertible Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price (subject to adjustment as provided in Section 2(c)(iii)) upon: (A) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public at an initial public offering price per share of not less than $8.25 (adjusted proportionately to give effect to any stock dividend, stock distribution or subdivision or any combination or consolidation of Common Stock) and with gross proceeds of not less than $15,000,000 (a "Qualified IPO") or (B) the written election of the holders of not less than a majority of the then outstanding shares of Series B Convertible Preferred Stock to require such mandatory conversion. (ii) Upon the occurrence of an event specified in Section 2(c)(i) hereof, all shares of Series B Convertible Preferred Stock shall be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares are surrendered to the corporation or the transfer agent for the Series B Convertible Preferred Stock; provided, however, that the corporation shall not be obligated to issue a certificate or certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificate or certificates evidencing such shares of Series B Convertible Preferred Stock being converted are either delivered to the corporation or the transfer agent of the Series B Convertible Preferred Stock, or the holder notifies the corporation or such transfer agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection therewith and, if the corporation so elects, provides an appropriate indemnity bond. Upon the automatic conversion of Series B Convertible Preferred Stock, each holder of Series B Convertible Preferred Stock shall surrender the certificate or certificates representing such holder's shares of Series B Convertible Preferred Stock at the office of the corporation or of the transfer agent for the Series B Convertible Preferred Stock. Thereupon, there shall be issued and delivered to such holder, promptly at such office and in such holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series B Convertible Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series B Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (iii) In the event of the automatic conversion of shares of Series B Convertible Preferred Stock into shares of Common Stock, pursuant to Section 2(c)(i)(A), upon the occurrence of a Qualified IPO in which the initial offering price per share of Common Stock is less than $10.25 (the "Adjustment Trigger Price"), the Conversion Price in effect immediately prior to the closing of the Qualified IPO shall be adjusted automatically to the greater of (A) the price determined by dividing (i) the initial offering price per share of Common Stock in the Qualified IPO by (ii) 1.85 (the "IPO Adjusted Conversion Price") or (B) $4.46 (the "Adjustment Floor Price"); provided, however, that there shall be no adjustment of the Conversion Price pursuant to the foregoing clause if the Conversion Price resulting from adjustment would be higher than the Conversion Price in effect immediately prior to the closing of the Qualified IPO. If, prior to the Qualified IPO, the Conversion Price shall have been adjusted pursuant to Section 2(d)(vi)(A) in the event of a stock dividend, stock distribution or subdivision or pursuant to Section 2(d)(vi)(B) in the event of a combination or consolidation of Common Stock, the Adjustment Trigger Price, the Adjustment Floor Price and the IPO Adjusted Conversion Price shall be decreased or increased proportionately to give effect to such stock dividend, stock distribution or subdivision or such combination or consolidation. (d) Adjustments to Conversion Price for Diluting Issues. -------------------------------------------- ------ (i) Special Definitions. For purposes of this Section 2(d), the ------------------- following definitions shall apply: (A) "Option" shall mean rights, options or warrants to -------- subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which a --------------------- share of Series B Convertible Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of ------------------------ indebtedness, shares (other than Common Stock and Series B Convertible Preferred Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all ----------------------------------- shares of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than the following (collectively, "Excluded Shares"): (I) shares of Common Stock issued or issuable upon conversion of shares of Series B Convertible Preferred Stock; or (II) shares of Common Stock issued or issuable upon exercise or conversion of Options or Convertible Securities outstanding on the Original Issue Date; or (III) shares of Common Stock issued or issuable to officers, employees or directors of, or consultants to, the corporation pursuant to a stock purchase or option plan or other employee stock bonus arrangement (collectively, the "Plans") approved by the Board of Directors; provided, however, that shares of Common Stock issued or deemed issued to a director of the corporation pursuant to options or other purchase rights granted after the Original Issue Date shall be Excluded Shares only if granted at the time of, or in connection with, such director's initial election to the Board of Directors; or (IV) shares of Common Stock issued or issuable pursuant to warrants issued in connection with the establishment of credit facilities for the corporation (including, without limitation, in connection with equipment leasing arrangements); or (V) shares of Common Stock or Convertible Securities issued with the written consent of the holders of not less than a majority of the outstanding shares of Series B Convertible Preferred Stock. (ii) No Adjustment of Conversion Price. No adjustment in the number --------------------------------- of shares of Common Stock into which a share of Series B Convertible Preferred Stock is convertible shall be made, by adjustment in the Conversion Price in respect of the issuance of Additional Shares of Common Stock or otherwise: (i) unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock or, (ii) if prior to such issuance, the corporation receives written notice from the holders of a majority of the then outstanding shares of Series B Convertible Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of Common --------------------------------------------------------------- Stock. - ----- (A) Options and Convertible Securities. In the event the ---------------------------------- corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then 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 upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2(d)(v) hereof) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (I) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (II) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (III) upon the expiration of any such options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and (b) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation (determined pursuant to Section 2(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (IV) no readjustment pursuant to clause (II) or (III) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (V) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (III) above; and (VI) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the actual date of their issuance. (B) Stock Dividends, Stock Distributions and Subdivisions. In ----------------------------------------------------- the event the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which corporate action becomes effective. If such record date shall have been fixed and no part of such dividend shall have been paid on the date fixed therefor, the adjustment previously made for the Conversion price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the time of actual payment of such dividend. (iv) Adjustment of Conversion Price Upon Issuance of Additional ---------------------------------------------------------- Shares of Common Stock. - ---------------------- (A) In the event the corporation shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of shares of Common Stock which the aggregate consideration received or deemed to have been received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and the denominator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of Additional Shares of Common Stock so issued or deemed to be issued. (B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all shares of Common Stock issuable upon conversion of shares of Series B Convertible Preferred Stock, and upon exercise of options or conversion or exchange of Convertible Securities which are part of the Excluded Shares, outstanding immediately prior to any issue of Additional Shares of Common Stock, or any event with respect to which Additional Shares of Common Stock shall be deemed to be issued, shall be deemed to be outstanding; and (ii) immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (C) Notwithstanding anything to the contrary contained herein, the applicable Conversion Price in effect at the time Additional Shares of Common Stock are issued or deemed to be issued shall not be reduced pursuant to Section 2(d)(iv)(A) hereof at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (v) Determination of Consideration. For purposes of this Section ------------------------------ 2(d), the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: ----------------- (I) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per ---------------------------------- share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to Options and Convertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Con vertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Dividends, Distributions, Subdivisions, ------------------------------------------------------ Combinations or Consolidations of Common Stock. - ---------------------------------------------- (A) Stock Dividends, Distributions or Subdivisions. In the event ---------------------------------------------- the corporation shall issue Additional Shares of Common Stock pursuant to Section 2(d)(iii)(B) in a stock dividend, stock distribution or subdivision, the Conversion Price in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (B) Combinations or Consolidations. In the event the outstanding ------------------------------ shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (e) No Impairment. The corporation shall not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series B Convertible Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price pursuant to this Section 2, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each affected holder of Series B Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any affected holder of Series B Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price 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 conversion of each share of Series B Convertible Preferred Stock. (g) Notices of Record Date. In the event of any taking by the ---------------------- corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the corporation shall mail to each holder of Series B Convertible Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. (h) Common Stock Reserved. The corporation shall reserve and keep --------------------- available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all con vertible Series B Convertible Preferred Stock. (i) Certain Taxes.. The corporation shall pay any issue or transfer -------------- taxes payable in connection with the conversion of any shares of Series B Convertible Preferred Stock; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of such Series B Convertible Preferred Stock. (j) Closing of Books. The corporation shall at no time close its ---------------- transfer books against the transfer of any Series B Convertible Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series B Convertible Preferred Stock, in any manner which interferes with the timely conversion or transfer of such Series B Convertible Preferred Stock. 3. Voting Rights. ------------- Except as otherwise provided herein or required by law or by the provisions establishing any other series of Preferred Stock, the holders of Common Stock and the holders of Series B Convertible Preferred Stock shall be entitled to notice of any stockholders' meeting and shall vote as one class upon any matter submitted to the stockholders for a vote, on the following basis: (i) Holders of Common Stock shall have one vote per share of Common Stock held by them; and (ii) Holders of Series B Convertible Preferred Stock shall have that number of votes per share of Series B Convertible Preferred Stock as is equal to the number of shares of Common Stock into which each such share of Series B Convertible Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting. 4. Dividend Rights. --------------- (a) From and after the Original Issue Date, dividends shall accrue on each share of the Series B Convertible Preferred Stock, whether or not funds are legally available therefor and whether or not declared by the Board of Directors, in the amount per annum of $0.3324 per share of Series B Convertible Preferred Stock (the "Series B Dividends"). From time to time the Board of Directors of the corporation may declare and pay dividends or distributions on shares of the Common Stock or on any other class or series of capital stock of the corporation, but only if all accrued Series B Dividends shall have been paid in full prior to the date of any such declaration, payment or distribution. (b) In the event the Board of Directors of the corporation shall declare a dividend payable upon the then outstanding shares of the Common Stock (other than a dividend payable entirely in shares of the Common Stock of the corporation), the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of the Series B Convertible Preferred Stock, payable at the same time as the dividend paid on the Common Stock, in an amount equal to the amount of dividends per share of Series B Convertible Preferred Stock, as would have been payable on the largest number of whole shares of Common Stock into which each share of Series B Convertible Preferred Stock held by each holder thereof if such Series B Convertible Preferred Stock had been converted to Common Stock pursuant to the provisions of Section 2 hereof as of the record date for the determination of holders of Common Stock entitled to receive such dividends; and (c) In the event the Board of Directors of the corporation shall declare a dividend payable upon any class or series of capital stock of the corporation other than Common Stock, the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of Series B Convertible Preferred Stock, payable at the same time as such dividend on such other class or series of capital stock in an amount equal to (i) in the case of any series or class convertible into Common Stock, that dividend per share of Series B Convertible Preferred Stock, as would equal the dividend payable on such other class or series determined as if all such shares of such class or series had been converted to Common Stock and all shares of Series B Convertible Preferred Stock have been converted to Common Stock on the record date for the determination of holders entitled to receive such dividend or (ii) if such class or series of Capital Stock is not convertible into Common Stock, at a rate per share of Series B Convertible Preferred Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by the Base Liquidation Price then in effect. 5. Redemption. ---------- (a) At the written request, made on or after December 31, 2002, of the holders of a majority of the then-outstanding shares of Series B Convertible Preferred Stock, the corporation shall on March 31 in each of the three (3) years immediately following the date of such request (each, a "Redemption Date"), call for redemption in accordance with Section 5(b) hereof and shall redeem for the applicable Redemption Amount (as hereinafter defined) from each holder of Series B Convertible Preferred Stock such number of shares of Series B Convertible Preferred Stock as shall be equal to thirty-three and one third percent (33 1/3%) of all of the shares of Series B Convertible Preferred Stock held by such holder on the Redemption Date. For the purposes of this Section 5, the term "Redemption Amount" means, for each share of Series B Convertible Preferred Stock to be redeemed, the sum of (i) the Base Liquidation Price plus (ii) an amount equal to any dividends accrued and unpaid thereon at the time of such redemption. (b) Call for redemption shall be made by the corporation by notice sent by first class mail, postage prepaid, to each holder of record of Series B Convertible Preferred Stock to be redeemed, not less than thirty (30) days nor more than sixty (60) days prior to the Redemption Date set forth therein, at such holder's address as it appears on the books of the corporation. Such notice shall set forth (i) the Redemption Date and the place of redemption, (ii) the number of shares to be redeemed (in accordance with Section 5(a) hereof) and (iii) the Redemption Amount per share and the aggregate Redemption Amount to be paid with respect to the shares to be redeemed. The corporation shall be obligated to redeem shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof whether or not any notice of redemption is given as required herein. If, before the close of business on the relevant Redemption Date, any holder of record of Series B Convertible Preferred Stock shall have surrendered any shares of Series B Convertible Preferred Stock for conversion pursuant to Section 2(a) hereof, the corporation shall credit against the number of shares of Series B Convertible Preferred Stock otherwise required to be redeemed from such holder, and shall not redeem the number of shares of Series B Convertible Preferred Stock which had been converted by such holder on or before such Redemption Date and which had not previously been credited against any redemption. (c) If, on or before any Redemption Date, the funds necessary for such redemption shall have been set aside by the corporation and deposited with a bank or trust company in trust for the pro rata benefit of the holders of Series B Convertible Preferred Stock to be redeemed pursuant to Section 5(a) hereof, then, notwithstanding that any certificates for such shares of Series B Convertible Preferred Stock to be redeemed shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding from and after the Redemption Date, and all rights of holders of such shares shall forthwith, after the Redemption Date, cease and terminate, excepting only the right to receive the full redemption funds therefor to which they are entitled. Any interest accrued on funds so deposited and unclaimed by stockholders entitled thereto shall be paid to such stockholders at the time their respective shares are redeemed or to the corporation at the time unclaimed amounts are paid to it. In case the holders of Series B Convertible Preferred Stock to be redeemed pursuant to Section 5(a) hereof shall not, within five (5) years after the Redemption Date, claim the amounts so deposited with respect to the redemption thereof, any such bank or trust company shall, upon demand, pay over to the corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the corporation for the payment thereof. Any funds so deposited with a bank or trust company which shall not be required for such redemption by reason of the exercise subsequent to the date of such deposit, of the right of conversion of any shares, or otherwise, shall be returned to the corporation forthwith. (d) If the funds of the corporation legally available for redemption of shares of Series B Convertible Preferred Stock on a Redemption Date are insufficient to redeem the total number of shares of Series B Convertible Preferred Stock required to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of whole shares of Series B Convertible Preferred Stock pro rata from among all holders of Series B Convertible Preferred Stock on the basis of the aggregate number of shares of Series B Convertible Preferred Stock held by each such holder on the Redemption Date. The shares of Series B Convertible Preferred Stock not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of such shares of Series B Convertible Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available. (e) If the corporation for any reason fails to redeem any shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof on or prior to the Redemption Date specified therein, then from and after such Redemption Date until such time as the Redemption Amount for such shares of Series B Convertible Preferred Stock has been paid in full, notwithstanding anything to the contrary contained in this Certificate of Incorporation, the corporation may not incur any indebtedness for money borrowed (unless the proceeds of such incurrence of indebtedness are used to make all overdue redemptions) or borrow or reborrow any amounts under any lines of credit which it may then have outstanding without the prior written consent of the holders of not less than a majority of the then outstanding shares of Series B Convertible Preferred Stock; provided, however, that the corporation may incur indebtedness for money borrowed or borrow or reborrow any amounts under any outstanding lines of credit without the aforesaid approval if (i) the proceeds of such borrowing are intended to be, and are in fact, used to pay obligations of the corporation arising in the ordinary course of business as they become due and payable or otherwise to maintain the operations of the corporation at the then current level and not to expand the operations of the corporation in any respect, whether through expansion or enhancement of, or addition to, the corporation's then current product line, facilities, equipment, other capital assets or workforce, or otherwise, (ii) the corporation provides prior written notice of such borrowing to all holders of Series B Convertible Preferred Stock, which notice shall include a statement of the intended use of the proceeds of such borrowing and (iii) promptly upon request therefor, the corporation shall provide to any holder of Series B Convertible Preferred Stock a certificate signed by the President and Chief Financial Officer of the corporation certifying as to the allocation and use of the proceeds of any such borrowing; and (f) If the corporation for any reason fails to redeem any shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof on or prior to the Redemption Date specified therein, then from and after such Redemption Date until such time as the Redemption Amount for such shares of Series B Convertible Preferred Stock has been paid in full, notwithstanding anything to the contrary contained in this Certificate of Incorporation, the holders of Series B Convertible Preferred Stock, voting as a separate class and not with the holders of Common Stock, shall be entitled to elect to the Board of Directors the smallest number of directors which shall constitute a majority of the authorized number of directors, and the holders of Common Stock, voting as a separate class, shall be entitled to elect the remaining members of the Board of Directors. Whenever under the provisions of the preceding sentence the right shall have accrued to the holders of Series B Convertible Preferred Stock as a class to elect directors of the corporation, the Board of Directors shall promptly call (and in the event the Board of Directors fails to call, the holders of at least twenty percent (20%) in voting power of the outstanding shares of Series B Convertible Preferred Stock may call) a special meeting of stockholders for the election of directors. Upon the election by the holders of the Series B Convertible Preferred Stock of the directors they are entitled to elect as provided in this Section 5(f), the terms of office of all persons who were previously members of the Board of Directors shall immediately terminate, whether or not the holders of Common Stock shall have elected the remaining members of the Board of Directors. In the case of any vacancy of office occurring among the directors elected by the holders of Series B Convertible Preferred Stock, the remaining directors elected by the holders of Series B Convertible Preferred Stock, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired term of the director whose place shall be vacant; in the case of any vacancy of office occurring among the directors elected by the holders of Common Stock, the remaining directors elected by the holders of Common Stock, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired term of the director whose place shall be vacant. Any director who shall have been elected by the holders of Series B Convertible Preferred Stock (or by directors elected by the holders of Series B Convertible Preferred Stock) may be removed during his term of office by, and only by, the affirmative vote of the holders of the then outstanding shares of Series B Convertible Preferred Stock; any director who shall have been elected by the holders of Common Stock (or by directors elected by the holders of Common Stock) may be removed during his term of office by, and only by, the affirmative vote of the holders of the then outstanding shares of Common Stock. If and when the delinquent Redemption Amount shall have been paid in full, the holders of Series B Convertible Preferred Stock shall be immediately divested of the special voting rights set forth in this Section 5(f), but always subject to the reinstatement of such voting rights in case of similar future delinquency; upon the termination of such voting rights, the Board of Directors shall call (and in the event the Board of Directors fails to call, the holders of at least twenty percent (20%) in voting power of the outstanding shares of Common Stock may call) a special meeting of stockholders at which all directors shall be elected in accordance with Section 3, above, and the terms of office of all persons who are then directors of the corporation shall terminate immediately upon the election of their successors. 6. Covenants --------- (a) So long as at least twenty-five percent (25%) of the number of shares of Series B Convertible Preferred Stock outstanding on the Original Issue Date shall be outstanding, the corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Series B Convertible Preferred Stock required by Section 6(b) hereof and having obtained the affirmative vote or written consent of the holders of a majority of such outstanding shares of Series B Convertible Preferred Stock: (i) amend, alter or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation or by-laws, if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Convertible Preferred Stock; (ii) reclassify any Common Stock or Preferred Stock into shares having any preference or priority as to assets superior to or on a parity with any such preference or priority of the Series B Convertible Preferred Stock; (iii) create, authorize or issue any additional shares of Series B Convertible Preferred Stock or any other class or classes of stock or series of Common Stock or Preferred Stock or any security convertible into or evidencing the right to purchase shares of any class or series of Common Stock or Preferred Stock or any capital stock of the corporation senior to or on a parity with the Series B Convertible Preferred Stock; or (iv) apply any of its assets to the redemption, retirement, purchase or other acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of Common Stock except at their original purchase price of shares of Common Stock from officers, employees or directors of, or consultants to, the corporation upon termination of their status as such pursuant to agreements containing vesting and/or repurchase provisions approved by the Board of Directors of the corporation. (b) Notwithstanding any other provision of this Certificate of Incorporation or the corporation's by-laws to the contrary, notice of any action specified in Section 6(a) hereof shall be given by the corporation to each holder of shares of Series B Convertible Preferred Stock by first class mail, postage prepaid, addressed to such holder at the last address of such holder as shown by the records of the corporation, at least thirty (30) days before the date on which the books of the corporation shall close or a record shall be taken with respect to such proposed action, or, if there shall be no such date, at least thirty (30) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Series B Convertible Preferred Stock may waive any notice required by this Section 6(b) by a written document indicating such waiver. 7. No Reissuance of Series B Convertible Preferred Stock. No share or ----------------------------------------------- ----- shares of Series B Convertible Preferred Stock acquired by the corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue. 8. Residual Rights. All rights accruing to the outstanding shares of the --------------- corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. II. COMMON STOCK Description of Common Stock - --------------------------- 1. Voting Rights. Each holder of record of Common Stock shall be ------------- entitled to one vote for each share of Common Stock standing in such holder's name on the books of the Corporation. Except as otherwise required by law or this Article FOURTH of this Restated Certificate of Incorporation, the holders of Common Stock and the holders of Preferred Stock shall vote together as a single class on all matters submitted to stockholders for a vote (including any action by written consent). 2. Dividends. Subject to provisions of law and this Article FOURTH of --------- this Restated Certificate of Incorporation, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors may determine in their sole discretion. 3. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, after the payment or provisions for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of the Preferred Stock are entitled with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution. FIFTH: The Corporation is to have perpetual existence. SIXTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: A. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation. B. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. C. The books of the Corporation may be kept at such place within or without the State of Delaware as the by-laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. SEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except (to the extent provided by applicable law) for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware or any amendment or successor provisions thereto, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of this provision shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. NINTH. The Corporation shall indemnify each person who at any time is, or shall have been, a director or officer of the Corporation, and is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the maximum extent permitted by the General Corporation Law of Delaware. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. TENTH: The Corporation reserves the right to amend or repeal any provision of this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned, being the President and Secretary, respectively, of Business@Web, Inc., declaring and certifying, under penalties of perjury, that this is the act and deed of the Corporation and that the facts stated herein are true, have hereunto set their hands as their free act and deed this 6th day of March, 1996. /s/ James G. Nondorf --------------------------- James G. Nondorf, President /s/ William E. Kelly - --------------------------- William E. Kelly, Secretary EX-3.2 4 AMEND. TO RESTATED CERT. OF INCORPORATION EXHIBIT 3.2 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF BUSINESS@WEB, INC. Business@Web, Inc. (the "Corporation"), does hereby certify that the Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting, has duly adopted a resolution, pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, setting forth an amendment to the Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The stockholders of the Corporation, and the holders of each class of the capital stock of the Corporation entitled to vote thereon as a separate class, have duly approved said amendment by the required vote of such stockholders, adopted by a written action in lieu of a meeting of such stockholders, all in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and written notice of the taking of such action was given promptly to those stockholders who have not consented in writing, as required by Section 228 of the General Corporation Law of the State of Delaware. The Restated Certificate of Incorporation of the Corporation is hereby amended as follows: I. The second sentence of Article Fourth is deleted and the following new sentence is substituted in place thereof: "Of the authorized Preferred Stock, one million three hundred thirty-two thousand one hundred twenty-seven (1,332,127) shares shall be designated Series B Convertible Preferred Stock, par value $1.00 per share, one million two hundred twenty thousand (1,220,000) shares shall be designated Series C Convertible Preferred Stock, par value $1.00 per share, and four hundred forty-seven thousand eight hundred seventy-three (447,873) shares, with a par value of $1.00 per share, shall be undesignated." II Section 1(a)(ii) of the Description of the Series B Convertible Preferred Stock, as set forth in Article Fourth, is deleted, and the following new Section 1(a)(ii) is substituted in place thereof: "(ii) Following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the corporation available for distribution to holders of the corporation's capital stock shall be distributed among the holders of the Common Stock, the holders of the Series B Convertible Preferred Stock, and the holders of the Series C Convertible Preferred Stock, with each holder of a share of Series B Convertible Preferred Stock receiving the amount that would have been payable to the holder of such share had all shares of Series B Convertible Preferred Stock and all shares of Series C Convertible Preferred Stock been converted to Common Stock immediately following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, and each holder of a share of Series C Convertible Preferred Stock or a share of Common Stock receiving the amount payable to the holder of such share as provided in the terms of the Series C Convertible Preferred Stock." III. At the end of Article Fourth, the following new language is added: "A description of the Series C Preferred Stock is as set forth in Exhibit A hereto, which Exhibit A is by this reference incorporated in and made a part of the Restated Certificate of Incorporation, as amended." IN WITNESS WHEREOF, the undersigned, being the President and Secretary, respectively, of Business@Web, Inc., declaring and certifying, under penalties of perjury, that this is the act and deed of the Corporation and that the facts stated herein are true, have hereunto set their hands as their free act and deed this 4th day of April 1996. /s/ James G. Nondorf --------------------------------- James G. Nondorf, President /s/ William E. Kelly - ------------------------------------ William E. Kelly, Secretary Exhibit A Description of Series C Convertible Preferred Stock - --------------------------------------------------- Section 1. Liquidation Rights. ------------------ (a) Treatment at Liquidation, Dissolution or Winding Up. --------------------------------------------------- (i) In the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, after payment in full of all amounts payable to the holders of the corporation's Series B Convertible Preferred Stock in accordance with Section 1(a)(i) of the terms of the Series B Convertible Preferred Stock set forth in Article IV of the Restated Certificate of Incorporation of the corporation, and before any payment is made to the holders of any other class or series of the corporation's capital stock designated to be junior to the Series C Convertible Preferred Stock, including the corporation's Common Stock, the holders of Series C Convertible Preferred Stock shall be entitled to be paid from the assets of the corporation available for distribution to holders of the Series C Convertible Preferred Stock and the holders of the Common Stock pursuant to Section 1(a)(ii) of the terms of the Series B Convertible Preferred Stock, pari passu with the payments required to be made to the holders of the Series B Convertible Preferred Stock in accordance with said Section 1(a)(ii), but allocating all payments otherwise required by the terms of said Section 1(a)(ii) to be made to the holders of the Common Stock to the holders of the Series C Preferred Stock, an amount equal to $5.00 per share of Series C Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to Series C Convertible Preferred Stock and, as so adjusted from time to time, is hereinafter referred to as the "Base Liquidation Price") plus all dividends thereon accrued but unpaid, to and including the date full payment shall be tendered to the holders of Series C Convertible Preferred Stock with respect to such liquidation, dissolution or winding up. (ii) Following payment in full to the holders of Series C Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the corporation shall be distributed among the holders of the Common Stock and the holders of the Series C Convertible Preferred Stock on a share for share basis, with each holder of a share of Series C Convertible Preferred Stock receiving the amount that would have been payable to the holder of such share had all shares of Series C Convertible Preferred Stock been converted to Common Stock pursuant to Section 2(a) hereof immediately following payment in full to the holders of Series C Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof. (iii) If the assets of the corporation shall be insufficient to permit the payment in full to the holders of Series C Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the corporation available for such distribution shall be distributed ratably among the holders of Series C Convertible Preferred Stock. (iv) In no event shall any payment be made with respect to any liquidation, dissolution or winding up to the holders of the Series C Convertible Preferred Stock or the holders of any other class or series of the corporation's capital stock designated to be junior to the Series C Convertible Preferred Stock, including the corporation's Common Stock, if and to the extent that, as a result of such payment, the amount available for distribution to the holders of the Series B Convertible Preferred Stock would be reduced to an amount less than the amount that would have been payable to the holders of the Series B Convertible Preferred Stock pursuant to Section 1 of the terms of the Series B Convertible Preferred Stock had all shares of the Series C Convertible Preferred Stock been converted into shares of Common Stock in accordance with Section 2 hereof immediately prior to such liquidation, dissolution or winding up. (b) Treatment of Reorganizations, Consolidations, Mergers and Sales --------------------------------------------------------------- of Assets. A consolidation or merger of the corporation, or a sale of all or - --------- substantially all of the assets of the corporation (other than a merger, consolidation or sale of all or substantially all of the assets of the corporation in a transaction in which the shareholders of the corporation immediately prior to the transaction possess more than 50% of the voting securities of the surviving entity (or parent, if any) immediately after the transaction) shall be regarded as a liquidation, dissolution or winding up of the affairs of the corporation within the meaning of this Section 1. (c) Distributions Other than Cash. Whenever the distribution provided ----------------------------- for in this Section 1 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 of Directors of the corporation. Section 2. Conversion. The holders of Series C Convertible Preferred Stock ---------- shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert; Conversion Price. Each share of Series C ---------------------------------- Convertible Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Series C Convertible Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $5.00 by the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The Conversion Price for purposes of calculating the number of shares of Common Stock deliverable upon conversion without the payment of any additional consideration by the holder of Series C Convertible Preferred Stock (the "Conversion Price") shall initially be $5.00. Such initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which Series C Convertible Preferred Stock is convertible, as hereinafter provided. (b) Mechanics of Conversion. Before any holder of Series C ----------------------- Convertible Preferred Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series C Convertible Preferred Stock, and shall give written notice to the corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of Series C Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Convertible Preferred Stock, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series C Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (c) Automatic Conversion. -------------------- (i) Each share of Series C Convertible Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price (subject to adjustment as provided in Section 2(c)(iii)) upon: (A) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public at an initial public offering price per share of not less than $8.25 (adjusted proportionately to give effect to any stock dividend, stock distribution or subdivision or any combination or consolidation of Common Stock) and with gross proceeds of not less than $15,000,000 (a "Qualified IPO") or (B) the written election of the holders of not less than a majority of the then outstanding shares of Series C Convertible Preferred Stock to require such mandatory conversion. (ii) Upon the occurrence of an event specified in Section 2(c)(i) hereof, all shares of Series C Convertible Preferred Stock shall be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares are surrendered to the corporation or the transfer agent for the Series C Convertible Preferred Stock; provided, however, that the corporation shall not be obligated to issue a certificate or certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificate or certificates evidencing such shares of Series C Convertible Preferred Stock being converted are either delivered to the corporation or the transfer agent of the Series C Convertible Preferred Stock, or the holder notifies the corporation or such transfer agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection therewith and, if the corporation so elects, provides an appropriate indemnity bond. Upon the automatic conversion of Series C Convertible Preferred Stock, each holder of Series C Convertible Preferred Stock shall surrender the certificate or certificates representing such holder's shares of Series C Convertible Preferred Stock at the office of the corporation or of the transfer agent for the Series C Convertible Preferred Stock. Thereupon, there shall be issued and delivered to such holder, promptly at such office and in such holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series C Convertible Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series C Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (d) Adjustments to Conversion Price for Diluting Issues. -------------------------------------------- ------ (i) Special Definitions. For purposes of this Section 2(d), the ------------------- following definitions shall apply: (A) "Option" shall mean rights, options or warrants to -------- Convertible Securities. (B) "Original Issue Date" shall mean the date on which a --------------------- share of Series C Convertible Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of ------------------------ indebtedness, shares (other than Common Stock and Series C Convertible Preferred Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all ---------------------------------- shares of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than the following (collectively, "Excluded Shares"): (I) shares of Common Stock issued or issuable upon conversion of shares of Series C Convertible Preferred Stock; or (II) shares of Common Stock issued or issuable upon exercise or conversion of Options or Convertible Securities outstanding on the Original Issue Date; or (III) shares of Common Stock issued or issuable to officers, employees or directors of, or consultants to, the corporation pursuant to a stock purchase or option plan or other employee stock bonus arrangement (collectively, the "Plans") approved by the Board of Directors; provided, however, that shares of Common Stock issued or deemed issued to a director of the corporation pursuant to options or other purchase rights granted after the Original Issue Date shall be Excluded Shares only if granted at the time of, or in connection with, such director's initial election to the Board of Directors; or (IV) shares of Common Stock issued or issuable pursuant to warrants issued in connection with the establishment of credit facilities for the corporation (including, without limitation, in connection with equipment leasing arrangements); or (V) shares of Common Stock or Convertible Securities issued with the unanimous consent of the Board of Directors of the corporation. (ii) No Adjustment of Conversion Price. No adjustment in the number --------------------------------- of shares of Common Stock into which a share of Series C Convertible Preferred Stock is convertible shall be made, by adjustment in the Conversion Price in respect of the issuance of Additional Shares of Common Stock or otherwise: (i) unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock or, (ii) if prior to such issuance, the corporation receives written notice from the holders of a majority of the then outstanding shares of Series C Convertible Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of Common --------------------------------------------------------------- Stock. - ----- (A) Options and Convertible Securities. In the event the ---------------------------------- corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then 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 upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2(d)(v) hereof) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (I) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (II) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (III) upon the expiration of any such options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and (b) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation (determined pursuant to Section 2(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (IV) no readjustment pursuant to clause (II) or (III) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (V) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (III) above; and (VI) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the actual date of their issuance. (B) Stock Dividends, Stock Distributions and Subdivisions. In ----------------------------------------------------- the event the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which corporate action becomes effective. If such record date shall have been fixed and no part of such dividend shall have been paid on the date fixed therefor, the adjustment previously made for the Conversion price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the time of actual payment of such dividend. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares ----------------------------------------------------------------- of Common Stock. - ---------------- (A) In the event the corporation shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of shares of Common Stock which the aggregate consideration received or deemed to have been received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and the denominator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of Additional Shares of Common Stock so issued or deemed to be issued. (B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all shares of Common Stock issuable upon conversion of shares of Series C Convertible Preferred Stock, and upon exercise of options or conversion or exchange of Convertible Securities which are part of the Excluded Shares, outstanding immediately prior to any issue of Additional Shares of Common Stock, or any event with respect to which Additional Shares of Common Stock shall be deemed to be issued, shall be deemed to be outstanding; and (ii) immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (C) Notwithstanding anything to the contrary contained herein, the applicable Conversion Price in effect at the time Additional Shares of Common Stock are issued or deemed to be issued shall not be reduced pursuant to Section 2(d)(iv)(A) hereof at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (v) Determination of Consideration. For purposes of this Section ------------------------------ 2(d), the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: ----------------- (I) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per ---------------------------------- share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to Options and Convertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Dividends, Distributions, Subdivisions, ------------------------------------------------------ Combinations or Consolidations of Common Stock. - ---------------------------------------------- (A) Stock Dividends, Distributions or Subdivisions. In the ---------------------------------------------- event the corporation shall issue Additional Shares of Common Stock pursuant to Section 2(d)(iii)(B) in a stock dividend, stock distribution or subdivision, the Conversion Price in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (B) Combinations or Consolidations. In the event the ------------------------------ outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (e) No Impairment. The corporation shall not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series C Convertible Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price pursuant to this Section 2, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each affected holder of Series C Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any affected holder of Series C Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price 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 conversion of each share of Series C Convertible Preferred Stock. (g) Notices of Record Date. In the event of any taking by the ---------------------- corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the corporation shall mail to each holder of Series C Convertible Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. (h) Common Stock Reserved. The corporation shall reserve and keep --------------------- available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all convertible Series C Convertible Preferred Stock. (i) Certain Taxes.. The corporation shall pay any issue or transfer -------------- taxes payable in connection with the conversion of any shares of Series C Convertible Preferred Stock; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of such Series C Convertible Preferred Stock. (j) Closing of Books. The corporation shall at no time close its ---------------- transfer books against the transfer of any Series C Convertible Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series C Convertible Preferred Stock, in any manner which interferes with the timely conversion or transfer of such Series C Convertible Preferred Stock. Section 3. Voting Rights. ------------- Except as otherwise provided herein or required by law or by the provisions establishing any other series of Preferred Stock, the holders of Common Stock and the holders of Series C Convertible Preferred Stock shall be entitled to notice of any stockholders' meeting and shall vote, together with the holders of Common Stock and the holders of any other series of Preferred Stock, as one class upon any matter submitted to the stockholders for a vote. Holders of Series C Convertible Preferred Stock shall have that number of votes per share of Series C Convertible Preferred Stock as is equal to the number of shares of Common Stock into which each such share of Series C Convertible Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting. Section 4. Covenants --------- (a) So long as at least twenty-five percent (25%) of the number of shares of Series C Convertible Preferred Stock outstanding on the Original Issue Date shall be outstanding, the corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Series C Convertible Preferred Stock required by Section 4(b) hereof and having obtained the affirmative vote or written consent of the holders of a majority of such outstanding shares of Series C Convertible Preferred Stock, amend, alter or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation or by-laws, if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series C Convertible Preferred Stock. (b) Notwithstanding any other provision of this Certificate of Incorporation or the corporation's by-laws to the contrary, notice of any action specified in Section 4(a) hereof shall be given by the corporation to each holder of shares of Series C Convertible Preferred Stock by first class mail, postage prepaid, addressed to such holder at the last address of such holder as shown by the records of the corporation, at least thirty (30) days before the date on which the books of the corporation shall close or a record shall be taken with respect to such proposed action, or, if there shall be no such date, at least thirty (30) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Series C Convertible Preferred Stock may waive any notice required by this Section 4(b) by a written document indicating such waiver. Section 5. No Reissuance of Series C Convertible Preferred Stock. No ----------------------------------------------- ----- share or shares of Series C Convertible Preferred Stock acquired by the corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue. Section 6. Residual Rights. All rights accruing to the outstanding shares --------------- of the corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. EX-3.5 5 BY-LAWS OF THE REGISTRANT EXHIBIT 3.5 BY-LAWS OF BUSINESS@WEB, INC. (FORMERLY KNOWN AS OBJECT POWER, INCORPORATED) BY-LAWS OF BUSINESS@WEB, INC. ARTICLE 1 - Stockholders ------------------------ 1.1 Place of Meetings. All meetings of stockholders shall be held at ----------------- such place within or without the State of Delaware as may be designated from time to time by the Board of Directors or the President or, if not so designated, at the registered office of the corporation. 1.2 Annual Meeting. The annual meeting of stockholders for the election -------------- of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on the first Thursday of June in each year, at a time fixed by the Board of Directors or the President. If this date shall fall upon a legal holiday at the place of the meeting, then such meeting shall be held on the next succeeding business day at the same hour. If no annual meeting is held in accordance with the foregoing provisions, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case all references in these By-Laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. 1.3 Special Meetings. Special meetings of stockholders may be called at ---------------- any time by the President or by the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 1.4 Notice of Meetings. Except as otherwise provided by law, written ------------------ notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. 1.5 Voting List. The officer who has charge of the stock ledger of the ----------- corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, at a place within the city where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. 1.6 Quorum. Except as otherwise provided by law, the Certificate of ------ Incorporation or these By-Laws, the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. 1.7 Adjournments. Any meeting of stockholders may be adjourned to any ------------ other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and Place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 1.8 Voting and Proxies. Each stockholder shall have one vote for each ------------------ share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent and delivered to the Secretary of the corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period. 1.9 Action at Meeting. When a quorum is present at any meeting, the ----------------- holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) shall decide any matter to be voted upon by the stockholders at such meeting, except when a different vote is required by express provision of law, the Certificate of Incorporation or these By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. 1.10 Action without Meeting. Any action required or permitted to be ------------------------ taken at any annual or special meeting of stockholders of the corporation may be taken without a 2 meeting, without prior notice and without a vote, if a consent in writing,setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on such action were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and to the corporation. ARTICLE 2 - Directors --------------------- 2.1 General Powers. The business and affairs of the corporation shall be -------------- managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law, the Certificate of Incorporation or these By-Laws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2.2 Number; Election and Qualification. The number of directors which ---------------------------------- shall constitute the whole Board of Directors shall be determined by resolution of the stockholders or the Board of Directors, but in no event shall be less than one. The number of directors may be decreased at any time and from time to time either by the stockholders or by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors shall be elected at the annual meeting of stockholders by such stockholders as have the right to vote on such election. Directors need not be stockholders of the corporation. 2.3 Enlargement of the Board. The number of directors may be increased ------------------------ at any time and from time to time by the stockholders or by a majority of the directors then in office. 2.4 Tenure. Each director shall hold office until the next annual ------ meeting and until his successor is elected and qualified, or until his earlier death, resignation or removal. 2.5 Vacancies. Unless and until filled by the stockholders, any vacancy --------- in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified, or until his earlier death, resignation or removal. 3 2.6 Resignation. Any director may resign by delivering his written ----------- resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 2.7 Regular Meetings. Regular meetings of the Board of Directors may be ---------------- held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. 2.8 Special Meetings. Special meetings of the Board of Directors may be ---------------- held at any time and place, within or without the State of Delaware, designated in a call by the Chairman of the Board, President, two or more directors, or by one director in the event that there is only a single director in office. 2.9 Notice of Special Meetings. Notice of any special meeting of -------------------------- directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (i) by giving notice to such director in person or by telephone at least 48 hours in advance of the meeting, (ii) by sending a telegram or telex, or delivering written notice by hand, to his last known business or home address at least 48 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 2.10 Meetings by Telephone Conference Calls. Directors or any members of -------------------------------------- any committee designated by the directors may participate in meetings of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. 2.11 Quorum. A majority of the total number of the whole Board of ------ Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified: provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. 4 2.12 Action at Meeting. At any meeting of the Board of Directors at ----------------- which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these By-Laws. 2.13 Action by Consent. Any action required or permitted to be taken at ----------------- any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board or committee, as the case may be, consent to the action in writing, and the written consents are filed with the minutes of proceedings of the Board or committee. 2.14 Removal. Any one or more or all of the directors may be removed, ------- with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that the directors elected by the holders of a particular class or series of stock may be removed without cause only by vote of the holders of a majority of the outstanding shares of such class or series. 2.15 Committees. The Board of Directors may, by resolution passed by a ---------- majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-Laws for the Board of Directors. 2.16 Compensation of Directors. Directors may be paid such compensation ------------------------- for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service. 5 ARTICLE 3 - Officers -------------------- 3.1 Enumeration. The officers of the corporation shall consist of a ----------- President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate. 3.2 Election. The President, Treasurer and Secretary shall be elected -------- annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting. 3.3 Qualification. No officer need be a stockholder. Any two or more ------------- offices may be held by the same person. 3.4 Tenure. Except as otherwise provided by law, by the Certificate of ------ Incorporation or by these By-Laws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal. 3.5 Resignation and Removal . Any officer may resign by delivering his ----------------------- written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any officer may be removed at any time, with or without cause, by vote of a majority of the entire number of directors then in office. Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the corporation. 3.6 Vacancies. The Board of Directors may fill any vacancy occurring in --------- any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified, or until his earlier death, resignation or removal. 3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of ---------------------------------------------------- Directors may appoint a Chairman of the Board and may designate the Chairman of the Board as Chief Executive Officer. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of 6 Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors. 3.8 President. The President shall, subject to the direction of the --------- Board of Directors, have general charge and supervision of the business of the corporation. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders, if he is a director, at all meetings of the Board of Directors. Unless the Board of Directors has designated the Chairman of the Board or another officer as Chief Executive Officer, the President shall be the Chief Executive Officer of the corporation. The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe. 3.9 Vice Presidents. Any Vice President shall perform such duties and --------------- possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors. 3.10 Secretary and Assistant Secretaries. The Secretary shall perform ----------------------------------- such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have Such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents. Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary, (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary. In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting. 7 3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such ---------------------------------- duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the president. ln addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds and to render as required by the Board of Arrectors statements of all such transactions and of the financial condition of the corporation. The Assistant Treasurer shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer. 3.12 Salaries. Officers of the corporation shall be entitled to such -------- salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors. ARTICLE 4 - Capital Stock ------------------------- 4.1 Issuance of Stock. Unless otherwise voted by the stockholders and ----------------- subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine. 4.2 Certificates of Stock. Every holder of stock of the corporation --------------------- shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the corporation. Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice-Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation. Any or all of the signatures on the certificate may be a facsimile. Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the By-Laws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction. 8 4.3 Transfers. Except as otherwise established by rules and regulations --------- adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer , pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. 4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a -------------------------------------- new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation, any transfer agent or registrar. 4.5 Record Date. The Board of Directors may fix in advance a date as a ----------- record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. 9 A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 10 ARTICLE 5 - General Provisions ------------------------------ 5.1 Fiscal Year. Except as from time to time otherwise designated ----------- by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of December in each year. 5.2 Corporate Seal. The corporate seal shall be in such form as shall be -------------- approved by the Board of Directors. 5.3 Waiver of Notice. Whenever any notice whatsoever is required to ---------------- be given by law, by the Certificate of Incorporation or by these By-Laws, a waiver of such notice either in writing signed by the person entitled to such notice or such person's duly authorized attorney, or by telegraph, cable or any other available method, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. 5.4 Voting of Securities. Except as the directors may otherwise -------------------- designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. 5.5 Evidence of Authority. A certificate by the Secretary, or an --------------------- Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action. 5.6 Certificate of Incorporation. All references in these By-Laws to ---------------------------- the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time. 5.7 Transactions with Interested Parties. No contract or transaction ------------------------------------ between the corporation and one or more of the directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the 11 affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 5.8 Severability. Any determination that any provision of these By-Laws ------------ is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws. 5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to -------- refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. ARTICLE 6 - Indemnification --------------------------- 6.1 Actions, Suits and Proceedings Other than by or in the Right of the ------------------------------------------------------------------- Corporation. The corporation shall indemnify each person who was or is a party - ----------- or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the corporation, or is or was serving, or has agreed to serve, at the request of the corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a ---- ---------- 12 presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6.6 below, the corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the corporation. 6.2 Actions or Suits by or in the Right of the Corporation. The ------------------------------------------------------ corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the corporation, or is or was serving, or has agreed to serve, at the request of the corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware or such other court shall deem proper. 6.3 Indemnification for Expenses of Successful Party. Notwithstanding ------------------------------------------------ the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the ---- ---------- Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 13 6.4 Notification and Defense of Claim. As a condition precedent to his --------------------------------- right to be indemnified, the Indemnitee must notify the corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the corporation is so notified, the corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to such Indemnitee. After notice from the corporation to the Indemnitee of its election so to assume such defense, the corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 6.4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the corporation and the Indemnitee in the conduct of the defense of such action or (iii) the corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the corporation, except as otherwise expressly provided by this Article. The corporation shall not be entitled to assume the defense of any claim brought by or in the right of the corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 6.5 Advance of Expenses. Subject to the provisions of Section 6.6 below, ------------------- in the event that the corporation does not assume the defense pursuant to Section 6.4 of this Article of any action, suit, proceeding or investigation of which the corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the corporation in advance of the final disposition of such matter, provided, however, that the payment of such expenses incurred by an Indemnitee - -------- ------- in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that such Indemnitee is not entitled to be indemnified by the corporation as authorized in this Article. 6.6 Procedure for Indemnification. Any indemnification or advancement of ----------------------------- expenses pursuant to Section 6.1, 6.2, 6.3 or 6.5 of this Article shall be made promptly, and in any event within 60 days after receipt by the corporation of the written request of the Indemnitee, unless with respect to requests under Section 6.1, 6.2 or 6.5 the corporation determines within such 60-day period that such Indemnitee did not meet the applicable standard of conduct set forth in Section 6.1 or 6.2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), (b) if no such quorum is obtainable, a majority vote of a 14 committee of two or more disinterested directors, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (d) independent legal counsel (who may be regular legal counsel to the corporation) appointed for such purpose by vote of the directors in the manner specified in clause (a) or (b) above, or (e) a court of competent jurisdiction. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above. Unless otherwise required by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article 6 shall be on the corporation. Neither the failure of the corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the corporation pursuant to this Section 6.6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. Such Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the corporation. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the corporation. 6.7 Subsequent Amendment. No amendment, termination or repeal of this -------------------- Article or of the relevant provisions of the Delaware General Corporation Law or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 6.8 Other Rights. The indemnification and advancement of expenses ------------ provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the corporation or other persons serving the corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 15 6.9 Partial Indemnification. If an Indemnitee is entitled under any ----------------------- provision of this Article to indemnification by the corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which such Indemnitee is entitled. 6.10 Insurance. The corporation may purchase and maintain insurance, at --------- its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. The corporation's obligation to provide indemnification under this Article shall be offset to the extent of any other source of indemnification or any otherwise applicable insurance coverage under a policy maintained by the corporation or any other person. 6.11 Merger or Consolidation. If the corporation is merged into or ----------------------- consolidated with another corporation and the corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 6.12 Savings Clause. If this Article or any portion hereof shall be -------------- invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 6.13 Definitions. Terms used herein and defined in Section 145(h) and ----------- Section 145(i) of the Delaware General Corporation Law shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 6.14 Subsequent Legislation. If the Delaware General Corporation Law is ---------------------- amended after adoption of this Article to expand further the indemnification permitted to Indemnities, then the corporation shall indemnify such persons to the fullest extent permitted by the Delaware General Corporation Law, as so amended. 16 ARTICLE 7 - Amendments ---------------------- 7.1 By the Board of Directors. These By-Laws may be altered, amended or ------------------------- repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present. 7.2 By the Stockholders. These By-Laws may be altered, amended or ------------------- repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting. 17 EX-10.1 6 1995 STOCK PLAN Exhibit 10.1 BUSINESS@WEB, INC. 1995 Stock Plan (as amended) 1. Purpose. This 1995 Stock Plan (the "Plan") is intended to provide ------- incentives: (a) to employees of Business@Web, Inc. (the "Company"), any present or future parent or subsidiaries of the Company and any corporations now or hereafter under common control with the Company (collectively, "Related Corporations") by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which qualify as "incentive stock options" under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with awards of stock in the Company ("Awards"); and (d) to directors, officers, employees and consultants of the Company and Related Corporations by providing them with opportunities to make direct purchases of stock in the Company ("Purchases"). Both ISOs and Non- Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options". Options, Awards and authorizations to make Purchases are referred to hereafter collectively as "Stock Rights". As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation", respectively, as those terms are defined in Section 425 of the Code. 2. Administration of the Plan -------------------------- A. The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board may appoint a Stock Plan Committee (the "Committee") of three or more of its members to administer this Plan. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee, if so appointed, shall have the authority to (i) determine the employees of the Company and Related Corporation (from among the class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified Options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards may be granted or Purchases made; (iii) determine the option price of shares subject to each Option, which price shall not be less than the minimum price specified in paragraph 6, and the purchase price of shares subject to each Purchase; (iv) determine whether each Option granted shall be an ISO or a Non- Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions 1 such as repurchase options are to be imposed on shares subject to Options, Awards and Purchases and the nature of such restrictions, if any, and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Rights granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. B. The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. All references in this Plan to the Committee shall mean the Board if no Committee has been appointed. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. C. Stock Rights may be granted to members of the Board, but no Stock Right shall be granted to any person who is, at the time of the proposed grant, a member of the Board, unless such grant has been approved by a majority vote of the other members of the Board. All grants of Stock Rights to members of the Board shall in all other respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to him of Stock Rights. D. Notwithstanding any other provision of this paragraph 2, in the event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grants to directors of Stock Rights made at any time from the effective date of such registration until six months after the termination of such registration shall be made only by the Board; provided, however, that if a majority of the Board is eligible to participate in the Plan or in any other stock option or other stock plan of the Company or any of its affiliates, or has been so eligible at any time within the preceding year, any grant to directors of Stock Rights must be made by, or only in accordance with the recommendation of, a committee consisting of three or more persons, who may but need not be directors or employees of the Company, appointed by the 2 Board but having full authority to act in the matter, none of whom is eligible to participate in this Plan or any other stock option or other stock plan of the Company or any of its affiliates, or has been eligible at any time within the preceding year. The requirements imposed by the preceding sentence shall also apply with respect to grants to officers who are also directors. Once appointed, such Committee shall continue to serve until otherwise directed by the Board. 3. Eligible Employees and Others. ISOs may be granted to any employee of ----------------------------- the Company or any Related Corporation. Those officers and directors of the Company who are not employees may not be granted ISOs under the Plan. Non- Qualified Options, Awards and authorizations to make Purchases may be granted to any director (whether or not an employee), officer, employee or consultant of the Company or any Related Corporation. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant an ISO, a Non-Qualified Option or an authorization to make a Purchase. Granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 4. Stock. The stock subject to Options, Awards and Purchases shall be ----- authorized but unissued shares of Common Stock, par value $0.001 per share, of the Company (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 5,000,000, subject to adjustment as provided in paragraph 13. Any shares issued hereunder may be issued as ISOs, Non-Qualified Options or Awards, or to persons or entities making Purchases, so long as the number of shares so issued does not exceed the aggregate number of shares subject to the Plan. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares issued pursuant to Awards or Purchases, the unpurchased shares subject to such Options and any unvested shares so reacquired by the Company shall again be available for grants of Stock Rights under the Plan. 5. Granting of Stock Rights. Stock Rights may be granted under the Plan ------------------------ at any time on or after March 1, 1995 and prior to December 31, 2004. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. The Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16. 6. Minimum Option Price; ISO Limitations. ------------------------------------- A. The price per share specified in the agreement relating to each Non- Qualified Option granted under the Plan shall in no event be less than the lesser of (i) the book value per share of Common Stock as of the end of the fiscal year of the Company 3 immediately preceding the date of such grant, or (ii) 50 percent of the fair market value per share of Common Stock on the date of such grant. B. The price per share specified in the agreement relation to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than 110 percent of the fair market value per share of Common Stock on the date of grant. C. In no event shall the aggregate fair market value (determined at the time an ISO is granted) of Common Stock for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any Related Corporation) exceed $100,000; provided that this paragraph 6(C) shall have no force or effect it its inclusion in the Plan is not necessary for Options issued as ISOs to qualify as ISOs pursuant to Section 422(b)(7) of the Code. D. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the- counter securities, if the Common Stock is not reported on the NASDAQ National Market List. However, if the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Option Duration. Subject to earlier termination as provided in --------------- paragraphs 9 and 10, each Option shall expire on the date specified by the Committee, but not more than (i) ten years and one day from the date of grant in the case of Non-Qualified Options, (ii) ten years from the date of grant in the case of ISOs generally, and (iii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any Related Corporation. Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, 4 except with respect to any part of such ISO that is converted into a Non- Qualified Option pursuant to paragraph 16. 8. Exercise of Option. Subject to the provisions of paragraphs 9 through ------------------ 12, each Option granted under the Plan shall be exercisable as follows: A. The Option shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. The Committee shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Committee shall not accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(b)(7) of the Code, as described in paragraph 6(C). 9. Termination of Employment. If an ISO optionee ceases to be employed by ------------------------- the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 10, no further installments of his ISOs shall become exercisable, and his ISOs shall terminate after the passage of three months from the date of termination of his employment, but in no event later than on their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. 5 10. Death; Disability. ----------------- A. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his death, any ISO of his may be exercised, to the extent of the number of shares with respect to which he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of the ISO's specified expiration date or 360 days from the date of the optionee's death. B. If an ISO optionee ceases to be employed by the Company and all Related Corporations by reason of his disability, he shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which he could have exercised it on that date, at any time prior to the earlier of the ISO's specified expiration date or 360 days from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or successor statute. 11. Assignability. No Stock Right shall be assignable or transferable by ------------- the grantee except by will or by the laws of descent and distribution, and during the lifetime of the grantee each Stock Right shall be exercisable only by him. Shares of Common Stock issued upon exercise of Stock Rights shall be subject to such rights of first refusal, repurchase rights and other restrictions on transfer in favor of the Company and the Board or the Committee may determine at the time such Stock Rights are granted. 12. Terms and Conditions of Options. Options shall be evidenced by ------------------------------- instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 and 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. In granting any Non-Qualified Option, the Committee may specify that such Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. Adjustments. Upon the occurrence of any of the following events, an ----------- optionee's rights with respect to Options granted to him hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: 6 A. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition; or (ii) if the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition consists solely of cash and/or publicly traded securities, terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable) over the exercise price thereof. C. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised his Option prior to such recapitalization or reorganization. D. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 425 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments. E. In the event of the proposed dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. F. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price 7 of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. G. No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. H. Upon the happening of any of the foregoing events described in subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. If any person or entity owning restricted Common Stock obtained by exercise of a Stock Right made hereunder receives shares or securities or cash in connection with a corporate transaction described in subparagraphs A, B or C above as a result of owning such restricted Common Stock, such shares or securities or cash shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities or cash were issued, unless otherwise determined by the Committee or the Successor Board. 14. Means of Exercising Stock Rights. A Stock Right (or any part or -------------------------------- installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, or (b) at the discretion of the Committee, through delivery of shares or Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Stock right, or (c) at the discretion of the Committee, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c) or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of a Stock Right shall not have the rights of a shareholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. Term and Amendment of Plan. This Plan was adopted by the board on -------------------------- March 1, 1995 and amended by the board on February 19, 1996, subject (with respect to the 8 validation of ISOs granted under the Plan) to approval of the Plan by the stockholders of the Company at the next Meeting of Stockholders or, in lieu thereof, by unanimous written consent. If the approval of the stockholders is not obtained on or before March 1, 1996 (or, with respect to the 2,500,000 shares added to the plan by the board's vote of February 19, 1996, on or before February 19, 1997) any grants of ISOs under the Plan made prior to that date will be rescinded. The Plan shall expire on December 31, 2004 (except as to Options outstanding on that date). Subject to the provisions of paragraph 5 above, Stock Rights may be granted under the Plan prior to the date of stockholder approval of the Plan. The Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c) the provisions of paragraph 6(B) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan may not be extended. Except as provided in the fourth sentence of this paragraph 15, in no event may action of the Board or stockholders alter or impair the rights of a grantee, without his consent, under any Stock Right previously granted to him. 16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. ------------------------------------------------------------------ The Committee, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such Options. At the time of such conversion, the Committee (with the consent of the Optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination. 17. Application of Funds. The proceeds received by the Company from the -------------------- sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 18. Governmental Regulation. The Company's obligation to sell and deliver ----------------------- shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. 9 19. Withholding of Additional Income Taxes. Upon the exercise of a Non- -------------------------------------- Qualified Option, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 20) or the vesting of restricted Common Stock acquired on the exercise of a Stock right hereunder, the Company, in accordance with Section 3402(a) of the Code, may require the optionee, Award recipient or purchaser to pay additional withholding taxes in respect of the amount that is considered compensation includable in such person's gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for less than its fair market value, or (iv) the vesting of restricted Common Stock acquired by exercising a Stock Right on the grantee's payment of such additional withholding taxes. 20. Notice to Company of Disqualifying Disposition. Each employee who ---------------------------------------------- receives an ISO must agree to notify the company in writing immediately after the employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition (including any sale) of such Common Stock before the later of (a) two years after the date the employee was granted the ISO, or (b) one year after the date the employee acquired Common Stock by exercising the ISO. If the employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter. 21. Governing Law; Construction. The validity and construction of the --------------------------- Plan and the instruments evidencing Stock Rights shall be governed by the laws of the State of Delaware. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. 10 EX-10.4 7 LEASE FOR ONE ARSENAL PLACE EXHIBIT 10.4 ARSENAL MALL WATERTOWN, MASSACHUSETTS OFFICE LEASE - to - BUSINESS@WEB, INC. FROM THE OFFICE OF: Goulston & Storrs 400 Atlantic Avenue Boston, Massachusetts 02110-3333 ARSENAL MALL WATERTOWN, MASSACHUSETTS OFFICE LEASE - To - BUSINESS@WEB, INC. INDEX TO LEASE --------------
ARTICLE SECTION CAPTION PAGE - ------- ------- ------- ---- I. Basic Lease Provisions 1 ---------------------- 1.1 Introduction 1 1.2 Basic Data 1 II. Description of Premises, ------------------------ Appurtenant Rights and Term 3 --------------------------- 2.1 Location of Premises 3 2.2 Appurtenant Rights and Reservations 3 2.3 Term 5 III. Rent 6 ---- 3.1 Fixed Rent 6 IV. Use of Premises 6 --------------- 4.1 Permitted Use 6 4.2 Alterations 8 V. Assignment and Subletting 8 ------------------------- 5.1 Prohibition 8 VI. Delivery of Premises and Responsibility --------------------------------------- for Repairs and Condition of Premises 12 ------------------------------------- 6.1 Delivery of Possession of Premises 12 6.2 Repairs to be Made by Landlord 14 6.3 Tenant's Agreement 14 6.4 Floor Load-Heavy Machinery 15
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ARTICLE SECTION CAPTION PAGE - ------- ------- ------- ---- VII. Services to be Furnished by Landlord; ------------------------------------ Utilities 16 --------- 7.1 Landlord's Services 16 7.2 Payment of Utility Charges 16 VIII. Real Estate Taxes and Other Expenses 16 ------------------------------------ 8.1 Tenant's Share of Real Estate Taxes 16 8.2 Tenant's Share of Operating Expenses 19 IX. Indemnity and Public Liability Insurance 22 ---------------------------------------- 9.1 Tenant's Indemnity 22 9.2 Public Liability Insurance 23 9.3 Tenant's Risk 24 9.4 Injury Caused by Third Parties 24 9.5 Fire and Hazard Insurance 24 X. Landlord's Access to Premises 25 ----------------------------- 10.1 Landlord's Right of Access 25 10.2 Exhibition of Space to Prospective Tenants 25 XI. Fire, Eminent Domain, Etc. 25 -------------------------- 11.1 Abatement of Rent 25 11.2 Termination in Event of Casualty or Condemnation 26 11.3 Award 27 XII. Landlord's Remedies 27 ------------------- 12.1 Events of Default 27 12.2 Remedies 28 12.3 Landlord's Default 30 12.4 Bankruptcy or Insolvency 30 XIII. Miscellaneous Provisions 34 ------------------------ 13.1 Extra Hazardous Use 34 13.2 Waiver 34 13.3 Covenant of Quiet Enjoyment 34 13.4 Notice to Mortgagee and Ground Lessor 35 13.5 Assignment of Rents 36 13.6 Mechanics' Liens 36 13.7 No Brokerage 36 13.8 Invalidity of Particular Provisions 37 13.9 Provisions Binding, Etc. 37 13.10 Recording 37
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ARTICLE SECTION CAPTION PAGE - ------- ------- ------- ---- 13.11 Notices 37 13.12 When Lease Becomes Binding 38 13.13 Paragraph Headings 38 13.14 Rights of Mortgagee 38 13.15 Status Report 39 13.16 Security Deposit; Tenant's Financial Condition 39 13.17 Additional Remedies of Landlord 40 13.18 Holding Over 40 13.19 Non-Subrogation 40 13.20 Expansion or Reduction 41 13.21 Governing Law 41 13.22 Definition of Additional Rent 41 13.23 Landlord's Fees and Expenses 41 13.24 Changes or Alterations by Landlord 42 13.25 Rules and Regulations 43 13.26 Parking 43 13.27 Right of First Offer 43
GUARANTEE EXHIBITS A Site Plan B Permitted Signage C Tenant's Work D Building Services APP Appraisal Procedure OPER Exclusions from Operating Expenses SNDA Form of Subordination, Etc. Agreement -iii- THIS INSTRUMENT IS AN INDENTURE OF LEASE in which Landlord and Tenant are the parties hereinafter named, and which relates to space in a building (the "Building") known as Building G in a complex known as Arsenal Mall, in Watertown, Massachusetts. The parties to this instrument hereby agree with each other as follows: ARTICLE I --------- BASIC LEASE PROVISIONS ---------------------- 1.1 INTRODUCTION. As further supplemented in the balance of this instrument and its Exhibits, the following sets forth the basic terms of this Lease and, where appropriate, constitutes definitions of certain terms used in this Lease. 1.2 BASIC DATA. Execution Date: March 8, 1996 Landlord: Watertown Arsenal Associates, L.P., a Massachusetts limited partnership existing under a Certificate of Limited Partnership dated as of December 19, 1980 as amended and restated by Amended and Restated Agreement and Certificate of Limited Partnership dated as of July 1, 1982, as the same may heretofore or may hereafter be amended. Present Mailing Address c/o New England Development of Landlord: Suite 201 One Wells Avenue Newton, Massachusetts 02159 Tenant: Business@Web, Inc., a Delaware corporation Present Mailing Address of Tenant: 219 Vassar Street Cambridge, Massachusetts 02139 Initial Lease Term or Term: Sixty (60) calendar months (plus the partial month, if any, in which falls the Commencement Date). Commencement Date: March 15, 1996, or such earlier date as provided in Section 2.3.2 hereof. -1- Fixed Rent: (a) For and with respect to the period commencing on the Commencement Date and continuing through July 31, 1996, at the rate of Twenty-Three Thousand Three Hundred Thirty-Three and 33/100 Dollars ($23,333.33) per calendar month, and proportionately at such rate for any partial month; and (b) For and with respect to the balance of the term hereof at the rate of Thirty-Eight Thousand Six Hundred Sixteen and 67/100 Dollars ($38,616.67) per calendar month, and proportionately at such rate for any partial month. Use: First class office uses and uses ancillary thereto only, including, without limitation, research and development, education and training, all to the extent lawfully permitted. Description of Space: (herein the "Premises") Approximately 26,480 square feet of floor area on the second floor of the Building, all as more particularly shown on Exhibit A hereto annexed and made a part hereof. The Building, designated "Building G" on Exhibit A, hereto annexed and made a part hereof, forms a part of the Development known as the Arsenal Mall (the "Development") situated on a tract of land in the Town of Watertown, County of Middlesex, Commonwealth of Massachusetts, the boundaries of which are delineated on said Exhibit A. The Building currently includes an office portion (the "Office Portion") as cross-hatched on Exhibits A-3 and A-4 annexed hereto and made a part hereof and a garage portion (the "Garage Portion") as hatched on said Exhibits A-3 and A-4. Tenant's Proportionate Building Share: 42%. Tenant's Proportionate Lot Share: 1.3%. -2- Base Building Tax Amount: The amount of Taxes due from Landlord on account of the Building during the period from January 1, 1996 through December 31, 1996. Base Lot Tax Amount: The amount of Taxes due from Landlord on account of the Lot during the period from January 1, 1996 through December 31, 1996. Tenant's Proportionate Office Portion Share: 50%. Tenant's Proportionate Garage Portion Share: 42%. Base Operating Expenses: The amount of Operating Expenses for and with respect to calendar year 1996. Security Deposit: None. Guarantor of Tenant's Obligations: John J. Donovan, an individual. Brokers: Fallon Hines & O'Connor and Leggatt McCall/Grubb & Ellis. ARTICLE II ---------- DESCRIPTION OF PREMISES, ------------------------ APPURTENANT RIGHTS AND TERM --------------------------- 2.1 LOCATION OF PREMISES. Subject to all of the provisions hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby accepts from Landlord, the Premises identified in the foregoing portions of this Lease. 2.2 APPURTENANT RIGHTS AND RESERVATIONS. Tenant shall have, as appurtenant to the Premises, the nonexclusive right to use and to permit its invitees to use in common with others, public or common lobbies, hallways, stairways, passenger and freight elevators and sanitary facilities in the Building, but such rights shall always be subject to reasonable rules and regulations from time to time established by Landlord by suitable notice and to the right of Landlord to designate and change from time to time areas and facilities so to be used, subject to the provisions of Section 13.24 hereof. The Premises are also being leased with the non-exclusive right to use the common parking areas (subject to Section 13.26 hereof), entranceways, exitways and driveways of the Development and the common utility facilities serving the Premises, all as the same now exist or as may hereafter exist. -3- With the prior written consent of and approval by Landlord, Tenant shall have the right, at its own expense, to install on the roof of the Building in an area designated by Landlord, satellite or other transmitting/receiving devices to be used solely for Tenant's own operations. Without limitation, Landlord's right of prior approval shall include Landlord's satisfaction with the safety, size and design of such devices. In all events, Tenant shall be responsible for obtaining any necessary permits and approvals for such devices and any required repair and maintenance of such devices. Tenant shall install such devices solely at its own risk and agrees to indemnify and hold harmless Landlord from any claims for damages or liabilities or losses related to the installation, repair, maintenance, removal or operation of such devices. Upon the termination of this Lease, for whatever reason, Tenant agrees to remove all such devices at its own expense and risk and to restore the area of the roof approximately to its pre-existing condition. Excepted and excluded from the Premises are the roof or ceiling, the floor and all perimeter walls of the Premises, except the inner surfaces thereof, any balconies (except to the extent same are shown as part of the Premises on Exhibit A), terraces or roofs adjacent to the Premises and any space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms, ducts, electric or other utilities, sinks or other Building facilities, but the entry doors to the Premises are not excluded from the Premises and are a part thereof for all purposes; and Tenant agrees that Landlord shall have the right to place in the Premises (but in such manner as to reduce to a minimum interference with Tenant's use of the Premises) utility lines, pipes and the like to serve premises within the Building other than the Premises, and to replace, maintain and repair such utility lines, pipes and the like, in, over and upon the Premises. During the hours of 8:00 A.M. to 6:00 P.M., Monday through Friday, and 8:00 A.M. to 1:00 P.M. on Saturdays, legal holidays in all cases excepted (hereinafter referred to as "Normal Building Operating Hours"), the Building shall be open and a means of access to the Premises shall be available, subject to interruption due to causes beyond Landlord's reasonable control. During periods other than Normal Building Operating Hours, Tenant shall have access to the Premises and Landlord shall, on the reasonable prior request of Tenant, provide reasonable levels of lighting for the parking areas and HVAC services for the Premises (with Tenant agreeing to reimburse Landlord on demand for the reasonable costs of providing such after hours lighting and HVAC services requested by Tenant, subject to a reasonable allocation of such costs to any other tenant who may concurrently have requested such after hours lighting or HVAC services), but access to the Premises during Normal Building Operating Hours and at other times shall always be subject to reasonable rules and regulations therefor from time to time established by Landlord by suitable notice. Tenant acknowledges that, in all events, Tenant is responsible for providing security to the Premises and its own personnel, and Tenant shall indemnify, defend with counsel of Landlord's selection, and save Landlord harmless from any claim for injury -4- to person or damage to property asserted by any personnel, employee, guest, invitee or agent of Tenant which is suffered or occurs in or about the Premises or in or about the Building by reason of the act of an intruder or any other person in or about the Premises or the Building. 2.3 TERM. Section 2.3.1. The Premises are leased hereunder for the Initial Term ------------- specified in Section 1.1 hereof unless sooner terminated as provided herein and subject to the extension provisions in Section 2.3.3. Section 2.3.2. The term hereof shall commence on the earlier to occur of ------------- (a) the Commencement Date, (b) the date that the Tenant first opens for business in the Premises or (c) two (2) weeks following substantial completion of Tenant's Work as described in Exhibit C hereto (which work Tenant agrees to commence promptly upon the execution of the Lease and to, thereafter, diligently prosecute to completion). The parties hereto agree, upon demand of the other, to execute a supplemental instrument prepared by the party requesting the same at such party's expense expressing the Commencement Date and termination date of the term hereof when the Commencement Date has been determined. Section 2.3.3. Provided that no Event of Default (as hereinafter ------------- defined) exists at the time of the giving of notice to exercise the option to extend as hereinafter provided, the Tenant shall have the right to extend the term of this lease for one (1) successive period of five (5) years by notice to such effect given to the Landlord at least nine (9) months prior to the end of the Initial Lease Term and, upon the giving of such notice, the term of this lease shall be extended for such five (5) year period upon all the terms and conditions herein contained without the necessity of any further action, except that (i) Fixed Rent for such 5-year option period shall be at the annual rate equal to ninety-five percent (95%) of the market rent for such Premises determined in accordance with Exhibit APP annexed hereto and incorporated herein, payable in twelve (12) equal monthly installments and proportionately at such rate for any partial month; and (ii) there shall be no further right to extend the term of this lease except as set forth in this Section and it shall be a condition to the exercise of the extension that the Tenant shall have timely and properly exercised the extension right. Time shall be strictly of the essence and the Tenant's failure to exercise any extension right within the time period provided shall render null and void such extension right. -5- ARTICLE III ----------- RENT ---- 3.1 FIXED RENT. Tenant agrees to pay to Landlord at the Present Mailing Address of Landlord, or as otherwise directed by Landlord in writing, without notice, demand, offset or deduction, on the Commencement Date and thereafter, monthly, in advance, on the first day of each and every calendar month during the Lease Term, a sum equal to the monthly fixed rent specified in Section 1.2 hereof. Fixed Rent for any partial month shall be paid by Tenant at such rate on a pro rata basis, and if the Lease Term commences on a day other than the first day of a calendar month, the first payment which Tenant shall make shall be a payment equal to a proportionate part of such monthly Fixed Rent for the partial month from the Commencement Date to the first day of the succeeding calendar month, and the monthly Fixed Rent for such succeeding calendar month. ARTICLE IV ---------- USE OF PREMISES --------------- 4.1 PERMITTED USE. Tenant agrees that the Premises shall be used and occupied by Tenant only for the purpose specified as the use thereof in Section 1.2 of this Lease, and for no other purpose or purposes. Tenant further agrees to conform to the following provisions during the entire Lease Term. (a) Tenant shall cause all freight (including furniture, fixtures and equipment used by Tenant in the occupancy of the Premises) to be delivered to or removed from the Building and the Premises in accordance with reasonable rules and regulations established by Landlord therefor. (b) Tenant shall not place on the exterior of exterior walls (including both interior and exterior surfaces of windows and doors) or on any part of the Building outside the Premises, any sign, symbol, advertisement or the like visible to public view outside of the Premises without the prior written consent of the Landlord. Without limitation, lettering on windows and window displays are expressly prohibited. Notwithstanding the foregoing, Landlord hereby approves the signage identified in Exhibit B. Further, notwithstanding the foregoing, subject to applicable law, Tenant may place on the exterior of one (1) exterior wall of the Building one (1) sign, the location, size, and design of which sign shall be subject to the prior approval of the Landlord. -6- (c) Tenant shall not perform any act or any practice which may injure the Premises, or any other part of the Building, or cause any offensive odors or loud noise, or constitute a nuisance or a menace to any other tenant or tenants or other persons in the Building, or be detrimental to the reputation or appearance of the Building. (d) Tenant shall conduct Tenant's business in the Premises in such a manner that Tenant's invitees shall not collect, line up or linger in any common lobby or corridors of the Building, but shall be entirely accommodated within the Premises. (e) Tenant shall comply and shall cause all employees to comply with all reasonable rules and regulations respecting the use of the Building from time to time established by Landlord by suitable notice. Landlord shall not, however, be responsible for the noncompliance with any such rules and regulations by any other tenant or occupant of the Building. (f) Tenant shall not use the name of the Building directly or indirectly in connection with Tenant's business, except as a part of Tenant's address, and Landlord reserves the right to change the name of the Building upon fifteen (15) business days' notice to Tenant. (g) Tenant's use of the Premises shall at all times comply with all applicable laws, statutes, ordinances, by-laws, as well as all rules, regulations and orders of governmental authorities having jurisdiction over the same. In no event, shall Tenant use the Premises or permit the Premises to be used for the storage or transport of any materials that are classified as hazardous materials or waste under any law related to the protection of the environment other than in de minimus amounts such as cleaning -- ------- materials typically used in office operations and provided that Tenant complies with all requirements of law and the manufacturer with respect to the handling, storage and use thereof and does not dispose of any such materials into the sanitary sewer or elsewhere on the Premises or the Development in violation of applicable law. (h) Tenant agrees that, within the Premises except with respect to the stairways directly connected to the Premises, it shall be responsible for compliance with the Americans with Disabilities Act (42 U.S.C. (S)12101 et. seq.) and the regulations and Accessibility Guidelines for Buildings and Facilities issued pursuant thereto to the extent the same are applicable to the Premises. Landlord agrees that it will have such responsibility with respect to such stairways and the portions of the Building that are not a part of the Premises. 4.2 ALTERATIONS. After initial completion of any work to be done by Tenant, for which provision is made herein in Exhibit C attached hereto, Tenant shall not alter or add to the Premises, except in accordance with written consent from Landlord, which -7- Landlord agrees not unreasonably to withhold as to nonstructural alterations or additions. All alterations made by Tenant shall be made in accordance with all applicable laws, in a good and first-class workmanlike manner and in accordance with the requirements of Landlord's insurers and Tenant's insurers. Any contractor or other person undertaking any alterations of the Premises on behalf of Tenant shall be subject to Landlord's prior written approval (not to be unreasonably withheld or delayed) and covered by Comprehensive General Liability and Workmen's Compensation insurance with coverage limits reasonably acceptable to Landlord and evidence thereof shall be furnished to Landlord prior to the performance by such contractor or person of any work in respect of the Premises. All work performed by Tenant in the Premises shall remain therein (unless Landlord directs Tenant to remove such work, other than Tenant's Work, on termination) and, at termination, shall be surrendered as a part thereof, except for Tenant's usual trade furniture and equipment, if movable, installed prior to or during the Lease Term at Tenant's cost, which trade furniture and equipment Tenant may remove upon the termination of this Lease provided that Tenant is not then in default hereunder. Tenant agrees to repair any and all damage to the Premises resulting from such removal (including removal of Tenant's improvements directed by Landlord) or, if Landlord so elects, to pay Landlord for the reasonable cost of any such repairs forthwith after billing therefor and such obligation of Tenant shall survive the termination hereof. -8- ARTICLE V --------- ASSIGNMENT AND SUBLETTING ------------------------- 5.1 PROHIBITION. Notwithstanding any other provisions of this Lease, but except as otherwise provided in this ARTICLE V, Tenant covenants and agrees that it will not assign this Lease or sublet (which term, without limitation, shall include the granting of concessions, licenses, management arrangements and the like) the whole or any part of the Premises without, in each instance, having first received the express consent of Landlord, which consent Landlord agrees shall not be unreasonably withheld, provided (and it shall be a condition of the validity of any such assignment or subletting), without limitation, that: the Tenant shall furnish the Landlord with such information regarding such assignee or sublessee as the Landlord may reasonably require, including, without limitation, information regarding good reputation, financial ability and business experience, and Landlord determines, in Landlord's reasonable judgment, that such assignee or sublessee at the time of such assignment or subletting, is of satisfactory reputation, creditworthiness and net worth. Any assignment of this Lease (which term shall include a sale or transfer of the stock in Tenant, subject to the provisions of the last paragraph of this Section 5.1), or subletting of the whole or any part of the Premises (other than as permitted to a Related Party, as defined below) by Tenant without Landlord's express consent shall be invalid, void and of no force or effect. In any case where Landlord shall consent to such assignment or subletting, the Tenant named herein shall remain fully liable for the obligations of Tenant hereunder, including, without limitation, the obligation to pay the Fixed Rent and other amounts provided under this Lease. Any such request shall set forth, in detail reasonably satisfactory to Landlord, the identification of the proposed assignee or sublessee, its financial condition and the terms on which the proposed assignment or subletting is to be made, including, without limitation, the rent or any other consideration to be paid in respect thereto and such request shall be treated as Tenant's warranty in respect of the information submitted therewith (provided, however, Tenant's warranty with respect to the financial condition of the proposed assignee or sublessee shall only be a warranty to the effect that the Tenant has provided to Landlord all material information concerning such financial condition delivered to Tenant by such proposed assignee or sublessee). In addition, if the proposed assignee or sublessee pays more total rent and other consideration to Tenant (the "Transferee's Rent") than Tenant is required to pay to Landlord hereunder (for the purposes of this Section 5.1 only, the "Tenant's Rent"), then fifty percent (50%) of the following amounts (in excess of Tenant's reasonable out-of-pocket costs to third parties incurred in connection with effectuating such permitted assignment or sublease and Tenant's then unamortized cost of Tenant Work (calculated on a per square foot basis) pro-rata to the portion of the Premises so assigned or subleased) shall be payable by Tenant to Landlord within ten (10) days of receipt by Tenant: (a) the difference between the Transferee's Rent and the Tenant's Rent and (b) any lump sum payment payable by the proposed assignee or sublessee. -9- It shall be a condition of the validity of any such assignment or subletting that the assignee or sublessee agrees directly with Landlord, in form satisfactory to Landlord, to be bound by all the obligations of Tenant hereunder, including, without limitation, the obligation to pay Fixed Rent and other amounts provided for under this Lease and the covenant against further assignment and subletting, but such assignment or subletting shall not relieve the Tenant named herein of any of the obligations of Tenant hereunder, and Tenant shall remain fully liable therefor. In no event, however, shall Tenant assign this Lease or sublet the whole or any part of the Premises to a proposed assignee or sublessee which has been judicially declared bankrupt or insolvent according to law, or with respect to which an assignment has been made of property for the benefit of creditors, or with respect to which a receiver, guardian, conservator, trustee in involuntary bankruptcy or similar officer has been appointed to take charge of all or any substantial part of the proposed assignee's or sublessee's property by a court of competent jurisdiction, or with respect to which a petition has been filed for reorganization under any provisions of the Bankruptcy Code now or hereafter enacted, or if a proposed assignee or sublessee has filed a petition for such reorganization, or for arrangements under any provisions of the Bankruptcy Code now or hereafter enacted and providing a plan for a debtor to settle, satisfy or extend the time for the payment of debts (any such proposed assignee or sublessee being sometimes referred to herein as a "Bankrupt Party"). Tenant shall, upon demand, reimburse Landlord for the reasonable legal fees and expenses incurred by Landlord in processing any request to assign this Lease or to sublet all or any portion of the Premises, whether or not Landlord agrees thereto, and if Tenant shall fail promptly so to reimburse Landlord, the same shall be a default in Tenant's monetary obligations under this Lease. Without limiting Landlord's discretion to grant or withhold its consent to any proposed assignment or subletting, if Tenant requests Landlord's consent to assign this Lease or sublet all or any portion of the Premises, Landlord shall have the option (but never the obligation), exercisable by written notice to Tenant given within thirty (30) days after Landlord's receipt of such request, to terminate this Lease as of the date specified in such notice which shall be not less than thirty (30) nor more than one hundred twenty (120) days after the date of such notice for the entire Premises, in the case of an assignment or subletting of the whole, and for the portion of the Premises, in the case of a subletting of a portion. In the event of termination in respect of a portion of the Premises, the portion so eliminated shall be delivered to Landlord on the date specified in good order and condition in the manner provided in Section 4.2 at the end of the Lease Term and thereafter, to the extent necessary in Landlord's judgment, Landlord, at its own cost and expense, may have access to and may make modification to the Premises so as to make such portion a self-contained rental unit with access to common areas, elevators and the like; provided, however, in any reletting of such recaptured portion or whole of the Premises, Landlord agrees for a period of ninety (90) days after such termination not to relet such space to any party identified in Tenant's request for Landlord's consent without first obtaining Tenant's consent to such reletting, such consent not to be unreasonably withheld or delayed. -10- Fixed Rent and Tenant's Proportionate Share shall be adjusted pro rata according to the extent of the Premises for which the Lease is terminated. The recapture provisions of this paragraph shall apply to each and every assignment of the Lease and each and every subletting of all or a portion of the Premises, except to a Related Party (as herewith defined). For the purposes of this Section 5.1, the term "rent" shall mean all Fixed Rent, additional rent or other payments and/or consideration payable by one party to another for the use and occupancy of all or a portion of the Premises. Notwithstanding the foregoing, it is understood and agreed that the Landlord's consent shall not be required for an assignment of this Lease or subletting of the Premises by Tenant to an entity which is not a Bankrupt Party, but which is in control of, controlled by or in common control with Tenant (each, a "Related Party") provided (and it shall be a condition of the validity of any such assignment or sublease) that Landlord is provided not less than thirty (30) days prior written notice of such proposed assignment or sublease with sufficient detail evidencing that such party is a Related Party and such Related Party agrees directly with Landlord to be bound by all of the obligations of Tenant hereunder, including, without limitation, the obligation to pay the rent and other amounts provided for under this Lease, the covenant to use the Premises only for the purposes specifically permitted under this Lease and the covenant against further assignment or sublet; but such assignment or sublet shall not relieve Tenant herein named of any of its obligations hereunder, and Tenant shall remain fully liable therefor. For purposes of this Lease, if Tenant is a corporation, the sale or transfer of fifty percent (50%) or more of the stock of Tenant (whether such sale or transfer occurs at one time or at intervals so that, in the aggregate, over the term of this Lease, such a transfer shall have occurred) shall be treated as if such sale or transfer were, for all purposes, an assignment of this Lease and shall be governed by the provisions of this Section 5.1; except that sales or transfer of stock by existing stockholders for estate planning purposes or to trust entities they control, or sales or transfers of stock to institutional investors or existing stockholders, or sales of stock to the general public that do not result in any non-institutional investor, directly or indirectly, owning or controlling more than twenty percent (20%) of all such stock shall not be considered "sales" or "transfers" of stock for these purposes. To enable Landlord to determine ownership of Tenant, Tenant agrees to furnish to Landlord, as reasonably requested by Landlord from time to time, and promptly after Landlord's request therefor, an accurate listing of the holders of its stock and/or the holders of the stock of any Related Party/assignee or Related Party/sublessee as of the date of the execution of this Lease and/or as of the date of Landlord's request. 5.2 In those circumstances where the Landlord's prior consent is required to an assignment or sublease hereunder, Landlord shall have the right to consider any reasonable factor in determining whether to withhold its consent to a proposed assignment or sublease. Without limiting the other instances in which it may be reasonable for Landlord to withhold its consent to an assignment or sublease, the -11- parties agree that it shall be reasonable for Landlord to withhold its consent if any of the following conditions are not satisfied: (a) The proposed transferee shall be at least as creditworthy as Tenant and any guarantor of Tenant's obligations hereunder as of the date hereof and, in Landlord's reasonable opinion, shall have the financial strength and stability to perform all of Tenant's obligations under this Lease; (b) The proposed use of the Demised Premises by the transferee shall (i) comply with the Permitted Use requirements of Section 4.1 of this Lease (ii) be consistent with the general character of businesses carried on by tenants of similar first-class developments, (iii) not increase the likelihood of damage or destruction, (iv) not increase the rate of wear and tear to the Premises, the Building or the Development, (v) not be likely to cause an increase in insurance premiums for insurance policies applicable to the Building or the Development, (vi) not require new tenant improvements to the then- existing Building systems and components (except to the extent such improvements are paid for by the new tenant), and (vii) be a use similar to Tenant's use or consistent with the tenant mix and quality of tenant desired by Landlord; (c) The proposed transferee shall not be (i) an existing tenant or occupant of the Building, (ii) a person or entity with whom Landlord is then dealing with respect to the leasing of space in the Building, or (iii) a person or entity with whom Landlord has had any dealings within the previous nine months with regard to leasing of space in the Building; (d) Any ground lessor or mortgagee of the Building or Development whose consent to such transfer is required shall consent thereto (Landlord agreeing to make a request for such consent); (e) Any proposed subleasing shall not result in more than two subleases of a portion of the Premises being in effect at any one time during the term hereof; and (f) At the time of the proposed transfer, no Event of Default under this Lease shall have occurred and be continuing, and no state of facts which, with notice and/or the passage of time, may ripen into an Event of Default under this Lease shall have occurred and be continuing. Tenant shall have the burden of demonstrating that each of the foregoing conditions has been satisfied. -12- ARTICLE VI ---------- DELIVERY OF PREMISES AND ------------------------ RESPONSIBILITY FOR REPAIRS AND ------------------------------ CONDITION OF PREMISES --------------------- 6.1 DELIVERY OF POSSESSION OF PREMISES. The Premises shall be treated as delivered hereunder on the Execution Date. Promptly after delivery of the Premises to Tenant, Tenant shall perform, at its sole cost and expense, all of Tenant's work as set forth in said Exhibit C in that portion thereof entitled "Description of Tenant's Work" ("Tenant's Work" or "Tenant Work") and, subject to the terms and conditions hereinafter set forth in this Section 6.1, Landlord agrees to pay to Tenant on account of such work a Landlord's contribution of $291,280.00 ("Landlord's Contribution"). By February 15, 1996, if the following conditions have been met: (i) the Tenant shall have furnished evidence reasonably satisfactory to the Landlord that Tenant has commenced, is diligently prosecuting to completion and has completed, at least to the value of the First Contract Amount (as defined herein), Tenant's Work in a good and workmanlike manner by a contractor(s) and consistent with plans and specifications approved by Landlord (in its reasonable discretion) and that any and all liens therefor that have been or may be filed have been satisfied of record, bonded or waived; (ii) the execution of this Lease shall have occurred; and (iii) there is no uncured Event of Default hereunder or any condition which with the passage of time and/or giving of notice could constitute an Event of Default hereunder. -- the Landlord shall pay over to the Tenant a sum equal to eighty percent (80%) of the amount due (exclusive of any retainage amounts) Tenant's contractor(s) for Tenant's Work completed prior to February 15, 1996 (said amount being referred to herein as the "First Contract Amount") as an initial inducement to the Tenant (the "Initial Payment"). By March 15, 1996, if the following conditions have been met: (i) there is no uncured Event of Default hereunder or any condition which with the passage of time and/or giving of notice could constitute an Event of Default hereunder, (ii) Tenant shall have furnished evidence reasonably satisfactory to Landlord that Tenant has completed, at least to the value of the Second Contract Amount (as hereinafter defined) Tenant Work in addition to the Work which was the subject of the Initial Payment in accordance with the standards set forth in clause (i) of the immediately preceding paragraph of this Section 6.1 and (iii) Tenant has qualified for the Initial Payment and Tenant shall have executed and delivered an instrument setting forth the commencement and expiration dates of the term of this Lease, Landlord agrees to pay over to Tenant a sum equal to eighty percent (80%) of the amount due (exclusive of any retainage amounts) Tenant's contractor(s) for Tenant's Work completed prior to March 15, 1996 which was not the subject of such contractor's prior requisition for a -13- First Contract Amount (said amount being referred to herein as the "Second Contract Amount") as an additional inducement to Tenant (the "Second Payment"). By April 15, 1996, if the following conditions have been met: (i) there is no uncured Event of Default hereunder or any condition which with the passage of time and/or giving of notice could constitute an Event of Default hereunder, and (ii) Tenant shall have furnished evidence reasonably satisfactory to Landlord that all of Tenant's Work has been completed in accordance with the standards set forth in clause (i) of the third paragraph of this Section 6.1, Landlord agrees to pay over to Tenant the balance of Landlord's Contribution due (after taking into account the First and Second Payments) as a final inducement to Tenant. 6.2 REPAIRS TO BE MADE BY LANDLORD. Except as otherwise provided in this Lease, Landlord agrees to keep and maintain in good order, condition and repair, the plumbing and sewage facilities within the Premises that serve the Premises, the HVAC systems and equipment that serve the Premises (Landlord agreeing to be responsible for providing an HVAC system that is adequate to accommodate a standard office environment in the Premises), the roof (but not the inside surface thereof), the exterior walls, foundations, structural portions and the common areas of the Building, insofar as any of the foregoing affects the Premises. Landlord shall in no event be responsible to Tenant for the condition of glass in and about the Premises or for the doors leading into the Premises, or for any condition in the Premises or the Building caused by any act or neglect of Tenant or any contractor, agent, employee or invitee of Tenant, or anyone claiming by, through or under Tenant. Landlord shall not be responsible to make any improvements or repairs to the Building or the Premises other than as expressed in this Section 6.2 unless expressly otherwise provided in this Lease. Landlord shall never be liable for any failure to make repairs which, under the provisions of this Section 6.2 or elsewhere in this Lease, Landlord has undertaken to make unless: (a) Tenant has given notice to Landlord of the need to make such repairs as a result of a condition in the Building or in the Premises requiring any repair for which Landlord is responsible; and (b) Landlord has failed to commence to make and complete such repairs within a reasonable time after receipt of such notice if any repairs are, in fact, necessary. 6.3 TENANT'S AGREEMENT. Tenant agrees that Tenant will keep neat and clean and maintain in good order, condition and repair, the Premises and every part thereof throughout the Lease Term, including, without limitation, the exterior and interior portions of all doors and windows, fixtures and interior walls, floors, ceilings, signs (including exterior signs where permitted), and all wiring, electrical systems, interior building appliances, and the like, (where the same is exclusively serving the Premises) excepting only those repairs for which Landlord is responsible under the terms of this Lease and damage by fire or other casualty or as a consequence of the exercise of the power of eminent domain, and shall surrender the Premises at the end of the term, in -14- such condition. Without limitation, Tenant shall maintain and use the Premises in accordance with all applicable laws, ordinances, governmental rules and regulations, directions and orders of officers of governmental agencies having jurisdiction and in accordance with the requirements of Landlord's and/or Tenant's insurers, and shall, at Tenant's own expense, obtain and maintain in effect all permits, licenses and the like required by applicable law. Tenant shall not permit the Premises to suffer any waste, and Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damage to any areas in the Building, including the Premises, by Tenant, Tenant's contractors or Tenant's agents, employees or invitees, or anyone claiming by, through or under Tenant. Tenant shall have the responsibility, at its own expense, to replace, as needed, any light bulbs and ballasts in the Premises during the Lease Term. If repairs are required to be made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make the same forthwith, and if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch after such demand, Landlord may (but shall not be required to do so) make or cause such repairs to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant's stock or business by reason thereof. If Landlord makes or causes such repairs to be made, Tenant agrees that Tenant will forthwith, on demand, pay to Landlord the cost thereof, and if Tenant shall default in such payment, Landlord shall have the remedies provided for the nonpayment of rent or other charges payable hereunder. 6.4 FLOOR LOAD - HEAVY MACHINERY. Tenant shall not place a load upon any floor in the Premises exceeding the lesser of (a) the floor load per square foot of area which such floor was designed to carry as shall have been certified to Tenant by Landlord's architect and (b) the floor load per square foot of area which is allowed by law. Landlord reserves the right to prescribe in its reasonable discretion the weight and position of all business machines and mechanical equipment, including scales, which shall be placed so as to distribute the weight. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient, in Landlord's judgment, to absorb and prevent unreasonable vibration, noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky matter or fixtures into or out of the Building without Landlord's prior consent, not to be unreasonably withheld or delayed. If such safe, machinery, equipment, freight, bulky matter or fixtures requires special handling, Tenant agrees to employ only persons holding a Master Rigger's License to do said work, and that all work in connection therewith shall comply with applicable laws and regulations. Any such moving shall be at the sole risk and hazard of Tenant and Tenant will exonerate, indemnify and save Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. Tenant shall schedule such moving at such times as Landlord shall reasonably require for the convenience of the normal operations of the Building. -15- ARTICLE VII ----------- SERVICES TO BE FURNISHED BY LANDLORD; UTILITIES ----------------------------------------------- 7.1 LANDLORD'S SERVICES. Landlord covenants during the Lease Term during Normal Building Operating Hours to furnish, through Landlord's employees or independent contractors, the services listed in Exhibit D, if any. 7.2 PAYMENT OF UTILITY CHARGES. The Tenant shall pay for all of its requirements for electricity. In the event that the Landlord shall elect to supply the same, the Tenant agrees to purchase the same from the Landlord, provided the rate does not exceed the rate which the Tenant would be required to pay to the utility company furnishing the same to the Development. Further, the Tenant shall pay for all electricity consumed on the Premises from the date of delivery of possession thereof by the Landlord to the Tenant to the date of the commencement of the term of this lease. If through the negligence or willful misconduct of the Landlord, its agents or employees, there shall be an interruption in a utility service serving the Premises and such interruption shall continue for one (1) business day after notice from Tenant to Landlord thereof and if, as a result of such interruption, the Tenant shall be unable to operate its business within the Premises and shall not so operate, then, as the Tenant's remedy therefor, there shall be an abatement of the Fixed Rent and other charges during the period of such interruption. Landlord confirms its belief that the Building currently has sufficient electrical power capacity to provide adequate electrical service to the Premises to the extent of a standard office environment. If Tenant's presents evidence to Landlord within twenty (20) days of the execution of this Lease which demonstrates that such capacity does not exist, Landlord agrees to promptly correct any such insufficiency at Landlord's expense. ARTICLE VIII ------------ REAL ESTATE TAXES AND OTHER EXPENSES ------------------------------------ 8.1 TENANT'S SHARE OF REAL ESTATE TAXES. (a) For the purposes of this Section: (i) The term "Tax Period" shall mean the period during which Taxes (as hereinafter defined) are required to be paid under applicable law. Thus, under the law presently in effect in the Commonwealth of Massachusetts, Tax Period means the period from July 1 of a calendar year to June 30 of the subsequent calendar year. Suitable adjustment in the determination of Tenant's obligation under this Section 8.1 shall be made in the computation for any Tax Period which is greater than or less than twelve (12) full calendar months. -16- (ii) The term "Taxes" shall mean all real estate taxes and assessments (which term, for purposes of this provision, shall include water and sewer use charges), special or otherwise, levied or assessed upon or with respect to the Building and the lot on which the Building is situated (the "Lot") thereof and ad valorem taxes for any personal property of Landlord used in connection therewith. Should the Commonwealth of Massachusetts, or any political subdivision thereof, or any other governmental authority having jurisdiction over the Building on the Lot, (1) impose a tax, assessment, charge or fee, which Landlord shall be required to pay, by way of substitution for or as a supplement to such real estate taxes and ad valorem personal property taxes, or (2) impose an income or franchise tax or a tax on rents in substitution for or as a supplement to a tax levied against the Building or the Lot or any part thereof and/or the personal property used in connection with the Building or the Lot or any part thereof, all such taxes, assessments, fees or charges (hereinafter defined as "in lieu of taxes") shall be deemed to constitute Taxes hereunder. Taxes shall also include, in the year paid, all reasonable fees and costs incurred by Landlord in seeking to obtain a reduction of, or a limit on the increase in, any Taxes, regardless of whether any reduction or limitation is obtained. Except as hereinabove provided with regard to "in lieu of taxes", Taxes shall not include any inheritance, estate, succession, transfer, gift, franchise, net income or capital stock tax. (b) In the event that the Taxes imposed with respect to the Building and the Lot shall be greater during any Tax Period than, respectively, the Base Building Tax Amount on the Base Lot Tax Amount: (i) Tenant shall pay to Landlord, as additional rent, an amount equal to the sum of (1) Tenant's Proportionate Building Share of the amount by which the Taxes imposed with respect to the Building for such Tax Period exceed the Base Building Tax Amount, apportioned for any fraction of a Tax Period contained within the Term, and (2) Tenant's Proportionate Lot Share of the amount by which the Taxes imposed with respect to the Lot for such Tax Period exceed the Base Lot Tax Amount, apportioned for any fraction of a Tax Period contained within the Term, and (ii) Landlord shall submit to Tenant a statement setting forth the amount of such additional rent, and within fifteen (15) days after the delivery of such statement (whether or not such statement shall be timely), Tenant shall pay to Landlord the payment required under subparagraph (i) above. So long as Taxes shall be payable in installments under applicable law, Landlord may submit such -17- statements to Tenant in similar installments. The failure by Landlord to send any statement required by this subparagraph shall not be deemed to be a waiver of Landlord's right to receive such additional rent. Any such statement shall be accompanied by a copy of any relevant tax bill and a reasonable explanation of Landlord's calculations. (c) Tenant's share of Taxes shall be equitably adjusted for and with respect to any portion of the Term which does not include an entire Tax Period. (d) If Tenant is obligated to pay any additional rent as aforesaid with respect to any Tax Period or fraction thereof during the Term, then Tenant shall pay, as additional rent, on the first day of each month of the next ensuing Tax Period, estimated monthly tax escalation payments in an amount from time to time reasonably estimated by Landlord to be sufficient to provide Landlord, in the aggregate, a sum equal to the amount payable by Tenant under clause 8.1(b)(i) above, ("Tenant's Tax Amount") ten (10) days, at least, before the day on which payments on account of Taxes by Landlord would become delinquent. Estimated monthly tax escalation payments for each ensuing Tax Period shall be made retroactively to the first day of the Tax Period in question. Following the close of each Tax Period for and with respect to which Tenant is obligated to pay any additional rent as aforesaid, Landlord shall submit the statement set forth in paragraph (b)(ii) of this Section 8.1 and in the event the total of the estimated monthly tax escalation payments theretofore made by Tenant to Landlord for such Tax Period does not equal Tenant's Tax Amount for such Tax Period, Tenant shall pay any deficiency to Landlord as shown by such statement within fifteen (15) days after the delivery of such statement (whether or not such statement shall be timely). If the total of the estimated monthly tax escalation payments paid by Tenant during such Tax Period exceed the actual amount of Tenant's Tax Amount for said Tax Period, Landlord shall credit the amount of such overpayment against immediately subsequent obligations of Tenant under this Lease (or promptly refund such overpayment if the Term has ended and Tenant has no further obligations to Landlord under the Lease). (e) When the applicable tax bill is not available prior to the end of the Term, then a tentative computation shall be made by Landlord on the basis of the Taxes for the next prior Tax Period, with a final adjustment to be made between Landlord and Tenant promptly after Landlord shall have received the applicable tax bill. (f) Payments by Tenant to Landlord on account of Taxes shall not be considered as being held in trust, in escrow or the like, by Landlord; it being the express intent of Landlord and Tenant that Tenant shall in no event be entitled to receive interest upon, or any payments on account of earnings or profits derived from, such payments by Tenant to Landlord. Landlord shall have the same rights and remedies for the non-payment by Tenant of any amounts due on account of such -18- Taxes as Landlord has hereunder for the failure of Tenant to pay the Fixed Rent. 8.2 TENANT'S SHARE OF OPERATING EXPENSES. (a) For the purposes of this Section: (i) The term "Operating Year" shall mean each successive fiscal year (as adopted by Landlord) in which any part of the Term of this Lease shall fall. (ii) The term "Operating Expenses" shall mean the following expenses, costs and disbursements, paid or incurred by Landlord in operating, owning, managing, repairing and maintaining the Building and its appurtenances: premiums for fire, casualty, liability and such other insurance as Landlord may from time to time maintain; security expenses; compensation and all fringe benefits, workmen's compensation insurance premiums and payroll taxes paid by Landlord to, for or with respect to all persons engaged in operating, maintaining, managing or cleaning; fuel costs; steam, water, sewer, electric, gas, telephone, and other utility charges, in each case, not otherwise billed to tenants by Landlord or the utility; expenses incurred in connection with the central plant furnishing heating, ventilating (including maintaining and repairing ventilating fans and fan rooms); and air-conditioning to the Building; costs of lighting; costs of repairing and maintaining fire protection systems; costs of building and cleaning supplies and equipment (including rental); cost of maintenance, cleaning, trash removal and repairs; costs of elevator maintenance; cost of snow plowing or removal, or both, and care of interior and exterior landscaping; payments to independent contractors under contracts for cleaning, operating, management, maintenance and/or repair (which payments may be to affiliates of Landlord); all other expenses paid in connection with cleaning, operating, management, maintenance and repair, including reasonable reserves for the replacement of capital improvements and equipment contained in and/or used in connection with operations; costs of any capital improvements completed after the original construction of the Building as reasonably amortized by Landlord, with interest on the unamortized amount at the rate of the greater of (i) 12% per annum or (ii) 2% per annum above the base rate of interest charged from time to time by The First National Bank of Boston (the Base Rate) (but in no event at a rate which is more than the highest lawful rate allowable in the Commonwealth of Massachusetts), to the extent the cost of the particular capital improvement exceeds the amount of the unused reserve, if any, for -19- the replacement thereof previously included in Operating Expenses and insurance proceeds, if any, received by Landlord on account of damage to the particular capital improvement; and a supervisory fee equal to the lesser of (i) 105% of the prior Operating Year's supervisory fee or (ii) fifteen percent (15%) of all of the Operating Expenses for the Operating Year in question. Operating Expenses shall not, however, include the following: a. Costs of alterations of any tenant's premises for a particular tenant and not for the benefit of the Building or any group of tenants therein; b. Principal or interest payments on loans secured by mortgages or trust deeds on the Building and/or on the Development; c. Any environmental clean-up costs incurred by Landlord related to any contamination of the Development existing prior to the date hereof and those items, if any, listed in Exhibit OPER, annexed hereto. (b) After the expiration of each Operating Year, Landlord shall furnish Tenant with a statement setting forth the Operating Expenses for such Operating Year. Such statement shall be accompanied by a computation, in reasonable detail, of the amount, if any, of the additional rent payable to Landlord pursuant to this Section. (c) In the event the Operating Expenses during any Operating Year shall be greater than the Base Operating Expenses, Tenant shall pay to Landlord, as additional rent, an amount equal to the sum of: (i) Tenant's Proportionate Office Portion Share of the excess of the Operating Expenses relating to the Office Portion for such Operating Year over and above the Base Operating Expenses relating to the Office Portion and (ii) Tenant's Proportionate Garage Portion Share of the excess of the Operating Expenses relating to the Garage Portion for such Operating Year over and above the Base Operating Expenses relating to the Garage Portion. Notwithstanding anything contained herein, with respect to all Operating Expenses except for all Operating Expenses relating to ------ snow removal, insurance and utilities (the "Exclusions", provision for which is made below), Tenant shall never be required under the provisions hereof to pay more than the "Maximum Annual Charge" (as defined hereinafter) for each respective Operating Year within the term of this Lease commencing with the second Operating Year. For the purposes hereof, the "Maximum Annual Charge" shall be, for and with respect to the second Operating Year contained within the term of this Lease, the actual such amount payable by Tenant in accordance with the provisions -20- hereof; and, for and with respect to each Operating Year thereafter during the term of this Lease, an annual amount equal to one hundred seven percent (107%) of the Maximum Annual Charge for and with respect to the then immediately preceding Operating Year (with an appropriate proration for any partial Operating Year occurring at the end of the term of this Lease). In calculating the Maximum Annual Charge in each instance, there shall be excluded, as aforesaid, all Exclusions; and, with respect to all such Exclusions, Tenant shall share therein as hereinabove provided without any "cap", all as if the Operating Expenses in which the Tenant is required to share pursuant to this Section 8.2 had been broken down for all purposes into two separate categories - the aforesaid Operating Expenses relating to snow removal, insurance and utilities, with respect to which Tenant's share shall be calculated as if this paragraph had not been contained in this Lease, and the balance of the Operating Expenses in which Tenant is required to share pursuant hereto, as to which the aforesaid calculation and Maximum Annual Charge provisions of this paragraph shall be applicable. Nothing contained in this paragraph shall be construed to require Tenant to pay more for any Operating Year than the total, actual amount payable therefor by the Tenant under the provisions of this Section 8.2. (d) Said additional rent shall, with respect to the Operating Years in which the Commencement Date and end of the Term of this Lease fall, be adjusted to that proportion thereof as the portion of the Term of this Lease falling within such Operating Year bears to the full Operating Year. If Landlord shall change its fiscal year, appropriate adjustment shall be made for any Operating Year less than twelve months which may result. (e) Any additional rent payable by Tenant under this Section 8.2 shall be paid within fifteen (15) days after Landlord has furnished Tenant with the statement described above. (f) If with respect to any Operating Year or fraction thereof during the Term, Tenant is obligated to pay any additional rent as aforesaid, then Tenant shall pay, as additional rent, on the first day of each month of the next ensuing Operating Year, estimated monthly operating escalation payments in an amount from time to time reasonably estimated by Landlord to be sufficient to cover, in the aggregate, a sum equal to the sum of (i) Tenant's Proportionate Office Portion Share of the Operating Expenses relating to the Office Portion in excess of the Base Operating Expenses relating to the Office Portion and (ii) Tenant's Proportionate Garage Portion Share of the Operating Expenses relating to the Garage Portion in excess of the Base Operating Expenses relating to the Garage Portion for the next ensuing Operating Year. Estimated monthly operating escalation payments for each ensuing Operating Year shall be made retroactively to the first day of the Operating Year in question. If the estimated monthly operating escalation payments theretofore made for such Operating Year by -21- Tenant exceed the sum of (i) Tenant's Proportionate Office Portion Share of the Operating Expenses relating to the Office Portion in excess of the Base Operating Expenses relating to the Office Portion and (ii) Tenant's Proportionate Garage Portion Share of the Operating Expenses relating to the Garage Portion in excess of the Base Operating Expenses relating to the Garage Portion for such Operating Year according to the statement furnished Tenant by Landlord pursuant to paragraph (b) of this Section 8.2, Landlord shall credit the amount of such overpayment against immediately subsequent obligations of Tenant under this Lease (or promptly refund such overpayment if the Term has ended and Tenant has no further obligation to Landlord under the Lease); but if the sum of (i) Tenant's Proportionate Office Portion Share of the Operating Expenses relating to the Office Portion in excess of the Base Operating Expenses relating to the Office Portion and (ii) Tenant's Proportionate Garage Portion Share of the Operating Expenses relating to the Garage Portion in excess of the Base Operating Expenses relating to the Garage Portion for said Operating Year is greater than the estimated monthly operating escalation payments theretofore made on account of such period, Tenant shall make suitable payment to Landlord within the time set forth in paragraph (e) of this Section 8.2. (g) Tenant acknowledges that if Landlord is not furnishing any particular work or service, the cost of which, if performed by Landlord, would be included in Operating Expenses, to any tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed for purposes of determining Operating Expenses under this Section to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. (h) Tenant shall have the right to audit Landlord's books and records compiled with respect to the Operating Expenses in which Tenant is required to share hereunder, provided: (i) any such audit shall be conducted only with respect to the then immediately preceding Operating Year; (ii) no such audit shall be conducted unless the Operating Expenses have increased by more than fifteen percent (15%) from the level of Operating Expenses for the immediately preceding Operating Year; (iii) any such audit shall be conducted upon at least thirty (30) days prior written notice to Landlord (and no more often than once in any Operating Year), during reasonable business hours, at Landlord's accounting office where such records are maintained by Landlord; (iv) Landlord shall incur no cost or expense in connection with any such audit and, without limitation, Tenant shall be required to reimburse Landlord, as additional rent, upon demand, any and all such reasonable costs and expenses including disbursements and charges incurred and the compensation paid by Landlord to any of its agents or employees for their time devoted to preparing for and attending to such audit (except that if it is ultimately determined that Landlord -22- overcharged Tenant, other than by reason of clerical or other completely inadvertent error, then Tenant shall not be required so to reimburse Landlord); and (v) in the event that it is ultimately determined as a result of such audit that there has been an overpayment or underpayment by Tenant hereunder, then, promptly when the amount thereof has been determined, there shall be an appropriate payment so that Tenant's additional rent for such Operating Year shall be in the amount required to be paid pursuant to the foregoing provisions of this Section, and no more. ARTICLE IX ---------- INDEMNITY AND PUBLIC LIABILITY INSURANCE ---------------------------------------- 9.1 TENANT'S INDEMNITY. To the maximum extent this agreement may be made effective according to law, Tenant agrees to indemnify and save harmless Landlord from and against all claims of whatever nature arising from any act, omission or negligence of Tenant, or Tenant's contractors, licensees, invitees, agents, servants or employees, or arising from any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring after the commencement of construction work by Tenant, and until the end of the Lease Term and thereafter, so long as Tenant is in occupancy of any part of the Premises, within the Premises, or arising from any accident, injury or damage occurring outside of the Premises but within the Lot, where such accident, damage or injury results or is claimed to have resulted from an act or omission on the part of Tenant or Tenant's agents, employees, independent contractors or invitees. This indemnity and hold harmless agreement shall include indemnity against all reasonable costs, reasonable expenses (including reasonable attorney fees and expenses) and liabilities incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof. 9.2 PUBLIC LIABILITY INSURANCE. In addition to the insurance required to be maintained by Tenant pursuant to Exhibit C, Tenant agrees to maintain in full force and effect from the date on which Tenant first enters the Premises for any reason, throughout the Lease Term, and thereafter so long as Tenant is in occupancy of any part of the Premises, a policy of Comprehensive General Liability insurance (without any so-called employee exclusion or the like) in accordance with the broadest form of such coverage as is available from time to time in the jurisdiction in which the Premises are located. The minimum limits of liability of such insurance shall be $1,000,000.00, each occurrence; $2,000,000.00 general aggregate limit; $2,000,000.00 products - completed operations aggregate limit; $1,000,000.00 personal and advertising liability; $50,000.00 fire legal liability; and $5,000.00 medical expenses limit (each person); or shall be for such higher limits, if directed by Landlord, as are customarily carried in that area in which the Building is located upon -23- property similar to the Building. In addition, the Tenant shall carry an excess liability policy in umbrella form with a minimum limit of liability in the amount of $5,000,000.00. The policy shall also include, but shall not be limited to, the following extensions of coverage: (i) contractual liability, covering Tenant's liability assumed under this Lease; (ii) personal injury liability in the amount of one million dollars ($1,000,000.00) annual aggregate, expressly deleting the exclusion relating to contractual assumptions of liability; and (iii) civil assault and battery coverage with respect to the acts of third parties or employees or agents of Tenant acting outside of the scope of their employment or agency. Tenant further agrees to maintain a workers' compensation and employers' liability insurance policy. The limit of liability as respects employers' liability coverage shall be no less than one hundred thousand dollars ($100,000.00) per accident. Except for workers' compensation and employers' liability coverage, Tenant agrees that Landlord and its designees from time to time are named as additional insureds. Further, all policies shall be noncancelable and nonamendable with respect to Landlord and Landlord's said designees without 30 days' prior written notice to Landlord. A duplicate original or a Certificate of Insurance evidencing the above agreements shall be delivered to Landlord upon the execution of this Lease. 9.3 TENANT'S RISK. To the maximum extent this agreement may be made effective according to law, Tenant agrees to use and occupy the Premises and to use such other portions of the Building as Tenant is herein given the right to use at Tenant's own risk; and Landlord shall have no responsibility or liability for any loss of or damage to fixtures or other personal property of Tenant for any reason whatsoever. The provisions of this Section shall be applicable from and after the execution of this Lease and until the end of the Lease Term, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Building. 9.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this agreement may be made effective according to law, Tenant agrees that Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Building or the Development, or otherwise or for any loss or damage resulting to Tenant or those claiming by, through -24- or under Tenant, or its or their property, from the breaking, bursting, stopping or leaking of electric cables and wires, water, gas, sewer or steam pipes, and from roof leaks and the like. 9.5 FIRE AND HAZARD INSURANCE. The Landlord shall keep the Premises insured against loss or damage by fire, with the usual extended coverage endorsements and such other insurance as the then holder of the first mortgage which includes the Premises shall require, in amounts not less than eighty percent (80%) of the full replacement value thereof above foundation walls, with such deductibles as the Landlord deems advisable, but specifically excluding any property or improvements installed by or belonging to the Tenant. The Tenant also agrees that it shall continuously keep its fixtures, merchandise (if any), equipment and other personal property from time to time located in, on or about the Premises, and all leasehold improvements to the Premises constructed or installed by the Tenant insured by reputable, duly licensed insurance companies against loss or damage by fire with the usual extended coverage endorsements. Within a reasonable time after the Commencement Date, no less often than annually thereafter, and at any other time upon the request of the Landlord, the Tenant shall furnish to the Landlord evidence of such continuous insurance coverage satisfactory to the Landlord. It is understood and agreed that the Tenant assumes all risk of damage to its own property arising from any cause whatsoever, including, without limitation, loss by theft or otherwise. ARTICLE X --------- LANDLORD'S ACCESS TO PREMISES ----------------------------- 10.1 LANDLORD'S RIGHT OF ACCESS. Landlord shall have the right to enter the Premises for the purpose of inspecting or making repairs to the same, and Landlord shall also have the right to make access available to prospective or existing mortgagees or purchasers of any part of the Building. Such entry or access shall occur only during reasonable business hours, upon reasonable advance notice to Tenant, and in the presence of Tenant's agent(s) if requested by Tenant (Tenant agreeing to make such agents reasonably available), except in cases of emergency repairs. 10.2 EXHIBITION OF SPACE TO PROSPECTIVE TENANTS. For a period of nine (9) months prior to the expiration of the Lease Term, Landlord may have reasonable access to the Premises at all reasonable hours for the purpose of exhibiting the same to prospective tenants, and may post suitable notice on the Premises advertising the same for rent. -25- ARTICLE XI ---------- FIRE, EMINENT DOMAIN, ETC. -------------------------- 11.1 ABATEMENT OF RENT. If the Premises or a substantial portion of the parking areas within the Building that serve the Premises shall be damaged by fire or casualty, the Fixed Rent and the additional rent payable by Tenant under ARTICLE VIII hereof shall abate or be reduced proportionately for the period in which, by reason of such damage, there is substantial interference with the operation of Tenant's use of the Premises, having regard to the extent to which Tenant may be required to discontinue Tenant's use of the Premises, but such abatement or reduction shall end if and when Landlord shall have substantially restored the Premises (or such parking areas) (exclusive of any of Tenant's fixtures, furnishings, equipment and the like or work performed therein by Tenant) to substantially the condition in which the Premises were in prior to such damage. In no event shall Landlord be obligated in connection with the restoration of the Premises (or such parking areas), as aforesaid, to expend an amount in excess of the proceeds of insurance recovered with respect thereto. In the event the Premises (or such parking areas) shall be damaged by fire or other casualty resulting from the act or neglect of Tenant, its agents, contractors, employees or invitees, and this Lease shall not be terminated by Landlord as a result of such damage, Tenant shall not be released from any of its obligations hereunder including, without limitation, its duty to pay the Fixed Rent and the additional rent payable by Tenant under ARTICLE VIII hereof without abatement or reduction. If any part of the Building is taken by any exercise of the power of eminent domain, as a result of which there is substantial interference with the operation of Tenant's use of the Premises, then the Fixed Rent and the additional rent payable by Tenant under ARTICLE VIII hereof shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant. 11.2 TERMINATION IN THE EVENT OF CASUALTY OR CONDEMNATION. If the Premises or the Building are substantially damaged by fire or casualty (the term "substantially damaged" meaning damage of such a character that the same cannot, in the ordinary course, reasonably be expected to be repaired within thirty (30) days from the time that repair work would commence), or any part of the Building is taken by an exercise of the right of eminent domain, then Landlord shall have the option (a) to terminate this Lease (even if the Landlord's entire interest in the Premises may have been divested) by giving notice of Landlord's election so to do within thirty (30) days of the occurrence of the casualty or taking, whereupon 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 or (b) to restore the Premises to substantially the condition existing prior to such casualty or taking; provided, however, if Landlord does elect to restore, Landlord shall give Tenant written notice thereof within thirty (30) days of the occurrence of the casualty or taking and proceed with diligence to complete such restoration, with Tenant having the right to terminate -26- this Lease if such notice is not given or such restoration is not substantially completed within 90 days of delivery of such notice to Tenant. If, however, the Premises suffer a "major casualty damage" (meaning for purposes of this second paragraph of Section 11.2, damage of such a character that the same, in the ordinary course, cannot reasonably be expected to be repaired within ninety (90) days from the time repair work would commence) that is not the result of Tenant's negligence or conduct or suffer a condemnation that results in more than forty-five percent (45%) of the Premises being unavailable for Tenant's use, Tenant shall have the right to terminate this lease, provided that notice thereof is given to Landlord not later than thirty (30) days after such damage or condemnation occurs. If said right of termination is exercised, this lease and the term thereof shall cease and come to an end as of the 30th day following delivery of such termination notice. 11.3 AWARD. Landlord shall have and hereby reserves and accepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Building, the Development, and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, as aforesaid, and by way of confirming the foregoing, Tenant hereby grants and assigns, and covenants with Landlord to grant and assign to Landlord all rights to such damages or compensation. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any Tenant's usual trade fixtures installed in the Premises by Tenant at Tenant's expense and for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority. ARTICLE XII ----------- LANDLORD'S REMEDIES ------------------- 12.1 EVENTS OF DEFAULT. Any one of the following shall be deemed to be an "Event of Default": A. Failure on the part of Tenant to pay Fixed Rent, additional rent or other charges for which provision is made herein on or before the date on which the same become due and payable and such failure continues for ten (10) days after Landlord has sent to Tenant notice of such default. However, if: (i) Landlord shall have twice sent to Tenant a notice of such default, even though the same shall have been cured and this Lease not terminated; and (ii) during the twelve (12) month period in which said notices of default have been sent by Landlord to Tenant, Tenant thereafter shall default in any monetary payment - the same shall be deemed to be an Event of Default upon Landlord giving Tenant written notice thereof, without the ten (10) day grace period set forth above. -27- B. With respect to a non-monetary default under this Lease, failure of Tenant to cure the same within thirty (30) days following notice from Landlord to Tenant of such default or an additional sixty (60) days in the case of a default that cannot reasonably be cured within such thirty (30) days. Notwithstanding the applicable cure period provided in the preceding sentence, Tenant shall be obligated to commence forthwith and to complete as soon as possible the curing of such default; and if Tenant fails so to do, the same shall be deemed to be an Event of Default. C. The commencement of any of the following proceedings, with such proceeding not being dismissed within sixty (60) days after it has begun: (i) the estate hereby created being taken on execution or by other process of law; (ii) Tenant being judicially declared bankrupt or insolvent according to law; (iii) an assignment being made of the property of Tenant for the benefit of creditors; (iv) a receiver, guardian, conservator, trustee in involuntary bankruptcy or other similar officer being appointed to take charge of all or any substantial part of Tenant's property by a court of competent jurisdiction; or (v) a petition being filed for the reorganization of Tenant under any provisions of the Bankruptcy Code now or hereafter enacted. D. Tenant filing a petition for reorganization or for rearrangements under any provisions of the Bankruptcy Code now or hereafter enacted, and providing a plan for a debtor to settle, satisfy or to extend the time for the payment of debts. E. Execution by Tenant of an instrument purporting to assign Tenant's interest under this Lease or sublet the whole or a portion of the Premises to a third party without Tenant having first obtained Landlord's prior express consent to said assignment or subletting where such consent is required pursuant to ARTICLE V hereof. 12.2 REMEDIES. Should any Event of Default occur then, notwithstanding any license of any former breach of covenant or waiver of the benefit hereof or consent in a former instance, Landlord lawfully may, in addition to any remedies otherwise available to Landlord, immediately or at any time thereafter, and without demand or notice, enter into and upon the Premises or any part thereof in the name of the whole and repossess the same as of Landlord's former estate, and expel Tenant and those claiming by, through or under it and remove its or their effects (forcibly if necessary) without being deemed guilty of any manner of trespass, and without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenant and/or Landlord may send notice to Tenant terminating the Term of this Lease; and upon the first to occur of: (i) entry as aforesaid; or (ii) the tenth (10th) day following the mailing of such notice of termination, the Term of this Lease shall terminate, but Tenant shall remain liable for all damages as provided for herein. Tenant covenants and agrees, notwithstanding any termination of this Lease as aforesaid or any entry or re-entry by Landlord, whether by summary proceedings, termination, or otherwise, to pay and be liable for on the days originally fixed herein for the payment thereof, amounts equal to the several installments of Fixed Rent and -28- other charges reserved as they would become due under the terms of this Lease if this Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or remain vacant, in whole or in part, or for a period less than the remainder of the Term, or for the whole thereof; but in the event the Premises be relet by Landlord (Landlord agreeing, if it elects to relet, Landlord will use reasonable efforts to market the Premises for reletting), Tenant shall be entitled to a credit in the net amount of rent received by Landlord in reletting, after deduction of all reasonable expenses incurred in reletting the Premises (including, without limitation, remodeling costs, brokerage fees, and the like), and in collecting the rent in connection therewith. It is specifically understood and agreed that Landlord shall be entitled to take into account in connection with any reletting of the Premises all relevant factors which would be taken into account by a sophisticated developer in securing a replacement tenant for the Premises, such as, but not limited to, the first class quality of the Building and the financial responsibility of any such replacement tenant; and Tenant hereby waives, to the extent permitted by applicable law, any obligation Landlord may have to mitigate Tenant's damages. As an alternative, at the election of Landlord, Tenant will upon such termination pay to Landlord, as damages, such a sum as at the time of such termination represents the amount of the excess, if any, of the then value of the total rent and other benefits which would have accrued to Landlord under this Lease for the remainder of the Lease Term if the lease terms had been fully complied with by Tenant over and above the then cash rental value (in advance) of the Premises for the balance of the Term. For purposes of this ARTICLE, if Landlord elects to require Tenant to pay damages in accordance with the immediately preceding sentence, the total rent shall be computed by assuming that Tenant's Proportionate Share of Taxes in excess of the Base Tax Amount and Tenant's Proportionate Share of the Operating Expenses in excess of the Base Operating Expenses would be, for the balance of the unexpired term, the amount thereof (if any), respectively, for the immediately preceding Tax Period or fiscal year, as the case may be, payable by Tenant to Landlord. If this Lease shall at any time be guaranteed on behalf of Tenant, all of the foregoing provisions of this ARTICLE with respect to bankruptcy of Tenant, etc., shall be deemed to read "Tenant or the guarantor hereof" with respect to events occurring during such time. In the event of any breach or threatened breach by Tenant of any of the agreements, terms, covenants or conditions contained in this Lease, Landlord shall be entitled to enjoin such breach or threatened breach and shall have the right to invoke any right or remedy allowed at law or in equity or by statute or otherwise as though reentry, summary proceedings, and other remedies were not provided for in this Lease. Each right and remedy of Landlord provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease not now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies -29- provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. If any payment of rent or any other payment payable hereunder by Tenant to Landlord shall not be paid when due, the same shall bear interest from the date when the same was payable (taking into account applicable cure periods, if any) until the date paid at the lesser of (a) the Base Rate plus three percent (3%) per annum, compounded monthly, or (b) the highest lawful rate of interest which Landlord may charge to Tenant without violating any applicable law. Such interest shall constitute additional rent payable hereunder and be payable upon demand therefor by Landlord. Without limiting any of Landlord's rights and remedies hereunder, and in addition to all other amounts Tenant is otherwise obligated to pay, it is expressly agreed that Landlord shall be entitled to recover from Tenant all reasonable costs and expenses, including reasonable attorneys' fees incurred by Landlord in enforcing this Lease from and after an Event of Default. 12.3 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or such additional time as is reasonably required to correct any such default, after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation. 12.4 BANKRUPTCY OR INSOLVENCY. In the event that the Tenant shall become a Debtor under the Bankruptcy Code, and the Trustee or the Tenant shall elect to assume this lease for the purpose of assigning the same or otherwise, such election and assignment may only be made if all the terms and conditions of Sections 12.4.1 and 12.4.2 hereof are satisfied. If such Trustee shall fail to elect to assume this lease within sixty (60) days after the filing of the Petition, this lease shall be deemed to have been rejected. The Landlord shall be thereupon immediately entitled to possession of the demised premises without further obligation to the Tenant or the Trustee, and this lease shall be terminated, but the Landlord's right to be compensated for damages both at law and as provided in this ARTICLE XII hereof in such case shall survive. Section 12.4.1. -------------- A. No election by the Trustee or Debtor-In-Possession to assume this lease, whether under Chapter 7, 11 or 13, shall be effective unless each of the following conditions, which the Landlord and the Tenant acknowledge and agree are commercially reasonable in the context of a bankruptcy case of the Tenant, have been satisfied, and the Landlord has so acknowledged in writing: -30- (1) The Trustee or the Debtor-In-Possession has cured, or has provided the Landlord adequate assurance (as hereinafter defined) that: (a) Within ten (10) days from the date of such assumption, the Trustee will cure all monetary defaults under this lease; and (b) Within thirty (30) days from the date of such assumption, the Trustee will cure all nonmonetary defaults under this lease. (2) The Trustee or Debtor-In-Possession has compensated, or has provided to the Landlord adequate assurance (as hereinafter defined) that within ten (10) days from the date of assumption, the Landlord will be compensated for any pecuniary loss incurred by the Landlord arising from the default of the Tenant, the Trustee, or the Debtor- In-Possession as recited in the Landlord's written statement of pecuniary loss sent to the Trustee or Debtor-In-Possession. (3) The Trustee or the Debtor-In-Possession has provided the Landlord with adequate assurance (as hereinafter defined) of the future performance of each of the Tenant's, the Trustee's or Debtor-In- Possession's obligations under this lease, provided, however that: (a) Whether or not otherwise required by the terms of this lease, the Trustee or Debtor-In-Possession shall also pay in advance on the date rent is payable hereunder, one-twelfth (1/12th) of the Tenant's annual obligations under this lease for common area maintenance, Taxes, and any other charges payable hereunder. (b) The obligations imposed upon the Trustee or Debtor-In-Possession under this lease shall continue with respect to the Tenant or any assignee of this lease after the completion of the bankruptcy case, subject to any further and/or increased obligations which thereafter are imposed by any provisions of this lease. (4) The assumption of this lease will not: (a) Breach any provision in this lease or any other lease, mortgage, financing agreement or other agreement by which the Landlord is bound relating to the Development; or (b) Disrupt, in the Landlord's judgment, the tenant mix of the Development or any other attempt by the Landlord to provide a specific variety of facilities in the Development which, in the Landlord's judgment, would be most beneficial to all of the tenants of the Development and would enhance the image, reputation, and profitability of the Development. -31- (5) The assumption has been ratified and approved by order of such court or courts as have jurisdiction under the Bankruptcy Code. B. For the purposes of this Section 12.4.1., the Landlord and the Tenant acknowledge that, in the context of a bankruptcy proceeding of the Tenant, at a minimum, "adequate assurance" shall mean: (1) The Trustee or Debtor-In-Possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure the Landlord that the Trustee or Debtor-In-Possession will have sufficient funds to fulfill the obligations of the Tenant under this lease, and to keep the Premises properly staffed with sufficient employees to conduct a fully-operational, actively promoted business on the Premises; and (2) The Bankruptcy Court or such court as is exercising jurisdiction over the Bankruptcy Code shall have entered an Order segregating sufficient cash payable to the Landlord and/or the Trustee or Debtor-In-Possession shall have granted a valid and perfected first lien and security interest and/or mortgage in property of the Tenant, the Trustee or Debtor-In-Possession, acceptable as to value and kind to the Landlord, to secure to the Landlord the obligation of the Trustee or Debtor-In-Possession to cure any monetary and/or nonmonetary defaults under this lease within the time periods set forth above. Section 12.4.2. If the Trustee or Debtor-In-Possession has assumed this --------------- lease pursuant to the terms and provisions of Section 12.4.1. hereof, for the purpose of assigning (or elects to assign) the Tenant's interest under this lease, or the estate created thereby, to any other person, such interest or estate may be so assigned only if the Landlord shall acknowledge in writing that the intended assignee has provided adequate assurance of the future performance (as defined in this Section 12.4.2.) of all of the terms, covenants and conditions of this lease to be performed by the Tenant. For the purposes of this Section 12.4.2., the Landlord and the Tenant acknowledge that, in the context of a bankruptcy case of the Tenant, at a minimum, "adequate assurance of future performance" shall mean that each of the following conditions have been satisfied, and the Landlord has so acknowledged in writing: (1) The assignee has submitted a current financial statement audited by a Certified Public Accountant which shows a net worth and working capital in amounts (which amounts shall in no event be less than the greater of those of the Tenant and any guarantor of the Tenant's obligations hereunder at the time of the execution of this lease) determined to be sufficient by the Landlord to assure the future performance by such assignee of the Tenant's obligations under this lease; -32- (2) The Landlord has obtained all consents and waivers from any third party required under any lease, mortgage, financing arrangement or other agreement by which the Landlord is bound to permit the Landlord to consent to such assignment; (3) The assignee has complied with any other provisions, conditions and requirements set forth in this Lease for an assignment of the Tenant's interest in this lease or the estate created thereby; and (4) The Assignee has deposited with the Landlord a security deposit in such amount as determined by the Landlord to be appropriate based upon the financial information supplied under this Section 12.4.2. Section 12.4.3. When, pursuant to the Bankruptcy Code, the Trustee or -------------- Debtor-In-Possession shall be obligated to pay reasonable use and occupancy charges for the use of the demised premises or any portion thereof, such charges shall not be less than the rent specified in Section 1.1 hereof and any other charges payable by the Tenant hereunder. Section 12.4.4. The rights and remedies of the Landlord contained in the -------------- provisions of this ARTICLE XII are and shall be deemed to be in addition to, and not in limitation of, applicable other provisions of this ARTICLE XII and other provisions hereof, or any other rights which the Landlord may have under applicable statutory or case law. Whenever any of the terms or provisions of this lease, including, without limitation, rental obligations, are modified pursuant to the provisions of this Section 12.4., upon the Landlord's request the parties hereto promptly shall execute, acknowledge and deliver a written instrument evidencing and confirming the same. In no event shall this lease, if the term hereof has expired or has been terminated in accordance with the provisions hereof, be revived, and no stay or other proceeding shall nullify, postpone or otherwise affect the expiration or earlier termination of the term of this lease pursuant to the provisions of ARTICLE XII hereof or prevent the Landlord from regaining possession of the demised premises thereupon. ARTICLE XIII ------------ MISCELLANEOUS PROVISIONS ------------------------ 13.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein which shall increase the rate of insurance on the Premises or on the Building above the standard rate applicable to premises being occupied for the use to which Tenant has agreed to devote the Premises; and Tenant further agrees that in the event that Tenant shall do any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such increase resulting therefrom which shall be due and payable as additional rent hereunder. -33- 13.2 WAIVER. Failure on the part of Landlord or Tenant to complain of any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of the other's rights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord's or Tenant's consent or approval to or of any subsequent similar act by the other. No payment by Tenant or acceptance by Landlord of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. In no event shall Tenant ever be entitled to receive interest upon, or any payments on account of earnings or profits derived from any payments hereunder by Tenant to Landlord. 13.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and provisions of this Lease, upon payment of the Fixed Rent and other charges due hereunder and the observing, keeping and performing of all of the terms and provisions of this Lease on Tenant's part to be observed, kept and performed, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the Term hereof, without hindrance or ejection by any persons lawfully claiming under Landlord to have title to the Premises superior to Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other covenant, expressed or implied; and it is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and Landlord's successors only with respect to breaches occurring during Landlord's and Landlord's successors' respective ownership of Landlord's interest hereunder. Further, Tenant specifically agrees to look solely to Landlord's then equity interest in the Building and Development at the time owned, or in which Landlord holds an interest as ground lessee, for recovery of any judgment from Landlord; it being specifically agreed that Landlord (original or successor) shall never be personally liable for any such judgment, or for the payment of any monetary obligation to Tenant. The provision contained in the foregoing sentence is not intended to, and shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or any action not involving the personal liability of Landlord (original or successor) to respond in monetary damages from Landlord's assets other than Landlord's equity interest aforesaid in the Building and Development. With respect to any obligations to be performed by Landlord hereunder, Landlord shall in no event be liable for failure to furnish or perform the same when (and the date for performance of the same shall be -34- postponed so long as Landlord is) prevented from doing so by strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish such services, or perform such obligations or because of war or other emergency, or for any cause beyond Landlord's reasonable control, or for any cause due to any act or neglect of Tenant or Tenant's servants, agents, employees, licensees, invitees or any person claiming by, through or under Tenant. In no event shall Landlord ever be liable to Tenant for any indirect, special or consequential damages suffered by Tenant from whatever cause. 13.4 NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving written notice from any person, firm or other entity (such notice to include the mailing address of the applicable person, firm or entity) that it holds a mortgage which includes the Premises as part of the mortgaged premises, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Premises as part of the demised premises, no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor, and the curing of any of Landlord's defaults by such holder or ground lessor shall be treated as performance by Landlord. For the purposes of this Section 13.4, Section 13.5 or Section 13.14, the term "mortgage" includes a mortgage on a leasehold interest of Landlord (but not one on Tenant's leasehold interest). In the event Landlord shall subject the Premises to a ground lease, Landlord agrees to obtain from such ground lessor an agreement by such ground lessor (in reasonable form and substance) to recognize Tenant's rights under this lease in the event of any termination of such ground lease with Tenant agreeing to attorn to such ground lessor upon such recognition. 13.5 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage or ground lease on property which includes the Premises. Tenant agrees: (a) that the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage, or the ground lessor, shall never be treated as an assumption by such holder or ground lessor of any of the obligations of Landlord hereunder, unless such holder or ground lessor shall, by notice sent to Tenant, specifically otherwise elect; and (b) that, except as aforesaid, such holder or ground lessor shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage and the taking of possession of the Premises, or in the case of a ground lessor, the assumption of Landlord's position hereunder by such ground lessor. In no event shall the acquisition of title to the Building and the land on which the same is located by a purchaser which, simultaneously therewith, leases the entire Building or such land back to the seller thereof, be -35- treated as an assumption by operation of law or otherwise of Landlord's obligations hereunder, but Tenant shall look solely to such seller-lessee, and its successors from time to time in title, for performance of Landlord's obligations hereunder. In any such event, this Lease shall be subject and subordinate to the lease to such seller. For all purposes such seller-lessee, and its successors in title, shall be the landlord hereunder unless and until Landlord's position shall have been assumed by such purchaser- lessor. 13.6 MECHANICS' LIENS. Tenant agrees immediately to discharge (either by payment or by the filing of the necessary bond, or otherwise) any mechanics', materialmen's or other lien against the Premises and/or Landlord's interest therein, which liens may arise out of any payment due for, or purported to be due for, any labor, services, materials, supplies or equipment alleged to have been furnished to or for Tenant in, upon or about the Premises. 13.7 NO BROKERAGE. Tenant and Landlord each warrant and represent to the other that each has not dealt with any broker other than the broker, if any, named in Section 1.2 hereof, in connection with the consummation of this Lease, and in the event any claim is made against either relative to dealings with brokers other than any broker named in Section 1.2, the breaching party shall defend the claim against the other with counsel of the non-breaching party's selection and save harmless and indemnify the non-breaching party on account of loss, cost or damage which may arise by reason of any such claim. Landlord acknowledges that it is responsible for the fees and commissions due to the brokers named in Section 1.2 in connection with this transaction. 13.8 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 13.9 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. If two or more persons are named as Tenant herein, each of such persons shall be jointly and severally liable for the obligations of the Tenant hereunder, and Landlord may proceed against any one without first having commenced proceedings against any other of them. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant, but has reference only to those instances in which Landlord may later give -36- consent to a particular assignment as required by those provisions of ARTICLE V hereof. 13.10 RECORDING. Tenant agrees not to record the within Lease, but each party hereto agrees, on the request of the other, to execute a so-called memorandum of lease or short form lease in form recordable and complying with applicable law and reasonably satisfactory to Landlord's and Tenant's attorneys. In no event shall such document set forth the rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of this Lease. 13.11 NOTICES. Whenever, by the terms of this Lease, notice shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be delivered in hand or sent by registered or certified mail, postage prepaid: If intended for Landlord, addressed to Landlord at the address set forth in Section 1.2 of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice) with copies to Goulston & Storrs, P.C., 400 Atlantic Avenue, Boston, Massachusetts 02110, Attention: NED - Arsenal Mall. If intended for Tenant, addressed to Tenant at the address set forth in Section 1.2 of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice) with copies to Thomas J. Phillips, Esq., Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109 and to any guarantor of Tenant's obligations at the address of the guarantor as set forth in the guarantee. All such notices shall be effective when delivered in hand, or when deposited in the United States mail within the continental United States provided that the same are received in the ordinary course at the address to which the same were sent. 13.12 WHEN LEASE BECOMES BINDING. Employees or agents of Landlord have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof. 13.13 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are for convenience and reference only, and the words contained therein shall in no way -37- be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. 13.14 RIGHTS OF MORTGAGEE. It is understood and agreed that the rights and interests of Tenant under this Lease shall be subject and subordinate to any mortgages or deeds of trust that may hereafter be placed upon the Building and/or the Development, and to any and all advances to be made thereunder, and to the interest thereon, and all renewals, modifications, replacements and extensions thereof, if the mortgagee or trustee named in said mortgages or deeds of trust shall elect by notice delivered to Tenant to subject and subordinate the rights and interest of Tenant under this Lease to the lien of its mortgage or deed of trust; it is further agreed that any mortgagee or trustee may elect to give the rights and interest of Tenant under this Lease priority over the lien of its mortgage or deed of trust. In the event of either such election, and upon notification by such mortgagee or trustee to Tenant to that effect, the rights and interest of Tenant under this Lease shall be deemed to be subordinate to, or to have priority over, as the case may be, the lien of said mortgage or deed of trust, whether this Lease is dated prior to or subsequent to the date of said mortgage or deed of trust. Tenant shall execute and deliver whatever instruments may be required for such purposes, (such instruments to be prepared at no expense to Tenant), and in the event Tenant fails so to do within ten (10) days after demand in writing, Tenant does hereby make, constitute and irrevocably appoint Landlord as its attorney-in-fact and in its name, place and stead so to do. Landlord shall use reasonable efforts to obtain from the holder of the mortgage currently encumbering the Shopping Center a so-called non- disturbance agreement in substantially the form which is annexed hereto as Exhibit SNDA, with only such changes as are reasonably satisfactory to the Tenant. With respect to any future mortgage encumbering the Shopping Center to which this lease is to be subject and subordinate, at the Tenant's request, the Tenant's obligation to subordinate shall be subject to Landlord's utilization of reasonable efforts to obtain for the Tenant such a non-disturbance agreement. 13.15 STATUS REPORT. Recognizing that both parties may find it necessary to establish to third parties, such as accountants, banks, mortgagees or the like, the then current status of performance hereunder, either party, on the request of the other made from time to time, will promptly furnish to Landlord, or the holder of any mortgage encumbering the Premises, or to Tenant, as the case may be, a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. 13.16 SECURITY DEPOSIT; TENANT'S FINANCIAL CONDITION. If, in Section 1.2 hereof, a security deposit is specified, Tenant agrees that the same will be paid upon execution and delivery of this Lease, and that Landlord shall hold the same, throughout the term of this Lease, as security for the performance by Tenant of all obligations on the part of Tenant to be kept and performed. Landlord shall have the right from time to time without prejudice to any other remedy Landlord may have on -38- account thereof, to apply such deposit, or any part thereof, to Landlord's damages arising from any default on the part of Tenant. Tenant not then being in default, Landlord shall return the deposit, or so much thereof as shall not have theretofore been applied in accordance with the terms of this Section 13.16 to Tenant on the expiration or earlier termination of the Lease Term and surrender of possession of the Premises by Tenant to Landlord at such time. While Landlord holds such deposit, Landlord shall have no obligation to pay interest on the same and shall have the right to commingle the same with Landlord's other funds. If Landlord conveys Landlord's interest under this Lease, the deposit or any part thereof not previously applied may be turned over by Landlord to Landlord's grantee, and if so turned over, Tenant agrees to look solely to such grantee for proper application of the deposit in accordance with the terms of this Section 13.16 and the return thereof in accordance herewith. Neither the holder of a mortgage nor the lessor in a ground lease of property which includes the Premises shall ever be responsible to Tenant for the return or application of any such deposit, whether or not it succeeds to the position of Landlord hereunder, unless such deposit shall have been received in hand by such holder or ground lessor. Tenant warrants and represents that all information furnished to Landlord or Landlord's representatives in connection with this Lease are true and correct and in respect of the financial condition of Tenant, properly reflect the same without material adverse change, as of the date hereof. Upon Landlord's demand, which may be made no more often than annually, Tenant shall furnish to Landlord, at Tenant's sole cost and expense, Tenant's most recent annual financial statement, audited if an audited statement shall have been prepared on behalf of Tenant, or otherwise certified as being true and correct by the chief financial officer of Tenant. 13.17 ADDITIONAL REMEDIES OF LANDLORD. Landlord shall have the right, but shall not be required to do so, to pay such reasonable sums or do any reasonable act which requires the expenditure of monies which may be necessary or appropriate by reason of the failure or neglect of Tenant to perform any of the provisions of this Lease, and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand all such sums; and if Tenant shall default in such payment, Landlord shall have the same rights and remedies as Landlord has hereunder for the failure of Tenant to pay the Fixed Rent. Except as otherwise set forth herein, any obligations of Tenant as set forth herein (including, without limitation, rental and other monetary obligations, repair obligations and obligations to indemnify Landlord), shall survive the expiration or earlier termination of this Lease, and Tenant shall immediately reimburse Landlord for any expense incurred by Landlord in curing Tenant's failure to satisfy any such obligation (notwithstanding the fact that such cure might be effected by Landlord following the expiration or earlier termination of this Lease). -39- 13.18 HOLDING OVER. Any holding over by Tenant after the expiration of the Lease Term shall be treated as a tenancy at sufferance at one and one- half the Fixed Rent and additional rent herein provided to be paid during the last twelve (12) months of the Lease Term (prorated on a daily basis) and shall otherwise be on the terms and conditions set forth in this Lease, as far as applicable. 13.19 NON-SUBROGATION. Insofar as, and to the extent that, the following provision may be effective without invalidating or making it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the locality in which the Premises are located (even though extra premium may result therefrom): Landlord and Tenant mutually agree that, with respect to any hazard which is covered by insurance then being carried by them, respectively, the one carrying such insurance and suffering such loss releases the other of and from any and all claims with respect to such loss; and they further mutually agree that their respective insurance companies shall have no right of subrogation against the other on account thereof. In the event that extra premium is payable by either party as a result of this provision, the other party shall reimburse the party paying such premium the amount of such extra premium. If, at the request of one party, this release and non-subrogation provision is waived, then the obligation of reimbursement shall cease for such period of time as such waiver shall be effective, but nothing contained in this Section 13.19 shall derogate from or otherwise affect releases elsewhere herein contained of either party for claims. 13.20 EXPANSION OR REDUCTION. Landlord may expand the Development beyond its present boundaries or remove from the Development one or more of the Market Buildings and portions of land associated therewith. If Landlord shall proceed as aforesaid (which Landlord shall be permitted to do) then Landlord may from time to time elect either of the following procedures: (1) To exclude all real estate taxes on the land and/or buildings of said expansion or reduction area as well as all common area maintenance charges with respect thereto from proratable charges in which Tenant is required to participate, or (2) To include all real estate taxes and common area maintenance charges for the expansion or reduction area in the charges to be prorated pursuant to the terms of this lease. Landlord agrees to notify Tenant as to which of the foregoing procedures Landlord elects to follow, which notice shall be sent to Tenant within a reasonable time after any such election has been made. 13.21 GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the laws of the Commonwealth of Massachusetts as the same may from time to time exist. -40- 13.22 DEFINITION OF ADDITIONAL RENT. Without limiting any other provision of this Lease, it is expressly understood and agreed that Tenant's participation in Taxes, Operating Expenses, and all other charges which Tenant is required to pay hereunder, together with all interest and penalties that may accrue thereon, shall be deemed to be additional rent, and in the event of non-payment thereof by Tenant, Landlord shall have all of the rights and remedies with respect thereto as would accrue to Landlord for non-payment of Fixed Rent. 13.23 LANDLORD'S FEES AND EXPENSES. Unless prohibited by applicable law, Tenant agrees to pay to Landlord the amount of all reasonable legal fees and expenses incurred by Landlord from and after an Event of Default arising out of or resulting from any act or omission by Tenant with respect to this Lease or the Premises, including without limitation, any breach by Tenant of its obligations hereunder. Further, if Tenant shall request Landlord's consent or joinder in any instrument pertaining to this Lease, Tenant agrees promptly to reimburse Landlord for the reasonable legal fees incurred by Landlord in processing such request, whether or not Landlord complies therewith; and if Tenant shall fail promptly so to reimburse Landlord, same shall be deemed to be a default in Tenant's monetary obligations under this Lease. Whenever Tenant shall request approval (or this lease shall require preparation) by Landlord or the Landlord's architect of plans, drawings, specifications, or otherwise with respect to initial alteration of the Premises, subsequent remodeling thereof, installation of signs including subsequent changes thereof, or the like, Tenant specifically agrees promptly to pay to Landlord's architect (or reimburse Landlord for the payment Landlord makes to said architect) for all charges involved in the review (and re-review, if necessary) and approval or disapproval thereof whether or not approval shall ultimately be given. 13.24 CHANGES OR ALTERATIONS BY LANDLORD. Landlord reserves the right, exercisable by itself or its nominee, at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements in or to the Building (including the Premises) and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators, and stairways thereof, as it may deem necessary or desirable, including without limitation changes to, or installation of, sprinkler systems, removal of asbestos (it being expressly understood and agreed that under no circumstances shall Tenant undertake any asbestos removal), arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, or other public parts of the Building, provided, however, that there be no unreasonable obstruction of the right of existing access to, or unreasonable interference with the use and enjoyment of, the Premises by Tenant. Landlord may exercise the foregoing rights only during -41- reasonable business hours, following reasonable notice to Tenant and, if requested by Tenant, in the presence of Tenant's agent(s), with Tenant agreeing to make such agents reasonably available. Nothing contained in this Section 13.24 shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making any repair, replacement or improvement or complying with any law, order or requirement of any governmental or other authority. Landlord reserves the right to adopt and at any time and from time to time to change the name or address of the Building. Neither this Lease nor any use by Tenant shall give Tenant any right or easement for the use of any door or any passage or any concourse connecting with any other building or to any public convenience, and the use of such doors, passages and concourses and of such conveniences may be regulated or discontinued at any time and from time to time by Landlord without notice to Tenant and without affecting the obligation of Tenant hereunder or incurring any liability to Tenant therefor. 13.25 RULES AND REGULATIONS. Tenant will faithfully observe and comply with the Rules and Regulations, if any, annexed hereto and such other and further reasonable Rules and Regulations as Landlord hereafter at any time or from time to time may make and may communicate in writing to Tenant, which in the reasonable judgment of Landlord shall be necessary for the reputation, safety, care or appearance of the Building, or the preservation of good order therein, or the operation or maintenance of the Building, or the equipment thereof, or the comfort of tenants or others in the Building, provided, however, that in the case of any conflict between the provisions of this Lease and any such regulations, the provisions of this Lease shall control, and provided further than nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, contractors, visitors, invitees or licensees. 13.26 PARKING. Tenant, upon the commencement of its occupancy of the Premises, shall have the non-exclusive right to use for its designated employees and visitors, as appurtenant to the Premises, the parking spaces located in second story of the Building G parking garage (but not any on the first floor parking level) with the exclusive right to use up to eleven (11) of the second story parking spaces for employee and visitor parking (such 11 spaces to be mutually designated by Landlord and Tenant, from time to time, within an area on the second floor reasonably proportionate to the Premises). Use of such spaces may not be sold, assigned, licensed or otherwise given to any person for any compensation or fee or otherwise, except in connection with an assignment of this Lease or sublet of the Premises or a portion thereof that is permitted under ARTICLE V hereof. The use of such parking spaces by Tenant in the Building may be regulated by rules and regulations issued by the Landlord from time to time. 13.27 RIGHT OF FIRST OFFER. With respect to the first time during any calendar year during the term of this lease that the Landlord intends to lease space in the Building to -42- tenants other than existing tenants in the Building, the Landlord agrees to give notice to the Tenant in writing of the availability of such space prior to the entering into a lease of the same with any other such party. For a period of ten (10) days after the giving of such notice Landlord agrees to refrain from marketing such space for lease in order to provide Tenant with an opportunity to discuss with Landlord Tenant's potential interest in leasing such space. If, within such ten (10) day period Tenant does not notify Landlord of its interest or, if such notice is given, Landlord and Tenant are unable to reach a mutually satisfactory agreement for the rental of such space to Tenant, then Landlord shall be free to proceed to market and lease such space to any other party. The obligations of the Landlord hereunder shall, in any event, terminate and be of no further force and effect from and after any assignment by the Tenant of its interest as the Tenant under this lease, any sublease by the Tenant of all or any portion of the demised premises and from and after any sale of the Development or transfer of title by the Landlord named herein to any other party, including, without limitation the holder of any mortgage or deed of trust affecting the Development upon foreclosure or the exercise of any of such holder's rights or remedies thereunder. WITNESS the execution hereof, under seal, in any number of counterparts, each of which counterparts shall be deemed an original for all purposes, as of the day and year first above written. Witness: WATERTOWN ARSENAL ASSOCIATES, L.P /s/ Suzanne Delamere By: /s/ Stephen R. Weiner ------------------------------- ----------------------------- General Partner Witness: By: GILBANE PROPERTIES OF WATERTOWN, INC., General Partner /s/ Deborah Granzio By: /s/ Robert V. Gilbane ------------------------------- ------------------------------ Its: President Hereunto duly authorized (Landlord) -43- BUSINESS@WEB, INC. Attest: /s/ David W. Chapman By: /s/ Eric Sockol -------------------- --------------- Eric Sockol, Chief Financial Officer Hereunto duly authorized (Tenant) -44- COMMONWEALTH OF MASSACHUSETTS 3-7 , 1996 ----------------------- COUNTY OF Middlesex On this day personally appeared the above-named Stephen R. Weiner and acknowledged this instrument, to be his free act and deed as general partner of Watertown Arsenal Associates, L.P. Before me: /s/ Christine B. Rocco ---------------------------------- Notary Public My Commission Expires: 3/30/98 STATE OF RHODE ISLAND _______________, 1996_ COUNTY OF _________________________ On this day personally appeared the above-named ___________________ and acknowledged this instrument, to be his free act and deed as _______________ of Gilbane Properties of Watertown, Inc., a general partner of Watertown Arsenal Associates, L.P. Before me: __________________________________ Notary Public My Commission Expires: -45- COMMONWEALTH OF MASSACHUSETTS COUNTY OF Middlesex On this 27th day of February, 1996, before me personally appeared Eric Sockol who, being by me duly sworn, did say that he is Chief Financial Officer of BUSINESS@WEB, INC., a Delaware corporation, that he knows the seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors and its stockholders, and said Eric Sockol acknowledged said instrument to be the free act and deed of said corporation. /s/ Jacqueline A. Le clair ------------------------------ Notary Public My Commission Expires:4/4/2001 -46- GUARANTEE --------- FOR VALUE RECEIVED, and in consideration for and as an inducement to WATERTOWN ARSENAL ASSOCIATES, L.P. (the "Landlord") to make the foregoing lease (the "Lease") with BUSINESS@WEB, INC. (the "Tenant"), the undersigned JOHN J. DONOVAN, with a mailing address c/o Cambridge Technology Group, Inc., 219 Vassar Street, Cambridge, MA 02139 (the "Guarantor"), unconditionally guarantees the full performance and observance of all the covenants, conditions and agreements therein provided to be performed and observed by the Tenant, the Tenant's successors and assigns, and expressly agrees that the validity of this agreement and the obligations of the Guarantor hereunder shall in no wise be terminated, affected or impaired by reason of the granting by the Landlord of any indulgences to the Tenant or by reason of the assertion by the Landlord against the Tenant of any of the rights or remedies reserved to the Landlord pursuant to the provisions of the Lease or by the relief of the Tenant from any of the Tenant's obligations under the Lease by operation of law or otherwise (including, but without limitation, the rejection of the Lease in connection with proceedings under the bankruptcy laws now or hereafter enacted); the Guarantor hereby waiving all suretyship defenses. The obligations of the Guarantor include the payment to Landlord of any monies payable by Tenant under any provisions of the Lease, at law, or in equity, including, without limitation, any monies payable by virtue of the breach of any warranty, the grant of any indemnity or by virtue of any other covenant of Tenant under the Lease. The Guarantor further covenants and agrees that this Guarantee shall remain and continue in full force and effect as to any renewal, modification or extension of the Lease, whether or not the Guarantor shall have received any notice of or consented to such renewal, modification or extension. The Guarantor further agrees that the liability of the Guarantor under this Guarantee shall be primary (and that the heading of this instrument and the use of the word "guarantee(s)" shall not be interpreted to limit the aforesaid primary obligations of the Guarantor), and that, in any right of action which shall accrue to the Landlord under the Lease, the Landlord may, at the Landlord's option, proceed against the Guarantor, any other guarantor, and the Tenant, jointly or severally, and may proceed against the Guarantor without having commenced any action against or having obtained any judgment against the Tenant or any other guarantor. The Guarantor irrevocably waives any and all rights the Guarantor may have at any time (whether arising directly or indirectly, by operation of law or by contract or otherwise) to assert any claim against the Tenant on account of payments made under this Guarantee, including, without limitation, any and all rights of or claim for subrogation, contribution, reimbursement, exoneration and indemnity, and further waives any benefit of and any right to participate in any security deposit or other collateral which may be held by the Landlord; and the Guarantor will not claim any set-off or counterclaim against the Tenant in respect of any liability the Guarantor may have to the Tenant. It is agreed that the failure of the Landlord to insist in any one or more instances upon a strict performance or observance of any of the terms, provisions or covenants of the Lease or to exercise any right therein contained shall not be construed or deemed to be a waiver or relinquishment for the future of such term, provision, covenant or right, but the same shall continue and remain in full force and effect. Receipt by the Landlord of rent with knowledge of the breach of any provision of the Lease shall not be deemed a waiver of such breach. No subletting, assignment or other transfer of the Lease, or any interest therein, shall operate to extinguish or diminish the liability of the Guarantor under this Guarantee; and, wherever reference is made to the liability of the Tenant named in the Lease, such reference shall be deemed likewise to refer to the Guarantor. It is further agreed that all of the terms and provisions hereof shall inure to the benefit of the respective successors and assigns of the Landlord, and shall be binding upon the heirs, executors, administrators and assigns of the Guarantor. Notwithstanding anything to the contrary in this Guarantee contained, the Landlord agrees that the Guarantor's liability under this Guarantee shall apply only to the covenants, conditions and agreements to be performed and observed by the Tenant (and its successors and assigns) under the Lease until such time, if any, (the "Release Date") as (i) the initial public stock offering of the Tenant is completed (the "IPO") and the Landlord is provided evidence reasonably satisfactory to Landlord that the IPO has provided the company net proceeds in an amount of not less than thirty million dollars ($30,000,000.00) or (ii) as an alternative, at the sole discretion of the Landlord, until the Tenant has four (4) consecutive profitable three (3) month periods, and is capitalized in an amount satisfactory to Landlord in its sole discretion; however, said limitation on the Guarantor's liability shall not prohibit the Landlord from proceeding against the Guarantor at any time after the Release Date with respect to any covenant, condition or agreement to be so performed and observed during the period prior to the Release Date. The Release Date shall occur (if at all) only upon a writing to such effect executed by Landlord and delivered to Guarantor. IN WITNESS WHEREOF, the Guarantor has executed this instrument, under seal, this 4th day of March, 1996. /s/ John J. Donovan (L.S.) ----------------------------- COMMONWEALTH OF MASSACHUSETTS COUNTY OF Middlesex On this 4th day of March, 1996, before me, personally appeared JOHN J. DONOVAN, and he acknowledged this instrument, by him sealed and subscribed, to be his free act and deed. /s/ ----------------------------------- Notary Public My Commission Expires: 4/6/2001 EXHIBIT A SITE PLAN A-1 EXHIBIT B-1 EXHIBIT B PERMITTED SIGNAGE 1. One (1) permitted exterior wall sign on garage facade facing Arsenal Street in approximately the location marked on Exhibit B-1 annexed hereto. Such exterior sign, however, to be subject to the prior written approval of Landlord (which approval shall not be unreasonably withheld or delayed) and the appropriate authorities of the Town of Watertown. 2. One (1) sign at the entrance to the garage. Such sign, however, to be subject to the prior written approval of Landlord (which approval shall not be unreasonably withheld or delayed) and the appropriate authorities of the Town of Watertown. 3. Interior directional signs. The design, number and location of such signs shall be subject, however, to Landlord's prior written approval (which approval shall not be unreasonably withheld or delayed). 4. Interior visitor parking signs. The design, number and location of such signs shall be subject, however, to Landlord's prior written approval (which approval shall not be unreasonably withheld or delayed). B-1 EXHIBIT C TENANT'S WORK C-1 EXHIBIT D BUILDING SERVICES - - Access to the Premises and Common Areas shall be as provided in the Lease to which this Exhibit is annexed. - - Heat and air-conditioning to the common areas of the Building and the Premises during normal seasonal heating and cooling periods during Normal Building Operating Hours and during Tenant's extended hours, as provided above. - - Hot and cold running water, liquid soap, toilet tissue and paper towers for washrooms. - - Removal of snow and ice from the entry and sidewalks to the Building and from the driveway and parking garage ramp. Cleaning Specifications - ----------------------- Premises Each Normal Business Day (being defined to mean each weekday during Normal Building Operating Hours): Empty trash receptacles Empty and clean ashtrays Dust and spot clean horizontal surfaces, furniture and bright work Spot clean vertical surfaces Clean water fountains Clean partition and door glass Vacuum carpeting (shampooing by Tenant) Clean coffee stations Monthly: Dust table and chair legs, baseboards, ledges, moldings Vacuum fabric furniture Clean and Sanitize phones Quarterly: Clean diffusers High dusting D-1 Washrooms Each Normal Business Day: Clean and sanitize fixtures, mirrors, horizontal surfaces Polish chrome Mop floors Refill dispensers Empty trash Spot clean vertical surfaces Monthly: Wash all partitions, tile wall and enamel surfaces Exterior windows to be washed twice yearly. Common stairways, sidewalks, entranceways, the driveway, the garage ramp and the parking areas (herein collectively, the "Common Facilities") shall be kept generally free of litter and debris and swept periodically. Common Facilities shall be lighted whenever necessary during Normal Building Operating Hours. Parking areas in the garage to be restriped as necessary in Landlord's reasonable judgment. D-2 EXHIBIT APP APPRAISAL PROCEDURE Whenever the term "market rent" is required to be determined under this Lease, the term shall mean the annual market rate rent chargeable for reasonably comparable office space within Watertown or the area situated within a five (5) mile radius of Watertown (notwithstanding any other use of the Premises which may be permitted hereunder) and shall be determined as follows in the absence of a mutual agreement by Landlord and Tenant on the amount of the annual market rent: If the Landlord and Tenant are unable to agree on the amount of "market rent", either party shall have the right to initiate a proceeding hereunder for the determination of such "market rent" by sending written notice to the other party appointing a real estate appraiser who is a designated member in good standing of either the Society of Real Estate Appraisers or the Appraisal Institute with at least five (5) years' full-time commercial appraisal experience for the purpose of establishing such "market rent" by a market survey in the area of the Premises. Within ten (10) days after receipt by such party of such notice, the party receiving such notice shall, by notice to the other party, designate the name and address of another appraiser with such minimum experience for the purpose of meeting with the appraiser appointed by the first party to determine jointly such "market rent". If within thirty (30) days after the second appraiser has been appointed, the two designated appraisers are unable to agree upon such "market rent", they shall elect a third appraiser meeting the qualifications stated in this paragraph within ten (10) days after the expiration of the aforesaid 30 day period. If the two appraisers are not able to agree upon such third appraiser, either appraiser may request the office of the American Arbitration Association located nearest to Boston, Massachusetts to designate a third appraiser willing so to act and an appraiser so appointed shall, for all purposes, have the same standing and powers as though he had been seasonably appointed by the appraisers first appointed. In the case of the inability or refusal to serve of any person designated as an appraiser, or in case any appraiser for any reason ceases to be such, an appraiser to fill such vacancy shall be promptly appointed by the Landlord, the Tenant, the appraisers first appointed or the said office of the American Arbitration Association, as the case may be, whichever made the original appointment., and any appraiser so appointed to fill such vacancy shall have the same standing and powers as though originally appointed. The resulting board of appraisers shall, forthwith upon their appointment (i) hear the parties to this Lease and their witnesses, (ii) examine the records relating to the Premises, the market surveys and such other documents and records as may, in their judgment, be necessary and (iii) determine the annual "market rent" for such purposes. The costs, other than counsel fees, of such appraisal shall be borne equally by the parties. Any determination by a majority of the members of the board of appraisers, shall be final and binding upon the parties, but, if a majority of the members of the board of appraisers are unable to agree upon a determination, the APP-1 determination of such third appraiser shall be binding upon the parties. Upon determining such market rent and after computing the price as set forth above, the board of appraisers shall promptly notify the parties in writing of such determination. If any party shall fail to appear at the hearings appointed by the appraisers, the appraisers may act in the absence of such party. The determination of the board of appraisers (or the third appraiser, as appropriate) made in accordance with the foregoing provisions shall be final and binding upon the parties, such determination may be entered as an award in arbitration in a court of competent jurisdiction, and judgment thereon may be entered. APP-2 EXHIBIT OPER EXCLUSIONS FROM OPERATING EXPENSES 1. Salaries or other compensation paid directly or indirectly to Landlord or any officer, director, partner, stockholder, or any affiliate of Landlord, except to the extent any such payment is for an item properly included as an Operating Expense and is not in excess of the reasonable market rate for similar services available from a third party. 2. Any work or services performed specifically at the request of a tenant with respect to which the tenant has a specific reimbursement obligation outside of any obligation to contribute to Operating Expenses. 3. Any item for which Landlord is actually reimbursed, by insurance proceeds. 4. Interest charges or penalties incurred by Landlord as a result of 30-day or more late payments. 5. Uncollectible accounts (being accounts that Landlord has actually written off as "bad debts"). 6. In addition, with respect to any cost and expense included within the calculation of Operating Expenses, the same shall always be net of discounts, rebates, retainage and other offsets actually received or taken. 7. Costs of any services performed exclusively within and which only benefit premises located within the Garage Portion that are exclusively leased to another tenant. OPER-1 EXHIBIT SNDA ARSENAL MALL WATERTOWN, MASSACHUSETTS NONDISTURBANCE AND ATTORNMENT AGREEMENT --------------------------------------- THIS AGREEMENT made this _____ day of ______________, 1996, between ___________________________, a ____________________ corporation having a mailing address _______________________________, _____________________, ______________________, ________________________ (hereinafter called "Tenant"), CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation having its principal place of business at 900 Cottage Grove Road, Bloomfield, Connecticut (hereinafter called "Mortgagee"), and WATERTOWN ARSENAL ASSOCIATES Limited Partnership, a Massachusetts limited partnership having a mailing address at One Wells Avenue, Newton, Massachusetts 02159 (hereinafter called "Landlord"). WITNESSETH: WHEREAS, Tenant has entered into a certain lease (the "Lease") dated __________, 199_, with Landlord covering premises (the "Premises") at Arsenal Marketplace, so-called, in Watertown, Middlesex County, Massachusetts (the "Shopping Center"); and WHEREAS, Mortgagee is the holder of a certain first mortgage and security agreement dated December 23, 1983 recorded with the Middlesex South District Registry of Deeds in Book 15375 at Page 557 (the "Mortgage") on the Shopping Center of which the Premises are a part; and WHEREAS, Mortgagee has been requested by Tenant and by Landlord to enter into a Nondisturbance Agreement with Tenant. NOW THEREFORE, in consideration of the Premises and mutual covenants hereinafter contained, the parties hereto mutually covenant and agree as follows: 1. The Lease and any extensions, renewals, replacements or modifications thereof, and all of the right, title and interest of the Tenant in and to said Premises are and shall be subject and subordinate to the Mortgage and to all of the terms and conditions contained therein, and to any renewals, modifications, replacements, consolidations and extensions thereof. 2. In the event of foreclosure of the Mortgage, or in the event Mortgagee comes into possession or acquires title to the Premises as a result of the enforcement or foreclosure of the Mortgage or note(s) for which the Mortgage is security or by a conveyance to Mortgagee in lieu of foreclosure, or as a result of any other means, SNDA-1 Mortgagee agrees that Tenant shall not be disturbed in its possession of the Premises for any reason other than one which would entitle Landlord to terminate the Lease under its terms, or would cause, without any further action by such Landlord, the termination of the Lease, or would entitle such Landlord to dispossess Tenant from the Premises; and Tenant agrees and shall be bound to Mortgagee under all of the terms, covenant and conditions of the Lease for the balance of the term thereof remaining and any extension or renewals thereof which may be affected in accordance with any option therefore in the Lease, with the same force and effect as if Mortgagee were the landlord under the Lease, and Tenant does hereby attorn to Mortgagee as its landlord, said attornment to be effective and self-operative without the execution of any further instruments on the part of any of the parties hereto immediately upon Mortgagee's succeeding to the interest of Landlord in the Premises. Tenant agrees, however, upon the election of and written demand by Mortgagee, within sixty (60) days after Mortgagee receives title to the Premises, to execute an instrument in confirmation of the foregoing provisions, reasonably satisfactory to Mortgagee, in which Tenant shall acknowledge such attornment and shall set forth the terms and conditions of its tenancy as provided in the Lease. 3. Tenant agrees with Mortgagee that if Mortgagee shall succeed to the interest of Landlord under the Lease, Mortgagee shall not be (a) liable for any action or omission of any prior landlord under the Lease, or (b) subject to any offsets or defenses which Tenant might have against any prior landlord, or (c) bound by any rent or additional rent which Tenant might have paid for more than the current month to any prior landlord, or (d) bound to account for or return any security deposit which Tenant may have paid to any prior landlord, unless such deposit is in an escrow fund available to Mortgagee, or (e) bound by any amendment or modification of the Lease made without Mortgagee's consent or (f) bound by any provisions in the Lease which obligate the Landlord to erect or complete any building or to perform any construction work or make any improvements to the Premises. Tenant further agrees with Mortgagee that Tenant will not voluntarily subordinate the Lease to any lien or encumbrance without Mortgagee's consent. 4. In the event that Landlord shall default in the performance or observance of any of the terms, conditions or agreements in the Lease, Tenant shall give written notice thereof to Mortgagee and Mortgagee shall have the right (but not the obligation) to cure such default. Tenant shall not take any action with respect to such default under the Lease, including, without limitation, any action in order to terminate, rescind or avoid the Lease or to withhold any rental thereunder, for a period of ten (10) days after receipt of such written notice thereof by Mortgagee with respect to any such default capable of being cured by the payment of money and for a period of thirty (30) days after receipt of such written notice thereof by Mortgagee with respect to any other such default (provided that, in the case of any default which cannot be cured by the payment of money and cannot with diligence be cured within such 30-day period because of the nature of such default or because the Mortgagee requires time to obtain possession of the Premises in order to cure such default, if Mortgagee shall proceed promptly to attempt to obtain possession of the Premises where such possession is required and to cure such default, the time during which SNDA-2 such default may be cured shall be extended for such period as may be necessary to complete the curing of the same with diligence and continuity). 5. This agreement shall bind and inure to the benefit of the parties hereto, their successors and assigns. As used herein, the term "Tenant" shall include the Tenant, its successors and assigns; the words "foreclosure" and "foreclosure sale' as used herein a shall be deemed to include the acquisition of Landlord's estate in the Premises by voluntary deed (or assignment ( in lieu of foreclosure; and the word "Mortgagee" shall include the Mortgagee herein specifically named and any of its successors and assigns, including anyone who shall have succeeded to Landlord's interest in the Premises by, through or under foreclosure of the Mortgage. 6. This Agreement shall not be modified or amended except in writing signed by all parties hereto. 7. The use of the neuter gender in this Agreement shall be deemed to include any other gender, and words in the singular number shall be held to include the plural, when the sense requires. WITNESS the execution hereof under seal in any number of counterpart copies, each of which shall be deemed an original for all purposes as of the day and year first above written. CONNECTICUT GENERAL LIFE INSURANCE COMPANY ________________________ By ________________________ Its Vice President Hereunto duly authorized [MORTGAGEE] SNDA-3 Witness: WATERTOWN ARSENAL ASSOCIATES, L.P. ________________________ _________________________ and Attest: By __________________ GENERAL GILBANE PROPERTIES PARTNERS OF WATERTOWN, INC. ______________________ By ______________________ Clerk President [LANDLORD] Attest: [____________________________] ______________________ By:______________________ Secretary Its ___________________ Hereunto duly authorized [TENANT] SNDA-4 COMMONWEALTH OF MASSACHUSETTS COUNTY OF ______________________, 199_ Then personally appeared _____________ and acknowledged the foregoing instrument to be the free act and deed of Watertown Arsenal Associates, L.P., a Massachusetts Limited Partnership, before me: _________________________ Notary Public My Commission expires: COMMONWEALTH OF MASSACHUSETTS COUNTY OF ______________________, 199_ On this day, before me, personally appeared _____________________, who being by me duly sworn, did say that he is ___________ of _________________; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and said __________________ acknowledged said instrument to be the free act and deed of said corporation. _________________________ Notary Public My Commission expires: SNDA-5 STATE OF NEW YORK COUNTY OF _____________________, 199_ On this day, before me, personally appeared _________________________, who being by me duly sworn, did say that he is Vice President of CONNECTICUT GENERAL LIFE INSURANCE COMPANY; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and said ____________________ acknowledged said instrument to be the free act and deed of said corporation. _________________________ Notary Public My Commission expires: SNDA-6 EX-10.13 8 LOAN AGREEMENT (DATED FEB 16, 1996) EXHIBIT 10.13 STATE STREET BANK AND TRUST COMPANY LOAN AGREEMENT THIS AGREEMENT made this 16th day of February, 1996, by and between Business@Web, Inc., formerly Object Power, Incorporated, a Delaware corporation with an address and principal place of business at 219 Vassar Street, Cambridge, Massachusetts, 02139 (hereinafter called the "BORROWER") and State Street Bank and Trust Company, a Massachusetts trust company with a usual place of business at 225 Franklin Street, Boston, Massachusetts, 02110 (hereinafter called the "BANK"). W I T N E S S E T H : The following agreement of the parties: SECTION 1 --------- DEFINITIONS AND RULES OF INTERPRETATION --------------------------------------- For purposes of this Agreement, the following terms shall have the following meanings: 1. "ADVANCE" shall mean any sum of money loaned by Bank to the Borrower pursuant to this Agreement and shall include all Loans (as defined herein). 2. "BANKING DAY" shall mean a day on which banks are open for business in Boston, Massachusetts, and if the applicable "BANKING DAY" relates to a LIBOR Loan, a day on which dealings are carried on and banks are open for business in the relevant Inter-bank Market. 3. "BORROWING DATE" shall mean any day upon which an Advance is made. 4. "COST OF FUNDS LOAN(S)" shall mean, when used in the singular, any Advance on which the interest rate is calculated by reference to the Cost of Funds Rate and, when used in the plural, shall mean all such Advances. 5. "COST OF FUNDS RATE" shall mean a fixed per annum rate of interest as of the Borrowing Date determined by the Bank in good faith in accordance with the Bank's customary practices for loans in United States currency and based on the Bank's cost of obtaining funds with a maturity approximately equal to the period between the Borrowing Date and the Maturity Date from sources as may be selected by the Bank in its sole and absolute discretion. 6. "DOLLARS" or "$" shall mean currency of the United States of America. 7. "EQUIPMENT LINE" shall have the meaning ascribed to that term in Section 2.20 hereof. 8. "EUROCURRENCY LIABILITIES" shall have the meaning ascribed to that term in REGULATION D of the Board of Governors of the Federal Reserve System, as in effect from time to time. 9. "EURODOLLARS" shall mean dollars acquired by Bank for the purchase or other acquisition of deposits denominated in dollars and made with any bank or branch of bank (including any branch of the Bank) located outside the United States of America. 10. "INTEREST PERIOD" shall mean: (i) with respect to any Cost of Funds Loan, a period commencing on the Borrowing Date of such Advance, and ending on the numerically corresponding day in the third year after the date thereof or such shorter period as shall be acceptable to the Bank in its sole discretion; and (ii) with respect to each LIBOR Loan, a period commencing on the Borrowing Date of such Advance, and ending on the numerically corresponding day in the first, second, third or fourth calendar month thereafter, as determined in accordance with the provisions of this Agreement, provided that any Interest Period which would otherwise end on a day which is not a Banking Day, shall end, and the next Interest Period shall commence (if applicable), on the next preceding or the next succeeding day which is a Banking Day as determined in good faith by the Bank in accordance with the then current Bank practices in the relevant market. 11. "LIBOR" shall mean, with respect to a LIBOR Loan, the rate per annum (rounded upward, if necessary, to the nearest one-sixteenth (1/16th) of one (1%) percent) at which deposits in Dollars are offered to Bank or Bank's representative or agent for delivery on the Borrowing Date for such LIBOR Loan, in the relevant Interbank Market at 11:00 a.m., local time, two Banking Days prior to such Borrowing Date for a period equal to the Interest Period chosen by Borrower with respect to such LIBOR Loan and in an amount substantially equal to the principal amount of such LIBOR Loan. The Bank shall give prompt notice to the Borrower of the LIBOR determined for each - 2 - LIBOR Loan and such notice shall be conclusive and binding, absent manifest error, for all purposes. 12. "LIBOR INTEREST RATE" shall mean an interest rate per annum (rounded upward, if necessary, to the nearest one-sixteenth (1/16th) of one (1%) percent) determined by Bank pursuant to the following formula: LIBOR Interest Rate = LIBOR ------------------- 1.00 - Reserve Rate 13. "LIBOR LOAN(S)" shall mean, when used in the singular, any loan on which the interest rate is calculated by reference to LIBOR and, when used in the plural, shall mean all such loans. 14. "MARGIN" shall mean: (i) with respect to each Cost of Funds Loan, three and one-half (3.5%) percent; (ii) with respect to each LIBOR Loan, three and one-half (3.5%) percent; (iii) with respect to each Prime Rate Loan under the Revolving Loan or the Technology Line, one (1%) percent; and (iv) with respect to each Prime Rate Loan under the Equipment Line, one and one-half (1.5%) percent. 15. "MATURITY DATE" shall mean the date on which an Interest Period expires. 16. "PRIME RATE" shall mean the rate of interest announced from time to time by the Bank in Boston, as its Prime Rate. 17. "PRIME RATE LOAN(S)" shall mean, when used in the singular, any Advance on which the interest rate is calculated by reference to the Prime Rate and, when used in the plural, shall mean all such Advances. 18. "RESERVE RATE" shall mean the rate (expressed as a decimal) at which Bank would be required to maintain reserves under REGULATION D of the Board of Governors of the Federal Reserve System against Eurodollar Liabilities if such Eurodollar Liabilities were outstanding. The LIBOR Interest Rate shall be adjusted automatically as of the effective date of any change in the Reserve Rate. 19. "REVOLVING LOAN" shall have the meaning ascribed to that term in Section 2.1 hereof. 20. "TECHNOLOGY LINE" shall have the meaning ascribed to that term in Section 2.27 hereof. - 3 - 21. "TERMINATION DATE" shall mean June 30, 1997. SECTION 2 --------- AMOUNT AND TERMS OF CREDIT AND INTEREST --------------------------------------- THE REVOLVING LOAN ------------------ 2.1 Subject to the terms and conditions of this Agreement, the Bank hereby establishes a revolving line of credit of up to $2,500,000.00 (the "REVOLVING LOAN") to be advanced as hereinafter provided. The Bank may, in its discretion, from time to time, make Advances comprising the Revolving Loan to the Borrower upon the Borrower's request; provided, however, that no Advance will be made if, after giving effect to the Borrower's request for such Advance, the outstanding principal balance of the Revolving Loan would exceed the lesser of: (a) $1,000,000.00 through May 31, 1996 and $2,500,000.00 at such time thereafter as Borrower has received an equity injection in the amount of at least $1,000,000.00, as reflected in a Treasurer's Affidavit Regarding Equity Injection (the "CREDIT LIMIT") or (b) eighty percent (80%) of the face amount of eligible accounts receivable of the Borrower less than ninety (90) days from the invoice date thereof (the "BORROWING BASE"). 2.2 For purposes of the Borrowing Base calculation set forth above, eligible accounts receivable are those which are owing to the Borrower which met the following specifications at the time it came into existence and continues to meet the same until collected in full: (i) The account arose from the outright sale of goods by Borrower or the delivery of services by Borrower and if applicable, such goods have been shipped to the account debtor, and Borrower has possession of shipping and delivery receipts evidencing such shipment. (ii) The account is not subject to any prior assignment, claim, lien, or security interest, and Borrower will not make any further assignment thereof or create any further security interest therein, nor permit Borrower's rights therein to be reached by attachment, levy, garnishment or other judicial process. - 4 - (iii) The account is not subject to set-off, credit, allowance or adjustment by the account debtor, except discount allowed for prompt payment and the account debtor has not complained as to its liability thereon and has not returned any of the goods from the sale of which the account arose (if applicable). (iv) The account arose in the ordinary course of Borrower's business and did not arise from the performance of services or a sale of goods to a supplier or employee of the Borrower. (v) No notice of bankruptcy or insolvency of the account debtor has been received by or is known to the Borrower. (vi) The account is not owed by an entity which is a parent, brother/sister, subsidiary or affiliate of Borrower, except for accounts due from Open Environment Corporation. (vii) The account debtor is not located in the State of New Jersey or Minnesota unless Borrower has filed and shall file all legally required Notice of Business Activities Report(s) with the New Jersey Division of Taxation and the Minnesota Department of Revenue. (viii) The account is not evidenced by a promissory note. (ix) The account did not arise out of any sale made on a bill and hold, dating or delayed shipment basis. (x) The account did not arise out of a contract with the United States government or any department, agency or instrumentality thereof, unless the Borrower has complied with the Federal Assignment of Claims Act. (xi) The account does not constitute a prepayment, advance billing or deposit in conjunction with the rendering of services to an account debtor. (xii) The Bank in its sole discretion does not deem the account to be unacceptable for any reason. Provided that if any time twenty-five percent (25%) or more of the aggregate amount of the accounts due from any account debtor are unpaid in whole or in part more than ninety (90) days from the respective dates of invoice, from and after such time none of the accounts (then existing or thereafter arising) due from such account debtor shall be deemed to be eligible accounts until such time as less than twenty-five percent (25%) of the aggregate amount of accounts due from such account debtor are (as a result of actual - 5 - payments received thereon) no more than ninety (90) days from the date of invoice; accounts payable by Borrower to an account debtor shall be netted against accounts due from such account debtor and the difference (if positive) shall constitute eligible accounts from such account debtor for purposes of determining the Borrowing Base (notwithstanding sub-paragraph (iii) above); characterization of any account due from an account debtor as an eligible account shall not be deemed a determination by Bank as to its actual value nor in any way obligate Bank to accept any account subsequently arising from such account debtor to be, or to continue to deem such account to be, an eligible account; it is the Borrower's responsibility to determine the creditworthiness of account debtors and all risks concerning the same and collection of accounts are with Borrower; and all accounts, whether or not eligible accounts, constitute Collateral (as hereinafter defined). 2.3 All Advances shall bear interest as provided below and shall be conclusively evidenced by the Bank's record of disbursements and repayments, absent manifest error. Interest shall be computed on the basis of the actual number of days elapsed over a year of three hundred sixty (360) days. Interest will be charged to the Borrower upon the balance of all Advances owing to the Bank at the close of each day at the rates set forth below, as elected by the Borrower in accordance with the terms of this Agreement: (i) The Borrower shall pay interest on the aggregate unpaid principal balance of each Prime Rate Loan at a rate which is the daily equivalent to the Prime Rate in effect from time to time, plus Margin. Interest shall be payable monthly in arrears on the first day of each month until all of the Prime Rate Loans are paid in full. The rate of interest payable by the Borrower on the Prime Rate Loans shall be changed effective as of the date in which a change in the Prime Rate becomes effective. (ii) The Borrower shall pay interest on the aggregate unpaid principal balance of each LIBOR Loan from the Borrowing Date for such LIBOR Loan through and including the Maturity Date chosen by the Borrower with respect to such LIBOR Loan at a per annum fixed rate equal to the aggregate of the LIBOR Interest Rate plus Margin, and shall pay all interest accrued but unpaid thereon on the sooner to occur of the first day of each month or such Maturity Date. 2.4 Bank shall not be required to make an Advance unless the Bank has received from the Borrower a request for such Advance, in the form of Exhibit A annexed hereto (herein a "NOTICE OF - 6 - BORROWING"), which request complies with the requirements of this Section 2.4 (which requirement the Bank may waive in its discretion for Prime Rate Loans). Each Notice of Borrowing shall designate (i) the Borrowing Date; (ii) the amount of the Advance (which amount shall not be less than $100,000.00 and multiples of $100,000.00 above $100,000.00 for LIBOR Loans); (iii) the Interest Period (for LIBOR Loans) and (iv) the requested interest rate option (LIBOR or Prime). Each Notice of Borrowing for a LIBOR Loan must be received by Bank not less than three Banking Days prior to the Borrowing Date for LIBOR Loans. A Notice of Borrowing for a Prime Rate Loan will be effective on the date received if received prior to 1 p.m. Boston local time by the Bank. A Notice of Borrowing may be transmitted by telecopier, telex, facsimile, cable or mail, but may not be transmitted by telephone. If a Notice of Borrowing is transmitted by telecopier, telex, facsimile or cable, the Borrower shall immediately mail the Bank written confirmation thereof. 2.5 After receipt from the Borrower of any Notice of Borrowing which requests a LIBOR Loan, Bank shall determine if it is able to make such LIBOR Loan (or if it is unable to do so for reasons described in this Section 2.5 only) and will notify the Borrower upon confirmation of its ability to do so. If Bank determines in good faith that, by reason of circumstances affecting the Interbank Market, adequate and reasonable methods do not exist for ascertaining the LIBOR which would otherwise be applicable to such LIBOR Loan, then Bank shall so notify the Borrower on or before 4:00 p.m. on the Banking Day prior to the Borrowing Date specified in the Notice of Borrowing, and in any event, Bank shall not be obligated to make such LIBOR Loan and the Notice of Borrowing shall be deemed to have been withdrawn by the Borrower with Bank's consent and substituted with a request for a Prime Rate Loan in an amount equal to the requested LIBOR Loan. 2.6 Except as otherwise provided in Section 2.5 above, any Notice of Borrowing which requests a LIBOR Loan shall be irrevocable and binding upon the Borrower. In the event the Borrower fails to borrow the LIBOR Loan requested on the Borrowing Date specified in such Notice of Borrowing, the Borrower shall indemnify Bank against any and all losses and expenses incurred by Bank by reason of such failure including, without limiting the generality of the foregoing, all losses and expenses incurred by reason of the liquidation, disposition or reemployment of deposits or other funds acquired by Bank to fund such LIBOR Loan. 2.7 If a LIBOR Loan is not repaid in full on its Maturity Date, then such LIBOR Loan shall automatically convert to a Prime Rate Loan and shall bear interest at the rate applicable to such Prime Rate Loan from and after such Maturity Date. - 7 - 2.8 Each Advance may be repaid with the proceeds of another Advance, subject to the terms of this Agreement. 2.9 Except as otherwise provided herein with respect to Bank's rights following the occurrence of an Event of Default, no LIBOR Loan may be repaid prior to its Maturity Date and all monies received by Bank for application to a LIBOR Loan prior to the Maturity Date of such LIBOR Loan shall be held by Bank in a non-interest bearing cash collateral account as security for all Liabilities. 2.10 Notwithstanding any other provision of this Agreement, (1) if the introduction of or any change in any law or regulation (or change in the interpretation thereof) applicable to Bank or any foreign branch, agent or correspondent thereof shall make it unlawful, or (2) if any central bank or other governmental authority having jurisdiction over Bank or any such branch, agent or correspondent, shall assert that it is unlawful, for Bank to perform its obligations hereunder or for any such branch, agent or correspondent to act on behalf of Bank to make LIBOR Loans to the Borrower or to continue to fund or maintain LIBOR Loans to the Borrower hereunder, or (3) if Bank determines after making all reasonable efforts, that deposits of the relevant amount and for the relevant LIBOR Loan to the Borrower are not available to Bank in the Interbank Market, then, on notice thereof by Bank to the Borrower, the obligation of the Bank to the Borrower to make future LIBOR Loans shall terminate. If, as a result of any of the foregoing described events, Bank is prohibited from maintaining LIBOR Loans, the Bank shall, upon the happening of such event, notify the Borrower and the Borrower shall, in the case of each LIBOR Loan, on the Maturity Date of such LIBOR Loan (or, in any event, if the Bank so requests, on such earlier date as may be required by the relevant law, regulation or interpretation), either prepay such LIBOR Loan or convert such LIBOR Loan into a Prime Rate Loan. 2.11 If, due to payments made by the Borrower pursuant to this Agreement or due to the acceleration of the Liabilities or due to any other reason, Bank receives payments of principal of any LIBOR Loan prior to the Maturity Date for such LIBOR Loan, the Borrower shall, upon demand by Bank, pay to Bank any amounts required to compensate Bank for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss, costs or expenses incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Bank to fund or maintain such LIBOR Loans. 2.12 Calculation of the LIBOR Interest Rate, as well as all other fees and charges payable with respect to each LIBOR Loan shall be made and paid as though Bank had actually funded the relevant LIBOR Loan through the purchase of a Eurodollar deposit at - 8 - LIBOR in an amount equal to the amount of the LIBOR Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore agent or office of Bank to a domestic office of Bank in the United States of America, provided, however, that Bank may fund each LIBOR Loan in any manner it sees fit and the foregoing assumptions shall be nevertheless used for the calculation of the LIBOR Interest Rate and such other fees and charges. 2.13 The principal balance of the Revolving Loan shall be payable on the Termination Date. On any date on which a payment of interest or principal is due hereunder, the Bank may charge the Borrower's demand deposit account(s) with the amount thereof. The failure of the Bank so to charge such account shall not relieve the Borrower of its obligations to make payments hereunder. 2.14 The Bank may, at any time and from time to time, upon the request of the Borrower, but in the Bank's sole and absolute discretion, extend the Termination Date. 2.15 As evidence of the Borrower's obligations under the Revolving Loan, the Borrower shall execute and deliver to the Bank a Secured Revolving Time Note (the "REVOLVING NOTE") of even date herewith. 2.16 The Bank need not enter payments of interest and principal upon the Revolving Note but may maintain a record thereof on a separate ledger maintained by the Bank. 2.17 The entire unpaid principal balance of the Revolving Loan, together with all unpaid interest accrued thereon and all accrued and unpaid fees, if any, shall be due and payable without notice or demand on the Termination Date. 2.18 If, at any time, the unpaid principal balance of the Revolving Loan exceeds the Borrowing Base or the Credit Limit, the Borrower shall immediately pay to the Bank the amount of such excess without notice or demand. 2.19 In consideration of the Bank establishing the Revolving Loan, the Borrower shall pay to the Bank an unused line fee equal to one-half of one (.5%) percent of the difference between: (x) the Credit Limit and (y) the average daily balance outstanding under the Revolving Loan (the "UNUSED LINE FEE"). The Unused Line Fee shall be payable monthly in arrears and the Borrower hereby authorizes the Bank to debit its operating account at the Bank for the amount of any such payment(s). - 9 - THE EQUIPMENT LINE ------------------ 2.20 Subject to the terms and conditions of this Agreement, the Bank will make an equipment line available to the Borrower in the maximum principal amount of $500,000.00 (less equipment line Advances outstanding as of the date hereof) (the "EQUIPMENT LINE"), as evidenced by a Line of Credit Agreement for the Acquisition of Equipment (the "LINE OF CREDIT AGREEMENT") of even date. 2.21 Advances under the Equipment Line shall bear interest as provided below and shall be conclusively evidenced by secured term notes executed by the Borrower with respect to each such Advance. Interest shall be computed on the basis of the actual number of days elapsed over a year of 360-days. Interest shall be charged to the Borrower upon the balance of all Equipment Line Advances owing to the Bank at the close of each day at the rates set forth below, as elected by the Borrower in accordance with the terms of this Agreement: (i) the Borrower shall pay interest on the aggregate unpaid principal balance of each Prime Rate Loan at a rate which is the daily equivalent of such Prime Rate Loan in effect from time to time plus Margin. Interest shall be payable monthly in arrears on the first day of each month, until all of the Prime Rate Loans are paid in full. The rate of interest payable by the Borrower on the Prime Rate Loans shall be changed effective as of the date in which a change in the Prime Rate becomes effective; (ii) the Borrower shall pay interest on the aggregate unpaid principal balance of each Cost of Funds Loan from the Borrowing Date for such Advance through and including the Maturity Date chosen by the Borrower and acceptable to the Bank with respect to such Advance at a per annum fixed rate equal to the sum of the Cost of Funds Rate plus Margin. Interest shall be payable on the sooner to occur of the first day of each month or such Maturity Date. 2.22 The principal balance of each Equipment Line Advance shall be amortized over a period of three years. Payments of principal shall be made monthly in arrears on the first day of each month commencing on the first of such dates next succeeding the date of any such Advance. 2.23 Bank shall not be required to make an Equipment Line Advance unless the Bank has received from the Borrower a request for such Equipment Line Advance, in the form of Exhibit B attached hereto (herein a "NOTICE OF BORROWING") which request complies with the requirements of this subsection and the Borrower has furnished the Equipment Documentation Certification required pursuant to the Line of Credit Agreement. Each Notice of Borrowing shall designate (1) the Borrowing Date for the requested Advance; (2) the requested interest rate option; (3) the amount of the requested Advance; and (4) if such request is for a Cost of Funds Loan, the requested Interest Period. The Borrower may request Advances in the form of - 10 - Cost of Funds Loans in minimum increments of $100,000.00, unless availability under the Equipment Line is less than $100,000.00. A Notice of Borrowing may be transmitted by facsimile and shall be effective on the date received not later than 1 p.m. Boston local time by the Bank for any Prime Rate Loan and one business day after receipt by the Bank for any Cost of Funds Loans. 2.24 Any Notice of Borrowing which requests a Cost of Funds Loan shall be irrevocable and binding upon the Borrower. In the event the Borrower fails to borrow the Advance requested on the Borrowing Date specified in such Notice of Borrowing, the Borrower shall indemnify Bank against any and all losses and expenses incurred by Bank by reason of such failure including, without limitation, all losses and expenses incurred by reason of the liquidation, disposition or reemployment of deposits or other funds acquired by Bank to fund such Advance. 2.25 Each Cost of Funds Loan shall be repaid in full on the Maturity Date set forth in the Secured Term Note executed pursuant thereto. Any Cost of Funds Loan which is not repaid in full on its Maturity Date shall automatically convert to a Prime Rate Loan and shall bear interest at the rate applicable to the Prime Rate Loan from and after such Maturity Date. 2.26 No Cost of Funds Loan may be prepaid in whole prior to its Maturity Date. In the event that a Cost of Funds Loan is prepaid prior to its Maturity Date, whether by acceleration of the Liabilities, or otherwise, the Borrower shall, upon demand by Bank, pay to Bank any amounts required to compensate Bank for any additional losses (including lost profits), cost or expenses which it may reasonably incur as the result of such payment, including, without limitation, any loss, cost or expenses incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Bank to fund or maintain such Cost of Funds Loan. TECHNOLOGY LINE --------------- 2.27 Subject to the terms and conditions of this Agreement, the Bank will make a technology non-revolving line available to the Borrower in the maximum principal amount of Two Million ($2,000,000.00) Dollars (the "TECHNOLOGY LINE" and together with the Revolving Loan and the Equipment Line, the "LOANS"), as evidenced by a Secured Non-Revolving Time Note (the "NON-REVOLVING TIME NOTE") of even date. 2.28 The Borrower may request Advances under the Technology Line until March 31, 1996, which Advances shall be used solely for the purpose of acquiring technology by the Borrower. - 11 - 2.29 Advances under the Technology Line shall bear interest as provided below and shall be conclusively evidenced by the Non-Revolving Time Note. Interest shall be computed on the basis of the actual number of days elapsed over a year of 360-days. Interest shall be charged to the Borrower upon the balance of all Technology Line Advances owing to the Bank at the close of each day at a rate which is the daily equivalent of the Prime Rate plus Margin. Interest shall be payable on the first day of each month, commencing with the first day of the first month next succeeding the date of the first Advance under the Technology Line. 2.30 The principal balance of the Technology Line shall be due and payable upon the earlier to occur of September 30, 1996 or within five (5) business days of the date upon which the Borrower has received proceeds of an equity injection or the issuance of subordinated debt in an amount sufficient to pay off the Technology Line in full. 2.31 All of the Borrower's obligations to the Bank, of every kind and description, including those arising under this Agreement, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, regardless of how they arise or by what agreement or instrument they may be evidenced, including those arising under any other agreements, instruments or documents executed in conjunction herewith, or whether evidenced by an agreement or instrument, including obligations to perform acts and refrain from taking action, as well as obligations to repay the Loans, shall constitute the Borrower's "LIABILITIES" to the Bank, as the same may be modified, amended, replaced or extended from time to time. 2.32 The Revolving Note, Line of Credit Agreement and Non-Revolving Time Note are incorporated herein to the same extent as if they were set forth in full in this Agreement. 2.33 If after the date hereof, Bank determines that (i) the adoption of any applicable law, rule, or regulation regarding capital requirements for banks, bank holding companies or trust companies or the subsidiaries thereof, (ii) any change in the interpretation or administration of any such law, rule or regulation by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or (iii) compliance by Bank or its holding company with any request or directive of any such governmental authority, central bank or comparable agency regarding capital adequacy (whether or not having the force of law), has the effect of reducing the rate of return on Bank's capital to a level below that which Bank could have achieved (taking into consideration Bank's policies with respect to capital adequacy immediately before such adoption, change, or compliance and assuming that Bank's capital was fully utilized prior to such adoption, change, or compliance) - 12 - but for such adoption, change, or compliance as a consequence of Bank's commitment to make Advances pursuant hereto by any amount deemed by Bank to be material: (i) Bank shall promptly, after Bank's determination of such occurrence, give notice thereof to Borrower; and (ii) Borrower shall pay to Bank as an additional fee from time to time, on demand, such amount as Bank certified to be the amount that will compensate Bank for such reduction. A certificate of Bank claiming entitlement to compensation as set forth above will be conclusive in the absence of manifest error. Such certificate will set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to Bank, and the method by which such amounts were determined. In determining such amount, Bank may use any reasonable averaging and attribution method. SECTION 3 --------- WARRANTIES AND REPRESENTATIONS ------------------------------ 3.1 To induce the Bank to enter into this Loan Agreement and to make the Loans, the Borrower warrants and represents that, as of this date: (a) The Borrower is a duly organized and existing corporation under the laws of the State of Delaware and is in good standing under the laws of said State. (b) The Borrower is duly qualified to do business and in good standing as a foreign corporation in each state or other jurisdiction where failure to qualify would have a material adverse effect on Borrower's business or financial condition including, without limitation, Massachusetts. (c) The Borrower has good and clear record and marketable title to all properties and assets which it purports to own, free and clear of all mortgages, liens, pledges, charges, security interests and encumbrances, other than those being granted to the Bank, if any, and those reflected on EXHIBIT C attached hereto. (d) The Borrower owns and holds or leases all real and personal property necessary or incidental to the present and planned future conduct of its business, including, without limitation, patents, trademarks, service marks, trade names, copyrights and licenses and other rights with respect to the foregoing. - 13 - (e) All books and records of the Borrower, including, but not limited to, minute books, by-laws and books of account are accurate and reflect all matters and transactions which should currently be reflected therein. (f) The general nature of the Borrower's business is as set forth on EXHIBIT C attached hereto. (g) The Borrower has no subsidiaries and no investments in the stock or securities of any other corporation, firm, trust or other entity, except as set forth on EXHIBIT C. (h) Except as set forth on EXHIBIT C, there are no actions, suits, investigations or proceedings pending, or to the knowledge of the Borrower threatened, against the Borrower or any of its properties in any court, before any governmental authority, arbitration board, or any other tribunal which, singly or in the aggregate, if decided adversely to the Borrower, would materially and adversely affect the business, properties or condition (whether financial or otherwise) of the Borrower. The Borrower is not, nor by execution and delivery of this Agreement and the performance of its obligations hereunder (with or without the passage of time) will the Borrower be in default with respect to any order of any court, governmental authority, arbitration board or other tribunal. (i) The Borrower has furnished to the Bank the financial statements for the time period indicated on EXHIBIT C attached hereto. Said statements fairly present the condition of the Borrower at the dates thereof, and the statements of operation contained therein fairly present the results of the operations of the Borrower for the periods indicated, all in conformity with generally accepted accounting principles consistently applied. (j) Except to the extent reflected or reserved against in the financial statements referred to above, the Borrower, as of the date of said financial statements, had no material liabilities of any nature, whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities, due or to become due, or arising out of transactions entered into or any state of facts existing prior thereto. (k) Since the date of the financial statements referred to in Section 3.1(i), and except as shown on EXHIBIT C, there has not been: (i) any change in the condition of the Borrower's assets or liabilities, other than changes in its ordinary course of business, none of which has been materially adverse, nor has there been any depletion of cash or decrease of working capital which has been materially adverse; - 14 - (ii) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the Borrower's properties or business; (iii) any declaration of, setting aside of, or making of a payment of any dividend or other distribution with respect to the Borrower's capital stock or any direct or indirect redemption, purchase or other acquisition of any such stock, except for distributions to its stockholders to satisfy federal and state tax liabilities on undistributed income (if Borrower is a Subchapter "S" corporation); or (iv) any materially adverse: (1) controversy with any labor organization or employees; (2) claim or controversy involving any federal, state or local governmental agencies; or (3) other event or condition materially affecting the business or properties of the Borrower. (l) The Borrower has filed all federal and state income tax returns, excise tax returns, and all other tax returns of every kind and nature which are required to be filed by the Borrower as of the date hereof and has paid all taxes shown to be due on said returns. (m) The Borrower keeps all records concerning its accounts (as said term is defined in the Massachusetts Uniform Commercial Code) and has its chief executive office and principal place of business at the address set forth at the beginning of the Agreement. The Borrower has no other addresses at which the Borrower has an office, conducts business or at which any of the Borrower's property is located except as set forth on EXHIBIT C. (n) The execution and delivery of this Agreement, the borrowing by the Borrower as herein provided, the execution and delivery by the Borrower of all instruments, agreements and documents of every kind and nature pursuant hereto and the performance by the Borrower of all of its obligations to the Bank hereunder have been duly authorized by the Board of Directors of the Borrower and, to the extent required by law or otherwise, by the Borrower's stockholders, and this Agreement and all instruments, agreements and documents executed pursuant hereto are valid and binding obligations of the Borrower enforceable in accordance with their terms except to the extent such enforceability may be limited by laws of general application - 15 - affecting the rights of creditors and except that certain equitable remedies may be subject to the discretion of any applicable court. (o) There is no provision in the articles of organization, agreement of association or the by-laws of the Borrower, or any indenture, contract or agreement to which it is a party or by which it is bound, which prohibits the execution and delivery of this Agreement or the performance by the Borrower of its obligations hereunder. (p) No event has occurred and no condition exists, which, upon the execution and delivery of this Agreement would constitute a default or an Event of Default hereunder. Neither the nature of the Borrower or any of its business or properties, nor any relationships between the Borrower and any other person, nor any circumstances in connection with the execution or delivery of this Agreement, is such as to require a consent, approval, or authorization of or filing, registration, or qualification with, any governmental authority on the part of the Borrower as a condition of the execution and delivery of this Agreement or any other instrument, agreement or document contemplated hereby, or the performance by the Borrower of its obligations hereunder or thereunder except for the filing of uniform commercial code financing statements in the appropriate filing offices. (q) The Borrower has no pension, profit sharing, stock option, Employee Stock Ownership Trust ("ESOT"), insurance or other similar plan providing for a program of deferred compensation or benefits for any employee or officer, except as indicated on EXHIBIT C hereto. SECTION 4 --------- AFFIRMATIVE COVENANTS --------------------- 4.1 The Borrower will duly and punctually pay all interest and principal becoming due to the Bank and will duly and punctually perform all things on its part to be done or performed under this Agreement, or pursuant to any instrument, document or agreement executed pursuant hereto. 4.2 The Borrower will, at all times, keep proper books of account in which full, true and correct entries will be made of its transactions in accordance with generally accepted accounting principles consistently applied. 4.3 The Borrower will, at all reasonable times, make its books and records available, in its offices, for inspection, examination and copying by the Bank and the Bank's representatives - 16 - and will, at all reasonable times, permit inspection of its properties by the Bank and the Bank's representatives. 4.4 The Borrower will, from time to time, furnish the Bank with such information and statements as the Bank may reasonably request and with copies of all financial statements and reports that it shall send or make available to stockholders. Borrower agrees that at Bank's discretion, the Revolving Loan may be administered by Bank on a "fully followed" basis, with daily reporting required. 4.5 The Borrower will furnish the Bank monthly, within thirty (30) days after the close of each fiscal monthly period, commencing with the monthly period in which this Agreement is executed, a balance sheet and income and surplus statement reflecting the financial condition of the Borrower at the end of each such period and the results of its operation during each such period. Each balance sheet and income and surplus statement is to be certified by the President, Treasurer or Chief Financial Officer of the Borrower, such certification to state that such balance sheet and income and surplus statement fairly present the financial condition and the result of operations of the Borrower at the end of such period and during such period in accordance with generally accepted accounting principles consistently applied, subject, however, to ordinary year-end adjustments, none of which will be materially adverse. 4.6 The Borrower will furnish the Bank annually, within one hundred and twenty (120) days after the close of each fiscal year, a balance sheet and income and surplus statement reflecting the financial condition of the Borrower at the end of each such fiscal year and the results of its operation during such fiscal year. Each such statement shall also contain comparative statements for the prior fiscal year. Each such balance sheet and income and surplus statement is to be audited by an independent certified public accountant satisfactory to the Bank with an audit quality statement to be issued by the accountant and signed by the President, Treasurer or Chief Financial Officer of the Borrower representing that neither the accounting firm nor the President, Treasurer or Chief Financial Officer of the Borrower is aware of any material modifications necessary to the financial statements for them to be in conformity with generally accepted accounting principles consistently applied. The Borrower shall also cause each of the Guarantors (as hereinafter defined) to provide their annual financial statements to the Bank in form and substance satisfactory to Bank and at the same time as Borrower provides its financial statements to Bank. 4.7 The Borrower will, on a quarterly basis, within forty-five (45) days of the end of each fiscal quarter, commencing with the fiscal quarter ending March 31, 1996, deliver to the Bank - 17 - certificates, in the form of EXHIBIT D attached hereto, signed by its President, Treasurer or Chief Financial Officer certifying that such officer has reviewed the provisions of this Agreement (including, without limitation, the financial covenants contained in this Agreement, to the extent they are being tested at that time) and stating in his opinion, if such be the fact, that the Borrower has not been and is not in default as to any of the covenants and agreements of the Borrower contained in this Agreement, or in the event of any such default, setting forth the details thereof. The Borrower shall also furnish the Bank, at that time, with its twelve-month cash flow projections, in form and substance satisfactory to Bank. 4.8 The Borrower shall furnish a Borrowing Base certificate and an accounts receivable aging to the Bank on a weekly basis. Each such certificate and aging to be in such form and certified by such officers of the Borrower as Bank may prescribe from time to time. 4.9 The Borrower shall make its books and records available to the Bank for audit, during normal business hours upon reasonable advance notice, absent the occurrence of an Event of Default, at the Bank's discretion and at the Borrower's expense. 4.10 The Borrower will maintain its corporate existence in good standing, comply in all material respects with all laws and regulations of the United States, of any state or states thereof, of any political subdivision thereof and of any governmental authority which may be applicable to the Borrower or to the Borrower's business. 4.11 The Borrower will pay all real and personal property taxes, assessments and charges and all franchise, income, unemployment, old age benefit, withholding, sales and other taxes assessed against it or payable by it at such times and in such manner to prevent any penalty from accruing or any lien or charge from attaching to its properties. The provisions of this section, however, shall not preclude the Borrower from contesting in good faith and diligently prosecuting any such tax, provided, however, that the Borrower shall, upon request of the Bank, deposit with the Bank funds sufficient to discharge such tax in the event such contest is resolved against the Borrower. The Borrower shall not be in default under this Section by reason of the existence of a lien for taxes not then due. 4.12 The Borrower will put and maintain its properties in good repair, working condition and order and, from time to time, make all needful and proper repairs, renewals and replacements. 4.13 The Borrower will maintain insurance at all times covering such risks and in such amounts as the Bank may reasonably - 18 - require in accordance with industry standards, all such insurance to be in such form and for such periods and written by such companies as shall be reasonably acceptable to the Bank. 4.14 The Borrower will pay or reimburse the Bank, on demand, for all expenses (including, without limitation, reasonable counsel fees and expenses) incurred or paid by the Bank in connection with the preparation, amendment, interpretation, extension or negotiation of this Agreement, and any instrument, agreement or document to be delivered pursuant hereto; the enforcement by the Bank of its rights as against the Borrower or any other person primarily or secondarily liable to the Bank hereunder or thereunder; the administration, supervision, protection or realization on any Collateral held by the Bank as security for any obligation of the Borrower or any other person primarily or secondarily liable with respect thereto and in the defense of any action against the Bank with respect to its rights or liabilities hereunder or thereunder. 4.15 The Borrower will punctually and promptly make all payments and perform all other obligations which may be required of it with respect to any indebtedness (whether for money borrowed, goods purchased, services rendered or however such indebtedness may otherwise arise) owing to persons, firms or corporations other than the Bank, including, without limitation, indebtedness which may be secured by a security interest in assets of the Borrower or property of the Borrower, and all obligations under the terms of any lease in which the Borrower is the lessee. The provisions of this section shall not preclude the Borrower from contesting in good faith and diligently prosecuting any such indebtedness or obligation. 4.16 The Borrower shall pay or cause to be paid when due all amounts necessary to fund in accordance with their terms all the Borrower's deferred compensation plans whether now in existence or hereafter created, and the Borrower will not withdraw from participation in, permit the termination or partial termination of, or permit the occurrence of any other event with respect to any deferred compensation plan maintained for the benefit of its employees under circumstances that could result in liability to the Pension Benefit Guaranty Corporation, or any of its successors or assigns, or to the entity which provides funds for such deferred compensation plan. 4.17 The Borrower will maintain its primary operating accounts with the Bank. - 19 - SECTION 5 --------- NEGATIVE COVENANTS ------------------ 5.1 The Borrower will not issue evidences of indebtedness or create, assume, become contingently liable for, or suffer to exist indebtedness in addition to indebtedness to the Bank, except for debt to its officers, directors and stockholders that is subordinated to the Loans on terms satisfactory to the Bank (the "SUBORDINATED DEBT"); provided, however, that the Borrower may incur liabilities which are incurred or arise in the ordinary course of the Borrower's business (other than liabilities incurred or arising with respect to money borrowed) and purchase money financing, secured by the acquired assets only. 5.2 The Borrower will not pay dividends either in cash or in kind on any class of its capital stock, except that as long as Borrower maintains a Subchapter "S" tax status, the Borrower may pay dividends in an amount necessary to satisfy its stockholders' federal and state tax liability for undistributed income, or redeem, purchase or otherwise acquire, directly or indirectly, any of its stock; provided that the Borrower may pay dividends in the form of stock. 5.3 The Borrower will not make any loans or advances to any individual, firm or corporation, including, without limitation, its officers and employees; provided, however, that the Borrower may make advances to its employees, including its officers, with respect to expenses incurred by such employees, which expenses are reimbursable by the Borrower and directly related to the conduct of the Borrower's business, and Borrower may make advances to its employees provided that the aggregate amount of such advances does not exceed $50,000.00 at any time. 5.4 The Borrower will not invest in or purchase any stock or securities of any individual, firm or corporation, provided, however, the Borrower may invest in direct obligations of the United States of America having a maturity of one year or less from the date of investment. 5.5 The Borrower will not merge or consolidate or be merged or consolidated with or into any other corporation. 5.6 The Borrower will not sell or dispose of any of its assets except for sales of inventory in the ordinary and usual course of its business; provided, however, that the Borrower may dispose of (or trade in) equipment which is no longer required for the conduct of the Borrower's business so long as the Borrower receives therefor a sum (or credit) substantially equal to such equipment's fair value. - 20 - 5.7 Except as set forth on EXHIBIT C and except for purchase money security interests in acquired assets, the Borrower will not grant or suffer to exist any mortgage, pledge, title retention agreement, security interest, lien, charge or encumbrance with respect to any of its assets, tangible or intangible, whether now owned or hereafter acquired, or subject any of such assets to the prior payment of any indebtedness, or transfer in any manner any of such assets with the intent or purpose, directly or indirectly, of subjecting such assets to the payment of indebtedness. 5.8 The Borrower will not engage in any business other than the business in which it is currently engaged or a business reasonably allied thereto. 5.9 (Minimum Net Income). The Borrower will not permit its Minimum Net ------------------ Income to be less than the following amounts as at the end of the following periods:
MINIMUM NET INCOME TIME PERIOD $ 25,000.00 For the fiscal quarters ending June 30, 1996 and September 30, 1996 $100,000.00 For the fiscal year ending December 31, 1996 $ 50,000.00 For the fiscal quarter ending March 31, 1997 and as at the end of each fiscal quarter thereafter
The term "NET INCOME" as used herein shall mean Borrower's net income after taxes as determined in accordance with generally accepted accounting principles consistently applied. 5.10 Maximum Senior Debt to Capital Base Ratio. The Borrower will not ----------------------------------------- permit its total Senior Debt to be more than the following percentages of its Capital Base for the following periods:
MAXIMUM PERCENTAGE TIME PERIOD 1,000% As at the end of the fiscal year ending December 31, 1996 and as at the end of each fiscal quarter thereafter
- 21 - The term "SENIOR DEBT" as used herein shall mean Borrower's total debt minus any Subordinated Debt. The term "CAPITAL BASE" as used herein shall mean Borrower's Tangible Net Worth plus Subordinated Debt. The term "SUBORDINATED DEBT" as used herein shall mean debt which is specifically subordinated to all Liabilities, upon terms and conditions satisfactory to the Bank and its counsel. The term "TANGIBLE NET WORTH" shall mean stockholders' equity determined in accordance with generally accepted accounting principles, consistently applied, subtracting therefrom: (i) intangibles (as determined in accordance with such principles so applied), (ii) indebtedness owing from any employee, stockholder, parent, subsidiary or other affiliate, and (iii) all leasehold improvements. 5.11 Minimum Capital Base. The Borrower will not permit its Capital Base -------------------- to be less than the following amounts for the following periods:
MINIMUM CAPITAL BASE TIME PERIOD $ 300,000.00 For the fiscal quarter ending June 30, 1996 $ 350,000.00 For the fiscal quarter ending September 30, 1996 $ 500,000.00 For the fiscal year ending December 31, 1996 and as at the end of each fiscal quarter thereafter
5.12 Minimum Interest Coverage Ratio. The Borrower will not permit its ------------------------------- earnings before interest and taxes to be less than the following percentages of its interest expense for the following periods:
MINIMUM PERCENTAGE TIME PERIOD 125% For the 6-month period ending June 30, 1996, for the 9-month period ending September 30, 1996, for the 12-month period ending December 31, 1996 and for the 12-month period ending as at the end of each fiscal quarter thereafter
- 22 - 5.13 Maximum Capital Expenditures. The Borrower will not permit, directly ---------------------------- or indirectly, its capital expenditures for the purchase, fabrication or creation of fixed assets, including, without limitation, all Capitalized Leases, to exceed the aggregate amount of $1,000,000.00 in any fiscal year of Borrower. 5.14 All accounting terms shall be construed and interpreted in accordance with generally accepted accounting principles consistently applied. 5.15 Minimum Collateral Coverage Ratio. The Borrower shall not permit --------------------------------- the percentage reliance on the stock value of the Pledged OEC Stock (as defined herein) and as calculated in accordance with EXHIBIT E attached hereto to exceed seventy (70%) percent at any time. SECTION 6 --------- SECURITY, GUARANTEES AND WARRANTS --------------------------------- 6.1 The Bank shall have and hold as security for the repayment of the Loans and all other Liabilities of the Borrower to the Bank a security interest in substantially all of the Borrower's business assets (the "COLLATERAL"), and the Borrower will execute and deliver all agreements, instruments and documents, in form and substance satisfactory to the Bank, to establish, create and perfect the same, including, without limitation, a Security Agreement (All Assets) (the "SECURITY AGREEMENT"). The Bank also holds certain warrants (the "WARRANTS") of the Borrower as additional compensation for the Loans to the Borrower. 6.2 Any and all deposits or other sums at any time credited by or due from the Bank to the Borrower shall at all times constitute additional security for all Liabilities of the Borrower to the Bank and may be set off against any such Liabilities at any time after the occurrence, and during the continuance of an Event of Default, whether or not security held by the Bank is deemed to be adequate. Any and all instruments, documents, policies and certificates of insurance, securities, goods, accounts receivable, choses in action, chattel paper, cash, property and the proceeds thereof owned by the Borrower or in which the Borrower has an interest, which now or hereafter are at any time in possession or control of the Bank or in transit by mail or carrier to or from the Bank or in the possession of any third party acting in the Bank's behalf, without regard to whether the Bank received the same in pledge, for safekeeping, as agent for collection or transmission or - 23 - otherwise or whether the Bank has conditionally released the same, shall constitute additional security for such Liabilities and may be applied at any time after the occurrence and during the continuance of an Event of Default to such Liabilities, whether due or not. 6.3 The Loans will be guaranteed on an unlimited basis by J&S Limited Partnership, John J. Donovan and John J. Donovan, Jr. (together, the "GUARANTORS"), pursuant to Unlimited Guarantees (each a "GUARANTEE" and together the "GUARANTEES"). The Guarantee of J&S Limited Partnership shall be secured by a pledge of 520,000 shares of the Common Stock of Open Environment Corporation (the "PLEDGED OEC STOCK"). None of the Guarantors shall provide a guaranty to anyone other than the Bank, without the Bank's prior written consent. SECTION 7 --------- DEFAULT ------- 7.1 The occurrence of any of the following events (after the expiration of any applicable grace period) shall be an Event of Default hereunder: (a) The Borrower shall fail to pay any installment of principal or interest on account of the Loans when such payment is due, or on demand, if such payment is due on demand. (b) The Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement or in any instrument, document or agreement with Bank or delivered to Bank whether now existing or hereafter created and the expiration of twenty-five (25) days from such failure, or failure to adhere to the financial covenants contained in Section 5 hereof (without any grace period). (c) Any warranty, representation or statement made or furnished to the Bank by or on behalf of the Borrower proves to have been false in any material respect when made or furnished. (d) Any event which results in the acceleration of the maturity of the indebtedness of the Borrower to others in excess of $50,000.00 under any indenture, agreement, undertaking or otherwise. (e) Death, dissolution, termination of existence, insolvency, or business failure of the Borrower or any Guarantor. - 24 - (f) The Borrower shall: (i) cease, be unable, or admit in writing its inability to pay its debts as they mature, or make a general assignment for the benefit of, or enter into any composition, trust mortgage or other arrangement with creditors; (ii) apply for, or consent (by admission of material allegations of a petition or otherwise) to the appointment of a receiver, trustee or liquidator of the Borrower or of a substantial part of its assets, or authorize such application or consent, or proceedings seeking such appointment shall be commenced against the Borrower and continue undismissed for sixty (60) days; or (iii) apply for, or consent (by admission of material allegations of a petition or otherwise) to the application of any bankruptcy, reorganization, readjustment of debt, insolvency, dissolution, liquidation or other similar law of any jurisdiction, or authorize such application or consent, or proceedings to such end shall be instituted against the Borrower and remain unstayed and undismissed for sixty (60) days, be approved as properly instituted or result in adjudication of bankruptcy or insolvency. Upon the filing of any involuntary petition, Bank's agreement to consider making additional Loans hereunder shall terminate. (g) The calling or sufferance by the Borrower of a meeting of the creditors of the Borrower or the occurrence of a meeting by the Borrower or a representative thereof with a formal or informal committee of creditors of the Borrower. (h) Termination of any Guarantee by any Guarantor or the issuance of a guaranty by any Guarantor to anyone other than the Bank, without the prior written consent of the Bank. (i) The death or incapacity of John J. Donovan or John J. Donovan, Jr. 7.2 Upon the occurrence of any Event of Default, all Liabilities of the Borrower to the Bank shall, at the Bank's option and without notice or demand, and notwithstanding any terms of payment in any note or other instrument evidencing such Liabilities, become immediately due and payable, and any obligation of the Bank to consider making Loans pursuant to Section 1 or Section 2 shall, at Bank's option, terminate. SECTION 8 --------- [INTENTIONALLY DELETED] ----------------------- - 25 - SECTION 9 --------- NOTICE ------ 9.1 All notices and other communications hereunder shall be made by telegram, telex, hand delivery, overnight air courier, or certified or registered mail, return receipt requested, and shall be deemed to be received by the party to whom it was sent one (1) business day after sending, if sent by telegram, telex, or overnight air courier, three (3) business days after mailing if sent by certified or registered mail and on the date delivered if hand delivered. All such notices and other communications to a party hereto shall be addressed to such party at the address set forth in Section 9.2 or to such other address as such party may designate for itself in a notice to the other party given in accordance with this section. 9.2 The addresses to which such communications shall be sent are as follows: (a) If intended for the Borrower, to: Business@Web, Inc. 219 Vassar Street Cambridge, MA 02139 Attn: Eric D. Sockol, Chief Financial Officer with copies to: Cuddy, Bixby and Denner One Financial Center Boston, MA 02111 Attn: Timothy E. McAllister, Esq. (b) If intended for the Bank, to: State Street Bank and Trust Company 225 Franklin Street, M-2 Boston, MA 02110 Attn: William R. Dewey IV, Vice President with copies to: Brian T. Garrity, Esq. Shapiro, Israel & Weiner, P.C. 100 North Washington Street Boston, Massachusetts 02114 9.3 The addresses set forth herein may be changed by notice hereunder. - 26 - SECTION 10 ---------- MISCELLANEOUS ------------- 10.1 The Borrower will from time to time execute and deliver to the Bank all such other and further instruments and documents and take or cause to be taken all such other and further action as the Bank may reasonably request in order to effect and confirm or vest more securely in the Bank all rights contemplated in this Agreement. 10.2 The Borrower may take any action herein prohibited or omit to perform any act required to be performed by the Borrower if the Borrower shall obtain the Bank's prior written consent to each such action, or omission to act. No waiver on the Bank's part on any one occasion shall be deemed a waiver on any other occasion. The Bank shall not be deemed to have waived any of its rights hereunder unless such waiver shall be in writing and duly signed by an authorized officer of the Bank. 10.3 This Agreement may be amended only by an instrument in writing and duly signed by the Borrower and an authorized officer of the Bank. 10.4 All covenants, agreements, representations and warranties contained in this Agreement shall bind the Borrower, its successors and assigns, and shall inure to the Bank's benefit and the benefit of the Bank's successors and assigns, whether expressed or not. 10.5 All rights of the Bank hereunder shall be cumulative. The Bank shall not be required to have recourse to any Collateral before enforcing its rights or remedies against the Borrower. The Borrower hereby waives presentment and protest of any instrument and any notice thereof. 10.6 If any provisions of this Agreement shall be held to be illegal or unenforceable, such illegality or unenforceability shall relate solely to such provision and shall not affect the remainder of this Agreement. 10.7 This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 10.8 This Agreement shall take effect as an instrument under seal. 10.9 BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. Borrower hereby certifies - 27 - that neither Bank nor any of its representatives, agents or counsel has represented, expressly or otherwise, that Bank would not, in the event of any such suit, action or proceeding, seek to enforce this waiver of right to trial by jury. Borrower acknowledges that Bank has been induced to enter into this Agreement by, among other things, this waiver. Borrower acknowledges that it has read the provisions of this Agreement and in particular, this Section; has consulted legal counsel; understands the right it is granting in this Agreement and is waiving in this Section in particular, and makes the above waiver knowingly, voluntarily and intentionally. 10.10 Borrower and Bank agree that any action or proceeding to enforce or arising out of this Agreement may be commenced in any court of the Commonwealth of Massachusetts sitting in the counties of Suffolk or Middlesex, or in the District Court of the United States for the District of Massachusetts, and Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and confer personal jurisdiction if served by registered or certified mail to Borrower or as otherwise provided by the laws of the Commonwealth of Massachusetts or the United States of America. 10.11 The exhibits annexed hereto as EXHIBITS A, B, C, D and E are the only exhibits to be annexed to this Agreement, and the material contained therein shall be incorporated herein. 10.12 The captions herein contained are inserted as a matter of convenience only and such captions do not form a part of this Agreement and shall not be utilized in the construction hereof. WITNESS: BUSINESS@WEB, INC., formerly (As to Both) Object Power, Incorporated /s/ Brian T. Garrity By: /s/ Eric D. Sockol - ------------------------- -------------------------- Brian T. Garrity Eric D. Sockol Chief Financial Officer STATE STREET BANK AND TRUST COMPANY By: /s/ William R. Dewey IV ------------------------------ William R. Dewey IV Vice President - 28 - EXHIBIT A --------- _______________, 199_ State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Attn: Mr. William R. Dewey IV Vice President Re: Loan Agreement between State Street Bank and Trust Company (the "BANK") and Business@Web, Inc., formerly Object Power, Incorporated (the "BORROWER") dated February ____, 1996, (the "AGREEMENT") Gentlemen: In accordance with Section 2.4 of the Agreement, the Borrower hereby requests the following Advance: (1) Borrowing Date: _____________________ (2) Interest Rate Type (LIBOR or Prime): _____________________ (3) Amount of Advance*: _____________________ (4) Interest Period: ____________________ (1, 2, 3 or 4 months for LIBOR Loans) The Borrower hereby certifies that all representations and warranties contained in the Agreement are true and accurate in all material respects on the date of this Notice of Borrowing as though such representations or warranties had been made on this date (except to the extent such representation or warranty expressly relates to an earlier date). All capitalized terms used herein which are defined in the Agreement shall have the meanings set forth in the Agreement. Very truly yours, BUSINESS@WEB, INC., formerly Object Power, Incorporated By:___________________________ *minimum of $100,000.00 and increments of $100,000.00 above $100,000.00 for LIBOR Loans. EXHIBIT B --------- _______________, 199_ State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Attn: Mr. William R. Dewey IV Vice President Re: Loan Agreement between State Street Bank and Trust Company (the "BANK") and Business@Web, Inc., formerly Object Power, Incorporated (the "BORROWER") dated February ___, 1996, (the "AGREEMENT") Gentlemen: In accordance with Section 2.23 of the Agreement, the Borrower hereby requests the following Equipment Line Advance: (1) Borrowing Date: ___________________________ (2) Interest Rate Type: ___________________________ (Cost of Funds or Prime) (3) Amount of Advance*: ___________________________ (4) Interest Period Requested: ___________________________ The Borrower hereby certifies that all representations and warranties contained in the Agreement are true and accurate in all material respects on the date of this Notice of Borrowing as though such representations or warranties had been made on this date (except to the extent such representation or warranty expressly relates to an earlier date). All capitalized terms used herein which are defined in the Agreement shall have the meanings set forth in the Agreement. Very truly yours, BUSINESS@WEB, INC., formerly Object Power, Incorporated By:___________________________ * Minimum of $100,000.00 unless availability is less than $100,000.00. EXHIBIT C --------- 3.1(c) Encumbrances SECURED PARTY OR LESSOR: COLLATERAL: - ----------------------- ---------- See Attachment 1 hereto ------------ 3.1(f) General Nature of Borrower's business Software Development 3.1(g) Subsidiaries and Investments None 3.1(h) Litigation None 3.1(i) Date and period covered of most recent financial statements furnished to the Bank. November 30, 1995 3.1(k) Material Changes in Operations None 3.1(m) Other Locations 17 Smith Point, Manchester, MA 3.1(q) Deferred Compensation Plans None Attachment 1 to Exhibit C ------------------------- (i) liens to secure taxes, assessments and other government charges or claims for labor, material or supplies in respect of obligations not overdue; (ii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (iii) liens in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained and be in effect pending such appeal or review; (iv) liens of carriers, warehousemen, mechanics and materialmen, and other like liens, in existence less than 120 days from the date of creation thereof in respect of obligations not overdue; (v) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto,landlord's or lessor's liens under leases to which the Borrower is a party, and other minor liens or encumbrances none of which in the opinion of the Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of the Borrower, which defects do not individually or in the aggregate have a materially adverse effect on the business of the Borrower; (vi) liens existing on the date hereof and listed on Attachment 1-A -------------- hereto; and (vii) capitalized leases, to the extent that the same may be deemed to constitute security interests, and purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money indebtedness incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired. EXHIBIT D --------- TO LOAN AGREEMENT COMPLIANCE CERTIFICATE ---------------------- Business@Web, Inc., formerly Object Power, Incorporated (the "BORROWER") hereby certifies to State Street Bank and Trust Company (the "BANK") pursuant to the Loan Agreement between Borrower and Bank dated February ____, 1996, as may be amended from time to time ("LOAN AGREEMENT") that: A. General ------- 1. Capitalized terms not defined herein shall have the meanings set forth in the Loan Agreement. 2. The Borrower has complied with all the terms, covenants and conditions to be performed or observed by it contained in the Loan Agreement. 3. As of the date hereof there does not exist an Event of Default or an event which would with notice or the lapse of time, or both, constitute an Event of Default under the Loan Agreement. 4. The representations and warranties contained in the Loan Agreement and in any certificate, document or financial or other statement furnished at any time thereunder are true, correct and complete in all material respects with the same effect as though such representations and warranties had been made on the date hereof, except to the extent that any such representation and warranty relates solely to an earlier date (in which case such representation and warranty shall be true, correct and complete on and as of such earlier date). B. Financial Covenants: ------------------- As of the date hereof or, for such period as may be designated below, the computations, ratios and calculations as set forth below in accordance with Sections 5.9, 5.10, 5.11, 5.12 and 5.13 of the Loan Agreement are true and correct: (a) (Section 5.9) Minimum net income after taxes of the Borrower for the ----------- fiscal quarter ending ___________, 1996:
AMOUNT OF NET INCOME AFTER TIME PERIOD TAXES OR (NET LOSS) ----------- -------------------------- For the fiscal quarters ending June 30, 1996 and September 30, 1996 = $________________
Amount required under the Loan Agreement = $ 25,000.00 For the fiscal year ending December 31, 1996 = $________________ Amount required under the Loan Agreement = $100,000.00 For the fiscal quarter ending March 31, 1997 and at the end of each fiscal quarter thereafter = $_________________ Amount required under the Loan Agreement = $ 50,000.00
(b) (Section 5.10) Maximum Senior Debt to Capital Base Ratio of Borrower as ------------ at the end of the fiscal period ending ______________, 1996: (i) Total Senior Debt = $______________ (ii) Capital Base = $______________ (iii) Total Senior Debt as a percentage of Capital Base = __________% (iv) Maximum percentage allowed pursuant to the Loan Agreement = 1,000% as at the end of the fiscal year ending December 31, 1996 and as at the end of each fiscal quarter thereafter (c) (Section 5.11) Minimum Capital Base of Borrower as at the end of the ------------ fiscal quarter/year ending ____________, 19__:
MINIMUM CAPITAL BASE REQUIRED FISCAL QUARTER PURSUANT TO THE ACTUAL CAPITAL YEAR/ENDING LOAN AGREEMENT BASE --------------- ---------------- --------------- June 30, 1996 $ 300,000.00 September 30, 1996 $ 350,000.00
December 31, 1996 and as at the end of each fiscal quarter thereafter $ 500,000.00
(d) (Section 5.12) Minimum interest coverage ratio of Borrower for the ______-month period ending on the last day of the fiscal quarter/year ending _____________, 19__: (i) Earnings before interest and taxes = $______________ (ii) Interest expense = $______________ (iii) Earnings before interest and taxes as a percentage of interest expense = ________% (iv) Minimum percentage required pursuant to the loan agreement = (a) 125% for the 6-month period ending on the last day of the fiscal quarter ending June 30, 1996, (b) 125% for the 9-month period ending on the last day of the fiscal quarter ending September 30, 1996, (c) 125% for the 12-month period ending on the last day of the fiscal quarter ending December 31, 1996, (d) 125% for the 12-month period ending on the last day of each fiscal quarter thereafter (e) (Section 5.13) Maximum aggregate capital expenditures for the fiscal ------------ year ending December 31, 1996: (i) Actual aggregate capital expenditures = $______________ (ii) Maximum capital expenditures permitted pursuant to the Loan Agreement = $1,000,000.00 IN WITNESS WHEREOF, the undersigned, duly authorized officer of Business@Web, Inc., formerly Object Power, Incorporated has executed and delivered this Certificate in the name and on behalf of Business@Web, Inc., formerly Object Power, Incorporated on ________________, 19__. BUSINESS@WEB, INC., formerly Object Power, Incorporated By:_______________________________ EXHIBIT E Cambridge Technology Group / Business@Web Stock Reliance Worksheet 1. A. Acceptable Accounts Receivable - CTG __________ x .70 = __________ B. Acceptable Accounts Receivable - BAW __________ x .70 = __________ C. Appraised Value - 219 Vassar Street $1,750,000 x .80 = $1,400,000 D. Sub-total of Collateral Pool __________ 2. A. Current Balance of $2.5MM Revolver to CTG __________ B. Current Balance of $2.5MM Revolver to BAW __________ C. Amount of Borrowings under $2.0MM Time Note to BAW __________ D. Current Balance of Loan to 219 Vassar Street Trust __________ E. Total Loans Outstanding __________ 3. Collateral Surplus/(Deficit) (1. D - 2. E) __________ Complete Sections 4 & 5 Only if Collateal Deficit 4. Market Value of pledged stock (520,000 shares OEC) __________ x .50 = __________ 5. Stock Reliance ((Line 3 x - 1)/Line 4) - Not to Exceed 70% _________%
State Street Bank and Trust Company GUARANTY (UNLIMITED) OF J&S Limited Partnership In consideration of the State Street Bank and Trust Company (hereinafter called the "Bank") extending credit or otherwise in its discretion giving time, financial or other accommodations to Business@Web, Inc., formerly Object Power, Incorporated (hereinafter called the "Borrower"), the undersigned (hereinafter called the "Guarantor") hereby unconditionally guarantees to the Bank that (a) the Borrower will duly and punctually pay or perform, at the place specified therefor, or if no place is specified, at the Bank's Head Office or at the branch of the Bank where this Guaranty is given, all indebtedness, obligations and liabilities, direct or indirect, matured or unmatured, primary or secondary, certain or contingent, of the Borrower to the Bank, (except obligations of Borrower to Bank under an Unlimited Guaranty of even date pertaining to a loan to 219 Vassar Street Realty Trust, which obligations are not guaranteed hereby), now or hereafter owing or incurred (including without limitation costs and expenses incurred by the Bank in attempting to collect or enforce any of the foregoing) which are chargeable to the Borrower either by law or under the terms of the Bank's arrangements with the Borrower accrued in each case to the date of payment hereunder (collectively the "Obligations" and individually an "Obligation"); and (b) if there is an agreement or instrument evidencing or executed and delivered in connection with any Obligation, the Borrower will perform in all other respects strictly in accordance with the terms thereof. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance by the Borrower of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that the Bank first attempt to collect any of the Obligations from the Borrower or any other party primarily or secondarily liable with respect thereto or resort to any security or other means of obtaining payment of any of the Obligations which the Bank now has or may acquire after the date hereof, or upon any other contingency whatsoever. Upon any default by the Borrower in the full and punctual payment and performance of the Obligations, the liabilities and obligations of the Guarantor hereunder shall, at the option of the Bank, become forthwith due and payable to the Bank without demand or notice of any nature, all of which are expressly waived by the Guarantor. Payments by the Guarantor hereunder may be required by the Bank on any number of occasions. The Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to the Bank forthwith upon demand, in funds immediately available to the Bank, all costs and expenses (including court costs and reasonable legal expenses) incurred or expended by the Bank in connection with this Guaranty and the enforcement hereof, together with interest on amounts recoverable under this Guaranty from the time such amounts become due until payment at the usual rate charged by the Bank in similar circumstances. The liability of the Guarantor hereunder shall be unlimited in amount. The obligations of the Guarantor under this Guaranty shall continue in full force and effect until ten (10) days after the Bank shall have received from the Guarantor written notice of the Guarantor's intention to discontinue this Guaranty, notwithstanding any intermediate or temporary payment or settlement of the whole or any part of the Obligations. No such notice shall affect the liability of the Guarantor hereunder with respect to any Obligations incurred by Borrower to the Bank or with respect to which the Bank has become committed prior to ten (10) days after the receipt of such notice. In the event of any such discontinuance of this Guaranty, all checks, drafts, notes, instruments (negotiable or otherwise) and writings drawn or made by or for the account of the Borrower on the Bank or any of its agents purporting to be dated on or before ten (10) days after the date such discontinuance is received by the Bank, although presented to and paid or accepted by the Bank after that date, shall form part of the Obligations. No such notice shall be effective unless received and acknowledged by an officer of the Bank at its Head Office. The Guarantor grants to the Bank, as security for the full and punctual payment and performance of the Guarantor's obligations hereunder, a continuing lien on and security interest in all securities or other property belonging to the Guarantor now or hereafter held by the Bank and in all deposits and other sums credited by or due from the Bank and in all deposits and other sums credited by or due from the Bank to the Guarantor or subject to withdrawal by the Guarantor; and regardless of the adequacy of any collateral or other means of obtaining repayment of the Obligations, the Bank may at any time during the continuance of default with respect to the Obligations and without notice to the Guarantor set off the whole or any portion or portions of any or all such deposits and other sums against amounts payable under this Guaranty, whether or not any other person or persons could also withdraw money therefrom. The Bank shall be at liberty, without giving notice to or obtaining the assent of the Guarantor, and without relieving the Guarantor of any liability hereunder, to deal with the Borrower and with each other party who now is or after the date hereof becomes liable in any manner for any of the Obligations, in such manner as the Bank in its sole discretion deems fit, and to this end the Guarantor gives to the Bank full authority in its sole discretion to do any or all of the following things: (a) extend credit, make loans and afford other financial accommodations to the Borrower at such times, in such amounts and on such terms as the Bank may approve; (b) vary the terms and grant extensions or renewals of any present or future indebtedness or obligation to the Bank of the Borrower or of any such other party; (c) grant time, waivers and other indulgences in respect thereto; (d) vary, exchange, release or discharge, wholly or partially, or delay in or abstain from perfecting and enforcing any security or guaranty or other means of obtaining payment of any of the Obligations which the Bank now has or acquires after the date hereof; (e) accept partial payments from the Borrower or any such other party; (f) release or discharge, wholly or partially, any endorser or guarantor; and (g) compromise or make any settlement or other arrangement with the Borrower or any such other party. If for any reason the Borrower has no legal existence or is under no legal obligation to discharge any of the Obligations undertaken or purported to be undertaken by it or on its behalf, or if any of the moneys included in the Obligations have become unrecoverable from the Borrower by operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor to the same extent as if the Guarantor at all times had been the principal debtor on all such Obligations. This Guaranty shall be in addition to any other guaranty or other security for the Obligations, and it shall not be prejudiced or rendered unenforceable by the invalidity of any such other guaranty or security. Notwithstanding any payment by the Borrower to the Bank of the whole or any portion of the Obligations, if the Bank shall be required to pay any amount so paid to the Bank to a Trustee in Bankruptcy of the Borrower, the Guarantor shall remain liable for any sums so paid to said Trustee. The Guarantor waives notice of acceptance hereof, notice of any action taken or omitted by the Bank in reliance hereon, and any requirement that the Bank be diligent or prompt in making demands hereunder, giving notice to any default by the Borrower or asserting any other right of the Bank hereunder. The Guarantor also irrevocably waives, to the fullest extent permitted by law, all defenses which at any time may be available in respect of the Guarantor's Obligations hereunder by virtue of any homestead exemption, statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect. The Guarantor will not, by paying any sum recoverable hereunder (whether or not demanded by the Bank) or by any means or on any other ground, claim any set-off or counterclaim against the Borrower in respect of any liability of the Guarantor to the Borrower or, in proceedings under the Bankruptcy Code or insolvency proceedings of any nature, prove in competition with the Bank in respect of any payment hereunder or be entitled to have the benefit of any counterclaim or proof of claim or dividend or payment by or on behalf of the Borrower or the benefit of any other security for any Obligation which, now or hereafter, the Bank may hold or in which it may have any share or have any right of subrogation, reimbursement or indemnity or right of recourse to any security which the Bank may have or hold with respect to the Obligations until such Obligations are paid in full. Any demand on or notice to the Guarantor shall be in writing and shall be effective when handed to the Guarantor or left at or mailed or sent by telegraph to the Guarantor's usual or last-known address. No provision of this Guaranty can be changed, waived or discharged except by an instrument in writing signed by the Bank and the Guarantor expressly referring to the provision of this Guaranty to which such instrument relates, and no such waiver shall extend to, affect, or impair any right with respect to any Obligation which is not expressly dealt with therein. No course of dealing or delay or omission on the part of the Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. This Guaranty is intended to take effect as a sealed instrument to be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts and shall inure to the benefit of the Bank and its successors in title and assigns, and shall be binding on the Guarantor and the Guarantor's heirs, assigns and legal representatives. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty or has caused this Guaranty to be executed on its behalf by an officer or other person thereunto duly authorized on the 16th day of February, 1996. Witness: J&S LIMITED PARTNERSHIP By: Controller Corp., Inc. Its Sole General Partner ____________________________________ By: /s/ John J. Donovan __________________________________ John J. Donovan President and Treasurer Address: 219 Vassar Street Cambridge, MA 02139 THIS GUARANTY IS SECURED PURSUANT TO A SECURITY AGREEMENT (PLEDGED COLLATERAL) OF EVEN DATE. EX-10.16 9 SERIES B STOCK PURCHASE AGREEMENT EXHIBIT 10.16 BUSINESS@WEB, INC. HEWLETT-PACKARD COMPANY SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FEBRUARY 27, 1996 TABLE OF CONTENTS -----------------
ARTICLE I - THE PREFERRED SHARES 1 Section 1.01 - Issuance, Sale and Delivery of the Preferred Shares 1 Section 1.02 - Closing 1 Section 1.03 - Payment of Purchase Price 1 ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2 Section 2.01 - Organization, Qualification and Corporate Power 2 Section 2.02 - Authorization of Agreements, etc. 2 Section 2.03 - Validity 3 Section 2.04 - Authorized Capital Stock 3 Section 2.05 - Financial Statements; Corporate Minutes 4 Section 2.06 - Litigation, Compliance with Law 4 Section 2.07 - Proprietary Information of Third Parties 5 Section 2.08 - Title to Properties 5 Section 2.09 - Leasehold Interests 5 Section 2.10 - Taxes 5 Section 2.11 - Intellectual Property 6 Section 2.12 - Transactions with Affiliates 6 Section 2.13 - Governmental Approvals 6 Section 2.14 - Disclosure 7 Section 2.15 - Offering of the Preferred Shares 7 Section 2.16 - Brokers 7 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 8 ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER 9 Section 4.01 - Opinion of Company's Counsel 9 Section 4.02 - Representations and Warranties to be True and Correct 9 Section 4.03 - Performance 9 Section 4.04 - Conduct of Business 9 Section 4.05 - Registration Rights Agreement 9 Section 4.06 - Charter 10 Section 4.07 - Preemptive Rights 10 Section 4.08 - Marketing Agreement 10 Section 4.09 - Co-Sale Rights Agreement 10
Section 4.10 - Secretary's Certificate 10 Section 4.11 - All Proceedings to be Satisfactory 11 ARTICLE V - COVENANTS OF THE COMPANY 11 Section 5.01 - Financial Statements, Reports, etc. 11 Section 5.02 - Reserve for Conversion of Shares 11 Section 5.03 - Corporate Existence 12 Section 5.04 - Properties, Business, Insurance 12 Section 5.05 - Visitation, Consultation and Advice 12 Section 5.06 - Notice of Extraordinary Corporate Actions 12 Section 5.07 - Board of Directors Meetings 13 Section 5.08 - Transactions with Affiliates 13 Section 5.09 - Right of First Refusal 13 Section 5.10 - Key Man Insurance 14 ARTICLE VI - RESTRICTIONS ON TRANSFER OF PREFERRED SHARES 14 Section 6.01 - Transfer of Preferred Shares and Conversion Shares 14 Section 6.02 - First Offer Right 14 Section 6.03 - Permitted Transfers 15 Section 6.04 - Additional Transfer Restrictions 15 ARTICLE VII - MISCELLANEOUS 15 Section 7.01 - Expenses 15 Section 7.02 - Brokerage 16 Section 7.03 - Parties in Interest 16 Section 7.04 - Notices 16 Section 7.05 - Governing Law 16 Section 7.06 - Entire Agreement 16 Section 7.07 - Agreements with Other Investors 17 Section 7.08 - Counterparts 17 Section 7.09 - Amendments and Waivers 17 Section 7.10 - Severability 17 Section 7.11 - Titles and Subtitles 17 Section 7.12 - Certain Defined Terms 17 Section 7.13 - No Waiver; Cumulative Remedies 18 Section 7.14 - Confidentiality 18 Section 7.15 - Further Assurances 18
-ii- SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of February 27, 1996, between Business@Web, Inc., a Delaware corporation (the "Company"), and Hewlett-Packard Company, a California corporation (the "Purchaser"). WHEREAS, the Company wishes to issue and sell to the Purchaser 180,506 shares (the "Preferred Shares") of the authorized but unissued Series B Convertible Preferred Stock, $1.00 par value, of the Company (the "Series B Convertible Preferred Stock"); and WHEREAS, the Purchaser wishes to purchase the Preferred Shares on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I THE PREFERRED SHARES Section 1.01 Issuance, Sale and Delivery of the Preferred Shares. Subject --------------------------------------------------- to the terms and conditions hereinafter set forth, the Company hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company, the Preferred Shares at the purchase price of $5.54 per share. Section 1.02 Closing. The closing of the transactions contemplated hereby ------- shall take place at the offices of Peabody & Arnold, 50 Rowes Wharf, Boston, Massachusetts 02110, at 10:00 a.m., Boston time, on February 29, 1996, or at such other location, date and time as may be agreed upon between the Purchaser and the Company (such closing being called the "Closing" and such date and time being called the "Closing Date"). At the Closing, the Company shall issue and deliver to the Purchaser a stock certificate or certificates in definitive form, registered in the name of the Purchaser, representing the Preferred Shares. Section 1.03 Payment of Purchase Price. As payment in full for the ------------------------- Preferred Shares being purchased by it at the Closing, and against delivery of the stock certificate or certificates therefor as aforesaid, on the Closing Date the Purchaser shall deliver to the Company the amount of $1,000,003.24 (the "Purchase Price"). Payment of the Purchase Price shall be made by check or checks payable to the order of the Company, by transfer to the account of the Company by wire transfer, by surrender for cancellation of promissory notes of the Company, or by any combination thereof. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser that, except as set forth in the Disclosure Schedule attached as Schedule I: ---------- Section 2.01 Organization, Qualification and Corporate Power. ----------------------------------------------- (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business in all jurisdictions in which the nature of the business transacted by the Company or the character of the properties owned or leased by the Company requires that the Company qualify to do business as a foreign corporation, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, operations or financial condition of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement, the Registration Rights Agreement (as such term is hereinafter defined) and the Marketing Agreement (as such term is hereinafter defined), and to issue, sell and deliver the Preferred Shares and to issue and deliver the shares of Common Stock, $.001 par value, of the Company ("Common Stock") issuable upon conversion of the Preferred Shares (the "Conversion Shares"). (b) The Company has no subsidiaries. The Company does not own of record or beneficially, directly or indirectly, (i) any shares of capital stock or securities convertible into capital stock of any other corporation or (ii) any participating interest in any partnership, joint venture or other non-corporate business enterprise and does not control, directly or indirectly, any other entity. Section 2.02 Authorization of Agreements, etc. -------------------------------- (a) The execution and delivery by the Company of this Agreement, the Registration Rights Agreement, and the Marketing Agreement, the performance by the Company of its obligations hereunder and thereunder, the issuance, sale and delivery of the Preferred Shares and the issuance and delivery of the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Certificate of Incorporation of the Company, as amended, (the "Charter"), or the By-laws of the Company, as amended, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. 2 (b) The Preferred Shares have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable shares of Series B Convertible Preferred Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. The Conversion Shares have been duly reserved for issuance upon conversion of the Preferred Shares and, when so issued, will be duly authorized, validly issued, fully paid and nonassessable shares of Common Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. Neither the issuance, sale or delivery of the Preferred Shares nor the issuance or delivery of the Conversion Shares is subject to any preemptive right of stockholders of the Company or to any right of first refusal or other right in favor of any person. Section 2.03 Validity. This Agreement has been duly executed and -------- delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. The Registration Rights Agreement and the Marketing Agreement, when executed and delivered in accordance with this Agreement, will constitute the legal, valid and binding obligations of the Company and of the other parties thereto, enforceable in accordance with their respective terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. Section 2.04 Authorized Capital Stock. The authorized capital stock of ------------------------ the Company will, immediately prior to the Closing, consist of (i) 3,000,000 shares of Preferred Stock, $1.00 par value (the "Preferred Stock"), of which 1,750,000 shares have been designated Series B Convertible Preferred Stock, and 1,250,000 shares remain undesignated and (ii) 30,000,000 shares of Common Stock. Immediately prior to the Closing, 16,204,545 shares of Common Stock will be validly issued and outstanding, and no other shares of Common Stock or Preferred Stock will be outstanding. All shares of the series of Preferred Stock designated Series A Convertible Preferred Stock which had been issued prior to the date hereof have been surrendered for conversion into Common Stock and retired, and the series of Preferred Stock designated Series A Convertible Preferred Stock has been cancelled and eliminated from the shares which the Company is authorized to issue. The stockholders of record and holders of subscriptions, warrants, options, convertible securities, and other rights (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company, and the number of shares of Common Stock or Preferred Stock and the number of such subscriptions, warrants, options, convertible securities, and other such rights held by each, are as set forth in the attached Schedule II. The designations, powers, preferences, rights, ----------- qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Charter, a copy of which is attached as Exhibit A. Except as set forth in the --------- attached Schedule II, (i) no person owns of record or is known to the Company ----------- to own beneficially any share of Common Stock or Preferred Stock, (ii) no subscription, warrant, option, convertible security, or other right 3 (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company is authorized or outstanding and (iii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset. Except as provided for in the Charter or as set forth in the attached Schedule II, the ----------- Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Section 2.05 Financial Statements; Corporate Minutes. Attached hereto ------------ --------------------------------------- as Exhibit B are the unaudited balance sheet of the Company as of December 31, --------- 1995 and the related statement of operations, shareholders' equity and cash flows for the fiscal year then ended (the "Financial Statements"). The Financial Statements (a) are complete and correct in all material respects, (b) are in accordance with the Company's books and records, (c) present fairly the Company's financial position for the period and as of the date indicated and (d) have been prepared in conformity with generally accepted accounting principles consistently applied, subject to (i) adjustments which will not, in the aggregate, be material and (ii) the absence of footnotes. The Company has furnished to the Purchaser copies of the minutes of meetings and written consents in lieu of meetings of the Company's shareholders and Board of Directors from the date of the Company's incorporation through the date of this Agreement (the "Corporate Minutes"). The Corporate Minutes accurately reflect all actions taken by the Company's shareholders and Board of Directors. Section 2.06 Litigation, Compliance with Law. There is no (i) action, ------------------------------- suit, claim, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against or affecting the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending or, to the best of the Company's knowledge, threatened against or affecting the Company (including without limitation any inquiry as to the qualification of the Company to hold or receive any governmental license or permit), and, to the best of the Company's knowledge, there is no basis for any of the foregoing. The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. To the best of the Company's knowledge, the Company has complied in all material respects with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, and the Company has all necessary governmental permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted. There is no existing law, rule, regulation or order, and the Company is not aware of any proposed law, rule, regulation or order, whether Federal or state, which would prohibit or restrict the Company from, or otherwise materially adversely affect the Company in conducting its business in any 4 jurisdiction in which it is now conducting business or in which it proposes to conduct business. Section 2.07 Proprietary Information of Third Parties. To the best of the ---------------------------------------- Company's knowledge, no third party has claimed or has reason to claim that any person employed by the Company has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or nondisclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company which suggests that such a claim might be contemplated. To the best of the Company's knowledge, no person employed by the Company has utilized or proposes to utilize any trade secret or any information or documentation proprietary to any third party, and to the best of the Company's knowledge, no person employed by the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such utilization or violation. Section 2.08 Title to Properties. The Company has good and marketable ------------------- title to its properties and assets reflected in the Financial Statements and all such properties and assets are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances, except for liens for current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company and its subsidiaries. Section 2.09 Leasehold Interests. Each lease or agreement to which the ------------------- Company is a party under which it is a lessee of any property, real or personal, is a valid and subsisting agreement without any default of the Company thereunder and, to the best of the Company's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which, with due notice or lapse of time or both, would constitute a default or event of default by the Company under any such lease or agreement or, to the best of the Company's knowledge, by any other party thereto. The Company's possession of such property has not been disturbed and, to the best of the Company's knowledge, no claim has been asserted against the Company adverse to its rights in such leasehold interests. Section 2.10 Taxes. The Company has filed all tax returns, Federal, ----- state, county and local, required to be filed by it, and the Company has paid all taxes shown to be due by such returns as well as all other taxes, assessments and governmental charges which have become due or payable, including without limitation all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties. The Company has established adequate reserves for all taxes accrued but not yet payable. The Federal income 5 tax returns of the Company have never been audited by the Internal Revenue Service. No deficiency assessment with respect to or proposed adjustment of the Company's Federal, state, county or local taxes is pending or, to the best of the Company's knowledge, threatened. There is no tax lien, whether imposed by any Federal, state, county or local-taxing authority, outstanding against the assets, properties or business of the Company. Neither the Company nor any of its stockholders has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Company be taxed as an S corporation or (b) consent pursuant to Section 341(f) of the Code, relating to collapsible corporations. Section 2.11 Intellectual Property. The Company possesses adequate --------------------- licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets and know how (collectively, "Intellectual Property") which the Company presently believes are necessary or desirable to the conduct of its business as conducted and as proposed to be conducted, and no claim is pending or, to the best of the Company's knowledge, threatened to the effect that the operations of the Company infringe upon or conflict with the asserted rights of any other person under any Intellectual Property, and, to the best of the Company's knowledge, there is no basis for any such claim (whether or not pending or threatened). No claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company, and to the best of the Company's knowledge there is no basis for any such claim (whether or not pending or threatened). To the best of the Company's knowledge, all technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company has not granted or assigned to any other person or entity any right to manufacture, have manufactured, assemble or sell the products or proposed products or to provide the services or proposed services of the Company. Section 2.12 Transactions with Affiliates. No director, officer, employee ---------------------------- or stockholder of the Company, or, to the Company's knowledge, any member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or, to the Company's knowledge, any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, is a party to any transaction with the Company, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from, transfer of any asset (including any Intellectual Property) from or to, or otherwise requiring payments to any such person or firm. Section 2.13 Governmental Approvals. Subject to the accuracy of the ---------------------- representations and warranties of the Purchaser set forth in Article III, no registration or filing with, or consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by 6 the Company of this Agreement, the Registration Rights Agreement or the Marketing Agreement, the issuance, sale and delivery of the Preferred Shares or, upon conversion thereof, the issuance and delivery of the Conversion Shares, other than the filing of notice subsequent to the Closing that may be required pursuant to federal and state securities laws in connection with the sale of the Preferred Shares. Section 2.14 Disclosure. Neither the Company's representations and ---------- warranties in this Agreement and in the Schedules and Exhibits to this Agreement nor any statement made by the Company in the Confidential Private Placement Memorandum dated February 1996 (a copy of which the Company has been provided to the Purchaser) contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. Section 2.15 Offering of the Preferred Shares. Neither the Company nor -------------------------------- any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Preferred Shares or any security of the Company similar to the Preferred Shares has offered the Preferred Shares or any such similar security for sale to, or solicited any offer to buy the Preferred Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Preferred Shares under the Securities Act of 1933, as amended (the "Securities Act") or the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder), in either case so as to subject the offering, issuance or sale of the Preferred Shares to the registration provisions of the Securities Act or of any applicable state securities (Blue Sky) laws or regulations. Section 2.16 Brokers. The Company has engaged Cowen & Company to act as ------- its exclusive agent for the private placement of shares of Series B Preferred Stock and has agreed to pay Cowen & Company a placement fee (and to reimburse Cowen & Company for certain expenses) in connection therewith. Cowen & Company has agreed to exclude the Preferred Shares being purchased hereunder from the shares with respect to which it will be entitled to receive a placement fee. The Company has no other contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company that: (a) it is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act and was not organized for the specific purpose of acquiring the Preferred Shares; (b) it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; (c) it has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management; (d) the Preferred Shares being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; (e) it understands that (i) the Preferred Shares and the Conversion Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act, (ii) the Preferred Shares and, upon conversion thereof, the Conversion Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Preferred Shares and the Conversion Shares will bear a legend to such effect, and (iv) the Company will make a notation on its transfer books to such effect; (f) it has no present need for liquidity in connection with its purchase of the Preferred Shares; (g) the purchase of the Preferred Shares is consistent with the general investment objectives of the Purchaser, and that it understands that the purchase of the Preferred Shares involves a high degree of risk in view of the fact that, among other things, the Company is a start-up enterprise, and there may never be an established market for the Company's capital stock; and (h) the individual executing this Agreement on its behalf has been duly authorized to execute and deliver this Agreement; the signature of such individual is 8 binding upon the Purchaser; the Purchaser is duly organized, validly existing and in good standing in its jurisdiction of incorporation of organization and has all requisite power and authority to execute and deliver this Agreement; and the execution and delivery of this Agreement and the purchase of the Preferred Shares hereunder will not result in the violation of, constitute a breach of default under, or conflict with, any term or provision of the charter, bylaws, or other governing document of the Purchaser or, to its knowledge, material breach of default under any material agreement, judgment, decree, order, statute or regulation by which it is bound or applicable to it. ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER The obligation of the Purchaser to purchase and pay for the Preferred Shares to be purchased by it on the Closing Date is, at its option, subject to the satisfaction, on or before the Closing Date, of the following conditions: Section 4.01 Opinion of Company's Counsel. The Purchaser shall have ---------------------------- received from Peabody & Arnold, counsel for the Company, an opinion dated the Closing Date, substantially in the form attached to this Agreement as Exhibit C. --------- Section 4.02 Representations and Warranties to be True and Correct. The ------------------------------------------------------ representations and warranties contained in Article II shall be true, complete and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the President and Treasurer of the Company shall have certified to such effect to the Purchaser in writing on behalf of the Company. Section 4.03 Performance. The Company shall have performed and complied ----------- in all material respects with all agreements contained herein required to be performed or complied with by it prior to or at the Closing Date, and the President and Treasurer of the Company shall have certified to the Purchaser in writing to such effect on behalf of the Company. Section 4.04 Conduct of Business. From the date of this Agreement through ------------------- the Closing Date, the Company shall have conducted its business in the ordinary course, shall have complied in all material respects with all applicable laws, rules regulations and orders, noncompliance with which could materially adversely affect the Company's business or financial condition, and shall not have made any material change in the nature of its business. Section 4.05 Registration Rights Agreement. The Company shall have ------------------------------ executed and delivered the Registration Rights Agreement in the form attached hereto as Exhibit D, with --------- 9 such changes therein as may be reasonably necessary to permit the Cowen Investors to participate therein on a pro rata basis with the Purchaser (the "Registration Rights Agreement"). Section 4.06 Charter. The Charter shall read in its entirety as set ------- forth in Exhibit A. --------- Section 4.07 Preemptive Rights. All stockholders, if any, of the Company ----------------- having any preemptive, first refusal or other rights with respect to the issuance of the Preferred Shares or the Conversion Shares shall have irrevocably waived the same in writing. Section 4.08 Marketing Agreement. The Company shall have executed and ------------------- delivered a Marketing Agreement with the Purchaser in substantially the form attached hereto as Exhibit E (the "Marketing Agreement"). --------- Section 4.09 Co-Sale Rights Agreement. Harrington Trust Limited as ------------------------ Trustee of The Appleby Trust, J&S Limited Partnership, Legacy Investment Partnership, and Sundar Subramaniam (together, the Principal Shareholders") shall have executed and delivered a Co-Sale Rights Agreement with the Purchaser in substantially the form attached hereto as Exhibit F, with such changes --------- therein as may be reasonably necessary to permit the Cowen Investors to participate therein on a pro rata basis with the Purchaser (the "Co-Sale Rights Agreement"). Section 4.10 Secretary's Certificate. The Purchaser shall have received ----------------------- copies of the following documents: (i) (A) the Charter, certified as of a recent date by the Secretary of State of the State of Delaware, (B) a certificate of said Secretary dated as of a recent date as to the existence of the Company, the payment of all excise taxes by the Company and listing all documents of the Company on file with said Secretary, (C) a certificate of the Secretary of State of each jurisdiction in which the Company is qualified to do business as a foreign corporation dated as of a recent date as to the qualification and good standing in such jurisdiction of the Company; and (ii) a certificate of the Secretary of the Company dated the Closing Date and certifying: (A) that attached thereto is a true and complete copy of the By-laws of the Company as in effect on the date of such certification; (B) that attached thereto is a true and complete copy of all resolutions adopted by the Board of Directors and the stockholders of the Company authorizing the execution, delivery and performance of this Agreement and the issuance, sale and delivery of the Preferred Shares, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; and (C) that the Charter has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(B) above. 10 Section 4.11 All Proceedings to be Satisfactory. All corporate and other ---------------------------------- proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser. ARTICLE V COVENANTS OF THE COMPANY The Company covenants and agrees with the Purchaser as follows: Section 5.01 Financial Statements, Reports, etc. The Company shall ---------------------------------- furnish to the Purchaser, so long as the Purchaser owns at least 50,000 Preferred Shares or Conversion Shares: (a) within one hundred twenty (120) after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries as of the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal year then ended, prepared in accordance with generally accepted accounting principles and audited by a firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company; and (b) within sixty (60) days after the end of each fiscal quarter in each fiscal year (other than the last fiscal quarter in each fiscal year), a consolidated balance sheet of the Company and its subsidiaries and the related consolidated statements of income, stockholders' equity and cash flows, unaudited but prepared in accordance with generally accepted accounting principles and accompanied by a statement of the Chief Financial Officer or other senior executive officer of the Company to the effect that such financial statements have been prepared in accordance with generally accepted accounting principals, subject to normal year-end adjustments and the omission of notes, such consolidated balance sheet to be as of the end of such fiscal quarter and such consolidated statements of income, stockholders' equity and cash flows to be for such fiscal quarter and for the period from the beginning of the fiscal year to the end of such fiscal quarter. The obligations of the Company to furnish financial information to the Purchaser pursuant to this Section 5.01 shall terminate at such time as the Company becomes subject to the reporting requirements of the Securities Exchange Act of 1934. Section 5.02 Reserve for Conversion of Shares. The Company shall at all -------------------------------- times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Preferred Shares and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as 11 shall be sufficient to effect the conversion of the Preferred Shares from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Preferred Shares or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Preferred Shares. Section 5.03 Corporate Existence. So long as any Preferred Shares are ------------------- outstanding, the Company shall maintain and cause each of its subsidiaries to maintain their respective corporate existence, rights and franchises in full force and effect. Section 5.04 Properties, Business, Insurance. So long as any Preferred ------------------------------- Shares are outstanding, the Company shall maintain and cause each of its subsidiaries to maintain as to their respective properties and business, with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is approved by its Board of Directors. Section 5.05 Visitation, Consultation and Advice. So long as the ----------------------------------- Purchaser holds at least 50,000 Preferred Shares or Conversion Shares, the Company shall permit and cause each of its subsidiaries to permit the Purchaser and such persons as it may designate, at the Purchaser's expense, upon reasonable notice, reasonable access during normal business hours to visit the Company and its subsidiaries, discuss the affairs of the Company and its subsidiaries with their officers, and consult with and advise the management of the Company and its subsidiaries; provided, however, the (i) the Company may require the Purchaser and any person conducting such a visit or discussion to execute an agreement not to use or disclose any information discovered during such visit or discussion and (ii) the Company may withhold from the Purchaser and its designees any documents or information relating to the following matters (hereinafter referred to as "Confidential Matters"): (a) the Company's relationships or contemplated relationships with any business competitor of the Purchaser or (b) the Company's business relationships or contemplated business relationships (as opposed to shareholder relationships) with the Purchaser or any affiliate of the Purchaser. Section 5.06 Notice of Extraordinary Corporate Actions. So long as the ----------------------------------------- Purchaser holds at least 50,000 Preferred Shares or Conversion Shares, the Company shall, at least 20 days prior to the earlier of effecting or entering into any binding agreement to effect (i) any sale, lease, assignment, transfer or other conveyance (other than the grant of a mortgage or security interest) of all or substantially all the assets of the Company, (ii) any liquidation, dissolution or winding up of the affairs of the Company, (iii) any consolidation or merger of the Company with or into another corporation (other than a transaction in which the holders of the Company's equity securities outstanding immediately prior to the effectiveness of such 12 transaction hold, in the aggregate, at least 51% of the equity securities of the surviving entity immediately following the effectiveness of such transaction), or (iv) any recapitalization of the Company (in each case, an "Extraordinary Corporate Action"), give the Purchaser written notice of the proposed Extraordinary Corporate Action. Section 5.07 Board of Directors Meetings. The Company shall permit the --------------------------- Purchaser, so long as the Purchaser holds at least 50,000 Preferred Shares or Conversion Shares to have one representative attend each meeting of the Board of Directors of the Company and each meeting of any committee thereof and to participate in all discussions during each such meeting except during discussions of Confidential Matters. The Company shall send to such designee the notice of the time and place of such meeting in the same manner and at the same time as it shall send such notice to its directors or committee members, as the case may be. The Company shall also provide to such designee copies of all notices, reports, minutes and consents at the time and in the manner as they are provided to the Board of Directors or committee, except for information relating to Confidential Matters. Section 5.08 Transactions with Affiliates. Neither the Company nor any ---------------------------- of its subsidiaries or entities under its control shall enter into any transaction with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Company or other ownership interest in the Company, or with any of member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person or member of the family of any such person, is a director, officer, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, except for transactions on terms no less favorable to the Company or its subsidiary or such controlled entity than it would obtain in a transaction between unrelated parties. Section 5.09 Right of First Refusal. So long as the Purchaser holds at ---------------------- least 50,000 Preferred Shares or Conversion Shares, in the event the Company proposes to issue any of its securities (other than debt securities with no equity feature) directly to, or to any subsidiary of, (i) Digital Equipment Corporation, International Business Machines Corporation, Silicon Graphics Inc., Sun Microsystems, Inc., or Unisys Corp. (each, a "Hardware Manufacturing Competitor") or (ii) any other entity engaged, as a significant part of its business, in the manufacture of computer hardware (a "Hardware Manufacturer"), the Company shall offer to the Purchaser, by written notice, the right, for a period of 20 days (in the case of a proposed issuance to a Hardware Manufacturing Competitor) or ten days (in the case of a Hardware Manufacturer), to purchase all but not less than all of such securities at the same price and on the same terms as those on which the Company proposes to issue such securities to the Hardware Manufacturing Competitor or Hardware Manufacturer. The Company's written notice to the Purchaser shall identify the Hardware Manufacturing Competitor or Hardware Manufacturer to whom the proposed issuance will be made and shall describe the securities proposed to be issued and specify the number, price and payment terms. The Purchaser may accept the Company's offer as to the full number of securities offered to it, but not for any lesser number, by written notice thereof given by it to the Company prior to the expiration of 13 the aforesaid 20-day or 10-day period (whichever is applicable), in which event the Company shall promptly sell and the Purchaser shall buy, upon the terms specified, such securities. In the event the Purchaser does not timely accept the Company's offer under this Section 5.09, the Company shall be free at any time following expiration of the 20-day or 10-day offer period (whichever is applicable) and prior to 120 days after the date of its notice of offer to the Purchaser, to offer and sell to the identified Hardware Manufacturing Competitor or Hardware Manufacturer the offered securities at a price and on payment terms no less favorable to the Company than those specified in the notice of offer to the Purchaser. However, if such sale to the identified Hardware Manufacturing Competitor or Hardware Manufacturer is not consummated within such period, the Company shall not sell such securities as shall not have been purchased within such period without again complying with this Section 5.09. Section 5.10 Key Man Insurance. The Company shall use its best efforts to ----------------- obtain, promptly after the Closing, and to maintain in force a key man insurance policy in the amount of at least $2,000,000 on the life of Klaus Besier, the Company's Chairman and Chief Executive Officer. ARTICLE VI RESTRICTIONS ON TRANSFER OF PREFERRED SHARES Section 6.01 Transfer of Preferred Shares and Conversion Shares. Except -------------------------------------------------- as otherwise provided herein, the Purchaser shall not, prior to the consummation of a firm commitment underwritten public offering of Common Stock pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock to the public at an initial public offering price of not less than $8.25 per shares and with gross proceeds of not less than $15,000,000 (the "IPO"), sell, transfer, assign or otherwise dispose of (a "Transfer") any interest in any Preferred Shares or Conversion Shares except pursuant to Sections 6.02 or 6.03. Subject to the terms and conditions set forth below, the Purchaser agrees not to consummate any such Transfer (other than in the IPO) until 30 days after the later of the delivery to the Company of an Offer Notice (as defined below). Section 6.02 First Offer Right. Until the IPO, the Purchaser will, at ----------------- least 30 days prior to making any Transfer (other than in the IPO) of any Preferred Shares or Conversion Shares, deliver a written notice (the "Notice of Proposed Sale") to the Company. The Notice of Proposed Sale will disclose in reasonable detail the identity of the prospective transferee(s), the proposed number of Preferred Shares or Conversion Shares to be transferred and the proposed material terms and conditions of the Transfer. If, but only if, the prospective transferee(s) identified in the Notice of Proposed Sale is, in the Company's reasonable judgment, a competitor or prospective competitor of (i) the Company or any of its subsidiaries, (ii) any shareholder of the Company, or (iii) any customer or supplier of the Company, the Company shall have the right to purchase all, but not less than all, of the 14 Shares specified in the Notice of Proposed Sale at the price and on the terms and conditions specified therein by delivering written notice of its exercise of such right to the Purchaser as soon as practicable but in any event within 30 days after the receipt of the Notice of Proposed Sale. If the Company has elected to purchase any of the Preferred Shares or Conversion Shares specified in the Notice of Proposed Sale from the Purchaser, the transfer of such Preferred Shares or Conversion Shares will be consummated as soon as practicable after the delivery of the election notice, but in any event within 60 days after the date of the Notice of Proposed Sale. In the event that the Company has not elected to purchase all of the Preferred Shares or Conversion Shares specified in the Notice of Proposed Sale, the Purchaser may, within 90 days after the expiration of the Company's 30-day election period, transfer such Preferred Shares or Conversion Shares to the transferees identified in the Notice of Proposed Sale at a price no less than the price per share specified in the Notice of Proposed Sale and on other terms and conditions no more favorable to the transferee(s) than offered to the Company in the Notice of Proposed Sale. The purchase price specified in any Notice of Proposed Sale shall be payable solely by check or in cash or by wire transfer of immediately available funds at the closing of the transaction. Section 6.03 Permitted Transfers. The restrictions set forth in this ------------------- Article VI shall not apply with respect to any Transfer to any person controlling, controlled by or under common control with the Purchaser (a "Permitted Transferee"); provided, that the restrictions contained in this Article VI shall continue to be applicable to the Preferred Shares and Conversion Shares after any such Transfer; and provided further that the transferees of such Preferred Shares or Conversion Shares shall have agreed in writing to be bound by the provisions of this Article VI with respect to the Preferred Shares or Conversion Shares so transferred. Section 6.04 Additional Transfer Restrictions. Until the IPO, no Transfer -------------------------------- of any Preferred Shares or Conversion Shares (other than in the IPO) may be made unless the transferee executes and delivers a written instrument, in form and substance satisfactory to the Company, acknowledging the receipt of a copy of the provisions and restrictions contained in this Article VI and agreeing to comply herewith and be bound hereby ARTICLE VII MISCELLANEOUS Section 7.01 Expenses. Each party hereto will pay its own expenses in -------- connection with the transactions contemplated hereby, whether or not such transactions shall be consummated. 15 Section 7.02 Brokerage. Each party hereto will indemnify and hold --------- harmless the other against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. Section 7.03 Parties in Interest. All representations, covenants and ------------------- agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not; provided, however, that the rights of the Purchaser under Section 5.01 and 5.06 may not be assigned without the prior written consent of the Company. Section 7.04 Notices. All notices, requests, consents and other ------- communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) three business days after being mailed by certified or registered mail, return receipt requested, or (iii) one business day after being sent by a recognized overnight courier service, addressed as follows: (a) if to the Company, at with a copy to Business@Web, Inc. William E. Kelly, Esq 219 Vassar Street Peabody & Arnold Cambridge, Massachusetts 02139 50 Rowes Wharf Attn: Chief Financial Officer Boston, Massachusetts 02110 (b) if to the Purchaser, at with a copy to Hewlett-Packard Company Hewlett-Packard Company 3000 Hanover Street 3000 Hanover Street Palo Alto, California 94304 Palo Alto, California 94304 Attn: Director, Corporate Development Attn: General Counsel or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others. Section 7.05 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware. Section 7.06 Entire Agreement. This Agreement, including the Schedules ---------------- and Exhibits hereto, constitutes the sole and entire agreement of the parties with respect to the subject matter hereof. All Schedules and Exhibits hereto are hereby incorporated herein by reference. 16 Section 7.07 Agreements with Other Investors. The Company has engaged ------------------------------- Cowen & Company to act as its exclusive agent for the private placement of shares of Series B Preferred Stock. In the event the Company proposes to enter into agreements with investors in such private placement (the "Cowen Investors") on any terms more favorable to the Cowen Investors than the terms afforded to the Purchaser under this Agreement, the Charter, the Co-Sale Rights Agreement or the Registration Rights Agreement, then, prior to executing any such agreements with the Cowen Investors, the Company shall give the Purchaser written notice of the terms of such proposed agreements (the "Cowen Terms") and, if the Purchaser so elects, the Company and the Purchaser shall amend this Agreement, the Charter, the Co-Sale Rights Agreement and/or the Registration Rights Agreement to incorporate the Cowen Terms herein or therein for the benefit of the Purchaser. The Purchaser will, at the request of the Company, execute and deliver such consents and waivers as may be necessary to effect the proposed private placement on the Cowen Terms, including without limitation, any consents required for the amendment of the terms of the Series B Preferred Stock as set forth in the Charter in order to incorporate therein the Cowen Terms (provided such Cowen Terms increase the rights of the holders of Series B Preferred Stock). Section 7.08 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. Section 7.09 Amendments and Waivers. This Agreement may be amended or ---------------------- modified, and provisions hereof may be waived, only with the written consent of the Company and the Purchaser. Section 7.10 Severability. If any provision of this Agreement shall be ------------ declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby. Section 7.11 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement. Section 7.12 Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): (a) "person" shall mean an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity. (b) "subsidiary" shall mean, as to the Company, any corporation of which more than 50% of the outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether or not 17 at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company, or by one or more of its subsidiaries, or by the Company and one or more of its subsidiaries. Section 7.13 No Waiver; Cumulative Remedies. No failure or delay on the ------------------------------ part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall nay single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 7.14 Confidentiality. The Purchaser agrees that it will maintain --------------- with the same degree of care it uses with respect to its own confidential information all confidential, proprietary or secret information which the Purchaser may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to the Purchaser pursuant to this Agreement, or pursuant to visitation or inspection rights granted hereunder, unless such information is known, or until such information becomes known through no fault of the Purchaser, to the public; provided, however, that the -------- ------- Purchaser may disclosure such information (i) on a confidential basis to its attorneys, accountants, consultants any other professionals to the extent necessary to obtain their services in connection with its investment in the Company, (ii) to any affiliate of the Purchaser on a "need to know basis" and (iii) as required by applicable law. If the Purchaser is required in any legal or administrative or other governmental proceeding to disclose any of such information, the Purchaser shall give the Company timely notice of the pending requirement and use its best efforts to provide the Company an opportunity to obtain protective provisions against further disclosure. Section 7.15 Further Assurances. From and after the date of this ------------------ Agreement, upon the request of the Purchaser or the Company, the Company and the Purchaser shall execute and deliver such instruments, documents and 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 and the Preferred Shares. 18 IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement as of the day and year first above written. BUSINESS@WEB, INC. By: /s/ James G. Nondorf --------------------- James G. Nondorf, President HEWLETT-PACKARD COMPANY By: /s/ Manuel Diaz --------------- Manuel Diaz, Vice President 19 EXHIBIT A --------- RESTATED CERTIFICATE OF INCORPORATION OF BUSINESS@WEB, INC. Business@Web, Inc. (the "Corporation"), originally incorporated under the name Object Power, Incorporated by original Certificate of Incorporation filed with the office of the Secretary of State of the State of Delaware on January 19, 1994, as amended, and currently organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify that the Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting, has duly adopted a resolution, pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, setting forth an amended and restated Certificate of Incorporation of the Corporation and declaring said amendment and restatement to be advisable. The stockholders of the Corporation have duly approved said amendment and restatement by the required vote of such stockholders, adopted by a written action in lieu of a meeting of such stockholders, all in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and written notice of the taking of such action was given promptly to those stockholders who have not consented in writing, as required by Section 228 of the General Corporation Law of the State of Delaware. The Certificate of Incorporation of the Corporation, as amended and restated in its entirety, is as follows: FIRST: The name of the Corporation is Business@Web, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is thirty-three million (33,000,000) shares, thirty million (30,000,000) of which shall be Common Stock, par value $.001 per share ("Common Stock"), and three million (3,000,000) of which shall be Preferred Stock, par value $1.00 per share ("Preferred Stock"). Of the authorized Preferred Stock, one million four hundred thirty-one thousand four hundred twelve (1,431,412) shares shall be designated Series B Convertible 20 Preferred Stock and one million five hundred sixty-eight thousand five hundred eighty-eight (1,568,588) shares shall be undesignated. All shares of the series of Preferred Stock designated Series A Preferred Stock issued and outstanding prior to the filing of this Restated Certificate of Incorporation have been surrendered for conversion into Common Stock and retired, and the series of Preferred Stock designated as Series A Preferred Stock is hereby cancelled and eliminated from the shares which the Corporation is authorized to issue. Descriptions of the undesignated Preferred Stock, the Series B Convertible Preferred Stock and the Common Stock are as follows: I. PREFERRED STOCK Description of Undesignated Preferred Stock. 1. Issuance of Preferred Stock in Classes or Series. The undesignated Preferred Stock of the Corporation may be issued in one or more classes or series at such time or times and for such consideration as the Board of Directors of the Corporation may determine. Each class or series shall be so designated as to distinguish the shares thereof from the shares of all other classes and series. Except as to the relative preferences, powers, dividends, qualifications, rights and privileges referred to in the next paragraph below, in respect of any or all of which there may be variations between different classes or series of Preferred Stock, all shares of Preferred Stock shall be identical. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes unless otherwise specifically set forth herein. 2. Authority to Establish Variations Between Classes or Series of Preferred Stock. The Board of Directors of the Corporation is expressly authorized, by a vote of a majority of the members of the Board of Directors then in office, subject to the limitations prescribed by law and the provisions of this Certificate of Incorporation, to provide by adopting a vote or votes, a Certificate of Designation of which shall be filed in accordance with the General Corporation Law of the State of Delaware, for the issue of the undesignated Preferred Stock in one or more classes or series, each with such designations, preferences, voting powers, dividends, qualifications, special or relative rights and privileges as shall be stated in the Certificate of Designation and the resolutions of the Board of Directors creating such class or series. Description of Series B Convertible Preferred Stock. 1. Liquidation Rights. (a) Treatment at Liquidation, Dissolution or Winding Up. 21 (i) Except as otherwise provided in Section 1(b) below, in the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, the holders of Series B Convertible Preferred Stock shall be entitled to be paid first out of the assets of the corporation available for distribution to holders of the corporation's capital stock of all classes, before payment or distribution of any of such assets to the holders of any other class or series of the corporation's capital stock designated to be junior to the Series B Convertible Preferred Stock, an amount equal to $5.54 per share of Series B Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to Series B Convertible Preferred Stock and, as so adjusted from time to time, is hereinafter referred to as the "Base Liquidation Price") plus all dividends thereon accrued but unpaid, to and including the date full payment shall be tendered to the holders of Series B Convertible Preferred Stock with respect to such liquidation, dissolution or winding up. (ii) Following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the corporation available for distribution to holders of the corpora tion's capital stock shall be distributed among the holders of the Common Stock and the holders of the Series B Convertible Preferred Stock on a share for share basis, with each holder of a share of Series B Convertible Preferred Stock receiving the amount that would have been payable to the holder of such share had all shares of Series B Convertible Preferred Stock been converted to Common Stock pursuant to Section 2(a) hereof immediately following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof. (iii) If the assets of the corporation shall be insufficient to permit the payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the corporation available for such distribution shall be distributed ratably among the holders of Series B Convertible Preferred Stock. (b) Treatment of Reorganizations, Consolidations, Mergers and Sales ---------------------------------------------------------------- of Assets. A consolidation or merger of the corporation, or a sale of all or - --------- substantially all of the assets of the corporation (other than a merger, consolidation or sale of all or substantially all of the assets of the corporation in a transaction in which the shareholders of the corporation immediately prior to the transaction possess more than 50% of the voting securities of the surviving entity (or parent, if any) immediately after the transaction) shall be regarded as a liquidation, dissolution or winding up of the affairs of the corporation within the meaning of this Section 1. (c) Distributions Other than Cash. Whenever the distribution ----------------------------- provided for in this Section 1 shall be payable in property other than cash, the value of such distribution 22 shall be the fair market value of such property as determined in good faith by the Board of Directors of the corporation. 2. Conversion. The holders of Series B Convertible Preferred Stock shall ---------- have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert; Conversion Price. Each share of Series B ---------------------------------- Convertible Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Series B Convertible Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $5.54 by the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The Conversion Price for purposes of calculating the number of shares of Common Stock deliverable upon conversion without the payment of any additional consideration by the holder of Series B Convertible Preferred Stock (the "Conversion Price") shall initially be $5.54. Such initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which Series B Convertible Preferred Stock is convertible, as hereinafter provided. (b) Mechanics of Conversion. Before any holder of Series B ----------------------- Convertible Preferred Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series B Convertible Preferred Stock, and shall give written notice to the corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of Series B Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Convertible Preferred Stock, or to such holder's nominee or nominees, a-certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 23 (i) Each share of Series B Convertible Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price (subject to adjustment as provided in Section 2(c)(iii)) upon: (A) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public at an initial public offering price per share of not less than $8.25 (adjusted proportionately to give effect to any stock dividend, stock distribution or subdivision or any combination or consolidation of Common Stock) and with gross proceeds of not less than $15,000,000 (a "Qualified IPO") or (B) the written election of the holders of not less than a majority of the then outstanding shares of Series B Convertible Preferred Stock to require such mandatory conversion. (ii) Upon the occurrence of an event specified in Section 2(c)(i) hereof, all shares of Series B Convertible Preferred Stock shall be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares are surrendered to the corporation or the transfer agent for the Series B Convertible Preferred Stock; provided, however, that the corporation shall not be obligated to issue a certificate or certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificate or certificates evidencing such shares of Series B Convertible Preferred Stock being converted are either delivered to the corporation or the transfer agent of the Series B Convertible Preferred Stock, or the holder notifies the corporation or such transfer agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection therewith and, if the corporation so elects, provides an appropriate indemnity bond. Upon the automatic conversion of Series B Convertible Preferred Stock, each holder of Series B Convertible Preferred Stock shall surrender the certificate or certificates representing such holder's shares of Series B Convertible Preferred Stock at the office of the corporation or of the transfer agent for the Series B Convertible Preferred Stock. Thereupon, there shall be issued and delivered to such holder, promptly at such office and in such holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series B Convertible Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series B Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (iii) In the event of the automatic conversion of shares of Series B Convertible Preferred Stock into shares of Common Stock, pursuant to Section 2(c)(i)(A), 24 upon the occurrence of a Qualified IPO in which the initial offering price per share of Common Stock is less than $10.25 (the "Adjustment Trigger Price"), the Conversion Price in effect immediately prior to the closing of the Qualified IPO shall be adjusted automatically to the greater of (A) the price determined by dividing (i) the initial offering price per share of Common Stock in the Qualified IPO by (ii) 1.85 (the "IPO Adjusted Conversion Price") or (B) $4.46 (the "Adjustment Floor Price"); provided, however, that there shall be no adjustment of the Conversion Price pursuant to the foregoing clause if the Conversion Price resulting from adjustment would be higher than the Conversion Price in effect immediately prior to the closing of the Qualified IPO. If, prior to the Qualified IPO, the Conversion Price shall have been adjusted pursuant to Section 2(d)(vi)(A) in the event of a stock dividend, stock distribution or subdivision or pursuant to Section 2(d)(vi)(B) in the event of a combination or consolidation of Common Stock, the Adjustment Trigger Price, the Adjustment Floor Price and the IPO Adjusted Conversion Price shall be decreased or increased proportionately to give effect to such stock dividend, stock distribution or subdivision or such combination or consolidation. (d) Adjustments to Conversion Price for Diluting Issues. -------------------------------------------- ------ (i) Special Definitions. For purposes of this Section 2(d), the ------------------- following definitions shall apply: (A) "Option" shall mean rights, options or warrants to subscribe -------- for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which a share --------------------- of Series B Convertible Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of ------------------------ indebtedness, shares (other than Common Stock and Series B Convertible Preferred Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all shares of ---------------------------------- Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than the following (collectively, "Excluded Shares"): (I) shares of Common Stock issued or issuable upon conversion of shares of Series B Convertible Preferred Stock; or (II) shares of Common Stock issued or issuable upon exercise or conversion of Options or Convertible Securities outstanding on the Original Issue Date; or 25 (III) shares of Common Stock issued or issuable to officers, employees or directors of, or consultants to, the corporation pursuant to a stock purchase or option plan or other employee stock bonus arrangement (collectively, the "Plans") approved by the Board of Directors; provided, however, that shares of Common Stock issued or deemed issued to a director of the corporation pursuant to options or other purchase rights granted after the Original Issue Date shall be Excluded Shares only if granted at the time of, or in connection with, such director's initial election to the Board of Directors; or (IV) shares of Common Stock issued or issuable pursuant to warrants issued in connection with the establishment of credit facilities for the corporation (including, without limitation, in connection with equipment leasing arrangements); or (V) shares of Common Stock or Convertible Securities issued with the written consent of the holders of not less than a majority of the outstanding shares of Series B Convertible Preferred Stock. (ii) No Adjustment of Conversion Price. No adjustment in the number --------------------------------- of shares of Common Stock into which a share of Series B Convertible Preferred Stock is convertible shall be made, by adjustment in the Conversion Price in respect of the issuance of Additional Shares of Common Stock or otherwise: (i) unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock or, (ii) if prior to such issuance, the corporation receives written notice from the holders of a majority of the then outstanding shares of Series B Convertible Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of Common --------------------------------------------------------------- Stock. - ----- (A) Options and Convertible Securities. In the event the corporation ---------------------------------- at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the deter mination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then 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 upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per 26 share (determined pursuant to Section 2(d)(v) hereof) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (I) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (II) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (III) upon the expiration of any such options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and (b) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have 27 been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation (determined pursuant to Section 2(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (IV) no readjustment pursuant to clause (II) or (III) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (V) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (III) above; and (VI) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the actual date of their issuance. (B) Stock Dividends, Stock Distributions and Subdivisions. In the ----------------------------------------------------- event the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which corporate action becomes effective. If such record date shall have been fixed and no part of such dividend shall have been paid on the date fixed therefor, the adjustment previously made for 28 the Conversion price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the time of actual payment of such dividend. (iv) Adjustment of Conversion Price Upon Issuance of Additional ---------------------------------------------------------- Shares of Common Stock. - ----------------------- (A) In the event the corporation shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of shares of Common Stock which the aggregate consideration received or deemed to have been received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and the denominator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of Additional Shares of Common Stock so issued or deemed to be issued. (B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all shares of Common Stock issuable upon conversion of shares of Series B Convertible Preferred Stock, and upon exercise of options or conversion or exchange of Convertible Securities which are part of the Excluded Shares, outstanding immediately prior to any issue of Additional Shares of Common Stock, or any event with respect to which Additional Shares of Common Stock shall be deemed to be issued, shall be deemed to be outstanding; and (ii) immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (C) Notwithstanding anything to the contrary contained herein, the applicable Conversion Price in effect at the time Additional Shares of Common Stock are issued or deemed to be issued shall not be reduced pursuant to Sec tion 2(d)(iv)(A) hereof at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. 29 (v) Determination of Consideration. For purposes of this Section ------------------------------ 2(d), the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: ----------------- (I) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share ---------------------------------- received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to Options and Con vertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Dividends, Distributions, Subdivisions, ------------------------------------------------------ Combinations or Consolidations of Common Stock. - ---------------------------------------------- (A) Stock Dividends, Distributions or Subdivisions. In the event the ---------------------------------------------- corporation shall issue Additional Shares of Common Stock pursuant to Section 2(d)(iii)(B) in a stock dividend, stock distribution or subdivision, the Con version Price in effect immediately prior to such stock dividend, stock distribution or subdivision 30 shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (B) Combinations or Consolidations. In the event the outstanding ------------------------------ shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (e) No Impairment. The corporation shall not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series B Convertible Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price pursuant to this Section 2, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each affected holder of Series B Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any affected holder of Series B Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price 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 conversion of each share of Series B Convertible Preferred Stock. (g) Notices of Record Date. In the event of any taking by the ---------------------- corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the corporation shall mail to each holder of Series B Convertible Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. (h) Common Stock Reserved. The corporation shall reserve and keep --------------------- available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all convertible Series B Convertible Preferred Stock. 31 (i) Certain Taxes. The corporation shall pay any issue or transfer ------------- taxes payable in connection with the conversion of any shares of Series B Convertible Preferred Stock; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of such Series B Convertible Preferred Stock. (j) Closing of Books. The corporation shall at no time close its ---------------- transfer books against the transfer of any Series B Convertible Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series B Convertible Preferred Stock, in any manner which interferes with the timely conversion or transfer of such Series B Convertible Preferred Stock. 3. Voting Rights. ------------- Except as otherwise provided herein or required by law or by the provisions establishing any other series of Preferred Stock, the holders of Common Stock and the holders of Series B Convertible Preferred Stock shall be entitled to notice of any stockholders' meeting and shall vote as one class upon any matter submitted to the stockholders for a vote, on the following basis: (i) Holders of Common Stock shall have one vote per share of Common Stock held by them; and (ii) Holders of Series B Convertible Preferred Stock shall have that number of votes per share of Series B Convertible Preferred Stock as is equal to the number of shares of Common Stock into which each such share of Series B Convertible Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting. 4. Dividend Rights. --------------- (a) From and after the Original Issue Date, dividends shall accrue on each share of the Series B Convertible Preferred Stock, whether or not funds are legally available therefor and whether or not declared by the Board of Directors, in the amount per annum of $0.3324 per share of Series B Convertible Preferred Stock (the "Series B Dividends"). From time to time the Board of Directors of the corporation may declare and pay dividends or distributions on shares of the Common Stock or on any other class or series of capital stock of the corporation, but only if all accrued Series B Dividends shall have been paid in full prior to the date of any such declaration, payment or distribution. (b) In the event the Board of Directors of the corporation shall declare a dividend payable upon the then outstanding shares of the Common Stock (other than a dividend payable entirely in shares of the Common Stock of the corporation), the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of the 32 Series B Convertible Preferred Stock, payable at the same time as the dividend paid on the Common Stock, in an amount equal to the amount of dividends per share of Series B Convertible Preferred Stock, as would have been payable on the largest number of whole shares of Common Stock into which each share of Series B Convertible Preferred Stock held by each holder thereof if such Series B Convertible Preferred Stock had been converted to Common Stock pursuant to the provisions of Section 2 hereof as of the record date for the determination of holders of Common Stock entitled to receive such dividends; and (c) In the event the Board of Directors of the corporation shall declare a dividend payable upon any class or series of capital stock of the corporation other than Common Stock, the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of Series B Convertible Preferred Stock, payable at the same time as such dividend on such other class or series of capital stock in an amount equal to (i) in the case of any series or class convertible into Common Stock, that dividend per share of Series B Convertible Preferred Stock, as would equal the dividend payable on such other class or series determined as if all such shares of such class or series had been converted to Common Stock and all shares of Series B Convertible Preferred Stock have been converted to Common Stock on the record date for the determination of holders entitled to receive such dividend or (ii) if such class or series of Capital Stock is not convertible into Common Stock, at a rate per share of Series B Convertible Preferred Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by the Base Liquidation Price then in effect. 5. Redemption. ---------- (a) At the written request, made on or after December 31, 2002, of the holders of a majority of the then-outstanding shares of Series B Convertible Preferred Stock, the corporation shall on March 31 in each of the three (3) years immediately following the date of such request (each, a "Redemption Date"), call for redemption in accordance with Section 5(b) hereof and shall redeem for the applicable Redemption Amount (as hereinafter defined) from each holder of Series B Convertible Preferred Stock such number of shares of Series B Convertible Preferred Stock as shall be equal to thirty-three and one third percent (33 1/3%) of all of the shares of Series B Convertible Preferred Stock held by such holder on the Redemption Date. For the purposes of this Section 5, the term "Redemption Amount" means, for each share of Series B Convertible Preferred Stock to be redeemed, the sum of (i) the Base Liquidation Price plus (ii) an amount equal to any dividends accrued and unpaid thereon at the time of such redemption. (b) Call for redemption shall be made by the corporation by notice sent by first class mail, postage prepaid, to each holder of record of Series B Convertible Preferred Stock to be redeemed, not less than thirty (30) days nor more than sixty (60) days prior to the Redemption Date set forth therein, at such holder's address as it appears on the books of the corporation. Such notice shall set forth (i) the Redemption Date and the place of redemption, 33 (ii) the number of shares to be redeemed (in accordance with Section 5(a) hereof) and (iii) the Redemption Amount per share and the aggregate Redemption Amount to be paid with respect to the shares to be redeemed. The corporation shall be obligated to redeem shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof whether or not any notice of redemption is given as required herein. If, before the close of business on the relevant Redemption Date, any holder of record of Series B Convertible Preferred Stock shall have surrendered any shares of Series B Convertible Preferred Stock for conversion pursuant to Section 2(a) hereof, the corporation shall credit against the number of shares of Series B Convertible Preferred Stock otherwise required to be redeemed from such holder, and shall not redeem the number of shares of Series B Convertible Preferred Stock which had been converted by such holder on or before such Redemption Date and which had not previously been credited against any redemption. (c) If, on or before any Redemption Date, the funds necessary for such redemption shall have been set aside by the corporation and deposited with a bank or trust company in trust for the pro rata benefit of the holders of Series B Convertible Preferred Stock to be redeemed pursuant to Section 5(a) hereof, then, notwithstanding that any certificates for such shares of Series B Convertible Preferred Stock to be redeemed shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding from and after the Redemption Date, and all rights of holders of such shares shall forthwith, after the Redemption Date, cease and terminate, excepting only the right to receive the full redemption funds therefor to which they are entitled. Any interest accrued on funds so deposited and unclaimed by stockholders entitled thereto shall be paid to such stockholders at the time their respective shares are redeemed or to the corporation at the time unclaimed amounts are paid to it. In case the holders of Series B Convertible Preferred Stock to be redeemed pursuant to Section 5(a) hereof shall not, within five (5) years after the Redemption Date, claim the amounts so deposited with respect to the redemption thereof, any such bank or trust company shall, upon demand, pay over to the corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the corporation for the payment thereof. Any funds so deposited with a bank or trust company which shall not be required for such redemption by reason of the exercise subsequent to the date of such deposit, of the right of conversion of any shares, or otherwise, shall be returned to the corporation forthwith. (d) If the funds of the corporation legally available for redemption of shares of Series B Convertible Preferred Stock on a Redemption Date are insufficient to redeem the total number of shares of Series B Convertible Preferred Stock required to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of whole shares of Series B Convertible Preferred Stock pro rata from among all holders of Series B Convertible Preferred Stock on the basis of the aggregate number of shares of Series B Convertible Preferred Stock held by each such holder on the Redemption Date. The shares of Series B Convertible Preferred Stock not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time 34 thereafter when additional funds of the corporation are legally available for the redemption of such shares of Series B Convertible Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available. (e) If the corporation for any reason fails to redeem any shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof on or prior to the Redemption Date specified therein, then from and after such Redemption Date until such time as the Redemption Amount for such shares of Series B Convertible Preferred Stock has been paid in full, notwithstanding anything to the contrary contained in this Certificate of Incorporation, the corporation may not incur any indebtedness for money borrowed (unless the proceeds of such incurrence of indebtedness are used to make all overdue redemptions) or borrow or reborrow any amounts under any lines of credit which it may then have outstanding without the prior written consent of the holders of not less than a majority of the then outstanding shares of Series B Convertible Preferred Stock; provided, however, that the corporation may incur indebtedness for money borrowed or borrow or reborrow any amounts under any outstanding lines of credit without the aforesaid approval if (i) the proceeds of such borrowing are intended to be, and are in fact, used to pay obligations of the corporation arising in the ordinary course of business as they become due and payable or otherwise to maintain the operations of the corporation at the then current level and not to expand the operations of the corporation in any respect, whether through expansion or enhancement of, or addition to, the corporation's then current product line, facilities, equipment, other capital assets or workforce, or otherwise, (ii) the corporation provides prior written notice of such borrowing to all holders of Series B Convertible Preferred Stock, which notice shall include a statement of the intended use of the proceeds of such borrowing and (iii) promptly upon request therefor, the corporation shall provide to any holder of Series B Convertible Preferred Stock a certificate signed by the President and Chief Financial Officer of the corporation certifying as to the allocation and use of the proceeds of any such borrowing; and (f) If the corporation for any reason fails to redeem any shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof on or prior to the Redemption Date specified therein, then from and after such Redemption Date until such time as the Redemption Amount for such shares of Series B Convertible Preferred Stock has been paid in full, notwithstanding anything to the contrary contained in this Certificate of Incorporation, the holders of Series B Convertible Preferred Stock, voting as a separate class and not with the holders of Common Stock, shall be entitled to elect to the Board of Directors the smallest number of directors which shall constitute a majority of the authorized number of directors, and the holders of Common Stock, voting as a separate class, shall be entitled to elect the remaining members of the Board of Directors. Whenever under the provisions of the preceding sentence the right shall have accrued to the holders of Series B Convertible Preferred Stock as a class to elect directors of the corporation, the Board of Directors shall promptly call (and in the event the Board of Directors fails to call, the holders of at least twenty percent (20%) in voting power of the outstanding shares of Series B Convertible Preferred Stock may call) a special meeting of stockholders for the election of 35 directors. Upon the election by the holders of the Series B Convertible Preferred Stock of the directors they are entitled to elect as provided in this Section 5(f), the terms of office of all persons who were previously members of the Board of Directors shall immediately terminate, whether or not the holders of Common Stock shall have elected the remaining members of the Board of Directors. In the case of any vacancy of office occurring among the directors elected by the holders of Series B Convertible Preferred Stock, the remaining directors elected by the holders of Series B Convertible Preferred Stock, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired term of the director whose place shall be vacant; in the case of any vacancy of office occurring among the directors elected by the holders of Common Stock, the remaining directors elected by the holders of Common Stock, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired term of the director whose place shall be vacant. Any director who shall have been elected by the holders of Series B Convertible Preferred Stock (or by directors elected by the holders of Series B Convertible Preferred Stock) may be removed during his term of office by, and only by, the affirmative vote of the holders of the then outstanding shares of Series B Convertible Preferred Stock; any director who shall have been elected by the holders of Common Stock (or by directors elected by the holders of Common Stock) may be removed during his term of office by, and only by, the affirmative vote of the holders of the then outstanding shares of Common Stock. If and when the delinquent Redemption Amount shall have been paid in full, the holders of Series B Convertible Preferred Stock shall be immediately divested of the special voting rights set forth in this Section 5(f), but always subject to the reinstatement of such voting rights in case of similar future delinquency; upon the termination of such voting rights, the Board of Directors shall call (and in the event the Board of Directors fails to call, the holders of at least twenty percent (20%) in voting power of the outstanding shares of Common Stock may call) a special meeting of stockholders at which all directors shall be elected in accordance with Section 3, above, and the terms of office of all persons who are then directors of the corporation shall terminate immediately upon the election of their successors. 6. Covenants --------- (a) So long as at least twenty-five percent (25%) of the number of shares of Series B Convertible Preferred Stock outstanding on the Original Issue Date shall be outstanding, the corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Series B Convertible Preferred Stock required by Section 6(b) hereof and having obtained the affirmative vote or written consent of the holders of a majority of such outstanding shares of Series B Convertible Preferred Stock: (i) amend, alter or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation or by-laws, if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Convertible Preferred Stock; 36 (ii) reclassify any Common Stock or Preferred Stock into shares having any preference or priority as to assets superior to or on a parity with any such preference or priority of the Series B Convertible Preferred Stock; (iii) create, authorize or issue any additional shares of Series B Convertible Preferred Stock or any other class or classes of stock or series of Common Stock or Preferred Stock or any security convertible into or evidencing the right to purchase shares of any class or series of Common Stock or Preferred Stock or any capital stock of the corporation senior to or on a parity with the Series B Convertible Preferred Stock; or (iv) apply any of its assets to the redemption, retirement, purchase or other acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of Common Stock except at their original purchase price of shares of Common Stock from officers, employees or directors of, or consultants to, the corporation upon termination of their status as such pursuant to agreements containing vesting and/or repurchase provisions approved by the Board of Directors of the corporation. (b) Notwithstanding any other provision of this Certificate of Incorporation or the corporation's by-laws to the contrary, notice of any action specified in Section 6(a) hereof shall be given by the corporation to each holder of shares of Series B Convertible Preferred Stock by first class mail, postage prepaid, addressed to such holder at the last address of such holder as shown by the records of the corporation, at least thirty (30) days before the date on which the books of the corporation shall close or a record shall be taken with respect to such proposed action, or, if there shall be no such date, at least thirty (30) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Series B Convertible Preferred Stock may waive any notice required by this Section 6(b) by a written document indicating such waiver. 7. No Reissuance of Series B Convertible Preferred Stock. No share or ----------------------------------------------------- shares of Series B Convertible Preferred Stock acquired by the corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue. 8. Residual Rights. All rights accruing to the outstanding shares of the --------------- corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. II. COMMON STOCK Description of Common Stock - --------------------------- 1. Voting Rights. Each holder of record of Common Stock shall be entitled ------------- to one vote for each share of Common Stock standing in such holder's name on the books of the 37 Corporation. Except as otherwise required by law or this Article FOURTH of this Restated Certificate of Incorporation, the holders of Common Stock and the holders of Preferred Stock shall vote together as a single class on all matters submitted to stockholders for a vote (including any action by written consent). 2. Dividends. Subject to provisions of law and this Article FOURTH of --------- this Restated Certificate of Incorporation, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors may determine in their sole discretion. 3. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, after the payment or provisions for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of the Preferred Stock are entitled with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution. FIFTH: The Corporation is to have perpetual existence. SIXTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: A. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation. B. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. C. The books of the Corporation may be kept at such place within or without the State of Delaware as the by-laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. SEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as 38 the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except (to the extent provided by applicable law) for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware or any amendment or successor provisions thereto, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of this provision shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. NINTH. The Corporation shall indemnify each person who at any time is, or shall have been, a director or officer of the Corporation, and is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the maximum extent permitted by the General Corporation Law of Delaware. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. TENTH: The Corporation reserves the right to amend or repeal any provision of this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. 39 IN WITNESS WHEREOF, the undersigned, being the President and Secretary, respectively, of Business@Web, Inc., declaring and certifying, under penalties of perjury, that this is the act and deed of the Corporation and that the facts stated herein are true, have hereunto set their hands as their free act and deed this 6th day of March, 1996. ------------------------------ James G. Nondorf, President - ------------------------------ William E. Kelly, Secretary 40 EXHIBIT B --------- Business@Web, Inc. Unaudited Balance Sheet For the Years ended December 31, 1995 and 1994
Actual Actual December 31, December 31, Assets 1995 1994 - --------------------------------------------- ------------ ------------ Cash and cash equivalents 104,623 70 Trade receivables net of allowance (100,000) 2,408,541 - Prepaid expenses and other current assets 157,333 - ------------ ------------ Total current assets 2,670,497 70 Property plant & equipment - cost 226,551 76,078 Less: accum. depre & amort. 53,118 12,680 ------------ ------------ Net property, plant & equipment 163,433 63,398 ------------ ------------ Total assets 2,833,930 63,468 ============ ============ Actual Actual December 31, December 31, Liabilities & Equity 1995 1994 - --------------------------------------------- ------------ ------------ Accounts payable 3,091,523 275,000 Deferred revenue 778,572 - Accrued interest 43,750 - Accrued expenses & sundry 690,564 - ------------ ------------ Total current liabilities 4,604,409 275,000 Due to Affiliates 183,109 556,844 Long-term debt less current maturities 1,000,000 - Stockholders' equity (deficiency) Preferred stock 256,250 250,000 Common stock 470 - Additional paid in capital 793,750 50,000 Retained earnings (deficit) BOY (1,168,376) (1,168,376) Current year income (2,835,682) (0) ------------ ------------ Stockholders' equity (def.) (2,953,588) (868,376) ------------ ------------ Total liab. & equity (def): 2,833,930 63,468 ============ ============
Business@Web, Inc. Unaudited Income Statement For the Years ended December 31, 1995 and 1994
Actual Actual Revenues 1995 1994 ------------ ------------ Education revenue 1,760,593 Software revenue 2,148,485 Maintenance revenue 57,850 Service revenue 2,158,334 ------------ ------------ Net revenues 6,125,261 0 Gross Profit Education 474,661 Software Product 1,455,485 Maintenance 5,858 Services 798,379 ------------ ------------ Gross profit 2,734,383 0 Selling, general & administrative 5,492,491 1,168,376 ------------ ------------ Operating income -2,758,108 -1,168,376 Interest expense -77,574 -37,600 ------------ ------------ Income (loss) before income taxes -2,835,682 -1,205,976 Income tax expense 0 0 ------------ ------------ Net income (loss) -2,835,682 -1,205,976 ============ ============
Business@Web, Inc. Unaudited Cash Flow Statement For the Years Ended December 31, 1995
Actual December 31, 1995 ------------ Cash flows from operating activities: Net income (loss) (2,835,682) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Non-operating income/expense items: Depreciation and amortization of property and equipment 50,438 Provision for doubtful accounts 142,825 Change in operating assets and liabilities: Trade and other receivables (2,551,366) Other current assets (157,333) Accounts payable 2,816,523 Accrued interest expense 43,750 Deferred Revenue 778,572 Other accrued expenses 690,564 Other adjustments - net (0) ------------ Net cash provided by operating activities (1,021,709) Cash flows from investing activities: Purchases of property, plant and equipment (150,473) Other - net - ------------ Net cash provided by (used in) investing activities (150,473) Cash flows from financing activities: Proceeds from long-term debt 1,750,000 Advances from affiliates (473,735) Proceeds from issuance of stock 470 Other - Net - ------------ Net cash provided by (used in) financing activities 1,276,735 Net increase (decrease) in cash and cash equivalents 104,553 Cash and cash equivalents, beginning of period 70 ------------ Cash and cash equivalents, end of period 104,623 ============ Unaudited Cashflow Statements
Business@Web, Inc. Equity Rollforward For the Years ended December 31, 1995 and 1994
Preferred Common Accumulated Stock Stock APIC Deficit Total ---------- ------ ---------- ------------- ------------- Beginning balance January 1, 1994 0.00 Issuance of Preferred Shares 250,000.00 50,000.00 300,000.00 Net loss -1,168,376.22 -1,168,376.22 ---------- ------ ---------- ------------- ------------- Balance December 31, 1994 250,000.00 0.00 50,000.00 -1,168,376.22 -868,376.22 Issuance of Common Stock 470.00 470.00 Conversion of long-term debt to Preferred Stock 6,250.00 743,750.00 750,000.00 Net loss -2,835,681.91 -2,835,681.91 ---------- ------ ---------- ------------- ------------- Balance December 31, 1994 256,250.00 470.00 793,750.00 -4,004,058.13 -2,953,588.13 ========== ====== ========== ============= =============
Schedule III ------------ A. 16,204,545 Common Shares are issued and outstanding as of February 23, 1996: Sundar Subramaniam 4,998,000 Common Shares Len Hafetz 400,000 Common Shares James Nondorf 100,000 Common Shares Legacy Investment Partnership 2,000,000 Common Shares J&S Limited Partnership 2,000,000 Common Shares Enamullah Khan 2,000 Common Shares Isao Okawa 200,000 Common Shares CSK Corporation 200,000 Common Shares Klaus Besier 1,440,000 Common Shares Harrington Trust Limited 4,864,545 Common Shares as Trustee of The Appleby Trust
B. 1,837,750 Common Shares are reserved for issuance upon exercise of outstanding option grants to employees and consultants under the 1995 Stock Plan as set forth in the attached schedule; these options are subject to vesting (and the majority remain unvested). C. Commitments to issue options for an aggregate of 52,000 Common Shares have been made to persons who have accepted employment offers. D. An employment offer has been extended (but not yet accepted) to a candidate for the position of Vice President of Marketing; this candidate has been offered options for a total of 250,000 Common Shares. E. In connection with the establishment of a credit facility with State Street Bank and Trust Company, the Company has agreed to issue to SSB Investments, Inc., an affiliate of such bank, a warrant for the purchase of 35,000 Common Shares on or before February 15, 2003 at an exercise price of $5.54 per share, and to extend, with respect to such shares, piggy-back registration rights in connection with any Company registration of its securities (other than in its initial public offering). 45 EXHIBIT C --------- (617) 951-2100 March 6, 1996 Hewlett-Packard Company 3000 Hanover Street Palo Alto, California 94304 Ladies and Gentlemen: We have acted as counsel for Business@Web, Inc., a Delaware corporation (the "Company") in connection with the issuance and sale of 180,506 shares of the Company's Series B Convertible Preferred Stock, par value $1.00 per share (the "Preferred Shares"), to Hewlett-Packard Company (the "Purchaser"), pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated February 27, 1996 (the "Purchase Agreement") between the Company and Purchaser. Terms used in this opinion, unless otherwise defined, shall have the meanings assigned thereto in the Purchase Agreement. This opinion is furnished to you pursuant to Section 4.01 of the Purchase Agreement. For purposes of the opinions expressed below, we have examined original, faxed or photocopies of executed counterparts of: a. the Purchase Agreement; b. the Registration Rights Agreement; c. the Marketing Agreement; and d. the Co-Sale Rights Agreement. The Purchase Agreement, the Registration Rights Agreement, the Marketing Agreement and the Co-Sale Rights Agreement are together referred to herein as the "Transaction Documents". 46 In addition, we have examined the originals or copies of such records, agreements and instruments of the Company, certificates of public officials and of officers of the Company and such other documents and records and such matters of law as we have deemed appropriate as a basis for the opinions hereinafter expressed. In making such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies, which facts we have not independently verified. As to various facts material to the opinions set forth herein, we have relied without independent verification upon factual representations made by the Company and the Purchaser in the Transaction Documents, upon certificates of public officials and upon facts certified to us by officers of the Company. With respect to the opinions expressed in paragraph number 8 below, we draw your attention to the fact that we have not made any investigation of the records of any court or other governmental agency or body. Statements herein as to the truth of certain matters "to our knowledge", "known to us", or as to which we have "knowledge" refer to the knowledge consciously held by the individual lawyers in our firm who participated in the negotiation and drafting of the Transaction Documents without independent investigation. For purposes of the opinions expressed herein, we have assumed that at all relevant times the Purchaser had all requisite power and authority and had taken all necessary action to enter into and perform all of its obligations under the Transaction Documents and that each such Transaction Document was and will continue to be the valid, binding and enforceable obligation of the Purchaser. You have not asked us to express, and we do not express, any opinion concerning the application of any federal, state or local statute, law, rule or regulation to the authority of the Purchaser to enter into and to carry out its obligations, and to exercise rights, under the Transaction Documents. This opinion is limited to the laws of the Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware (the "DGCL"), and the federal laws of the United States of America, and we express no opinions with respect to the law of any other jurisdiction. Based upon and subject to the foregoing and subject also to the general qualifications stated following paragraph number 9 below, we hereby advise you that, in our opinion, as of the date hereof: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business as a foreign corporation in the Commonwealth of Massachusetts. 2. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform the Transaction Documents to which it is a party, and to issue, 47 sell and deliver the Preferred Shares and, upon conversion of the Preferred Shares in accordance with their terms, the Conversion Shares. 3. The execution and delivery by the Company of the Purchase Agreement, the Registration Rights Agreement and the Marketing Agreement, the performance by the Company of its obligations thereunder, and the issuance of the Preferred Shares and, upon conversion of the Preferred Shares in accordance with their terms, the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company of which we have knowledge, the Certificate of Incorporation of the Company, as amended, or the By-laws of the Company, as amended, or violate or conflict with, result in or constitute (with due notice or lapse of time or both) a default under or result in the creation or imposition of any material lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company pursuant to any indenture, agreement, or other instrument of which we have knowledge and to which the Company or any of its properties or assets is bound. 4. The Preferred Shares and the Conversion Shares have been duly authorized and, when issued in accordance with the Purchase Agreement (in the case of the Preferred Shares) or upon conversion of the Preferred Shares in accordance with their terms (in the case of the Conversion Shares), will be validly issued, fully paid and nonassessable shares, with no personal liability attaching to the ownership thereof, and will be free and clear of all liens, charges, restrictions, claims and encumbrances created by or through the Company. The issuance, sale and delivery of the Preferred Shares and the Conversion Shares will not subject to any preemptive right of stockholders of the Company arising pursuant to the DGCL, the Certificate of Incorporation or the Bylaws of the Company or, to our knowledge, otherwise existing or, to our knowledge, to any right of first refusal or other right in favor of any person, except as provided in Article VI of the Purchase Agreement. 5. The Purchase Agreement, the Registration Rights Agreement, and the Marketing Agreement have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms. 6. The Co-Sale Rights Agreement, has been duly authorized, executed and delivered by each of the Principal Shareholders and constitutes the legal, valid and binding obligations of the Principal Shareholders, enforceable in accordance with its terms. 7. The authorized capital stock of the Company consists solely of 30,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock (1,750,000 of which have been designated Series B Convertible Preferred Stock and 1,250,000 of which remain undesignated). Immediately prior to the Closing, 16,204,545 shares of Common Stock were validly issued and outstanding, and no other shares of Common Stock or Preferred Stock were outstanding. 48 8. To our knowledge, there is no (i) action, suit, claim, proceeding or investigation pending against the Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pend ing under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending against the Company. To our knowledge, the Company is not in default with respect to any order, writ, injunction or decree of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. 9. Assuming the accuracy of the representations and warranties of the Purchaser made in Article III of the Purchase Agreement, the offering, issuance and sale of the Preferred Shares and the Conversion Shares is exempt from the registration provisions of the Securities Act of 1933, as amended, and of the Massachusetts Uniform Securities Act (MGL ch. 110A). Our opinions set forth above are subject to the following general qualifications: a. The validity and enforceability of any obligation and the exercise of rights and remedies may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement generally of the rights and remedies of creditors or the obligations of debts, and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding at law or in equity), including, without limitation, the discretion of any court of competent jurisdiction in granting specific performance or injunctive or other equitable relief. b. The enforcement of any rights or remedies is or may be subject to an implied duty on the part of the party seeking to enforce such rights to take action and made determinations on a reasonable basis and in good faith. c. The enforceability of the Transaction Documents may be limited by general principals of contract law which include (i) the unenforceability of provisions to the effect that provisions therein may only be amended or waived in writing to the extent that an oral agreement modifying such provisions has been entered into, and (ii) the general rule that, where less than all of an agreement is enforceable, the balance is enforceable only when the unenforceable portion is not an essential part of the agreed exchange. d. The indemnification and contribution provisions set forth in Section 8 of the Registration Rights Agreement may not be enforceable to the extent that they should be found contrary to public policy. 49 e. We express no opinion with respect to the choice of law provisions contained in the Transaction Documents. This opinion is furnished to you solely for your benefit in connection with the consummation of the Closing under the Purchase Agreement and may not be relied upon by any other person or entity or for any other purpose without our express, prior written consent. All of the opinions set forth herein are rendered as of the date hereof, and we assume no obligation to update such opinions to reflect any facts or circumstances which may hereafter come to our attention or any changes in the law which may hereafter occur. Very truly yours, Peabody & Arnold 50 EXHIBIT D --------- REGISTRATION RIGHTS AGREEMENT March 6, 1996 To the Investors named on Schedule I hereto Ladies and Gentlemen: In connection with the agreement by Hewlett-Packard Company ("HP") on the date hereof to purchase shares of Series B Convertible Preferred Stock, $1.00 par value ("Preferred Stock"), of Business@Web, Inc., a Delaware corporation (the "Company"), pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of February 27, 1996 (the "HP Agreement") between the Company and HP, and in connection with the agreement by the other Investors named on Schedule I hereto (with HP, the "Investors") on the date hereof to purchase shares of Preferred Stock of the Company, pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of March 6, 1996 (with the HP Agreement, the "Purchase Agreements") among the Company and such Investors and as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreements, the Company covenants and agrees with the Investors as follows: 1. Certain Definitions As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.001 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of the Preferred Shares. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Preferred Shares" shall mean all shares of the Company's Preferred ---------------- Stock issued to the Investors. 51 "Registration Expenses" shall mean the expenses so described in --------------------- Section 8. "Restricted Stock" shall mean the Conversion Shares, but excluding ---------------- shares of Common Stock which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act, provided, -------- however, that the term "Restricted Stock" shall be deemed to include the ------- number of shares of Restricted Stock that would be issuable to a holder of Preferred Shares upon conversion of all Preferred Shares held by such holder at such time. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8. ---------------- 2. Restrictive Legend. Each certificate representing Preferred Shares or ------------------ Conversion Shares shall, except as otherwise provided in Section 3, be stamped or otherwise imprinted with a legend substantially in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. 3. Required Registration. --------------------- (a) At any time after March 31, 1998, the holders of Restricted Stock constituting at least 40% of the total shares of Restricted Stock then owned beneficially or of record by Investors and Investor Transferees (as such term is hereinafter defined) may request the Company to register under the Securities Act all or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice, provided that the reasonably anticipated aggregate price to the public of such public offering would exceed $10,000,000. Notwithstanding the foregoing, the only securities that the Company shall be required to register pursuant hereto shall be shares of Common Stock, provided, however, that in any underwritten public offering contemplated by - -------- -------- this Agreement, the holders of Preferred Shares shall be entitled to sell such Preferred Shares to the underwriters for conversion and sale of the shares of Common Stock issued upon conversion thereof. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 3 within 180 days after the effective date of a registration statement filed by the Company covering a firm 52 commitment underwritten public offering of securities of the Company under the Securities Act. (b) Following receipt of any notice under this Section 3, the Company shall immediately notify all Investors and Investor Transferees from whom notice has not been received and shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in all notices received by the Company from other holders within 30 days after the giving of such notice by the Company). If such method of disposition shall be an underwritten public offering, the holders of a majority of the shares of Restricted Stock to be sold in such offering may designate the managing underwriter of such offering, subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall be obligated to register Restricted Stock pursuant to this Section 3 on two occasions only, provided, however, that such -------- ------- obligation shall be deemed only when a registration statement covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. (c) The Company shall be entitled to include in any registration statement referred to in this Section 3, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account and for the account of other selling stockholders, except as and to the extent that, in the reasonable opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would materially adversely affect the marketing of the Restricted Stock to be sold. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the Commission any other registration statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting holders pursuant to this Section 3 until the completion of the period of distribution of the shares of Restricted Stock registered thereby. 4. Incidental Registration. If the Company at any time (other than ----------------------- pursuant to Section 3 or Section 5) proposes to register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do and of the proposed method of distribution of such securities. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of its Restricted Stock, the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by 53 the Company, all to the extent and under the conditions such registration is permitted under the Securities Act. In the event that any registration pursuant to this Section 4 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that the inclusion of some or all of the Restricted Stock would adversely affect the marketing of the securities to be sold by the Company therein, provided, however, that such -------- ------- number of shares of Restricted Stock (if reduced) shall not be reduced to a number which is less than 35% of the total number of shares are to be included in such underwriting for the account of persons other than the Company or requesting holders of Restricted Stock. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 4 without thereby incurring any liability to the holders of Restricted Stock. 5. Registration on Form S-3. If at any time (i) a holder or holders of ------------------------ Preferred Shares or Restricted Stock holding, in the aggregate, in excess of ten percent (10%) of the then-outstanding Common Stock and Conversion Shares request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Restricted Stock held by such requesting holder or holders, the reasonably anticipated aggregate price to the public (net of underwriting discounts and commissions) of which would exceed $1,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Restricted Stock specified in such notice. Whenever the Company is required by this Section 5 to use its best efforts to effect the registration of Restricted Stock, each of the procedures and requirements of Section 3 (including but not limited to the requirement that the Company notify all holders of Restricted Stock from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration. 6. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of Sections 3, 4 or 5 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering pursuant to Section 3, shall be on Form S-1 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as 54 may be necessary to keep such registration statement effective for the period specified in Section 6(a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided, however, that the Company shall not for any such purpose be required - -------- ------- to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter under 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 of which the Company has knowledge as a result of which the prospectus contained 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 light of the circumstances then existing. The Sellers of Restricted Stock agree upon receipt of such notice forthwith to cease making offers and sales of Restricted Stock pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose until the Company has prepared and furnished such amendment or supplement to the prospectus as may be necessary so that, as thereafter delivered to purchasers of such Restricted Stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order 55 suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements and the notes thereto and the schedules and other financial and statistical data contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and (h) make available for inspection upon reasonable notice during the Company's regular business hours by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposes of Section 6(a) and 6(b) and of Section 3(c), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) agree to sell Restricted Stock on the basis provided in any underwriting arrangements and (c) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. In connection with each registration pursuant to Sections 3, 4 or 5 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an 56 arrangement between such underwriter and companies of the Company's size and investment stature. 7. Expenses. All expenses incurred by the Company in complying with -------- Sections 3, 4 and 5, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc. transfer taxes, fees of transfer agents and registrars, and fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement under Sections 3, 4 or 5. All Selling Expenses in connection with each registration statement under Sections 3, 4 or 5 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 8. Indemnification and Contribution. -------------------------------- (a) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 3, 4 or 5, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of each such seller, each such underwriter and each such controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, -------- ------- that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus, and, provided -------- further, however, that the Company will not be liable to any such seller, any - ------- ------- such underwriter or any such controlling person in any such case to the extent that any such 57 loss, claim, damage, liability or action arises out of or is based upon an untrue or alleged untrue statement or omission or an alleged omission made in any preliminary prospectus or final prospectus delivered by such seller, underwriter or controlling person in connection with the sale of the Restricted Stock if (1) the final prospectus or prospectus supplement corrected such untrue statement or omission and (2) the Company advised such seller, underwriter or controlling person that such correction had been made and (3) such seller, underwriter or controlling person failed to send or deliver a copy of the final prospectus or prospectus supplement with or prior to the delivery of written confirmation of the sale of the Restricted Stock. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 3, 4 or 5, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of the Company and each such officer, director, underwriter and controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such seller will be liable hereunder in any such case if - -------- ------- and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the -------- ------- ------- liability of each seller hereunder shall limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any 58 liability that it may have to such indemnified party other than under this Section 8 and shall only relieve it from any liability that it may have to such indemnified party under this Section 8 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 8 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, that, if the defendants in any such action include both the - -------- ------- indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel) that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel as required by the local rules of such jurisdiction) at any time for all such indemnified parties. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 8; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such holder will be -------- ------- require to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) will 59 be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 8. Changes in Common Stock or Preferred Stock. If, and as often as, ------------------------------------------ there is any change in the Common Stock or the Preferred Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock or the Preferred Stock as so changed. 9. Rule 144 Reporting and Rule 144A Information. With a view to making -------------------------------------------- available the benefits of certain rules and regulations of the Commission that may at any time permit the resale of the Restricted Stock without registration, the Company will: (a) at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration; and (b) at any time, at the request of any holder of Preferred Shares or shares of Restricted Stock, make available to such holder and to any prospective transferee of such Preferred Shares or shares of Restricted Stock the information concerning the Company described in Rule 144A(d)(4) under the Securities Act. 60 11. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to Investor as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not cause a material violation of any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any or its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. 12. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not; provided, however, that registration rights conferred herein -------- ------- on Investor shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if there is transferred to such transferee at least 60,000 shares of Restricted Stock (the transferee in any such case being referred to as an "Investor Transferee"). (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (a) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 02172 Attn: Chief Financial Officer 61 with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (b) if to any Investor, at such Investor's address as set forth on Schedule I hereto (c) if to any of Investor's Transferees, at such address as may have been furnished to the Company in writing by it; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this Section 12(b). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of a majority of the outstanding shares of Restricted Stock. (e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement is sought. (f) If requested in writing by the underwriters for an underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period following the effective date of the registration statement relating to such offering to be reasonably determined by the underwriters. (g) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. 62 EX-10.17 10 AMEND. SERIES B STOCK PURCHASE AGREEMENT EXHIBIT 10.17 BUSINESS@WEB, INC. Amendment to Series B Convertible Preferred Stock Purchase Agreement Agreement of Amendment dated as of March 6, 1996 by and between Business@Web, Inc., a Delaware corporation (the "Company") and Hewlett-Packard Company, a California corporation (the "Purchaser"). WHEREAS, the Company and the Purchaser are parties to a certain Series B Convertible Preferred Stock Purchase Agreement dated as of February 27, 1996 (the "Purchase Agreement"), pursuant to which the Company has agreed to issue and sell to the Purchaser, and the Purchaser has agreed to purchase from the Company, at a price of $5.54 per share, 180,506 shares of the Company's Series B Convertible Preferred Stock; and WHEREAS, the Purchase Agreement provides, in pertinent part, that, in the event the Company proposes to enter into agreements with the Cowen Investors (as such term is defined in the Purchase Agreement) on terms more favorable to the Cowen Investors than the terms afforded to the Purchaser in the Purchase Agreement, the Company and the Purchaser will, at the election of the Purchaser, enter into an amendment of the Purchase Agreement to incorporate therein the Cowen Terms (as such term is defined in the Purchase Agreement); and WHEREAS, the Company has notified the Purchaser of the Cowen Terms (which Cowen Terms include a purchase price of $5.54 per share) and the Purchaser has elected to have such terms included, by amendment, in the Purchase Agreement for the benefit of the Purchaser; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser hereby agree that the Purchase Agreement be, and hereby is, amended, by deleting therefrom, in its entirety, Article II thereof, and substituting in place thereof the following new Article II: ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser that, except as set forth in the Disclosure Schedule attached hereto as Schedule II: ----------- Section 2.01 Organization, Qualification and Corporate Power. ----------------------------------------------- (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business in all jurisdictions in which the nature of the business transacted by the Company or the character of the properties owned or leased by the Company requires that the Company qualify to do business as a foreign corporation, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, operations or financial condition of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement and the Registration Rights Agreement (as such term is hereinafter defined) and the Marketing Agreement (as such term is hereinafter defined), and to issue, sell and deliver the Preferred Shares and to issue and deliver the shares of Common Stock, $.001 par value, of the Company ("Common Stock") issuable upon conversion of the Preferred Shares (the "Conversion Shares"). (b) The Company has no subsidiaries. The Company does not own of record or beneficially, directly or indirectly, (i) any shares of capital stock or securities convertible into capital stock of any other corporation or (ii) any participating interest in any partnership, joint venture or other non- corporate business enterprise and does not control, directly or indirectly, any other entity. Section 2.02 Authorization of Agreements, etc. -------------------------------- (a) The execution and delivery by the Company of this Agreement and the Registration Rights Agreement and the Marketing Agreement, the performance by the Company of its obligations hereunder and thereunder, the issuance, sale and delivery of the Preferred Shares and the issuance and delivery of the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Restated Certificate of Incorporation of the Company (the "Charter"), or the By- laws of the Company, as amended, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) The Preferred Shares have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable shares of Series B Convertible Preferred Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. The Conversion Shares have been duly reserved for issuance upon conversion of the Preferred Shares and, when so issued, will be duly authorized, validly issued, fully paid and 2 nonassessable shares of Common Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. Neither the issuance, sale or delivery of the Preferred Shares nor the issuance or delivery of the Conversion Shares is subject to any preemptive right of stockholders of the Company or to any right of first refusal or other right in favor of any person. Section 2.03 Validity. This Agreement has been duly executed and -------- delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. The Registration Rights Agreement and the Marketing Agreement when executed and delivered in accordance with this Agreement, will constitute the legal, valid and binding obligation of the Company and of the other parties thereto, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. Section 2.04 Authorized Capital Stock. The authorized capital stock of ------------------------ the Company will, immediately prior to the Closing, consist of (i) 3,000,000 shares of Preferred Stock, $1.00 par value (the "Preferred Stock"), of which 1,431,412 shares have been designated Series B Convertible Preferred Stock, and 1,568,588 shares remain undesignated and (ii) 30,000,000 shares of Common Stock. Immediately prior to the Closing, 16,204,545 shares of Common Stock will be validly issued and outstanding, and no other shares of Common Stock or Preferred Stock will be outstanding. All shares of the series of Preferred Stock designated Series A Convertible Preferred Stock which had been issued prior to the date hereof have been surrendered for conversion into Common Stock and retired, and the series of Preferred Stock designated Series A Convertible Preferred Stock has been cancelled and eliminated from the shares which the Company is authorized to issue. The stockholders of record and holders of subscriptions, warrants, options, convertible securities, and other rights (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company, and the number of shares of Common Stock or Preferred Stock and the number of such subscriptions, warrants, options, convertible securities, and other such rights held by each, are as set forth in the attached Schedule 2. The designations, powers, preferences, rights, ---------- qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Charter, a copy of which is attached as Exhibit A. Except as set forth in the attached --------- Schedule 2, (i) no person owns of record or is known to the Company to own - ---------- beneficially any share of Common Stock or Preferred Stock, (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company is authorized or outstanding and (iii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset. Except as provided for in the Charter or as set forth in the attached Schedule 2, the Company has no ---------- obligation (contingent or other) to purchase, redeem or otherwise acquire 3 any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Section 2.05 Financial Statements; Corporate Minutes. The Company has ------------ --------------------------------------- furnished to the Purchaser the unaudited balance sheet of the Company as of December 31, 1995 and the related statement of operations, shareholders' equity and cash flows for the fiscal year then ended (the "Financial Statements"). The Financial Statements (a) are complete and correct in all material respects, (b) are in accordance with the Company's books and records, (c) present fairly the Company's financial position for the period and as of the date indicated and (d) have been prepared in conformity with generally accepted accounting principles consistently applied, subject to (i) adjustments which will not, in the aggregate, be material and (ii) the absence of footnotes. The Company has furnished to the Purchaser copies of the minutes of meetings and written consents in lieu of meetings of the Company's shareholders and Board of Directors from the date of the Company's incorporation through the date of this Agreement (the "Corporate Minutes"). The Corporate Minutes accurately reflect all actions taken by the Company's shareholders and Board of Directors. Section 2.06 Certain Events. Except as set forth in this Agreement and -------------- the Schedules hereto, and the documents referred to therein, the Company has not, since the date of the Financial Statements, (i) issued any stock, bond or other corporate security, (ii) borrowed any amount or incurred or become subject to any liability (absolute, accrued or contingent), except current liabilities incurred and liabilities under contracts entered into, in each case in the ordinary course of business, (iii) discharged or satisfied any lien or encumbrance or incurred or paid any obligation or liability (absolute, accrued or contingent) other than current liabilities incurred in the ordinary course of business, (iv) declared or made any payment or distribution to stockholders or purchased or redeemed any shares of its capital stock or other security, (v) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, other than liens of current real property taxes not yet due and payable, (vi) sold, assigned or transferred any of its tangible assets except in the ordinary course of business, or cancelled any debt or claim, (vii) sold, assigned, transferred or granted any exclusive license with respect to any patent, trademark, trade name, service mark, copyright, trade secret or other intangible asset, (viii) suffered any loss of property or waived any right of substantial value whether or not in the ordinary course of business, (ix) made any change in officer compensation except in the ordinary course of business and consistent with past practice, (x) made any material change in the manner of business or operations of the Company, (xi) entered into any transaction except in the ordinary course of business or as otherwise contemplated hereby or (xii) entered into any commitment (contingent or otherwise) to do any of the foregoing. Section 2.07 Litigation, Compliance with Law. There is no (i) action, ------------------------------- suit, claim, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against or affecting the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pend- 4 ing under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending or, to the best of the Company's knowledge, threatened against or affecting the Company (including without limitation any inquiry as to the qualification of the Company to hold or receive any governmental license or permit), and, to the best of the Company's knowledge, there is no basis for any of the foregoing. The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. To the best of the Company's knowledge, the Company has complied in all material respects with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, and the Company has all necessary governmental permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted. There is no existing law, rule, regulation or order, and the Company is not aware of any proposed law, rule, regulation or order, whether federal or state, which would prohibit or restrict the Company from, or otherwise materially adversely affect the Company in conducting its business in any jurisdiction in which it is now conducting business or in which it proposes to conduct business. Section 2.08 Proprietary Information of Third Parties. To the best of the ----------------------------------------- Company's knowledge, no third party has claimed or has reason to claim that any person employed by the Company has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or nondisclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company which suggests that such a claim might be contemplated. To the best of the Company's knowledge, no person employed by the Company has utilized or proposes to utilize any trade secret or any information or documentation proprietary to any third party, and to the best of the Company's knowledge, no person employed by the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such utilization or violation. Section 2.09 Title to Properties. The Company has good and marketable ------------------- title to its properties and assets reflected in the Financial Statements and all such properties and assets are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances, except for liens for current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company and its subsidiaries. 5 Section 2.10 Leasehold Interests. Each lease or agreement to which the ------------------- Company is a party under which it is a lessee of any property, real or personal, is a valid and subsisting agreement without any default of the Company thereunder and, to the best of the Company's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which, with due notice or lapse of time or both, would constitute a default or event of default by the Company under any such lease or agreement or, to the best of the Company's knowledge, by any other party thereto. The Company's possession of such property has not been disturbed and, to the best of the Company's knowledge, no claim has been asserted against the Company adverse to its rights in such leasehold interests. Section 2.11 Taxes. The Company has filed all tax returns, federal, ----- state, county and local, required to be filed by it, and the Company has paid all taxes shown to be due by such returns as well as all other taxes, assessments and governmental charges which have become due or payable, including without limitation all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties. The Company has established adequate reserves for all taxes accrued but not yet payable. The federal income tax returns of the Company have never been audited by the Internal Revenue Service. No deficiency assessment with respect to or proposed adjustment of the Company's Federal, state, county or local taxes is pending or, to the best of the Company's knowledge, threatened. There is no tax lien, whether imposed by any federal, state, county or local-taxing authority, outstanding against the assets, properties or business of the Company. Neither the Company nor any of its stockholders has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Company be taxed as an S corporation or (b) consent pursuant to Section 341(f) of the Code, relating to collapsible corporations. Section 2.12 Intellectual Property. The Company possesses adequate --------------------- licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets and know how (collectively, "Intellectual Property") which are necessary or desirable to the conduct of the Company's business as conducted and as proposed to be conducted or the lack of which would materially adversely affect the Company or its business. No claim is pending or, to the best of the Company's knowledge, threatened to the effect that the operations of the Company infringe upon or conflict with the asserted rights of any other person under any Intellectual Property, and, to the best of the Company's knowledge, there is no basis for any such claim (whether or not pending or threatened). No claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company, and to the best of the Company's knowledge there is no basis for any such claim (whether or not pending or threatened). To the best of the Company's knowledge, all technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company has not granted or assigned to any other person or entity any right to manufacture, have manufactured, assemble or sell the 6 products or proposed products or to provide the services or proposed services of the Company. Section 2.13 Material Contracts. Except for the agreements identified in ------------------ the Schedule of Material Contracts attached hereto as Schedule 3 (the "Material ---------- Contracts"), the Company is not a party to or otherwise bound by any written or oral contract or instrument or other restriction which individually or in the aggregate could materially adversely affect the business, prospects, financial condition, operations, property or affairs of the Company, including, without limitation, any written or oral: (a) contract or agreement which is not terminable on less than ninety (90) days' notice without cost or other liability to the Company (except for contracts which, in the aggregate, are not material to the business of the Company); (b) contract which entitles any customer to a rebate or right of set- off, or which varies in any material respect from the Company's standard form contracts; (c) contract with any labor union; (d) contract or other commitment with any supplier of goods or services containing any provision permitting any party other than the Company to renegotiate the price or other terms, or containing any pay-back or other similar provision, upon the occurrence of a failure by the Company to meet its obligations under the contract when due or the occurrence of any other event; (e) contract for the future purchase of fixed assets or for the future purchase of materials, supplies or equipment in excess of the Company's normal operating requirements; (f) contract for the employment of any officer, employee or other person (whether of a legally binding nature or in the nature of informal understandings) on a full-time or consulting basis which is not terminable on notice without cost or other liability to the Company, except normal severance arrangements and accrued vacation pay; (g) bonus, pension, profit-sharing, retirement, hospitalization, insurance, stock purchase, stock option or other plan, contract or understanding pursuant to which benefits are provided to any employee of the Company (other than group insurance plans applicable to employees generally); (h) agreement or indenture relating to the borrowing of money or to the mortgaging or pledging of, or otherwise placing a lien or security interest on, any asset of the Company; 7 (i) guaranty of any obligation for borrowed money or otherwise; (j) voting trust or agreement, stockholders' agreement, pledge agreement, buy-sell agreement or first refusal or preemptive rights agreement relating to any securities of the Company; (k) agreement, or group of related agreements with the same party or any group of affiliated parties, under which the Company has advanced or agreed to advance money or has agreed to lease any property as lessee or lessor;. (1) agreement or obligation (contingent or otherwise) to issue, sell or otherwise distribute or to repurchase or otherwise acquire or retire any share of its capital stock or any of its other equity securities; (m) assignment, license or other agreement with respect to any form of intangible property; (n) agreement under which it has granted any person any registration rights, other than the Registration Rights Agreement (as such term is hereinafter defined); (o) agreement under which it has limited or restricted its right to compete with any person in any respect; or (p) other contract or group of related contracts with the same party involving more than $250,000 or continuing over a period of more than two (2) years from the date or dates thereof (including renewals or extensions optional with another party), which contract or group of contracts is not terminable by the Company without penalty upon notice of thirty (30) days or less. Section 2.14 Compliance with Governing Documents and Material Contracts. ---------------------------------------------------------- The Company and, to the best of the Company's knowledge, each other party thereto have in all material respects performed all the obligations required to be performed by them to date under each of the Material Contracts and have received no notice of default and are not in default (with due notice or lapse of time or both) under any Material Contract or any material provision of any other agreement. The Company has no present expectation or intention of not fully performing all its obligations under each Material Contract, and the Company has no knowledge of any breach or anticipated breach by the other party to any Material Contract. The Company is in full compliance with all of the terms and provisions of its Charter and By-laws. Section 2.15 Loans and Advances. The Company does not have any ------------------ outstanding loans or advances to any person and is not obligated to make any such loans or advances, except, in each case, for advances to employees of the Company in respect of reimbursable 8 business expenses anticipated to be incurred by them in connection with their performance of services for the Company. Section 2.16 Borrowings; Assumptions and Guaranties of Indebtedness of ------------------------------------------------------ -- Other Persons,. The Company is not obligated to any person for any money - -------------- borrowed or liability incurred (absolute, accrued or contingent) except current liabilities incurred and liabilities under contracts entered into, in each case in the ordinary course of business. The Company is not obligated to any person by reason of the Company having assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor, or otherwise to assure the creditor against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business. Section 2.17 Significant Customers and Suppliers. No customer or supplier ----------------------------------- which is significant to the Company has terminated, materially reduced or threatened to terminate or materially reduce its purchases from or provision of products or services to the Company, as the case may be. Section 2.18 Employees. Each of the officers of the Company and each --------- other person now employed by the Company who has access to confidential information of the Company has executed an Employee Agreement substantially in the form of Exhibit B (collectively, the "Confidentiality Agreements"), and such --------- agreements are in full force and effect. No officer or key employee of the Company has advised the Company (orally or in writing) that he intends to terminate employment with the Company. To the best of the Company's knowledge, the Company has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other taxes, and with the Employee-Retirement Income Security Act of 1974, as amended. Section 2.19 Transactions with Affiliates. No director, officer, employee ---------------------------- or stockholder of the Company, or, to the Company's knowledge, any member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or, to the Company's knowledge, any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, (i) is a party to any transaction with the Company, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from, transfer of any asset (including any Intellectual Property) from or to, or otherwise requiring payments to any such person or firm or (ii) to the Company's knowledge, is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest in any entity engaged directly or indirectly in competition with the Company. 9 Section 2.20 Governmental Approvals. Subject to the accuracy of the ---------------------- representations and warranties of the Purchasers set forth in Article III, no registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement or the Registration Rights Agreement or the Marketing Agreement, the issuance, sale and delivery of the Preferred Shares or, upon conversion thereof, the issuance and delivery of the Conversion Shares, other than (i) the filing of the Charter with the Secretary of State of the State of Delaware and (ii) the filing of notice subsequent to the Closing that may be required pursuant to federal and state securities laws in connection with the sale of the Preferred Shares. Section 2.21 Disclosure. Neither the Company's representations and ---------- warranties in this Agreement and in the Schedules and Exhibits to this Agreement nor any statement made by the Company in the Confidential Private Placement Memorandum dated February 1996 (a copy of which the Company has been provided to the Purchaser) contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. There is no factor (other than causes or events beyond the control of the Company) which the Company has not disclosed to the Purchaser and its counsel in writing and of which the Company is aware which materially and adversely affects or could materially and adversely affect the business, prospects, financial condition, operations, property or affairs of the Company or any of its subsidiaries. Section 2.22 Offering of the Preferred Shares. Neither the Company nor -------------------------------- any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Preferred Shares or any security of the Company similar to the Preferred Shares has offered the Preferred Shares or any such similar security for sale to, or solicited any offer to buy the Preferred Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Preferred Shares under the Securities Act of 1933, as amended (the "Securities Act") or the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder), in either case so as to subject the offering, issuance or sale of the Preferred Shares to the registration provisions of the Securities Act or of any applicable state securities (Blue Sky) laws or regulations. Section 2.23 Brokers. The Company has engaged Cowen & Company to act as ------- its exclusive agent for the private placement of shares of Series B Preferred Stock and has agreed to pay Cowen & Company a placement fee (and to reimburse Cowen & Company for certain expenses) in connection therewith. Cowen & Company has agreed to exclude the Preferred Shares being purchased hereunder from the shares with respect to which it will be entitled to receive a placement fee. The Company has no other contract, arrangement or 10 understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. ********** Except as specifically amended hereby, the Purchase Agreement, as executed and delivered by the Company and the Purchaser on February 27, 1996, shall remain in full force and effect without modification, alteration, deletion or expansion. IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement of Amendment as of the day and year first above written. BUSINESS@WEB, INC. By: /s/ James G. Nordorf --------------------- HEWLETT-PACKARD COMPANY By: /s/ Manuel Diaz --------------------- PABOS:WEK:240385_1 11 SCHEDULE II Exceptions to the representations and warranties of the Company set forth in Article II. Section 2.06: Since December 31, 1995, the following events have occurred: ------------ a. The Company has entered into the following credit facilities with State Street Bank and Trust Company, and has granted State Street Bank and Trust Company a security interest in substantially all of the Company's assets as security therefor: $2,500,000 revolving line of credit, $500,000 equipment line of credit, $2,000,000 term loan due September 30, 1996. b. Klaus Besier has been appointed chief executive officer of the Company, at a base salary of $300,000 per annum. The Company expects to enter into a performance bonus plan with Mr. Besier under which Mr. Besier's bonus targets would be $400,000 for 1996, $1,000,000 for 1997 and $2,500,000 for 1998. c. The Company and Hewlett-Packard Company entered into a Series B Preferred Stock Purchase Agreement on February 27, 1996, pursuant to which the Company agreed to sell to Hewlett- Packard Company 180,506 shares of Series B Convertible Preferred Stock. d. The Company entered into a Marketing Agreement with Hewlett- Packard Company on February 27, 1996. e. On March _, 1996, the Company entered into a 5-year lease of premises at One Arsenal Marketplace, Watertown, Massachusetts to be used as the Company's principal offices. Section 2.09: State Street Bank and Trust Company holds a security ------------ interest in substantially all assets of the Company to secure the credit facilities identified above. Section 2.12: InterGroup Technologies, Inc. has communicated with the ------------ Company regarding alleged use of InterGroup's VisualWare software product by the Company in violation of the Software License Agreement between InterGroup and the Company. The Company believes that there is no basis for InterGroup's allegations and has been engaged in friendly discussions with InterGroup in an effort to resolve this issue. Section 2.16: The Company is obligated to State Street Bank and Trust ------------ Company under the credit facilities identified above. Attached hereto is a schedule of the Company's current assets and liabilities and an accounts payable trial balance. Section 2.19: ------------ a. The Company is an authorized distributor and reseller of OEC software. b. The Company has purchased technology (Toolkit source code) from OEC for $2.2 million dollars, with payment due on March 15, 1996. The Company intends to pay this amount from the proceeds of this offering. c. The Company sold technology (SAP Make tools) to OEC for $500,000. d. Klaus Besier and James Nondorf are employees of the Company. e. The Company has a strategic partnership relationship with I-Cube, pursuant to which the Company and I-Cube make joint proposals and the Company subcontracts services to I-Cube. The Company and I-Cube are not parties to a formal agreement. f. The Company has a strategic partnership relationship with Cambridge Technology Group, pursuant to which CTG promotes the products and services of the Company through CTG's executive education programs. The Company and CTG are not parties to a formal agreement . g. The Company has borrowed $250,000 from J&S Limited Partnership under a 6% convertible subordinated note (and J&S has waived its conversion privileges thereunder). The Company intends to repay this note from the proceeds of this offering. h. The Company has borrowed $750,00 from the Appleby Trust under a 9% subordinated note due December 31, 2000 (which has no conversion feature). The Company intends to repay this note from the proceeds of this offering. i. Cambridge Technology Group, Professor John Donovan and John J. Donovan, Jr. have guaranteed the Company's obligations to State Street Bank and Trust Company. j. The Company has licensed software (Logical Data Integrator) from Mentor Communications Ltd., of which Len Hafetz (a shareholder of the Company) is president. RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE 1 SYS DATE: 03/05/96 TRIAL BALANCE FOR PERIOD ENDING 03/31/96 TIME: 09:43 AM ACCOUNTS 1000-000 THRU 3999-000
ACCOUNT NUMBER DESCRIPTION DEBIT CREDIT CURRENT ASSETS 1000-000 State Street Operating Acct 637,451.72 1012-000 Cash 371,531.86 1050-000 State Street Payroll Account 284,085.89 1060-000 BOB Functions Account 520.94 1200-000 Accounts Receivable - Trade 3,062,004.78 1201-000 Allow. for Doubtful Accounts 110,000.00 1250-000 Unbilled Receivables 6,000.00 1280-000 Unbilled Reimbursable Exp. 48,673.24 1300-000 Prepaid Expenses 25,404.00 1310-000 Prepaid Insurance 3,067.00 1350-000 Prepaid Maintenance Costs-OEC 177,174.67 -------------- -------------- CURRENT ASSETS: 4,241,315.24 484,598.86 FIXED ASSETS 1510-000 Furniture & Fixtures 153,855.67 1520-000 Computer Equipment 398,062.94 1521-000 A/D Computer Equip. - Current 9,071.06 1522-000 A/D Comp. Equip. - Prior 60,482.26 1530-000 Video/Audio Equip 15,814.75 1531-000 A/D Video/Audio Equip - Curr 439.30 1532-000 A/D Video/Audio Equip - Prior 2,635.79 1540-100 Leasehold Improvements 59,023.00 1550-000 Tradeshow Booth 14,700.00 1560-000 Software 2,894.00 -------------- -------------- FIXED ASSETS: 644,350.36 72,628.41 CURRENT LIABILITIES 2000-000 Accounts Payable - Trade 2,961,522.36 2001-000 Accrued Accounts Payable 130,610.69 2002-000 Accrued OEC Toolkits 109,500.00 2100-000 Accrued Expenses 472,457.21 2110-000 Accrued Commissions 5,664.24 2120-000 Accrued Sales Taxes 19.75 2130-000 Accrued Commissions - Outside 34,218.07 2140-000 Accrued Legal 64,775.00 2150-000 Accrued Audit 59,166.66 2160-000 Accrued Interest - J&S Limit 46,250.00 2170-000 Accrued Interest - Appleby 7,500.00 2180-000 Accrued Bonuses 18,500.00 2200-000 401K Payable - Employee 14,251.49 2210-000 401K Payable - Employer 681.86 2245-000 Payroll Adjustments 14,590.55 2250-000 Health Insurance Accrual 4,815.01 2260-000 Dental Insurance Accrual 683.44 2270-000 Other Benefits Accrual 141.60 2280-000 Dependent Care Accrual 352.20 2290-000 Accrued Allocated Benefits 15,228.61
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 2 SYS DATE: 03/05/96 TRIAL BALANCE FOR PERIOD ENDING 03/31/96 TIME: 09:43 AM ACCOUNTS 1000-000 THRU 3999-000
ACCOUNT NUMBER DESCRIPTION DEBIT CREDIT CURRENT LIABILITIES 2300-000 Deferred Revenue 1,251,800.00 2320-000 Unearned Revenue 19,200.00 2350-000 Unearned Maintenance Revenue 197,617.00 2400-000 Short-term Debt - LOC 878,000.00 2470-000 Due to Affiliate - CTG 555.66 2480-000 Due to Affiliate - CTR 13,170.00 -------------- -------------- CURRENT LIABILITIES: 136,274.93 6,184,996.47 LONG-TERM LIABILITIES 2500-000 L-T Port. - J&S Ltd. - N/P 250,000.00 2510-000 L-T Port. - Appleby - N/P 750,000.00 2520-000 L-T Port. - Appleby - N/P2 750,000.00 -------------- -------------- LONG-TERM LIABILITIES: 1,750,000.00 EQUITY 3100-000 Preferred Stock ($1.00 par) 250,000.00 3101-000 APIC - Preferred Stock 50,000.00 3150-000 Common Stock ($.001 Par) 470.00 3200-000 RETAINED EARNINGS - PRIOR 4,004,058.13 -------------- -------------- EQUITY: 4,004,058.13 300,470.00 -------------- -------------- REPORT TOTAL: 9,025,998.66 8,792,693.74 ============== ==============
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 1 SYS DATE: 03/05/95 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:38 ALL OPEN INVOICES DIVISION NO: 60 MAIN DIVISION
K VENDOR/ +-------DATES-------+ L INVOICE DISCOUNT INVOICE +------TRANSACTION------+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE ANDATAC ANDATACO 137305 02/01/96 03/02 N 7,026.88 .00 7,026.88 INV 02/20/96 7,026.88 ----------- ---------- ---------- ----------- VENDOR ANDATAC TOTALS: 7,026.88 .00 7,026.88 7,026.88 ARMSTRG IAIN ARMSTRONG 039000835 02/21/96 02/21 N 2,187.43 .00 2,187.43 INV 02/29/96 2,187.43 ----------- ---------- ---------- ----------- VENDOR ARMSTRG TOTALS: 2,187.43 .00 2,187.43 2,187.43 ARTAND Arthur Anderson LLP 021596 02/15/96 02/15 N 12,500.00 .00 12,500.00 INV 02/26/96 12,500.00 ----------- ---------- ---------- ----------- VENDOR ARMSTRG TOTALS: 12,500.00 .00 12,500.00 12,500.00 ATLANTI ATLANTIC MEMORY GROUP, INC. 58111 02/01/96 02/14 N 9,656.20 .00 9,656.20 INV 02/20/96 9,656.20 58518 02/06/96 02/21 N 7,583.50 .00 7,583.50 INV 02/29/96 7,583.50 54904 02/16/96 03/02 N 8,932.75 .00 8,932.75 INV 02/29/96 8,932.75 58984 02/20/96 03/06 N 3,871.75 .00 3,871.75 INV 02/29/96 3,871.75 906545 02/09/96 02/24 N 5,006.40- .O0 5,000.40- INV 02/29/96 5,006.40- ----------- ---------- ---------- ----------- VENDOR ATLANTI TOTALS: 25,037.80 .00 25,037.80 25,037.80 ATLAS Atlas Watersystems 021096 02/10/96 02/10 N 141.75 .00 141.75 INV 02/10/96 141.75 ----------- ---------- ---------- ----------- VENDOR ATLAS TOTALS: 141.75 .00 141.75 141.75 AVIS AVIS 111295 11/12/95 12/12 N 184.13 .00 184.13 INV 11/28/95 184.13 ----------- ---------- ---------- ----------- VENDOR AVIS TOTALS: 184.13 .00 184.13 184.13 BERSHIR Bershire Computer Products 4284 02/13/96 02/13 N 6,571.35 .00 6,571.35 INV 02/29/96 6,571.35 ----------- ---------- ---------- ----------- VENDOR BERSHIR TOTALS: 6,571.35 .00 6,571.35 6,571.35 BERTUCC BERTUCCI'S 27930 02/23/96 02/23 N 23.32 .00 23.32 INV 02/29/96 23.32 27933 02/24/96 02/24 N 39.55 .00 39.55 INV 02/29/96 39.55 27946 02/26/96 02/26 N 54.83 .00 54.83 INV 02/29/96 54.83 ----------- ---------- ---------- ----------- VENDOR BERTUCC TOTALS: 117.70 .00 117.70 117.70 CFMOTOR CF Motorfreight 291-625751 02/14/96 02/14 N 309.58 .00 309.58 INV 02/29/96 309.58
RUN DATE: 03/05/96 TO BUSINESS@WEB PAGE: 2 SYS DATE: 03/05/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:26 AM ALL OPEN INVOICES
DIVISION NO. 00 MAIN DIVISION N VENDOR/ +------DATES------+ L INVOICE DISCOUNT INVOICE +-----TRANSACTION-----+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE ---------- --------- -------- ---------- VENDOR CFMOTOR TOTALS: 309.58 .00 309.58 309.58 CHONGCH CHONG CHO 022696 02/26/96 02/26 N 5,323.65 .00 5,323.65 INV 02/26/96 5,323.65 ---------- --------- -------- ---------- VENDOR CHONGCE TOTALS: N 5,323.65 .00 5,323.65 INV 5,323.65 CLOVE TRACY CLORE 022396 02/23/96 02/26 N 3,999.92 .00 3,999.92 INV 02/26/96 3,999.92 ---------- --------- -------- ---------- VENDOR CLOVE TOTALS: 3,999.92 .00 3,999.92 3,999.92 COMPUSA COMPUSA, INC. 447053790 02/01/96 03/02 N 1,968.75 .00 1,968.75 INV 02/20/96 1,968.75 447053974 02/01/96 03/02 N 2,150.40 .00 2,150.40 INV 02/29/96 2,150.40 447053979 02/01/96 03/02 N 546.00 .00 546.00 INV 02/29/96 546.00 447054044 02/02/96 03/03 N 2,253.56- .00 2,253.56- INV 02/29/96 2,253.56- 447054149 02/06/96 03/07 N 16,458.75 .00 16,458.75 INV 02/20/96 16,458.75 447054271 02/08/96 03/09 N 971.25 .00 971.25 INV 02/29/96 971.25 447054340 02/09/96 03/10 N 6,510.00 .00 6,510.00 INV 02/29/96 6,510.00 447054405 02/13/96 03/14 N 5,510.93 .00 5,510.93 INV 02/29/96 5,510.93 447045873 02/22/96 03/23 N 2,434.43 .00 2,434.43 INV 02/29/96 2,434.43 ---------- --------- -------- ---------- VENDOR COMPUSA TOTALS: 34,296.95 .00 34,296.95 34,296.95 CRYSTAL CRYSTAL TRANSPORT, INC. 55795 02/12/96 03/13 N 220.00 .00 220.00 INV 02/29/96 220.00 55796 02/13/96 03/14 N 180.00 .00 180.00 INV 02/29/96 180.00 55797 02/14/96 03/15 N 180.00 .00 180.00 INV 02/29/96 180.00 55803 02/21/96 03/22 N 180.00 .00 180.00 INV 02/29/96 180.00 55804 02/22/96 03/23 N 180.00 .00 180.00 INV 02/29/96 180.00 ---------- --------- -------- ---------- VENDOR CRYSTAL TOTALS: 940.00 .00 940.00 940.00 CTG CAMBRIDGE TECHNOLOGY GROUP 10210 02/22/96 02/22 N 74.75 .00 74.75 INV 02/29/96 74.75 10214 02/26/96 02/26 N 629.96 .00 629.96 INV 02/29/96 629.96 10215 02/26/96 02/26 N 329.70 .00 329.70 INV 02/29/96 329.70 10230 02/22/96 02/22 N 71.48 .00 71.48 INV 02/29/96 71.48 ---------- --------- -------- ---------- VENDOR CTG TOTALS: 1,105.89 .00 1,105.89 1,105.89 DIGITAL DIGITAL EQUIPMENT CORPORATION 080195 08/01/95 08/31 N 85,712.00 .00 5,247.00 INV 08/17/95 85,712.00 INV 04/18/95 42,856.00- 000501 08/18/95 PMT 10/19/96 37,609.00- 000165 10/19/95 PMT 12/07/95 5,247.00- 000447 12/07/95 PMT 12/11/95 5,247.00 000447 12/07/95
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 3 SYS DATE: 03/09/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:38 AM ALL OPEN INVOICES DIVISION NO: 00 MAIN DIVISION
K VENDOR/ +-------DATES-------+ L INVOICE DISCOUNT INVOICES +------TRANSACTION------+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE ----------- ---------- ---------- ----------- VENDOR DIGITAL TOTALS: 85,712.00 .00 5,247.00 5,247.00 DONOVAN John Donovan 021296 02/12/96 02/12 N 7,155.18 .00 7,155.18 INV 02/12/96 7,155.18 ----------- ---------- ---------- ----------- VENDOR DONOVAN TOTALS: 7,155.18 .00 7,155.18 7,155.18 DWILSON David Wilson Associates 98503 02/26/96 02/26 N 21,976.50 .00 21,976.50 INV 02/23/96 21,976.50 ----------- ---------- ---------- ----------- VENDOR DWILSON TOTALS: 21,976.50 .00 21,976.50 21,976.50 EXHIBIT EXHIBIT SUPPORT 7708 12/21/95 12/21 N 500.00- .00 500.00- INV 12/31/95 500.00- 7779 12/11/95 12/11 N 598.50 .00 598.50 INV 12/31/96 598.50 ----------- ---------- ---------- ----------- VENDOR EXHIBIT TOTALS: 98.50 .00 98.50 98.50 EXPOCON EXPOCON MANAGEMENT ASSOC. 122198 12/22/95 01/21 N 1,000.00 .00 1,000.00 INV 02/29/95 1,000.00 ----------- ---------- ---------- ----------- VENDOR EXPOCON TOTALS: 1,000.00 .00 1,000.00 1,000.00 FEDI FEDERAL EXPRESS 572190223 02/07/96 03/08 N 94.75 .00 94.75 INV 02/29/96 94.75 ----------- ---------- ---------- ----------- VENDOR FEDI TOTALS: 94.75 .00 94.75 94.75 FOGGART FOGG ART MUSEUM 38289 02/01/96 02/01 N 1,000.00 .00 1,000.00 INV 02/29/96 1,000.00 ----------- ---------- ---------- ----------- VENDOR FOGGART TOTALS: 1,000.00 .00 1,000.00 1,000.00 FORMAGG Formaggie Kitchen Inc. 9691 02/26/96 02/26 N 125.80 .00 125.00 INV 02/29/96 125.80 ----------- ---------- ---------- ----------- VENDOR FORMAGG TOTALS: 125.80 .00 125.80 125.80 FULLER LEE FULLER 020196 02/01/96 02/01 N 373.28 .00 373.28 INV 02/29/96 373.28 022796 02/27/96 02/27 N 1,526.62 .00 1,526.62 INV 02/29/96 1,526.62 ----------- ---------- ---------- ----------- VENDOR FULLER TOTALS: 1,899.90 .00 1,899.90 1,899.90 GOURMET GOURMET CATERERS, INC. 21834 02/13/96 03/14 N 703.50 .00 703.50 INV 02/26/96 703.50 21835 02/13/96 02/14 N 120.75 .00 120.75 INV 02/26/96 120.75 21842 02/13/96 03/14 N 871.50 .00 871.50 INV 02/26/96 871.50 21844 02/14/96 03/15 N 761.25 .00 761.25 INV 02/26/96 761.25
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 4 SYS DATE: 03/05/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:30 AM ALL OPEN INVOICES DIVISION NO: 00 MAIN DIVISION L VENDOR/ --------DATES-------- L INVOICE DISCOUNT INVOICE --------TRANSACTION-------- CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE GOURMET GOURMET CATERERS, INC. 21750 02/15/96 03/16 N 871.50 .00 871.50 INV 02/26/96 871.50 21851 02/16/96 03/17 N 834.75 .00 834.75 INV 02/26/96 834.75 21837 02/19/96 03/20 N 514.50 .00 514.50 INV 02/26/96 514.50 21858 02/20/96 03/31 N 777.00 .00 777.00 INV 02/26/96 777.00 21859 02/21/96 03/22 N 624.75 .00 624.75 INV 02/26/96 624.75 21861 02/21/96 03/22 N 1,399.13 .00 1,399.13 INV 02/29/96 1,399.13 21867 02/22/96 03/23 N 644.70 .00 644.70 INV 02/26/96 644.70 21868 02/22/96 03/23 N 562.80 .00 562.80 INV 02/26/96 562.80 ---------- --------- ------------ ---------- VENDOR GOURMET TOTALS: 8,686.13 .00 8,686.13 8,686.13 GRIFFIN KEN GRIFFIN 020196 02/01/96 02/01 N 165.65 .00 165.65 INV 02/29/96 165.65 020196A 02/01/96 02/01 N 126.84 .00 126.84 INV 02/29/96 126.84 020696 02/06/96 02/06 N 210.97 .00 210.97 INV 02/29/96 210.97 021496 03/14/96 02/14 N 366.90 .00 366.90 INV 02/29/96 366.90 2196 02/01/96 02/01 N 1,137.28 .00 1,137.28 INV 02/29/96 1,137.28 ---------- --------- ------------ ---------- VENDOR GRIFFIN TOTALS: 2,007.64 .00 2,007.64 2,007.64 HANSON CORPORATE EXPRESS 51619960 02/13/96 03/14 N 158.13 .00 158.13 INV 02/29/96 158.13 51624730 02/14/96 03/15 N 184.49 .00 184.49 INV 02/29/96 184.49 51632110 02/20/96 03/21 N 24.53 .00 24.53 INV 02/29/96 24.53 51632111 02/21/96 03/22 N 36.79 .00 36.79 INV 02/29/96 36.79 ---------- --------- ------------ ---------- VENDOR HANSON TOTALS: 403.94 .00 403.94 403.94 HARVEY Mary Harvey 021296 02/12/96 02/12 N 806.00 .00 806.00 INV 02/23/96 806.00 ---------- --------- ------------ ---------- VENDOR HARVEY TOTALS: 806.00 .00 806.00 806.00 HEWLETT HEWLETT PACKARD-MIKE HOUGHTON 073195 07/31/95 07/31 N 16,573.00 .00 16,573.00 INV 07/31/95 16,573.00 082995 08/29/95 08/29 N 14,927.00 .00 14,927.00 INV 08/31/95 14,927.00 083195 08/31/95 08/31 N 8,000.00 .00 8,000.00 INV 08/31/95 8,000.00 ---------- --------- ------------ ---------- VENDOR HEWLETT TOTALS: 39,500.00 .00 39,500.00 39,500.00 HP Hewlett - Packard 7561372 02/10/96 02/10 N 13,940.10 .00 13,940.10 INV 02/29/96 13,940.10 75K4246 02/21/96 02/21 N 2,485.35 .00 2,485.35 INV 02/29/96 2,485.35 ---------- --------- ------------ ---------- VENDOR HP TOTALS: 16,425.45 .00 16,425.45 16,425.45 ICUBKD INTERNATIONAL INTEGRATION, INC. 951103 11/03/95 12/03 N 30,000.00 .00 30,000.00 INV 11/17/95 30,000.00 951103A 11/03/95 12/03 N 76,000.00 .00 76,000.00 INV 11/30/95 76,000.00
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 5 SYS DATE: 03/05/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:38 AM ALL OPEN INVOICES DIVISION NO: 00 MAIN DIVISION E VENDOR/ +-------DATES-------+ L INVOICE DISCOUNT INVOICE +-------TRANSACTION-------+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE ICUBKD INTERNATIONAL INTEGRATION, INC. 951128 11/28/95 12/28 N 80,000.00 .00 40,000.00 INV 11/30/95 80,000.00 PMT 01/15/96 40,000.00- 000566 01/15/96 951129J 12/01/95 12/31 N 5,588.65 .00 5,588.65 INV 12/29/95 5,588.65 951129E 12/01/95 12/31 N 4,714.12 .00 4,716.12 INV 12/29/95 4,716.12 951129L 12/01/95 12/31 N 10,925.91 .00 10,925.91 INV 12/29/95 10,925.91 951130R 12/01/95 12/31 N 1,759.42 .00 1,759.42 INV 12/29/95 1,759.42 951130C 12/01/95 12/31 N 5,453.68 .00 5,453.68 INV 12/29/95 5,453.68 ------------- ------- ----------- ----------- VENDOR ICUBKD TOTALS: 214,443.78 .00 174,443.78 174,443.78 JMULLIK Jeffrey Mulliken - Architect 960103 01/31/96 01/31 N 9,402.40 .00 9,402.40 INV 01/31/96 9,402.40 ------------- ------- ----------- ----------- VENDOR JMULLIK TOTALS: 9,402.40 .00 9,402.40 9,402.40 JORGEN James Jorgenson 022696 02/26/96 02/25 N 370.45 .00 370.45 INV 02/29/96 370.45 ------------- ------- ----------- ----------- VENDOR JORGEN TOTALS: 370.45 .00 370.45 370.45 KIMMELM DAVID KIMMELMAN 21696 02/16/96 02/16 N 170.37 .00 170.37 INV 02/26/96 170.37 ------------ ------- ----------- ----------- VENDOR KIMMELM TOTALS: 170.37 .00 170.37 170.37 IUO YU-MING IUO 020196 02/01/96 02/01 N 533.86 .00 533.86 INV 02/29/96 533.86 ------------ -------- ----------- ----------- VENDOR IUO TOTALS: 533.86 .00 533.86 533.86 LASER LASER PERFECT LA 52905 02/15/96 03/16 N 734.48 .00 734.48 INV 02/29/96 734.48 ------------ ------- ----------- ----------- VENDOR LASER TOTALS: 734.48 .00 734.48 734.48 MILLER Software Development 36 West 1272966463 02/21/96 02/21 N 3,250.00 .00 3,250.00 INV 02/29/96 3,250.00 ------------ ------- ----------- ----------- VENDOR MILLER TOTALS: 3,250.00 .00 3,250.00 3,250.00 NETWORK Network Cabinet Products 960091 02/05/96 02/05 N 3,855.67 .00 3,855.67 INV 02/29/96 3,858.67 ------------ ------- ----------- ----------- VENDOR NETWORK TOTALS: 3,855.67 .00 3,855.67 3,855.67 OEC OPEN ENVIRONMENT CORP. 139 11/01/95 11/01 N 1,800.00 .00 1,800.00 INV 11/17/95 1,800.00 141 11/01/95 11/01 N 13,500.00 .00 13,500.00 INV 11/17/95 13,500.00 145 11/01/95 11/01 N 33,750.00 .00 33,750.00 INV 11/30/95 33,750.00
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 6 SYS DATE: 03/05/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:30 AM ALL OPEN INVOICES DIVISION NO: 00 MAIN DIVISION E VENDOR/ +-------DATES-------+ L INVOICE DISCOUNT INVOICE +-------TRANSACTION-------+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE OEC OPEN ENVIRONMENT CORP. 3727 11/01/95 11/01 N 9,000.00 .00 9,000.00 INV 11/17/95 9,000.00 3821 11/01/95 11/02 N 10,944.50 .00 10,944.50 INV 11/30/95 10,344.50 3847 11/01/95 11/01 N 13,500.00 .00 13,500.00 INV 11/30/95 13,500.00 3867 11/01/95 11/01 N 2,700.00 .00 2,700.00 INV 11/30/95 2,700.00 3873 11/20/95 11/20 N 10,325.00 .00 10,325.00 INV 11/30/95 10,325.00 3874 11/20/95 11/20 N 2,065.00 .00 2,065.00 INV 11/30/95 2,065.00 3875 11/20/95 11/20 N 2,065.00 .00 2,065.00 INV 11/30/95 2,065.00 3887 12/01/95 12/01 N 5,988.94 .00 5,988.94 INV 12/23/95 5,988.94 3891 12/01/95 12/01 N 4,678.37 .00 4,678.37 INV 12/29/95 4,678.37 3892 12/01/95 12/01 N 4,243.53 .00 4,243.53 INV 12/29/95 4,243.53 3893 12/01/95 12/01 N 2,807.93 .00 2,807.93 INV 12/29/95 2,807.93 3912 01/01/96 01/01 N 15,000.00 .00 15,000.00 INV 01/31/96 15,000.00 3913 01/01/96 01/01 N 6,000.00 .00 6,000.00 INV 01/31/96 6,000.00 3924 01/01/96 01/01 N 3,000.00 .00 3,000.00 INV 01/31/96 3,000.00 4024-IN 01/01/96 01/01 N 2200,000.00 .00 2200,000.00 INV 01/31/96 2200,000.00 ----------- -------- ----------- ----------- VENDOR OEC TOTALS: 2341,368.27 .00 2341,368.27 2341,368.27 ORGANIS ORGANISATION TECHNIQUE AUDIO 9773 08/01/95 08/01 N 10,096.26 .00 10,096.26 INV 08/22/95 13,591.26 ADJ 08/31/95 3,795.00- ----------- -------- ----------- ----------- VENDOR ORGANIS TOTALS: 10,096.26 .00 10,096.26 10,096.26 PENCOM PENCOM SYSTEMS INC. 64701 01/25/96 02/24 N 9,000.00 .00 9,000.00 INV 01/31/96 9,000.00 ----------- -------- ----------- ----------- VENDOR PENCOM TOTALS: 9,000.00 .00 9,000.00 9,000.00 PIESNER MARK PIESNER 020196 02/01/96 02/01 N 324.35 .00 324.35 INV 02/29/96 324.35 ----------- -------- ----------- ----------- VENDOR PIESNER TOTALS: 324.35 .00 324.35 324.35 PRESSRM THE PRESSROOM, INCORPORATED 37156 01/01/96 01/31 N 908.55 .00 908.55 INV 01/31/96 908.55 37370 01/23/96 02/22 N 567.00 .00 567.00 INV 01/31/96 567.00 ----------- -------- ----------- ----------- VENDOR PRESSRM TOTALS: 1,475.55 .00 1,475.55 1,475.55 PWORKS PageWorks Accounting Dept. 196027 02/08/96 02/08 N 110.78 .00 110.78 INV 02/29/96 110.78 196373 02/14/96 02/14 N 40.43 .00 40.43 INV 02/28/96 40.43 ----------- -------- ----------- ----------- VENDOR PWORKS TOTALS: 151.21 .00 151.21 151.21 QUEBLO Queblo 1145900 02/13/96 02/13 N 611.00 .00 611.00 INV 02/29/96 611.00
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 7 SYS DATE: 03/05/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:38 AM ALL OPEN INVOICES DIVISION NO: 00 MAIN DIVISION H VENDOR/ +-------DATES-------+ L INVOICE DISCOUNT INVOICE +-------TRANSACTION-------+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE ---------- -------- ---------- ---------- VENDOR QUEBLO TOTALS: 611.00 .00 611.00 611.00 RGUPTA Raja Gupta 011596 01/15/96 02/15 N 79.00 .00 79.00 INV 01/23/96 79.00 ---------- -------- ---------- ---------- VENDOR RGUPTA TOTALS: 79.00 .00 79.00 79.00 SHEPP Sheppard Riley Coughlin 21506 JMC 02/27/96 02/27 N 769.00 .00 769.00 INV 02/29/96 769.00 21507 JMC 02/27/96 02/27 N 3,123.00 .00 3,123.00 INV 02/29/96 3,123.00 21508 JMC 02/27/96 02/27 N 354.00 .00 354.00 INV 02/29/96 354.00 21510 JMC 02/27/96 02/27 N 1,996.00 .00 1,996.00 INV 02/29/96 1,996.00 ---------- -------- ---------- ---------- VENDOR SHEPP TOTALS: 6,242.00 .00 6,242.00 6,242.00 SIEMENS Siemens Nixdorf, Inc. 90001944 02/01/96 02/01 N 127,500.00 .00 127,500.00 INV 02/29/96 127,500.00 ---------- -------- ---------- ---------- VENDOR SIEMENS TOTALS: 127,500.00 .00 127,500.00 127,500.00 SNYDER MARTIN SNYDER 022796 02/27/96 02/27 N 99.97 .00 99.97 INV 02/29/96 99.97 ---------- -------- ---------- ---------- VENDOR SNYDER TOTALS: 99.97 .00 99.97 99.97 SPEAR HEIDI SPEAR 021996 02/19/96 02/19 N 697.23 .00 697.23 INV 02/29/96 697.23 ---------- -------- ---------- ---------- VENDOR SPEAR TOTALS: 697.23 .00 697.23 697.23 SPEEDYA AMERICAN SPEEDY 15049 02/07/96 03/08 N 233.12 .00 233.12 INV 02/29/96 233.12 15050 02/07/96 03/08 N 52.40 .00 52.40 INV 02/29/96 52.40 15059 02/09/96 03/10 N 237.56 .00 237.56 INV 02/29/96 237.56 15071 02/09/96 03/10 N 568.70 .00 568.70 INV 02/29/96 568.70 15096 02/14/96 03/15 N 526.26 .00 526.26 INV 02/29/96 526.26 15113 02/16/96 03/17 N 321.93 .00 321.93 INV 02/29/96 321.93 15120 02/19/96 03/20 N 266.74 .00 266.74 INV 02/29/96 266.74 15137 02/21/96 03/22 N 154.35 .00 154.35 INV 02/29/96 154.35 15141 02/21/96 03/22 N 306.23 .00 306.23 INV 02/29/96 306.23 15160 02/22/96 03/23 N 249.11 .00 249.11 INV 02/29/96 249.11 15166 02/23/96 03/24 N 280.77 .00 280.77 INV 02/29/96 280.77 15168 02/24/96 03/25 N 149.63 .00 149.63 INV 02/29/96 149.63 15170 02/23/96 03/24 N 438.69 .00 438.69 INV 02/29/96 438.69 15174 02/26/96 03/27 N 107.52 .00 107.52 INV 02/29/96 107.52 ---------- -------- ---------- ---------- VENDOR SPEEDYA TOTALS: 3,893.01 .00 3,893.01 3,893.01
RUN DATE: 03/05/96 TO BUSINESS@WEB, INC. PAGE: 8 SYS DATE: 03/05/96 ACCOUNTS PAYABLE TRIAL BALANCE TIME: 09:38 AM ALL OPEN INVOICES DIVISION NO: 00 MAIN DIVISION E VENDOR/ +-------DATES-------+ L INVOICE DISCOUNT INVOICE +-------TRANSACTION-------+ CHECK CHECK INVOICE NO. INVOICE DUE DSCNT D AMOUNT AMOUNT BALANCE TYPE DATE AMOUNT NUMBER DATE TAKASHI QUNIO TAKASHIMA 022495 02/28/95 03/30 N 378.00 .00 378.00 INV 02/28/95 378.00 ----------- ------- ----------- ----------- VENDOR TAKASHI TOTALS: 378.00 .00 378.00 378.00 TRIUMPH Triumph Technologies, Inc. 7972 02/01/96 02/01 N 4,602.85 .00 4,602.85 INV 02/29/96 4,602.85 7988 02/01/96 02/01 N 4,616.90 .00 4,616.90 INV 02/29/96 4,616.90 8038 02/01/96 02/01 N 3,054.10 .00 3,054.10 INV 02/29/96 3,054.10 ----------- ------- ----------- ----------- VENDOR TRIUMPH TOTALS: 12,273.85 .00 12,273.85 12,273.85 UNITED United Lithograph, Inc. 078039 02/24/96 02/24 N 7,209.00 .00 7,209.00 INV 02/29/96 7,209.00 ----------- ------- ------------ ----------- VENDOR UNITED TOTALS: 7,209.00 .00 7,209.00 7,209.00 URS URS INFORMATION SYSTEMS, INC. 92146628 03/01/96 03/02 N 31,399.60 .00 31,399.60 INV 02/20/96 31,399.60 92147370 02/13/96 03/14 N 2,584.95 .00 2,584.95 INV 02/29/96 2,584.95 ----------- ------- ----------- ----------- VENDOR URS TOTALS: 33,984.55 .00 33,984.55 33,984.55 VORE BRANDON VORE 022396 02/23/96 02/23 N 125.99 .00 125.99 INV 02/29/96 125.99 ----------- ------- ----------- ----------- VENDOR VORE TOTALS: 125.99 .00 125.99 125.99 WISE Terry Wise 021596 02/15/96 02/15 N 1,862.27 .00 1,862.27 INV 02/29/96 1,862.27 021696 02/16/96 02/16 N 2,267.95 .00 2,267.95 INV 02/29/96 1,267.95 022196 02/21/96 02/21 N 274.88 .00 274.88 INV 02/29/96 274.88 022596 02/25/96 02/25 N 2,677.19 .00 2,677.19 INV 02/29/96 2,677.19 ----------- ------- ----------- ----------- VENDOR WISE TOTALS: 7,082.29 .00 7,082.29 7,082.29 ----------- ------- ----------- ----------- DIVISION 00 TOTALS: 3081,987.36 .00 2961,322.36 2961,522.36 ----------- ------- ----------- ----------- REPORT TOTALS: 3081,987.36 .00 2961,522.36 2961,522.36 =========== ======= =========== ===========
Schedule III A. 16,204,545 Common Shares are issued and outstanding as of March 5, 1996: Sundar Subramaniam 4,998,000 Common Shares Len Hafetz 400,000 Common Shares James Nondorf 100,000 Common Shares Legacy Investment Partnership 2,000,000 Common Shares J&S Limited Partnership 2,000,000 Common Shares Enamullah Khan 2,000 Common Shares Isao Okawa 200,000 Common Shares CSK Corporation 200,000 Common Shares Klaus Besier 1,440,000 Common Shares Harrington Trust Limited 4,864,545 Common Shares as Trustee of The Appleby Trust
B. 1,837,750 Common Shares are reserved for issuance upon exercise of outstanding option grants to employees and consultants under the 1995 Stock Plan; these options are subject to vesting (and the majority remain unvested). C. Commitments to issue options for an aggregate of 302,000 Common Shares have been made to persons who have accepted employment offers. D. The Company has agreed to issue and sell to Hewlett-Packard Company 180,506 shares of Series B Convertible Preferred Stock pursuant to a certain Series B Convertible Preferred Stock Purchase Agreement dated as of February 27, 1996. E. In connection with the establishment of a credit facility with State Street Bank and Trust Company, the Company has agreed to issue to SSB Investments, Inc., an affiliate of such bank, a warrant for the purchase of 35,000 Common Shares on or before February 15, 2003 at an exercise price of $5.54 per share, and to extend with respect to such shares, piggy-back registration rights in connection with any Company registration of its securities (other than in its initial public offering). PABOS:WEK:239980_1 SCHEDULE IV The Company is a party to the following Material Contracts: 1. The Company has an understanding with Klaus Besier, who was recently appointed chief executive officer of the Company, pursuant to which it has committed to develop, within three months, a performance bonus compensation arrangement with Mr. Besier under which Mr. Besier will, upon achievement of certain goals (to be mutually agreed upon by the Company and Mr. Besier), be entitled to bonus compensation. Mr. Besier's bonus targets are $400,000 for 1996, $1,000,000 for 1997 and $2,500,000 for 1998. 2. The Company grants incentive stock options and non-qualified options to its employees and consultants under the Company's 1995 Stock Plan. 3. The Company has entered into a series of related credit facilities with State Street Bank and Trust Company providing for aggregate borrowings of up to $5,000,000. The Company has granted State Street Bank and Trust Company a security interest in substantially all of the Company's assets to secure its obligations under such credit facilities. 4. The Company has agreed to issue securities of the Company to certain persons and entities identified on Schedule III hereto. 5. The Company has granted Hewlett-Packard Company a right of first offer with respect to any proposed sale by the Company of its equity securities to any company engaged in the manufacture of computer hardware. 6. The Company leases its offices at One Arsenal Marketplace, Watertown, Massachusetts under a 5-year lease expiring in 2001. The Company expects to lease office furniture from a commercial office supply company. 7. The Company has acquired intellectual property rights from the following sources: (a) InterGroup Technologies, Inc. (VisualWare) (b) Mentor Communications Ltd. (Logical Data Integrator) (c) Mystic River Software Inc. (Softbridge Basic Language) (d) Open Environment Corporation (Toolkit) (e) VZ Corp. (object-oriented development platform) The Company has transferred intellectual property to the following entities: (a) Open Environment Corporation (SAP customization software) (b) Cambridge Executive Programme Ltd. (VZ development platform) 8. The Company has agreed to extend to SSB Investments, Inc. piggyback registration rights with respect to the shares of the Company's Common Stock issuable upon exercise of the warrant the Company has agreed to issue to SSB Investments, Inc. 9. The Company is a party to the following additional agreements involving more than $250,000 or continuing over a period of more than two years: (a) The Weber Group public relations project (b) Siemans Nixdorf master partnership (c) Shell Oil business management project EX-10.18 11 SERIES B STOCK PURCHASE AGREEMENT (3-6-96) EXHIBIT 10.18 BUSINESS@WEB, INC. SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT MARCH 6, 1996 TABLE OF CONTENTS ----------------- ARTICLE I - THE PREFERRED SHARES 1 Section 1.01 - Issuance, Sale and Delivery of the Preferred Shares 1 Section 1.02 - Closing 1 Section 1.03 - Payment of Purchase Price 1 Section 1.04 - Additional Purchasers 2 ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2 Section 2.01 - Organization, Qualification and Corporate Power 2 Section 2.02 - Authorization of Agreements, etc. 3 Section 2.03 - Validity 3 Section 2.04 - Authorized Capital Stock 3 Section 2.05 - Financial Statements; Corporate Minutes 4 Section 2.06 - Certain Events 4 Section 2.07 - Litigation, Compliance with Law 5 Section 2.08 - Proprietary Information of Third Parties 5 Section 2.09 - Title to Properties 6 Section 2.10 - Leasehold Interests 6 Section 2.11 - Taxes 6 Section 2.12 - Intellectual Property 7 Section 2.13 - Material Contracts 7 Section 2.14 - Compliance with Governing Documents and Material Contracts 9 Section 2.15 - Loans and Advances 9 Section 2.16 - Borrowings; Assumptions and Guaranties of Indebtedness of Other Persons 9 Section 2.17 - Significant Customers and Suppliers 9 Section 2.18 - Employees 9 Section 2.19 - Transactions with Affiliates 10 Section 2.20 - Governmental Approvals 10 Section 2.21 - Disclosure 10 Section 2.22 - Offering of the Preferred Shares 11 Section 2.23 - Brokers 11 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 11
i
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS 12 Section 4.01 - Opinion of Company's Counsel 13 Section 4.02 - Representations and Warranties to be True and Correct 13 Section 4.03 - Performance 13 Section 4.04 - Conduct of Business 13 Section 4.05 - Charter 13 Section 4.06 - Confidentiality Agreement 13 Section 4.07 - Registration Rights Agreement 13 Section 4.08 - Preemptive Rights 13 Section 4.09 - Co-Sale Rights Agreement 13 Section 4.10 - Voting Agreement 14 Section 4.11 - Performance by Other Purchasers 14 Section 4.12 - Legal Fees 14 Section 4.13 - All Proceedings to be Satisfactory 14 ARTICLE V - COVENANTS OF THE COMPANY 14 Section 5.01 - Financial Statements, Reports, etc. 14 Section 5.02 - Reserve for Conversion of Shares 15 Section 5.03 - Corporate Existence 15 Section 5.04 - Properties, Business, Insurance 15 Section 5.05 - Visitation, Consultation and Advice 15 Section 5.06 - Notice of Extraordinary Corporate Actions 16 Section 5.07 - Transactions with Affiliates 16 Section 5.08 - Key Man Insurance 16 ARTICLE VI - RESTRICTIONS ON TRANSFER OF PREFERRED SHARES 17 Section 6.01 - Transfer of Preferred Shares and Conversion Shares 17 Section 6.02 - First Offer Right 17 Section 6.03 - Permitted Transfers 17 Section 6.04 - Additional Transfer Restrictions 18 ARTICLE VII - MISCELLANEOUS 18 Section 7.01 - Expenses 18 Section 7.02 - Brokerage 18 Section 7.03 - Parties in Interest 18 Section 7.04 - Notices 19 Section 7.05 - Governing Law 19 Section 7.06 - Entire Agreement 19 Section 7.07 - Counterparts 19 Section 7.08 - Amendments and Waivers 19 Section 7.09 - Severability 19 Section 7.10 - Titles and Subtitles 20 Section 7.11 - Certain Defined Terms 20 Section 7.12 - No Waiver; Cumulative Remedies 20
ii Section 7.13 - Confidentiality 20 Section 7.15 - Further Assurances 21
iii SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of March 6, 1996, among Business@Web, Inc., a Delaware corporation (the "Company") and the purchasers listed on Schedule I hereto (individually, a "Purchaser" and collectively, the "Purchasers", which term shall include any additional Purchasers who become parties to this Agreement and purchase Preferred Shares pursuant to Section 1.04, below). WHEREAS, the Company wishes to issue and sell to the Purchasers up to 1,250,906 shares (the "Preferred Shares") of the authorized but unissued Series B Convertible Preferred Stock, $1.00 par value, of the Company (the "Series B Convertible Preferred Stock"); and WHEREAS, the Purchasers wish to purchase the Preferred Shares on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I THE PREFERRED SHARES Section 1.01 Issuance, Sale and Delivery of the Preferred Shares. Subject --------------------------------------------------- to the terms and conditions hereinafter set forth, the Company hereby agrees to issue and sell the Preferred Shares to the Purchasers, and each Purchaser, severally and not jointly, hereby agrees to purchase from the Company the number of Preferred Shares set forth under the heading "Shares Purchased" opposite such Purchaser's name on Schedule I hereto, at the purchase price of $5.54 per share. Section 1.02 Closing. The closing of the transactions contemplated hereby ------- shall take place at the offices of Peabody & Arnold, 50 Rowes Wharf, Boston, Massachusetts 02110, at 10:00 a.m., Boston time, on March 6, 1996, or at such other location, date and time as may be agreed upon between the Purchasers and the Company (such closing being called the "Closing" and such date and time being called the "Closing Date"). At the Closing, the Company shall issue and deliver to each Purchaser a stock certificate or certificates in definitive form, registered in the name of such Purchaser, representing the Preferred Shares being purchased by it. Section 1.03 Payment of Purchase Price. As payment in full for the ------------------------- Preferred Shares being purchased by it at the Closing, and against delivery of the stock certificate or certificates therefor as aforesaid, on the Closing Date each Purchaser shall deliver to the Company the amount set forth under the heading "Purchase Price" opposite such Purchaser's name on Schedule I hereto (the "Purchase Price"). Payment of the Purchase Price shall be made by check or checks payable to the order of the Company, by transfer to the account of the Company by wire transfer, by surrender for cancellation of promissory notes or other obligations of the Company, or by any combination thereof. 1 Section 1.04 Additional Purchasers. At any time on or before March 31, --------------------- 1996, Cowen & Company ("Cowen") and certain employees, affiliates and other individuals designated by Cowen may become parties to this Agreement by executing and delivering counterpart signature pages hereto indicating, in each case, the number of Preferred Shares (not to exceed, in the aggregate, 95,668 Preferred Shares) being purchased thereby and delivering to the Company, together therewith, payment in full for the Purchase Price for such Preferred Shares. Payment of the Purchase Price shall be made by check or checks payable to the order of the Company, by transfer to the account of the Company by wire transfer, by surrender for cancellation of promissory notes or other obligations of the Company (including, with respect to Cowen, the obligation of the Company to pay a placement fee in connection with the transactions contemplated hereby), or by any combination thereof. Upon such execution, delivery, and payment, such persons shall become "Purchasers" entitled to all of the rights and benefits, and subject to all of the provisions, of this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each of the Purchasers that, except as set forth in the Disclosure Schedule attached hereto as Schedule II: ----------- Section 2.01 Organization, Qualification and Corporate Power. ----------------------------------------------- (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business in all jurisdictions in which the nature of the business transacted by the Company or the character of the properties owned or leased by the Company requires that the Company qualify to do business as a foreign corporation, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, operations or financial condition of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement and the Registration Rights Agreement (as such term is hereinafter defined), and to issue, sell and deliver the Preferred Shares and to issue and deliver the shares of Common Stock, $.001 par value, of the Company ("Common Stock") issuable upon conversion of the Preferred Shares (the "Conversion Shares"). (b) The Company has no subsidiaries. The Company does not own of record or beneficially, directly or indirectly, (i) any shares of capital stock or securities convertible into capital stock of any other corporation or (ii) any participating interest in any partnership, joint venture or other non- corporate business enterprise and does not control, directly or indirectly, any other entity. 2 Section 2.02 Authorization of Agreements, etc. -------------------------------- (a) The execution and delivery by the Company of this Agreement and the Registration Rights Agreement, the performance by the Company of its obligations hereunder and thereunder, the issuance, sale and delivery of the Preferred Shares and the issuance and delivery of the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Restated Certificate of Incorporation of the Company (the "Charter"), or the By-laws of the Company, as amended, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) The Preferred Shares have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable shares of Series B Convertible Preferred Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. The Conversion Shares have been duly reserved for issuance upon conversion of the Preferred Shares and, when so issued, will be duly authorized, validly issued, fully paid and nonassessable shares of Common Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. Neither the issuance, sale or delivery of the Preferred Shares nor the issuance or delivery of the Conversion Shares is subject to any preemptive right of stockholders of the Company or to any right of first refusal or other right in favor of any person. Section 2.03 Validity. This Agreement has been duly executed and -------- delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. The Registration Rights Agreement when executed and delivered in accordance with this Agreement, will constitute the legal, valid and binding obligation of the Company and of the other parties thereto, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. Section 2.04 Authorized Capital Stock. The authorized capital stock of ------------------------ the Company will, immediately prior to the Closing, consist of (i) 3,000,000 shares of Preferred Stock, $1.00 par value (the "Preferred Stock"), of which 1,431,412 shares have been designated Series B Convertible Preferred Stock, and 1,568,588 shares remain undesignated and (ii) 30,000,000 shares of Common Stock. Immediately prior to the Closing, 16,204,545 shares of Common Stock will be validly issued and outstanding, and no other shares of Common Stock or Preferred Stock will be outstanding. All shares of the series of Preferred Stock designated Series A Convertible Preferred Stock which had been issued prior to the date hereof have been surrendered for conversion into Common Stock and retired, and the series of Preferred 3 Stock designated Series A Convertible Preferred Stock has been cancelled and eliminated from the shares which the Company is authorized to issue. The stockholders of record and holders of subscriptions, warrants, options, convertible securities, and other rights (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company, and the number of shares of Common Stock or Preferred Stock and the number of such subscriptions, warrants, options, convertible securities, and other such rights held by each, are as set forth in the attached Schedule III. The designations, ------------ powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Charter, a copy of which is attached as Exhibit A. Except --------- as set forth in the attached Schedule III, (i) no person owns of record or is ------------ known to the Company to own beneficially any share of Common Stock or Preferred Stock, (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company is authorized or outstanding and (iii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset. Except as provided for in the Charter or as set forth in the attached Schedule -------- III, the Company has no obligation (contingent or other) to purchase, redeem or - --- otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Section 2.05 Financial Statements; Corporate Minutes. The Company has --------------------------------------- furnished to the Purchasers the unaudited balance sheet of the Company as of December 31, 1995 and the related statement of operations, shareholders' equity and cash flows for the fiscal year then ended (the "Financial Statements"). The Financial Statements (a) are complete and correct in all material respects, (b) are in accordance with the Company's books and records, (c) present fairly the Company's financial position for the period and as of the date indicated and (d) have been prepared in conformity with generally accepted accounting principles consistently applied, subject to (i) adjustments which will not, in the aggregate, be material and (ii) the absence of footnotes. The Company has furnished to the Purchaser copies of the minutes of meetings and written consents in lieu of meetings of the Company's shareholders and Board of Directors from the date of the Company's incorporation through the date of this Agreement (the "Corporate Minutes"). The Corporate Minutes accurately reflect all actions taken by the Company's shareholders and Board of Directors. Section 2.06 Certain Events. Except as set forth in this Agreement and -------------- the Schedules hereto, and the documents referred to therein, the Company has not, since the date of the Financial Statements, (i) issued any stock, bond or other corporate security, (ii) borrowed any amount or incurred or become subject to any liability (absolute, accrued or contingent), except current liabilities incurred and liabilities under contracts entered into, in each case in the ordinary course of business, (iii) discharged or satisfied any lien or encumbrance or incurred or paid any obligation or liability (absolute, accrued or contingent) other than current liabilities incurred in the ordinary course of business, (iv) declared or made any payment or distribution to stockholders or purchased or redeemed any shares of its capital stock or other security, (v) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, other than liens of current real property taxes not yet due and payable, (vi) sold, assigned or transferred any of its tangible assets except in the ordinary course of business, or 4 cancelled any debt or claim, (vii) sold, assigned, transferred or granted any exclusive license with respect to any patent, trademark, trade name, service mark, copyright, trade secret or other intangible asset, (viii) suffered any loss of property or waived any right of substantial value whether or not in the ordinary course of business, (ix) made any change in officer compensation except in the ordinary course of business and consistent with past practice, (x) made any material change in the manner of business or operations of the Company, (xi) entered into any transaction except in the ordinary course of business or as otherwise contemplated hereby or (xii) entered into any commitment (contingent or otherwise) to do any of the foregoing. Section 2.07 Litigation, Compliance with Law. There is no (i) action, ------------------------------- suit, claim, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against or affecting the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pend ing under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending or, to the best of the Company's knowledge, threatened against or affecting the Company (in cluding without limitation any inquiry as to the qualification of the Company to hold or receive any governmental license or permit), and, to the best of the Company's knowledge, there is no basis for any of the foregoing. The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. To the best of the Company's knowledge, the Company has complied in all material respects with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, and the Company has all necessary governmental permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted. There is no existing law, rule, regulation or order, and the Company is not aware of any proposed law, rule, regulation or order, whether federal or state, which would prohibit or restrict the Company from, or otherwise materially adversely affect the Company in conducting its business in any jurisdiction in which it is now conducting business or in which it proposes to conduct business. Section 2.08 Proprietary Information of Third Parties. To the best of the ----------------------------------------- Company's knowledge, no third party has claimed or has reason to claim that any person employed by the Company has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or nondisclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company which suggests that such a claim might be contemplated. To the best of the Company's knowledge, no person employed by the Company has utilized or proposes to utilize any trade secret or any information or documentation proprietary to any third party, and to the best of the Company's knowledge, no person employed by the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture 5 or sale of any product or proposed product or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such utilization or violation. Section 2.09 Title to Properties. The Company has good and marketable ------------------- title to its properties and assets reflected in the Financial Statements and all such properties and assets are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances, except for liens for current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company and its subsidiaries. Section 2.10 Leasehold Interests. Each lease or agreement to which the ------------------- Company is a party under which it is a lessee of any property, real or personal, is a valid and subsisting agreement without any default of the Company thereunder and, to the best of the Company's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which, with due notice or lapse of time or both, would constitute a default or event of default by the Company under any such lease or agreement or, to the best of the Company's knowledge, by any other party thereto. The Company's possession of such property has not been disturbed and, to the best of the Company's knowledge, no claim has been asserted against the Company adverse to its rights in such leasehold interests. Section 2.11 Taxes. The Company has filed all tax returns, federal, ----- state, county and local, required to be filed by it, and the Company has paid all taxes shown to be due by such returns as well as all other taxes, assessments and governmental charges which have become due or payable, including without limitation all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties. The Company has established adequate reserves for all taxes accrued but not yet payable. The federal income tax returns of the Company have never been audited by the Internal Revenue Service. No deficiency assessment with respect to or proposed adjustment of the Company's Federal, state, county or local taxes is pending or, to the best of the Company's knowledge, threatened. There is no tax lien, whether imposed by any federal, state, county or local-taxing authority, outstanding against the assets, properties or business of the Company. Neither the Company nor any of its stockholders has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Company be taxed as an S corporation or (b) consent pursuant to Section 341(f) of the Code, relating to collapsible corporations. Section 2.12 Intellectual Property. The Company possesses adequate --------------------- licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets and know how (collectively, "Intellectual Property") which are necessary or desirable to the conduct of the Company's business as conducted and as proposed to be conducted or the lack of which would materially adversely affect the Company or its business. No claim is pending or, to the best of the Company's knowledge, threatened to the effect that the operations of the Company infringe upon or conflict with the asserted rights of any other person under any Intellectual Property, and, to the best of the Company's 6 knowledge, there is no basis for any such claim (whether or not pending or threatened). No claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company, and to the best of the Company's knowledge there is no basis for any such claim (whether or not pending or threatened). To the best of the Company's knowledge, all technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company has not granted or assigned to any other person or entity any right to manufacture, have manufactured, assemble or sell the products or proposed products or to provide the services or proposed services of the Company. Section 2.13 Material Contracts. Except for the agreements identified in ------------------ the Schedule of Material Contracts attached hereto as Schedule IV (the "Material ----------- Contracts"), the Company is not a party to or otherwise bound by any written or oral contract or instrument or other restriction which individually or in the aggregate could materially adversely affect the business, prospects, financial condition, operations, property or affairs of the Company, including, without limitation, any written or oral: (a) contract or agreement which is not terminable on less than ninety (90) days' notice without cost or other liability to the Company (except for contracts which, in the aggregate, are not material to the business of the Company); (b) contract which entitles any customer to a rebate or right of set- off, or which varies in any material respect from the Company's standard form contracts; (c) contract with any labor union; (d) contract or other commitment with any supplier of goods or services containing any provision permitting any party other than the Company to renegotiate the price or other terms, or containing any pay-back or other similar provision, upon the occurrence of a failure by the Company to meet its obligations under the contract when due or the occurrence of any other event; (e) contract for the future purchase of fixed assets or for the future purchase of materials, supplies or equipment in excess of the Company's normal operating requirements; (f) contract for the employment of any officer, employee or other person (whether of a legally binding nature or in the nature of informal understandings) on a full-time or consulting basis which is not terminable on notice without cost or other liability to the Company, except normal severance arrangements and accrued vacation pay; (g) bonus, pension, profit-sharing, retirement, hospitalization, insurance, stock purchase, stock option or other plan, contract or understanding pursuant to which 7 benefits are provided to any employee of the Company (other than group insurance plans applicable to employees generally); (h) agreement or indenture relating to the borrowing of money or to the mortgaging or pledging of, or otherwise placing a lien or security interest on, any asset of the Company; (i) guaranty of any obligation for borrowed money or otherwise; (j) voting trust or agreement, stockholders' agreement, pledge agreement, buy-sell agreement or first refusal or preemptive rights agreement relating to any securities of the Company; (k) agreement, or group of related agreements with the same party or any group of affiliated parties, under which the Company has advanced or agreed to advance money or has agreed to lease any property as lessee or lessor;. (1) agreement or obligation (contingent or otherwise) to issue, sell or otherwise distribute or to repurchase or otherwise acquire or retire any share of its capital stock or any of its other equity securities; (m) assignment, license or other agreement with respect to any form of intangible property; (n) agreement under which it has granted any person any registration rights, other than the Registration Rights Agreement (as such term is hereinafter defined); (o) agreement under which it has limited or restricted its right to compete with any person in any respect; or (p) other contract or group of related contracts with the same party involving more than $250,000 or continuing over a period of more than two (2) years from the date or dates thereof (including renewals or extensions optional with another party), which contract or group of contracts is not terminable by the Company without penalty upon notice of thirty (30) days or less. Section 2.14 Compliance with Governing Documents and Material Contracts. ---------------------------------------------------------- The Company and, to the best of the Company's knowledge, each other party thereto have in all material respects performed all the obligations required to be performed by them to date under each of the Material Contracts and have received no notice of default and are not in default (with due notice or lapse of time or both) under any Material Contract or any material provision of any other agreement. The Company has no present expectation or intention of not fully performing all its obligations under each Material Contract, and the Company has no knowledge of any breach or anticipated breach by the other party to any Material Contract. The Company is in full compliance with all of the terms and provisions of its Charter and By-laws. 8 Section 2.15 Loans and Advances. The Company does not have any ------------------ outstanding loans or advances to any person and is not obligated to make any such loans or advances, except, in each case, for advances to employees of the Company in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for the Company. Section 2.16 Borrowings; Assumptions and Guaranties of Indebtedness of ------------------------------------------------------ -- Other Persons,. The Company is not obligated to any person for any money - -------------- borrowed or liability incurred (absolute, accrued or contingent) except current liabilities incurred and liabilities under contracts entered into, in each case in the ordinary course of business. The Company is not obligated to any person by reason of the Company having assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor, or otherwise to assure the creditor against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business. Section 2.17 Significant Customers and Suppliers. No customer or supplier ----------------------------------- which is significant to the Company has terminated, materially reduced or threatened to terminate or materially reduce its purchases from or provision of products or services to the Company, as the case may be. Section 2.18 Employees. Each of the officers of the Company and each --------- other person now employed by the Company who has access to confidential information of the Company has executed an Employee Agreement substantially in the form of Exhibit B (collectively, the "Confidentiality Agreements"), and such --------- agreements are in full force and effect. No officer or key employee of the Company has advised the Company (orally or in writing) that he intends to terminate employment with the Company. To the best of the Company's knowledge, the Company has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other taxes, and with the Employee-Retirement Income Security Act of 1974, as amended. Section 2.19 Transactions with Affiliates. No director, officer, employee ---------------------------- or stockholder of the Company, or, to the Company's knowledge, any member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or, to the Company's knowledge, any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, (i) is a party to any transaction with the Company, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from, transfer of any asset (including any Intellectual Property) from or to, or otherwise requiring payments to any such person or firm or (ii) to the Company's knowledge, is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest in any entity engaged directly or indirectly in competition with the Company. 9 Section 2.20 Governmental Approvals. Subject to the accuracy of the ---------------------- representations and warranties of the Purchasers set forth in Article III, no registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement or the Registration Rights Agreement, the issuance, sale and delivery of the Preferred Shares or, upon conversion thereof, the issuance and delivery of the Conversion Shares, other than (i) the filing of the Charter with the Secretary of State of the State of Delaware and (ii) the filing of notice subsequent to the Closing that may be required pursuant to federal and state securities laws in connection with the sale of the Preferred Shares. Section 2.21 Disclosure. Neither the Company's representations and ---------- warranties in this Agreement and in the Schedules and Exhibits to this Agreement nor any statement made by the Company in the Confidential Private Placement Memorandum dated February 1996 (a copy of which the Company has been provided to each of the Purchasers) contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. There is no factor (other than causes or events beyond the control of the Company) which the Company has not disclosed to the Purchasers and their counsel in writing and of which the Company is aware which materially and adversely affects or could materially and adversely affect the business, prospects, financial condition, operations, property or affairs of the Company or any of its subsidiaries. Section 2.22 Offering of the Preferred Shares. Neither the Company nor -------------------------------- any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Preferred Shares or any security of the Company similar to the Preferred Shares has offered the Preferred Shares or any such similar security for sale to, or solicited any offer to buy the Preferred Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Preferred Shares under the Securities Act of 1933, as amended (the "Securities Act") or the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder), in either case so as to subject the offering, issuance or sale of the Preferred Shares to the registration provisions of the Securities Act or of any applicable state securities (Blue Sky) laws or regulations. Section 2.23 Brokers. The Company has engaged Cowen to act as its ------- exclusive agent for the private placement of shares of Series B Preferred Stock under this Agreement and has agreed to pay Cowen a placement fee (and to reimburse Cowen for certain expenses) in connection therewith. The Company has no other contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each of the Purchasers, severally and not jointly, represents and warrants to the Company that: (a) it is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act and was not organized for the specific purpose of acquiring the Preferred Shares; (b) it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; (c) it has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management; (d) the Preferred Shares being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; (e) it understands that (i) the Preferred Shares and the Conversion Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act, (ii) the Preferred Shares and, upon conversion thereof, the Conversion Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Preferred Shares and the Conversion Shares will bear a legend to such effect, and (iv) the Company will make a notation on its transfer books to such effect; (f) it has no present need for liquidity in connection with its purchase of the Preferred Shares; (g) the purchase of the Preferred Shares is consistent with the general investment objectives of such Purchaser, and that it understands that the purchase of the Preferred Shares involves a high degree of risk in view of the fact that, among other things, the Company is a start-up enterprise, and there may never be an established market for the Company's capital stock; and (h) the individual executing this Agreement on its behalf has been duly authorized to execute and deliver this Agreement; the signature of such individual is binding upon such Purchaser; such Purchaser is duly organized, validly existing and in good standing in its jurisdiction of incorporation of organization and has all requisite power and authority to execute and deliver this Agreement; and the execution and delivery of this Agreement and the purchase of the Preferred Shares hereunder will not result in the violation of, constitute a breach of default under, or conflict with, any 11 term or provision of the charter, bylaws, or other governing document of such Purchaser or, to its knowledge, material breach of default under any material agreement, judgment, decree, order, statute or regulation by which it is bound or applicable to it. ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS The obligation of each Purchaser to purchase and pay for the Preferred Shares to be purchased by it on the Closing Date is, at its option, subject to the satisfaction, on or before the Closing Date, of the following conditions: Section 4.01 Opinion of Company's Counsel. The Purchasers shall have ---------------------------- received from Peabody & Arnold, counsel for the Company, an opinion dated the Closing Date, substantially in the form attached to this Agreement as Exhibit C. --------- Section 4.02 Representations and Warranties to be True and Correct. The ------------------------------------------------------ representations and warranties contained in Article II shall be true, complete and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the President and Treasurer of the Company shall have certified to such effect to the Purchasers in writing on behalf of the Company. Section 4.03 Performance. The Company shall have performed and complied ----------- in all material respects with all agreements contained herein required to be performed or complied with by it prior to or at the Closing Date, and the President and Treasurer of the Company shall have certified to the Purchasers in writing to such effect on behalf of the Company. Section 4.04 Conduct of Business. From the date of this Agreement through ------------------- the Closing Date, the Company shall have conducted its business in the ordinary course, shall have complied in all material respects with all applicable laws, rules regulations and orders, noncompliance with which could materially adversely affect the Company's business or financial condition, and shall not have made any material change in the nature of its business. Section 4.05 Charter. The Charter shall read in its entirety as set forth ------- in Exhibit A. --------- Section 4.06 Confidentiality Agreements. All officers of the Company and -------------------------- all employees of the Company who have access to confidential information of the Company shall have signed Confidentiality Agreements and all such Confidentiality Agreements shall be in full force and effect. Section 4.07 Registration Rights Agreement. The Company shall have ------------------------------ executed and delivered the Registration Rights Agreement in the form attached hereto as Exhibit D (the "Registration Rights Agreement"). --------- 12 Section 4.08 Preemptive Rights. All stockholders, if any, of the Company ----------------- having any preemptive, first refusal or other rights with respect to the issuance of the Preferred Shares or the Conversion Shares shall have irrevocably waived the same in writing. Section 4.09 Co-Sale Rights Agreement. Harrington Trust Limited as ------------------------ Trustee of The Appleby Trust, J&S Limited Partnership, Legacy Investment Partnership, and Sundar Subramaniam (together, the Restricted Shareholders") shall have executed and delivered a Co-Sale Rights Agreement with the Purchasers in substantially the form attached hereto as Exhibit E (the "Co-Sale Rights --------- Agreement"). Section 4.10 Voting Agreement. The Restricted Shareholders and Klaus ---------------- Besier ("Besier" and, together with the Restricted Shareholders, the "Principal Shareholders") shall have executed and delivered a Voting Agreement with the Purchasers in substantially the form attached hereto as Exhibit F (the "Voting --------- Agreement") and Ofer Nemirovsky shall have been elected a director of the Company in accordance with the terms of the Voting Agreement. Section 4.11 Performance by Other Purchasers. Each of the other ------------------------------- Purchasers shall have performed and complied in all material respects with all agreements contained herein required to be performed or complied with by it prior to or at the Closing Date, including without limitation payment of the full Purchase Price for the Preferred Shares to be purchased by such Purchaser pursuant to Article I. Section 4.12 Legal Fees. The Company shall have paid the reasonable legal ---------- fees and disbursements of Debevoise & Plimpton, counsel for Hancock Venture Partners, invoiced at the Closing. Section 4.13 All Proceedings to be Satisfactory. All corporate and other ---------------------------------- proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers. ARTICLE V COVENANTS OF THE COMPANY The Company covenants and agrees with the Purchasers as follows: Section 5.01 Financial Statements, Reports, etc. The Company shall ---------------------------------- furnish to each of the Purchasers, so long as such Purchaser owns at least 50,000 Preferred Shares or Conversion Shares: (a) within one hundred twenty (120) after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries as of the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal year then ended, prepared in 13 accordance with generally accepted accounting principles and audited by a firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company; and (b) within sixty (60) days after the end of each fiscal quarter in each fiscal year (other than the last fiscal quarter in each fiscal year), a consolidated balance sheet of the Company and its subsidiaries and the related consolidated statements of income, stockholders' equity and cash flows, unaudited but prepared in accordance with generally accepted accounting principles and accompanied by a statement of the Chief Financial Officer or other senior executive officer of the Company to the effect that such financial statements have been prepared in accordance with generally accepted accounting principals, subject to normal year-end adjustments and the omission of notes, such consolidated balance sheet to be as of the end of such fiscal quarter and such consolidated statements of income, stockholders' equity and cash flows to be for such fiscal quarter and for the period from the beginning of the fiscal year to the end of such fiscal quarter. The obligations of the Company to furnish financial information to the Purchasers pursuant to this Section 5.01 shall terminate at such time as the Company becomes subject to the reporting requirements of the Securities Exchange Act of 1934. Section 5.02 Reserve for Conversion of Shares. The Company shall at all -------------------------------- times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Preferred Shares and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Preferred Shares from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Preferred Shares or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Preferred Shares. Section 5.03 Corporate Existence. So long as any Preferred Shares are ------------------- outstanding, the Company shall maintain and cause each of its subsidiaries to maintain their respective corporate existence, rights and franchises in full force and effect. Section 5.04 Properties, Business, Insurance. So long as any Preferred ------------------------------- Shares are outstanding, the Company shall maintain and cause each of its subsidiaries to maintain as to their respective properties and business, with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is approved by its Board of Directors. 14 Section 5.05 Visitation, Consultation and Advice. So long as a Purchaser ----------------------------------- holds at least 50,000 Preferred Shares or Conversion Shares, the Company shall permit and cause each of its subsidiaries to permit such Purchaser and such persons as it may designate, at such Pur chaser's expense, upon reasonable notice, reasonable access during normal business hours to visit the Company and its subsidiaries, discuss the affairs of the Company and its subsidiaries with their officers, and consult with and advise the management of the Company and its subsidiaries; provided, however, the (i) the Company may require such Purchaser and any person conducting such a visit or discussion to execute an agreement not to use or disclose any information discovered during such visit or discussion and (ii) the Company may withhold from such Purchaser and its designees any documents or information relating to the following matters (hereinafter referred to as "Confidential Matters"): (a) the Company's relationships or contemplated relationships with any business competitor of such Purchaser or (b) the Company's business relationships or contemplated business relationships (as opposed to shareholder relationships) with such Purchaser or any affiliate of such Purchaser. Section 5.06 Notice of Extraordinary Corporate Actions. So long as a ----------------------------------------- Purchaser holds at least 50,000 Preferred Shares or Conversion Shares, the Company shall, at least 20 days prior to the earlier of effecting or entering into any binding agreement to effect (i) any sale, lease, assignment, transfer or other conveyance (other than the grant of a mortgage or security interest) of all or substantially all the assets of the Company, (ii) any liquidation, dissolution or winding up of the affairs of the Company, (iii) any consolidation or merger of the Company with or into another corporation (other than a transaction in which the holders of the Company's equity securities outstanding immediately prior to the effectiveness of such transaction hold, in the aggregate, at least 51% of the equity securities of the surviving entity immediately following the effectiveness of such transaction), or (iv) any recapitalization of the Company (in each case, an "Extraordinary Corporate Action"), give such Purchaser written notice of the proposed Extraordinary Corporate Action. Section 5.07 Transactions with Affiliates. Neither the Company nor any ---------------------------- of its subsidiaries or entities under its control shall enter into any transaction with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Company or other ownership interest in the Company, or with any of member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person or member of the family of any such person, is a director, officer, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, except for transactions on terms no less favorable to the Company or its subsidiary than it would obtain in a transaction between unrelated parties. Section 5.08 Key Man Insurance. The Company shall use its best efforts to ----------------- obtain, promptly after the Closing, and to maintain in force a key man insurance policy in the amount of at least $2,000,000 on the life of Besier, the Company's Chairman and Chief Executive Officer. Section 5.09 Redemption, Retirement, etc. of Common Stock. The Company -------------------------------------------- will not redeem, retire, purchase or otherwise acquire any shares of Common Stock (except at their original purchase price of shares of Common Stock from officers, employees or directors of, or consultants to, the corporation upon termination of their status as such pursuant to 15 agreements containing vesting and/or repurchase provisions approved by the Board of Directors of the Company. ARTICLE VI RESTRICTIONS ON TRANSFER OF PREFERRED SHARES Section 6.01 Transfer of Preferred Shares and Conversion Shares. Except -------------------------------------------------- as otherwise provided herein, the Purchasers shall not, prior to the consummation of a firm commitment underwritten public offering of Common Stock pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock to the public (the "IPO"), sell, transfer, assign or otherwise dispose of (a "Transfer") any interest in any Preferred Shares or Conversion Shares except pursuant to Sections 6.02 or 6.03. Subject to the terms and conditions set forth below, such Purchaser agrees not to consummate any such Transfer (other than in the IPO) until 30 days after the later of the delivery to the Company of an Offer Notice (as defined below). Section 6.02 First Offer Right. Until the IPO, each Purchaser will, at ----------------- least 30 days prior to making any Transfer (other than in the IPO) of any Preferred Shares or Conversion Shares, deliver a written notice (the "Notice of Proposed Sale") to the Company. The Notice of Proposed Sale will disclose in reasonable detail the identity of the prospective transferee(s), the proposed number of Preferred Shares or Conversion Shares to be transferred and the proposed material terms and conditions of the Transfer. If, but only if, the prospective transferee(s) identified in the Notice of Proposed Sale is, in the Company's reasonable judgment, a competitor or prospective competitor of (i) the Company or any of its subsidiaries, (ii) any shareholder of the Company, or (iii) any material customer or supplier of the Company, the Company shall have the right to purchase all, but not less than all, of the Shares specified in the Notice of Proposed Sale at the price and on the terms and conditions specified therein by delivering written notice of its exercise of such right to such Purchaser as soon as practicable but in any event within 30 days after the receipt of the Notice of Proposed Sale. If the Company has elected to purchase any of the Preferred Shares or Conversion Shares specified in the Notice of Proposed Sale from such Purchaser, the transfer of such Preferred Shares or Conversion Shares will be consummated as soon as practicable after the delivery of the election notice, but in any event within 60 days after the date of the Notice of Proposed Sale. In the event that the Company has not elected to purchase all of the Preferred Shares or Conversion Shares specified in the Notice of Proposed Sale, such Purchaser may, within 90 days after the expiration of the Company's 30-day election period, transfer such Preferred Shares or Conversion Shares to the transferees identified in the Notice of Proposed Sale at a price no less than the price per share specified in the Notice of Proposed Sale and on other terms and conditions no more favorable to the transferee(s) than offered to the Company in the Notice of Proposed Sale. The purchase price specified in any Notice of Proposed Sale shall be payable solely by check or in cash or by wire transfer of immediately available funds at the closing of the transaction. Section 6.03 Permitted Transfers. The restrictions set forth in this ------------------- Article VI shall not apply to any Transfer (i) in the case of an individual, to or among such Shareholder's Family Group (as defined below) or by will or the laws of descent and distribution to such Shareholder's Family Group or (ii) in the case of an entity, to or among its Affiliates (as 16 defined below) (the persons to whom Transfers are permitted pursuant to clauses (i) and (ii) being collectively referred to herein as "Permitted Transferees"); provided, that the restrictions contained in this Article VI shall continue to be applicable to the Preferred Shares and Conversion Shares after any such Transfer; and provided further that the transferees of such Preferred Shares and Conversion Shares shall have agreed in writing to be bound by the provisions of this Article VI with respect to the Preferred Shares or Conversion Shares so transferred. "Family Group" means an individual's spouse and lineal descendants and any trust or other fiduciary solely for the benefit of such individual and/or such individual's spouse and/or lineal descendants. "Affiliate" of a person means (i) any other person controlling, controlled by or under common control with such person and (ii) any partner of any such person which is a partnership. Section 6.04 Additional Transfer Restrictions. Until the IPO, no Transfer -------------------------------- of any Preferred Shares or Conversion Shares (other than in the IPO) may be made unless the transferee executes and delivers a written instrument, in form and substance satisfactory to the Company, acknowledging the receipt of a copy of the provisions and restrictions contained in this Article VI and agreeing to comply herewith and be bound hereby. ARTICLE VII MISCELLANEOUS Section 7.01 Expenses. Each party hereto will pay its own expenses in -------- connection with the transactions contemplated hereby, provided, however, that, if but only if the Closing occurs, the Company shall pay on demand the reasonable fees and disbursements of Debevoise & Plimpton, counsel for Hancock Venture Partners in connection with such transactions. Section 7.02 Brokerage. Each party hereto will indemnify and hold --------- harmless the other against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. Section 7.03 Parties in Interest. All representations, covenants and ------------------- agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not; provided, however, that the rights of the Purchasers under Section 5.01, 5.05 and 5.06 may not be assigned without the prior written consent of the Company. Section 7.04 Notices. All notices, requests, consents and other ------- communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or 17 (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (a) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 02172 Attn: Chief Financial Officer with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (b) if to any of the Purchasers, at the address set forth below such Purchaser's name on Schedule I hereto; or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others. Section 7.05 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware. Section 7.06 Entire Agreement. This Agreement, including the Schedules ---------------- and Exhibits hereto, constitutes the sole and entire agreement of the parties with respect to the subject matter hereof. All Schedules and Exhibits hereto are hereby incorporated herein by reference. Section 7.07 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. Section 7.08 Amendments and Waivers. This Agreement may be amended or ---------------------- modified, and provisions hereof may be waived, only with the written consent of the Company and Purchasers holding at least a majority of the Preferred Shares outstanding. Section 7.09 Severability. If any provision of this Agreement shall be ------------ declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby. Section 7.10 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement. 18 Section 7.11 Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): (a) "person" shall mean an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity. (b) "subsidiary" shall mean, as to the Company, any corporation of which more than 50% of the outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company, or by one or more of its subsidiaries, or by the Company and one or more of its subsidiaries. Section 7.12 No Waiver; Cumulative Remedies. No failure or delay on the ------------------------------ part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall nay single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 7.13 Confidentiality. Each of the Purchasers agrees that it will --------------- maintain with the same degree of care it uses with respect to its own confidential information all confidential, proprietary or secret information which such Purchaser may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to such Purchaser pursuant to this Agreement, or pursuant to visitation or inspection rights granted hereunder, unless such information is known, or until such information becomes known through no fault of such Purchaser, to the public; provided, however, that such Purchaser may disclosure such information (i) on a - -------- ------- confidential basis to its attorneys, accountants, consultants any other professionals to the extent necessary to obtain their services in connection with its investment in the Company, (ii) to any affiliate of such Purchaser on a "need to know basis", (iii) with respect to financial information, in summary fashion as part of general financial reports by such Purchaser to its partners and affiliates or to potential investors in such Purchaser, and (iv) as required by applicable law. If such Purchaser is required in any legal or administrative or other governmental proceeding to disclose any of such information, such Purchaser shall give the Company timely notice of the pending requirement and use its best efforts to provide the Company an opportunity to obtain protective provisions against further disclosure. Section 7.14 Further Assurances. From and after the date of this ------------------ Agreement, upon the request of the Purchasers or the Company, the Company and the Purchasers shall execute and deliver such instruments, documents and 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 and the Preferred Shares. 19 IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the day and year first above written. BUSINESS@WEB, INC. By:/s/ James Nondorf ------------------------ President [Corporate Seal] Attest: /s/ William E. Kelly - ------------------------- Secretary PURCHASERS: FALCON VENTURES II, L.P. By: Back Bay Partners XIII L.P. By: Hancock Venture Partners, Inc. By: /s/ Robert Wadsworth ----------------------------- authorized officer HANCOCK VENTURE PARTNERS IV-DIRECT FUND L.P. By: Back Bay Partners XII L.P. By: Hancock Venture Partners, Inc. By: /s/ Robert Wadsworth ----------------------------- PANTIO HOLDING LTD. By: /s/ Marlene Boesch - Weber ------------------------ Marlene Boesch - Weber, Secretary 20 JUILLIARD INVESTMENTS, INC. By:/s/ Javier Baz ------------------------ Javier Baz /s/ Jan Baan --------------------------- Jan Baan /s/ J.G. Paul Baan --------------------------- J.G. Paul Baan /s/ Lorenzo Cue --------------------------- Lorenzo Cue /s/ Tom C. Tinsley --------------------------- Tom C. Tinsley BUSINESS@WEB, INC. Series B Convertible Preferred Stock Additional Investor's Signature Page The undersigned, John C. Howe, having been designated as an "Additional Purchaser" by Cowen & Company pursuant to Section 1.04 of that certain Series B Convertible Preferred Stock Purchase Agreement dated as of March 6, 1996 by and among Business@Web, Inc., a Delaware corporation ("the Company") and the several Purchasers named on Schedule I thereto (the "Purchase Agreement") and desiring to purchase from the Company 5,409 Preferred Shares (as such term is defined in the Purchase Agreement), by his execution of this Additional Investor's Signature Page hereby becomes a party to the Purchase Agreement and the Registration Rights Agreement (as such term is defined in the Purchase Agreement), ratifying and affirming with respect to himself, as of the date hereof, the truth and accuracy of the representations, warranties, and covenants of a Purchaser under the Purchase Agreement and of an Investor under the Registration Rights Agreement. The undersigned Additional Purchaser has herewith delivered to the Company his check in the amount of $30,000 in full payment for the Preferred Shares being purchased hereunder. /s/ John C. Howe ---------------------------------- John C. Howe March 30, 1996 Accepted as of March 30, 1996: BUSINESS@WEB, INC. By: /s/ James G. Nondorf ---------------------------- SCHEDULE I
Purchaser Shares Purchased Purchase Price - --------- ---------------- -------------- Hancock Venture Partners 685,921 $3,800,002.34 IV-Direct Fund L.P. One Financial Center Boston, MA 02111 Falcon Ventures II, L.P. 36,101 $199,999.54 One Financial Center Boston, MA 02111 Pantio Holding Ltd. 180,506 $1,000,003.24 Omar Hodge Building Wyckam's Cay Road Town, Tortolla British Virgin Islands copy to: CISSA 13, avenue de Bude 1202 Geneva Switzerland Lorenzo Cue 36,101 $199,999.54 1451 Montgomery Street San Francisco, CA 94133 Juilliard Investments, Inc. 27,076 $150,001.04 Palm Bay Towers 26 S. 720 NE 69th Street Miami, FL 33138 Jan Baan 60,169 $333,336.26 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands
22 J.G. Paul Baan 60,169 $333,336.26 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands Tom C. Tinsley 60,169 $333,336.26 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands
23 Exhibits to Series B Preferred Stock Purchase Agreement Exhibit 70 Series B Preferred Stock Purchase Agreements SCHEDULE II Exceptions to the representations and warranties of the Company set forth in Article II. Section 2.8: State Street Bank and Trust Company holds a security interest ----------- in substantially all assets of the Company to secure the following credit facilities: $2,500,000 revolving line of credit, $500,000 equipment line of credit, $2,000,000 term loan due September 30, 1996. Section 2.11: InterGroup Technologies, Inc. has communicated with the ------------ Company regarding alleged use of InterGroup's VisualWare software product by the Company in violation of the Software License Agreement between InterGroup and the Company. The Company believes that there is no basis for InterGroup's allegations and has been engaged in friendly discussions with InterGroup in effort to resolve this issue. Section 2.12: ------------ a. The Company is an authorized distributor and reseller of OEC software. b. The Company has purchased technology (Toolkit source code) from OEC for $2.2 million dollars, with payment due on March 15, 1996. c. The Company sold technology (SAP Make tools) to OEC for $500,000. d. Klaus Besier and James Nondorf are employees of the Company. e. The Company has a strategic partnership relationship with I-Cube, pursuant to which the Company and I-Cube make joint proposals and the Company subcontracts services to I-Cube. The Company and I-Cube are not parties to a formal agreemen t. f. The Company has a strategic partnership relationship with Cambridge Technology Group, pursuant to which CTG promotes the products and services of the Company through CTG's executive education programs. The Company and CTG are not parties to a formal agreement. g. The Company has borrowed $250,000 from J&S Limited Partnership under a 6% convertible subordinated note (and J&S has waived its conversion privileges thereunder). The Company intends to repay this note from the proceeds of this offering. h. The Company has borrowed $750,00 from the Appleby Trust under a 9% subordinated note due December 31, 2000 (which has no conversion feature). The Company intends to repay this note from the proceeds of this offering. i. Cambridge Technology Group, Professor John Donovan and John J. Donovan, Jr. have guaranteed the Company's obligations to State Street Bank and Trust Company. Schedule III A. 16,204,545 Common Shares are issued and outstanding as of March 5, 1996:
Sundar Subramaniam 4,998,000 Common Shares Len Hafetz 400,000 Common Shares James Nondorf 100,000 Common Shares Legacy Investment Partnership 2,000,000 Common Shares J&S Limited Partnership 2,000,000 Common Shares Enamullah Khan 2,000 Common Shares Isao Okawa 200,000 Common Shares CSK Corporation 200,000 Common Shares Klaus Besier 1,440,000 Common Shares Harrington Trust Limited 4,864,545 Common Shares as Trustee of The Appleby Trust
B. 1,837,750 Common Shares are reserved for issuance upon exercise of outstanding option grants to employees and consultants under the 1995 Stock Plan; these options are subject to vesting (and the majority remain unvested). C. Commitments to issue options for an aggregate of 302,000 Common Shares have been made to persons who have accepted employment offers. D. The Company has agreed to issue and sell to Hewlett-Packard Company 180,506 shares of Series B Convertible Preferred Stock pursuant to a certain Series B Convertible Preferred Stock Purchase Agreement dated as of February 27, 1996. E. In connection with the establishment of a credit facility with State Street Bank and Trust Company, the Company has agreed to issue to SSB Investments, Inc., an affiliate of such bank, a warrant for the purchase of 35,000 Common Shares on or before February 15, 2003 at an exercise price of $5.54 per share, and to extend, with respect to such shares, piggy-back registration rights in connection with any Company registration of its securities (other than in its initial public offering). SCHEDULE IV The Company is a party to the following Material Contracts: 1. The Company has an understanding with Klaus Besier, who was recently appointed chief executive officer of the Company, pursuant to which it has committed to develop, within three months, a performance bonus compensation arrangement with Mr. Besier under which Mr. Besier will, upon achievement of certain goals (to be mutually agreed upon by the Company and Mr. Besier), be entitled to bonus compensation. Mr. Besier's bonus targets are $400,000 for 1996, $1,000,000 for 1997 and $2,500,000 for 1998. 2. The Company grants incentive stock options and non-qualified options to its employees and consultants under the Company's 1995 Stock Plan. 3. The Company has entered into a series of related credit facilities with State Street Bank and Trust Company providing for aggregate borrowings of up to $5,000,000. The Company has granted State Street Bank and Trust Company a security interest in substantially all of the Company's assets to secure its obligations under such credit facilities. 4. The Company has agreed to issue securities of the Company to certain persons and entities identified on Schedule III hereto. 5. The Company has granted Hewlett-Packard Company a right of first offer with respect to any proposed sale by the Company of its equity securities to any company engaged in the manufacture of computer hardware. 6. The Company leases its offices at One Arsenal Marketplace, Watertown, Massachusetts under a 5-year lease expiring in 2001. The Company expects to lease office furniture from a commercial office supply company. 7. The Company has acquired intellectual property rights from the following sources: (a) InterGroup Technologies, Inc. (VisualWare) (b) Mentor Communications Ltd. (Logical Data Integrator) (c) Mystic River Software Inc. (Softbridge Basic Language) (d) Open Environment Corporation (Toolkit) (e) VZ Corp. (object-oriented development platform) The Company has transferred intellectual property to the following entities: (a) Open Environment Corporation (SAP customization software) (b) Cambridge Executive Programme Ltd. (VZ development platform) 8. The Company has agreed to extend to SSB Investments, Inc. piggyback registration rights with respect to the shares of the Company's Common Stock issuable upon exercise of the warrant the Company has agreed to issue to SSB Investments, Inc. 9. The Company is a party to the following additional agreements involving more than $250,000 or continuing over a period of more than two years: (a) The Weber Group public relations project (b) Siemans Nixdorf master partnership (c) Shell Oil business management project RESTATED CERTIFICATE OF INCORPORATION OF BUSINESS@WEB, INC. Business@Web, Inc. (the "Corporation"), originally incorporated under the name Object Power, Incorporated by original Certificate of Incorporation filed with the office of the Secretary of State of the State of Delaware on January 19, 1994, as amended, and currently organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify that the Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting, has duly adopted a resolution, pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, setting forth an amended and restated Certificate of Incorporation of the Corporation and declaring said amendment and restatement to be advisable. The stockholders of the Corporation have duly approved said amendment and restatement by the required vote of such stockholders, adopted by a written action in lieu of a meeting of such stockholders, all in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and written notice of the taking of such action was given promptly to those stockholders who have not consented in writing, as required by Section 228 of the General Corporation Law of the State of Delaware. The Certificate of Incorporation of the Corporation, as amended and restated in its entirety, is as follows: FIRST: The name of the Corporation is Business@Web, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is thirty-three million (33,000,000) shares, thirty million (30,000,000) of which shall be Common Stock, par value $.001 per share ("Common Stock"), and three million (3,000,000) of which shall be Preferred Stock, par value $1.00 per share ("Preferred Stock"). Of the authorized Preferred Stock, one million four hundred thirty-one thousand four hundred twelve (1,431,412) shares shall be designated Series B Convertible Preferred Stock and one million five hundred sixty-eight thousand five hundred eighty-eight (1,568,588) shares shall be undesignated. All shares of the series of Preferred Stock designated Series A Preferred Stock issued and outstanding prior to the filing of this Restated Certificate of Incorporation have been surrendered for conversion into Common Stock and retired, and the series of Preferred Stock designated as Series A Preferred Stock is hereby cancelled and eliminated from the shares which the Corporation is authorized to issue. Descriptions of the undesignated Preferred Stock, the Series B Convertible Preferred Stock and the Common Stock are as follows: I. PREFERRED STOCK Description of Undesignated Preferred Stock. - ------------------------------------------- 1. Issuance of Preferred Stock in Classes or Series. The undesignated ------------------------------------------------ Preferred Stock of the Corporation may be issued in one or more classes or series at such time or times and for such consideration as the Board of Directors of the Corporation may determine. Each class or series shall be so designated as to distinguish the shares thereof from the shares of all other classes and series. Except as to the relative preferences, powers, dividends, qualifications, rights and privileges referred to in the next paragraph below, in respect of any or all of which there may be variations between different classes or series of Preferred Stock, all shares of Preferred Stock shall be identical. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes unless otherwise specifically set forth herein. 2. Authority to Establish Variations Between Classes or Series of -------------------------------------------------------------- Preferred Stock. The Board of Directors of the Corporation is expressly - --------------- authorized, by a vote of a majority of the members of the Board of Directors then in office, subject to the limitations prescribed by law and the provisions of this Certificate of Incorporation, to provide by adopting a vote or votes, a Certificate of Designation of which shall be filed in accordance with the General Corporation Law of the State of Delaware, for the issue of the undesignated Preferred Stock in one or more classes or series, each with such designations, preferences, voting powers, dividends, qualifications, special or relative rights and privileges as shall be stated in the Certificate of Designation and the resolutions of the Board of Directors creating such class or series. Description of Series B Convertible Preferred Stock. - --------------------------------------------------- 1. Liquidation Rights. ------------------ (a) Treatment at Liquidation, Dissolution or Winding Up. --------------------------------------------------- (i) Except as otherwise provided in Section 1(b) below, in the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, the holders of Series B Convertible Preferred Stock shall be entitled to be paid first out of the assets of the corporation available for distribution to holders of the corporation's capital stock of all classes, before payment or distribution of any of such assets to the holders of any other class or series of the corporation's capital stock designated to be junior to the Series B Convertible Preferred Stock, an amount equal to $5.54 per share of Series B Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to Series B Convertible Preferred Stock and, as so adjusted from time to time, is hereinafter referred to as the "Base Liquidation Price") plus all dividends thereon accrued but unpaid, to and including the date full payment shall be tendered to the holders of Series B Convertible Preferred Stock with respect to such liquidation, dissolution or winding up. (ii) Following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the corporation available for distribution to holders of the corporation's capital stock shall be distributed among the holders of the Common Stock and the holders of the Series B Convertible Preferred Stock on a share for share basis, with each holder of a share of Series B Convertible Preferred Stock receiving the amount that would have been payable to the holder of such share had all shares of Series B Convertible Preferred Stock been converted to Common Stock pursuant to Section 2(a) hereof immediately following payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof. (iii) If the assets of the corporation shall be insufficient to permit the payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the corporation available for such distribution shall be distributed ratably among the holders of Series B Convertible Preferred Stock. (b) Treatment of Reorganizations, Consolidations, Mergers and Sales of ------------------------------------------------------------------ Assets. A consolidation or merger of the corporation, or a sale of all or - ------ substantially all of the assets of the corporation (other than a merger, consolidation or sale of all or substantially all of the assets of the corporation in a transaction in which the shareholders of the corporation immediately prior to the transaction possess more than 50% of the voting securities of the surviving entity (or parent, if any) immediately after the transaction) shall be regarded as a liquidation, dissolution or winding up of the affairs of the corporation within the meaning of this Section 1. (c) Distributions Other than Cash. Whenever the distribution provided ----------------------------- for in this Section 1 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 of Directors of the corporation. 2. Conversion. The holders of Series B Convertible Preferred Stock shall ---------- have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert; Conversion Price. Each share of Series B ---------------------------------- Convertible Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Series B Convertible Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $5.54 by the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The Conversion Price for purposes of calculating the number of shares of Common Stock deliverable upon conversion without the payment of any additional consideration by the holder of Series B Convertible Preferred Stock (the "Conversion Price") shall initially be $5.54. Such initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which Series B Convertible Preferred Stock is convertible, as hereinafter provided. (b) Mechanics of Conversion. Before any holder of Series B ----------------------- Convertible Preferred Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series B Convertible Preferred Stock, and shall give written notice to the corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of Series B Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Convertible Preferred Stock, or to such holder's nominee or nominees, a-certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (c) Automatic Conversion. -------------------- (i) Each share of Series B Convertible Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price (subject to adjustment as provided in Section 2(c)(iii)) upon: (A) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public at an initial public offering price per share of not less than $8.25 (adjusted proportionately to give effect to any stock dividend, stock distribution or subdivision or any combination or consolidation of Common Stock) and with gross proceeds of not less than $15,000,000 (a "Qualified IPO") or (B) the written election of the holders of not less than a majority of the then outstanding shares of Series B Convertible Preferred Stock to require such mandatory conversion. (ii) Upon the occurrence of an event specified in Section 2(c)(i) hereof, all shares of Series B Convertible Preferred Stock shall be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares are surrendered to the corporation or the transfer agent for the Series B Convertible Preferred Stock; provided, however, that the corporation shall not be obligated to issue a certificate or certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificate or certificates evidencing such shares of Series B Convertible Preferred Stock being converted are either delivered to the corporation or the transfer agent of the Series B Convertible Preferred Stock, or the holder notifies the corporation or such transfer agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection therewith and, if the corporation so elects, provides an appropriate indemnity bond. Upon the automatic conversion of Series B Convertible Preferred Stock, each holder of Series B Convertible Preferred Stock shall surrender the certificate or certificates representing such holder's shares of Series B Convertible Preferred Stock at the office of the corporation or of the transfer agent for the Series B Convertible Preferred Stock. Thereupon, there shall be issued and delivered to such holder, promptly at such office and in such holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series B Convertible Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series B Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (iii) In the event of the automatic conversion of shares of Series B Convertible Preferred Stock into shares of Common Stock, pursuant to Section 2(c)(i)(A), upon the occurrence of a Qualified IPO in which the initial offering price per share of Common Stock is less than $10.25 (the "Adjustment Trigger Price"), the Conversion Price in effect immediately prior to the closing of the Qualified IPO shall be adjusted automatically to the greater of (A) the price determined by dividing (i) the initial offering price per share of Common Stock in the Qualified IPO by (ii) 1.85 (the "IPO Adjusted Conversion Price") or (B) $4.46 (the "Adjustment Floor Price"); provided, however, that there shall be no adjustment of the Conversion Price pursuant to the foregoing clause if the Conversion Price resulting from adjustment would be higher than the Conversion Price in effect immediately prior to the closing of the Qualified IPO. If, prior to the Qualified IPO, the Conversion Price shall have been adjusted pursuant to Section 2(d)(vi)(A) in the event of a stock dividend, stock distribution or subdivision or pursuant to Section 2(d)(vi)(B) in the event of a combination or consolidation of Common Stock, the Adjustment Trigger Price, the Adjustment Floor Price and the IPO Adjusted Conversion Price shall be decreased or increased proportionately to give effect to such stock dividend, stock distribution or subdivision or such combination or consolidation. (d) Adjustments to Conversion Price for Diluting Issues. -------------------------------------------- ------ (i) Special Definitions. For purposes of this Section 2(d), the ------------------- following definitions shall apply: (A) "Option" shall mean rights, options or warrants to -------- subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which a --------------------- share of Series B Convertible Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of ------------------------ indebtedness, shares (other than Common Stock and Series B Convertible Preferred Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all ---------------------------------- shares of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than the following (collectively, "Excluded Shares"): (I) shares of Common Stock issued or issuable upon conversion of shares of Series B Convertible Preferred Stock; or (II) shares of Common Stock issued or issuable upon exercise or conversion of Options or Convertible Securities outstanding on the Original Issue Date; or (III) shares of Common Stock issued or issuable to officers, employees or directors of, or consultants to, the corporation pursuant to a stock purchase or option plan or other employee stock bonus arrangement (collectively, the "Plans") approved by the Board of Directors; provided, however, that shares of Common Stock issued or deemed issued to a director of the corporation pursuant to options or other purchase rights granted after the Original Issue Date shall be Excluded Shares only if granted at the time of, or in connection with, such director's initial election to the Board of Directors; or (IV) shares of Common Stock issued or issuable pursuant to warrants issued in connection with the establishment of credit facilities for the corporation (including, without limitation, in connection with equipment leasing arrangements); or (V) shares of Common Stock or Convertible Securities issued with the written consent of the holders of not less than a majority of the outstanding shares of Series B Convertible Preferred Stock. (ii) No Adjustment of Conversion Price. No adjustment in the number --------------------------------- of shares of Common Stock into which a share of Series B Convertible Preferred Stock is convertible shall be made, by adjustment in the Conversion Price in respect of the issuance of Additional Shares of Common Stock or otherwise: (i) unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock or, (ii) if prior to such issuance, the corporation receives written notice from the holders of a majority of the then outstanding shares of Series B Convertible Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of Common --------------------------------------------------------------- Stock. - ----- (A) Options and Convertible Securities. In the event the ---------------------------------- corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then 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 upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2(d)(v) hereof) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (I) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (II) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (III) upon the expiration of any such options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and (b) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation (determined pursuant to Section 2(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (IV) no readjustment pursuant to clause (II) or (III) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (V) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (III) above; and (VI) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the actual date of their issuance. (B) Stock Dividends, Stock Distributions and Subdivisions. In ----------------------------------------------------- the event the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which corporate action becomes effective. If such record date shall have been fixed and no part of such dividend shall have been paid on the date fixed therefor, the adjustment previously made for the Conversion price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the time of actual payment of such dividend. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares ----------------------------------------------------------------- of Common Stock. - ---------------- (A) In the event the corporation shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of shares of Common Stock which the aggregate consideration received or deemed to have been received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and the denominator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of Additional Shares of Common Stock so issued or deemed to be issued. (B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all shares of Common Stock issuable upon conversion of shares of Series B Convertible Preferred Stock, and upon exercise of options or conversion or exchange of Convertible Securities which are part of the Excluded Shares, outstanding immediately prior to any issue of Additional Shares of Common Stock, or any event with respect to which Additional Shares of Common Stock shall be deemed to be issued, shall be deemed to be outstanding; and (ii) immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (C) Notwithstanding anything to the contrary contained herein, the applicable Conversion Price in effect at the time Additional Shares of Common Stock are issued or deemed to be issued shall not be reduced pursuant to Section 2(d)(iv)(A) hereof at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (v) Determination of Consideration. For purposes of this Section ------------------------------ 2(d), the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: ----------------- (I) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per ---------------------------------- share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to Options and Convertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Dividends, Distributions, Subdivisions, ------------------------------------------------------ Combinations or Consolidations of Common Stock. - ---------------------------------------------- (A) Stock Dividends, Distributions or Subdivisions. In the event ---------------------------------------------- the corporation shall issue Additional Shares of Common Stock pursuant to Section 2(d)(iii)(B) in a stock dividend, stock distribution or subdivision, the Conversion Price in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (B) Combinations or Consolidations. In the event the outstanding ------------------------------ shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (e) No Impairment. The corporation shall not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series B Convertible Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price pursuant to this Section 2, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each affected holder of Series B Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any affected holder of Series B Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price 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 conversion of each share of Series B Convertible Preferred Stock. (g) Notices of Record Date. In the event of any taking by the ---------------------- corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the corporation shall mail to each holder of Series B Convertible Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. (h) Common Stock Reserved. The corporation shall reserve and keep --------------------- available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all convertible Series B Convertible Preferred Stock. (i) Certain Taxes.. The corporation shall pay any issue or transfer -------------- taxes payable in connection with the conversion of any shares of Series B Convertible Preferred Stock; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of such Series B Convertible Preferred Stock. (j) Closing of Books. The corporation shall at no time close its ---------------- transfer books against the transfer of any Series B Convertible Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series B Convertible Preferred Stock, in any manner which interferes with the timely conversion or transfer of such Series B Convertible Preferred Stock. 3. Voting Rights. ------------- Except as otherwise provided herein or required by law or by the provisions establishing any other series of Preferred Stock, the holders of Common Stock and the holders of Series B Convertible Preferred Stock shall be entitled to notice of any stockholders' meeting and shall vote as one class upon any matter submitted to the stockholders for a vote, on the following basis: (i) Holders of Common Stock shall have one vote per share of Common Stock held by them; and (ii) Holders of Series B Convertible Preferred Stock shall have that number of votes per share of Series B Convertible Preferred Stock as is equal to the number of shares of Common Stock into which each such share of Series B Convertible Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting. 4. Dividend Rights. --------------- (a) From and after the Original Issue Date, dividends shall accrue on each share of the Series B Convertible Preferred Stock, whether or not funds are legally available therefor and whether or not declared by the Board of Directors, in the amount per annum of $0.3324 per share of Series B Convertible Preferred Stock (the "Series B Dividends"). From time to time the Board of Directors of the corporation may declare and pay dividends or distributions on shares of the Common Stock or on any other class or series of capital stock of the corporation, but only if all accrued Series B Dividends shall have been paid in full prior to the date of any such declaration, payment or distribution. (b) In the event the Board of Directors of the corporation shall declare a dividend payable upon the then outstanding shares of the Common Stock (other than a dividend payable entirely in shares of the Common Stock of the corporation), the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of the Series B Convertible Preferred Stock, payable at the same time as the dividend paid on the Common Stock, in an amount equal to the amount of dividends per share of Series B Convertible Preferred Stock, as would have been payable on the largest number of whole shares of Common Stock into which each share of Series B Convertible Preferred Stock held by each holder thereof if such Series B Convertible Preferred Stock had been converted to Common Stock pursuant to the provisions of Section 2 hereof as of the record date for the determination of holders of Common Stock entitled to receive such dividends; and (c) In the event the Board of Directors of the corporation shall declare a dividend payable upon any class or series of capital stock of the corporation other than Common Stock, the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of Series B Convertible Preferred Stock, payable at the same time as such dividend on such other class or series of capital stock in an amount equal to (i) in the case of any series or class convertible into Common Stock, that dividend per share of Series B Convertible Preferred Stock, as would equal the dividend payable on such other class or series determined as if all such shares of such class or series had been converted to Common Stock and all shares of Series B Convertible Preferred Stock have been converted to Common Stock on the record date for the determination of holders entitled to receive such dividend or (ii) if such class or series of Capital Stock is not convertible into Common Stock, at a rate per share of Series B Convertible Preferred Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by the Base Liquidation Price then in effect. 5. Redemption. ---------- (a) At the written request, made on or after December 31, 2002, of the holders of a majority of the then-outstanding shares of Series B Convertible Preferred Stock, the corporation shall on March 31 in each of the three (3) years immediately following the date of such request (each, a "Redemption Date"), call for redemption in accordance with Section 5(b) hereof and shall redeem for the applicable Redemption Amount (as hereinafter defined) from each holder of Series B Convertible Preferred Stock such number of shares of Series B Convertible Preferred Stock as shall be equal to thirty-three and one third percent (33 1/3%) of all of the shares of Series B Convertible Preferred Stock held by such holder on the Redemption Date. For the purposes of this Section 5, the term "Redemption Amount" means, for each share of Series B Convertible Preferred Stock to be redeemed, the sum of (i) the Base Liquidation Price plus (ii) an amount equal to any dividends accrued and unpaid thereon at the time of such redemption. (b) Call for redemption shall be made by the corporation by notice sent by first class mail, postage prepaid, to each holder of record of Series B Convertible Preferred Stock to be redeemed, not less than thirty (30) days nor more than sixty (60) days prior to the Redemption Date set forth therein, at such holder's address as it appears on the books of the corporation. Such notice shall set forth (i) the Redemption Date and the place of redemption, (ii) the number of shares to be redeemed (in accordance with Section 5(a) hereof) and (iii) the Redemption Amount per share and the aggregate Redemption Amount to be paid with respect to the shares to be redeemed. The corporation shall be obligated to redeem shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof whether or not any notice of redemption is given as required herein. If, before the close of business on the relevant Redemption Date, any holder of record of Series B Convertible Preferred Stock shall have surrendered any shares of Series B Convertible Preferred Stock for conversion pursuant to Section 2(a) hereof, the corporation shall credit against the number of shares of Series B Convertible Preferred Stock otherwise required to be redeemed from such holder, and shall not redeem the number of shares of Series B Convertible Preferred Stock which had been converted by such holder on or before such Redemption Date and which had not previously been credited against any redemption. (c) If, on or before any Redemption Date, the funds necessary for such redemption shall have been set aside by the corporation and deposited with a bank or trust company in trust for the pro rata benefit of the holders of Series B Convertible Preferred Stock to be redeemed pursuant to Section 5(a) hereof, then, notwithstanding that any certificates for such shares of Series B Convertible Preferred Stock to be redeemed shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding from and after the Redemption Date, and all rights of holders of such shares shall forthwith, after the Redemption Date, cease and terminate, excepting only the right to receive the full redemption funds therefor to which they are entitled. Any interest accrued on funds so deposited and unclaimed by stockholders entitled thereto shall be paid to such stockholders at the time their respective shares are redeemed or to the corporation at the time unclaimed amounts are paid to it. In case the holders of Series B Convertible Preferred Stock to be redeemed pursuant to Section 5(a) hereof shall not, within five (5) years after the Redemption Date, claim the amounts so deposited with respect to the redemption thereof, any such bank or trust company shall, upon demand, pay over to the corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the corporation for the payment thereof. Any funds so deposited with a bank or trust company which shall not be required for such redemption by reason of the exercise subsequent to the date of such deposit, of the right of conversion of any shares, or otherwise, shall be returned to the corporation forthwith. (d) If the funds of the corporation legally available for redemption of shares of Series B Convertible Preferred Stock on a Redemption Date are insufficient to redeem the total number of shares of Series B Convertible Preferred Stock required to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of whole shares of Series B Convertible Preferred Stock pro rata from among all holders of Series B Convertible Preferred Stock on the basis of the aggregate number of shares of Series B Convertible Preferred Stock held by each such holder on the Redemption Date. The shares of Series B Convertible Preferred Stock not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of such shares of Series B Convertible Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available. (e) If the corporation for any reason fails to redeem any shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof on or prior to the Redemption Date specified therein, then from and after such Redemption Date until such time as the Redemption Amount for such shares of Series B Convertible Preferred Stock has been paid in full, notwithstanding anything to the contrary contained in this Certificate of Incorporation, the corporation may not incur any indebtedness for money borrowed (unless the proceeds of such incurrence of indebtedness are used to make all overdue redemptions) or borrow or reborrow any amounts under any lines of credit which it may then have outstanding without the prior written consent of the holders of not less than a majority of the then outstanding shares of Series B Convertible Preferred Stock; provided, however, that the corporation may incur indebtedness for money borrowed or borrow or reborrow any amounts under any outstanding lines of credit without the aforesaid approval if (i) the proceeds of such borrowing are intended to be, and are in fact, used to pay obligations of the corporation arising in the ordinary course of business as they become due and payable or otherwise to maintain the operations of the corporation at the then current level and not to expand the operations of the corporation in any respect, whether through expansion or enhancement of, or addition to, the corporation's then current product line, facilities, equipment, other capital assets or workforce, or otherwise, (ii) the corporation provides prior written notice of such borrowing to all holders of Series B Convertible Preferred Stock, which notice shall include a statement of the intended use of the proceeds of such borrowing and (iii) promptly upon request therefor, the corporation shall provide to any holder of Series B Convertible Preferred Stock a certificate signed by the President and Chief Financial Officer of the corporation certifying as to the allocation and use of the proceeds of any such borrowing; and (f) If the corporation for any reason fails to redeem any shares of Series B Convertible Preferred Stock in accordance with Section 5(a) hereof on or prior to the Redemption Date specified therein, then from and after such Redemption Date until such time as the Redemption Amount for such shares of Series B Convertible Preferred Stock has been paid in full, notwithstanding anything to the contrary contained in this Certificate of Incorporation, the holders of Series B Convertible Preferred Stock, voting as a separate class and not with the holders of Common Stock, shall be entitled to elect to the Board of Directors the smallest number of directors which shall constitute a majority of the authorized number of directors, and the holders of Common Stock, voting as a separate class, shall be entitled to elect the remaining members of the Board of Directors. Whenever under the provisions of the preceding sentence the right shall have accrued to the holders of Series B Convertible Preferred Stock as a class to elect directors of the corporation, the Board of Directors shall promptly call (and in the event the Board of Directors fails to call, the holders of at least twenty percent (20%) in voting power of the outstanding shares of Series B Convertible Preferred Stock may call) a special meeting of stockholders for the election of directors. Upon the election by the holders of the Series B Convertible Preferred Stock of the directors they are entitled to elect as provided in this Section 5(f), the terms of office of all persons who were previously members of the Board of Directors shall immediately terminate, whether or not the holders of Common Stock shall have elected the remaining members of the Board of Directors. In the case of any vacancy of office occurring among the directors elected by the holders of Series B Convertible Preferred Stock, the remaining directors elected by the holders of Series B Convertible Preferred Stock, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired term of the director whose place shall be vacant; in the case of any vacancy of office occurring among the directors elected by the holders of Common Stock, the remaining directors elected by the holders of Common Stock, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired term of the director whose place shall be vacant. Any director who shall have been elected by the holders of Series B Convertible Preferred Stock (or by directors elected by the holders of Series B Convertible Preferred Stock) may be removed during his term of office by, and only by, the affirmative vote of the holders of the then outstanding shares of Series B Convertible Preferred Stock; any director who shall have been elected by the holders of Common Stock (or by directors elected by the holders of Common Stock) may be removed during his term of office by, and only by, the affirmative vote of the holders of the then outstanding shares of Common Stock. If and when the delinquent Redemption Amount shall have been paid in full, the holders of Series B Convertible Preferred Stock shall be immediately divested of the special voting rights set forth in this Section 5(f), but always subject to the reinstatement of such voting rights in case of similar future delinquency; upon the termination of such voting rights, the Board of Directors shall call (and in the event the Board of Directors fails to call, the holders of at least twenty percent (20%) in voting power of the outstanding shares of Common Stock may call) a special meeting of stockholders at which all directors shall be elected in accordance with Section 3, above, and the terms of office of all persons who are then directors of the corporation shall terminate immediately upon the election of their successors. 6. Covenants --------- (a) So long as at least twenty-five percent (25%) of the number of shares of Series B Convertible Preferred Stock outstanding on the Original Issue Date shall be outstanding, the corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Series B Convertible Preferred Stock required by Section 6(b) hereof and having obtained the affirmative vote or written consent of the holders of a majority of such outstanding shares of Series B Convertible Preferred Stock: (i) amend, alter or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation or by-laws, if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Convertible Preferred Stock; (ii) reclassify any Common Stock or Preferred Stock into shares having any preference or priority as to assets superior to or on a parity with any such preference or priority of the Series B Convertible Preferred Stock; (iii) create, authorize or issue any additional shares of Series B Convertible Preferred Stock or any other class or classes of stock or series of Common Stock or Preferred Stock or any security convertible into or evidencing the right to purchase shares of any class or series of Common Stock or Preferred Stock or any capital stock of the corporation senior to or on a parity with the Series B Convertible Preferred Stock; or (iv) apply any of its assets to the redemption, retirement, purchase or other acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of Common Stock except at their original purchase price of shares of Common Stock from officers, employees or directors of, or consultants to, the corporation upon termination of their status as such pursuant to agreements containing vesting and/or repurchase provisions approved by the Board of Directors of the corporation. (b) Notwithstanding any other provision of this Certificate of Incorporation or the corporation's by-laws to the contrary, notice of any action specified in Section 6(a) hereof shall be given by the corporation to each holder of shares of Series B Convertible Preferred Stock by first class mail, postage prepaid, addressed to such holder at the last address of such holder as shown by the records of the corporation, at least thirty (30) days before the date on which the books of the corporation shall close or a record shall be taken with respect to such proposed action, or, if there shall be no such date, at least thirty (30) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Series B Convertible Preferred Stock may waive any notice required by this Section 6(b) by a written document indicating such waiver. 7. No Reissuance of Series B Convertible Preferred Stock. No share or ----------------------------------------------- ----- shares of Series B Convertible Preferred Stock acquired by the corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue. 8. Residual Rights. All rights accruing to the outstanding shares of the --------------- corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. II. COMMON STOCK Description of Common Stock - --------------------------- 1. Voting Rights. Each holder of record of Common Stock shall be ------------- entitled to one vote for each share of Common Stock standing in such holder's name on the books of the Corporation. Except as otherwise required by law or this Article FOURTH of this Restated Certificate of Incorporation, the holders of Common Stock and the holders of Preferred Stock shall vote together as a single class on all matters submitted to stockholders for a vote (including any action by written consent). 2. Dividends. Subject to provisions of law and this Article FOURTH of --------- this Restated Certificate of Incorporation, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors may determine in their sole discretion. 3. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- Corporation, whether voluntary or involuntary, after the payment or provisions for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of the Preferred Stock are entitled with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution. FIFTH: The Corporation is to have perpetual existence. SIXTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: A. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation. B. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. C. The books of the Corporation may be kept at such place within or without the State of Delaware as the by-laws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. SEVENTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except (to the extent provided by applicable law) for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of the State of Delaware or any amendment or successor provisions thereto, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of this provision shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. NINTH. The Corporation shall indemnify each person who at any time is, or shall have been, a director or officer of the Corporation, and is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the maximum extent permitted by the General Corporation Law of Delaware. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any by-law, agreement, vote of directors or stockholders or otherwise. TENTH: The Corporation reserves the right to amend or repeal any provision of this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned, being the President and Secretary, respectively, of Business@Web, Inc., declaring and certifying, under penalties of perjury, that this is the act and deed of the Corporation and that the facts stated herein are true, have hereunto set their hands as their free act and deed this 6th day of March, 1996. _________________________________________ James G. Nondorf, President __________________________________ William E. Kelly, Secretary CONFIDENTIALITY AND NON-COMPETITION AGREEMENT --------------------------------------------- This confidentiality and non-competition agreement is made as of the ____ day of __________ 1996 by and between Business@Web, Inc., a Delaware corporation ("Company"), and _______________________________ ("Employee"). WHEREAS, the Company has developed, and the Company and/or Employee may continue to develop during the period Employee is retained by the Company, certain Proprietary Information, Inventions and Intellectual Property (as those terms are hereinafter defined), that the Company wishes to protect and maintain as confidential; WHEREAS, the Company from time to time has received, and may continue to receive during the period Employee is so retained by the Company, the Proprietary Information of others, and the Company wishes, and is (in certain circumstances) contractually obligated, to maintain the confidentiality of such Proprietary Information; and WHEREAS, the Company has developed, and will continue to develop during the period Employee is so retained by the Company, goodwill by, among other things, substantial expenditure of money and effort; NOW, THEREFORE, in consideration of the premises and the mutual covenants and undertakings contained in this agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, IT IS AGREED: 1. Definitions. As used in this Agreement, the following terms shall have ----------- the following meanings: (a) Agreement means this confidentiality and non-competition agreement, --------- including all exhibits, schedules and annexations, as all may be amended from time to time in the manner provided in this Agreement. (b) Employment means the current or anticipated or subsequent retention ---------- of Employee by the Company as a full-time employee, a part-time employee, a consultant or otherwise, or any other period during which Employee receives compensation from the company in any capacity. (c) Intellectual Property means any Invention, writing, trade name, --------------------- trademark, service mark or any other material registered or otherwise protected or protectible under state, federal, or foreign patent, trademark, copyright, or similar laws. (d) Inventions includes ideas, discoveries, inventions, developments ---------- and improvements, whether or not reduced to practice and whether or not patentable or otherwise within the definition of Intellectual Property. (e) Proprietary Information includes any scientific, technical, trade ----------------------- or business secrets of the Company and any scientific, technical, trade or business materials that the Company treats, or is obligated to treat, as confidential or proprietary, including, but not limited to, Inventions belonging to the Company and confidential information obtained by or given to the Company about or belonging to its suppliers, licensors, licensees, partners, affiliates, customers, potential customers or others. The definition of "Proprietary Information" herein shall not include Proprietary Information which (i) was known by Employee prior to its disclosure by the Company; (ii) is publicly known through publication or otherwise through no wrongful act of Employee; (iii) is received from a third party who rightfully discloses it to Employee without restriction on its subsequent disclosure; or (iv) is disclosed pursuant to the lawful requirement of a governmental agency or by order of court of competent jurisdiction. 2. Employee Acknowledgments. The Company has developed and will develop ------------------------ its Proprietary Information and Intellectual Property over a substantial period of time and at a substantial expense, and its Proprietary Information and Intellectual Property are integral to the goodwill of the Company. During the course of employment to the Company, Employee may develop or become aware of Proprietary Information and/or Intellectual Property. Protection of the Proprietary Information and Intellectual Property is necessary to the conduct of the Company's business, and the Company is and shall at all times remain the sole owner of the Company's Proprietary Information and Intellectual Property. 3. Confidentiality. Employee shall at all times, both during and after --------------- any termination of Employee's employment by the Company by either the Company or Employee, maintain in confidence and not utilize the Proprietary Information or the Intellectual Property of the Company, and/or technology or proprietary information of others under confidential evaluation by the Company except in performing services for the Company pursuant to his or her employment. Maintaining such Proprietary Information and Intellectual Property in confidence shall include refraining from disclosing such Proprietary Information or Intellectual Property to any third party (except when duly and specifically authorized in writing to do so for purpose of furthering the business of the Company), and refraining from using such Proprietary Information or Intellectual Property for the account of Employee or for any other person or business entity. Employee will not file patents based on the Company's technology or confidential information, nor seek to make improvements thereon, without the Company's written approval. Employee agrees not to make any copies of the Proprietary Information or Intellectual Property of the Company (except when appropriate for the furtherance of the business of the Company or duly and specifically authorized to do so) and promptly upon request, whether during or after the period of employment by the Company, to return to the Company any and all documentary, machine-readable or other elements of evidence of such Proprietary Information, Intellectual Property, and any copies of either that may be in Employee's possession or under Employee's control. 4. Rights to Inventions and Intellectual Property. In connection with ---------------------------------------------- Employee's employment by the Company, or by use of the resources of the Company, whether or not Employee is then retained by the Company, Employee may produce, develop, create, invent, conceive or reduce to practice Inventions and Intellectual Property related to the business of the Company. Employee shall maintain and furnish to the Company complete and current records of all such Inventions and Intellectual Property. Employee agrees that all such Inventions and Intellectual Property are and shall be the exclusive property of the Company, and that the Company may sue or pursue them without restriction or additional compensation. Employee: (i) hereby assigns, sets over and transfers to the Company all of his right, title and interest in and to such Inventions and Intellectual Property; (ii) agrees that Employee and his agents shall, during and after the period Employee is retained by the Company, cooperate fully in obtaining patent, trademark, service mark, copyright or other proprietary protection for such Inventions and Intellectual Property, all in the name of the Company (but only at Company expense), and, without limitation, shall execute all requested applications, assignments and other documents in furtherance of obtaining such protection or registration and confirming full ownership by the Company of such Inventions and Intellectual property; and (iii) shall, upon leaving the Company, provide to the Company in writing a full, signed statement of all Inventions and Intellectual property in which Employee participated prior to termination of Employee's employment by the Company. Employee hereby designates the Company as its agent, and grants to the Company a power of attorney with full substitution, which power of attorney shall be deemed coupled with an interest, for the purposes of effecting the foregoing assignments from the Employee to the Company. 5. Non-Solicitation. Employee shall not during the term of his or her ---------------- employment or at any time during the five (5) years following termination of the term of his or her employment solicit any person who is employed by or a consultant to the Company or any affiliate or subsidiary of the Company either during Employee's period or employment or during such five (5) year period, to terminate such person's employment by or consultancy to the Company, such affiliate or subsidiary. As used herein the term "solicit" shall include, without limitation, requesting, encouraging, assisting or causing, directly or indirectly, any such employee or consultant to terminate such person's employment by or consultancy to the Company, affiliate or subsidiary. 6. Prohibited Competition. Employee recognizes and acknowledges the ---------------------- competitive and proprietary nature of the Company's business operations. Employee acknowledges and agrees that a business will be deemed competitive with the Company if it engages in a line of business in which it performs any of the services, researches, develops or manufactures or sells any products provided or offered by the Company or under development by the Company, or any similar products or products fulfilling the same function, whether or not similar (the Company's "Field of Interest") (such business to be referred to as a "competitive business"). Employee further acknowledges and agrees that during the course of performing services for the Company, the Company will furnish, disclose or make available to Employee confidential and proprietary information related to the Company's business and that the Company may provide Employee with unique and specialized training. Employee also acknowledges that such confidential information and the training to be provided by the Company have been developed and will be developed by the Company through the expenditure by the Company of substantial time, effort and money and that all such confidential information and training could be used by Employee to compete with the Company. Accordingly, Employee hereby agrees in consideration of the Company's agreement to hire Employee and Employee's compensation for services rendered to the Company and in view of the confidential position to be held by Employee, the unique and specialized training which the Company may provide Employee and the confidential nature and proprietary value of the information which the Company may share with Employee, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, as follows: During the period during which Employee performs services for or at the request of the Company (the "Term") and for a period of eighteen months following the expiration or termination of the Term (the "Restricted Term"), whether such termination is voluntary or involuntary, Employee shall not, without the prior written consent of the Company: (i) For Employee or on behalf of any other, directly or indirectly, either as principal, agent, stockholder, employee, consultant, representative or in any other capacity, own, manage, operate or control, or be concerned, connected or employed by, or otherwise associate in any manner with, engage in or have a financial interest in any business whose primary line of business is in the Field of Interest, or in any other business in which Employee has any direct operating or scientific responsibility in the Field of Interest anywhere in the world (the "Restricted Territory"), except that nothing contained herein shall preclude Employee from purchasing or owning stock in any such competitive business if such stock is publicly traded, and provided that Employee's holdings do not exceed one percent (1%) of the issued and outstanding capital stock of such business. (ii) Either individually or on behalf of or through any third party, solicit, divert or appropriate or attempt to solicit, divert or appropriate, for the purpose of competing in the Field of Interest with the Company or any present or future parent, subsidiary or other affiliate of the Company which is engaged in the Field of Interest, any joint venture or collaborative research partners, customers or patrons of the Company, or any prospective customers or patrons with respect to which the Company has developed or made a presentation for the use or exploitation of products or processes in the Field of Interest (or similar offering of services), located within the Restricted Territory. Employee further recognizes and acknowledges that (i) the types of employment which are prohibited by this paragraph are narrow and reasonable in relation to the skills which represent Employee's principal salable asset both to the company and to Employee's other prospective employers, and (ii) the specified but broad geographical scope of the provisions of this paragraph is reasonable, legitimate and fair to Employee in light of the Company's need to perform its research and to develop and market its services and to develop and sell its products in a large geographic area in order to have a sufficient customer base to make the Company's business profitable and in light of the limited restrictions on the type of employment prohibited herein compared to the types of employment for which Employee is qualified to earn his or her livelihood. If any part of this section should be determined by a court of competent jurisdiction to be unreasonable in duration, geographic area, or scope, then this section is intended to and shall extend only for such period of time, in such area and with respect to such activity as is determined to be reasonable. 7. Continued Obligations. Employee's obligations under this Agreement --------------------- shall not be affected: (i) by any termination of Employee's employment, including termination upon the Company's initiative; nor (ii) by any change in Employee's position, title or function with the Company; nor (iii) by any interruption in employment during which Employee leaves and then rejoins the Company for any period within a period of one year and for any reason. Nothing herein shall be construed as constituting an employment agreement or an undertaking by the Company to retain Employee's services for any stated period of time. 8. No Conflicting Agreements. Employee represents and warrants that ------------------------- execution and performance of this Agreement does not and will not violate, conflict with, or constitute a default under any contract, commitment, agreement, understanding, arrangements, or restriction, or any adjudication, order, injunction or finding of any kind by any court or agency to which Employee may be a party or by which Employee may be bound. 9. Remedies. In the event of any breach by Employee of any of the -------- provisions of this Agreement, the Company shall be entitled, in addition to monetary damages and to any other remedies available to the Company under this Agreement and at law, to equitable relief, including injunctive relief, and to payment by Employee of all costs incurred by the Company in enforcement against Employee of the provisions of this Agreement, including reasonable attorneys' fees. 10. General Provisions. ------------------ (a) No Waiver. Waiver of any provision of this Agreement, in whole or --------- in part, in any one instance shall not constitute a waiver of any other provision in the same instance, nor any waiver of the same provision in another instance, but each provision shall continue in full force and effect with respect to any other then-existing or subsequent breach. (b) Notice. For purposes of this Agreement, notices and all other ------ communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered personally or by overnight courier with a receipt obtained therefor or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed, if to the Company, to its chief executive officer at the Company's principal office, and if to the Employee, at his residence address as shown on the Company's employment records, or to such other address as either party may furnish to the other in writing in accordance with this Section, except that notices of changes of address shall be effective upon receipt. (c) Severability. If any provision of this Agreement shall be found ------------ to be invalid, inoperative or unenforceable in law or equity, such finding shall not affect the validity of any other provisions of this Agreement, which shall be construed, reformed and enforced to effect the purposes of this Agreement to the fullest extent permitted by law. (d) Miscellaneous. This Agreement: (i) may be executed in any number ------------- of counterparts, each of which, when executed by both parties to the Agreement shall be deemed to be an original, and all of which counterparts together shall constitute one and the same instrument; (ii) shall be governed by and construed under the law of the Commonwealth of Massachusetts, without application of principles of conflicts of laws; (iii) shall constitute the entire agreement of the parties with respect to the subject matter hereof, superseding all prior oral and written communications, proposals, negotiations, representations, understandings, courses of dealing, agreements, contracts, and the like between the parties in such respect; (iv) may be amended, modified, or terminated, and any right under this Agreement may be waived in whole or in part, only by a writing signed by both parties; (v) contains headings only for convenience, which headings do not form part, and shall not be used in construction, of this Agreement; (vi) shall bind and inure to the benefit of the parties and their respective legal representatives, successors and assigns, except that no party may delegate any of its or his obligations under this Agreement, or assign this Agreement, without the prior written consent of the other party, except the Company may assign this Agreement in connection with the merger, consolidation, or sale of all or substantially all assets of the Company; and (vii) be enforced only in courts located within the Commonwealth of Massachusetts and the parties hereby agree that such courts shall have venue and exclusive subject matter and personal jurisdiction, and consent to service of process by registered mail, return receipt requested, or by any other manner provided by law. Executed under seal as of the date first above written. BUSINESS@WEB, INC. By: -------------------------------- ----------------------------------- Employee Peabody & Arnold Draft February 23, 1996 ________________, 1996 To the Purchasers listed on Schedule I to the Purchase Agreement hereinafter described Ladies and Gentlemen: We have acted as counsel for Business@Web, Inc., a Delaware corporation (the "Company") in connection with the issuance and sale of shares of the Company's Series B Convertible Preferred Stock, par value $1.00 per share (the "Preferred Shares"), to the purchasers (the "Purchasers") identified on Schedule I to the Series B Convertible Preferred Stock Purchase Agreement dated _______, 1996 (the "Purchase Agreement") among the Company and Purchasers pursuant to the terms contained in the Purchase Agreement. Terms used in this opinion, unless otherwise defined, shall have the meanings assigned thereto in the Purchase Agreement. This opinion is furnished to you pursuant to Section 4.01 of the Purchase Agreement. For purposes of the opinions expressed below, we have examined original, faxed or photocopies of executed counterparts of: a. the Purchase Agreement; b. the Registration Rights Agreement; c. the Co-Sale Rights Agreement; and d. the Voting Agreement. The Purchase Agreement, the Registration Rights Agreement, the Co-Sale Rights Agreement, and the Voting Agreement are together referred to herein as the "Transaction Documents". In addition, we have examined the originals or copies of such records, agreements and instruments of the Company, certificates of public officials and of officers of the Company and such other documents and records and such matters of law as we have deemed appropriate as a basis for the opinions hereinafter expressed. In making such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the To the Purchasers ______________, 1996 Page 2 authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies, which facts we have not independently verified. As to various facts material to the opinions set forth herein, we have relied without independent verification upon factual representations made by the Company and the Purchasers in the Transaction Documents, upon certificates of public officials and upon facts certified to us by officers of the Company. With respect to the opinions expressed in paragraph number 8 below, we draw your attention to the fact that we have not made any investigation of the records of any court or other governmental agency or body. Statements herein as to the truth of certain matters "to our knowledge", "known to us", or as to which we have "knowledge" refer to the knowledge consciously held by the individual lawyers in our firm who participated in the negotiation and drafting of the Transaction Documents without independent investigation. For purposes of the opinions expressed herein, we have assumed that at all relevant times the Purchasers had all requisite power and authority and had taken all necessary action to enter into and perform all of its obligations under the Transaction Documents and that each such Transaction Document was and will continue to be the valid, binding and enforceable obligation of each of the Purchasers. You have not asked us to express, and we do not express, any opinion concerning the application of any federal, state or local statute, law, rule or regulation to the authority of any of the Purchasers to enter into and to carry out its obligations, and to exercise its rights, under the Transaction Documents. This opinion is limited to the laws of the Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware (the "DGCL"), and the federal laws of the United States of America, and we express no opinions with respect to the law of any other jurisdiction. Based upon and subject to the foregoing and subject also to the general qualifications stated following paragraph number 9 below, we hereby advise you that, in our opinion, as of the date hereof: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business as a foreign corporation in the Commonwealth of Massachusetts. 2. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform the Transaction Documents to which it is a party, and to issue, sell and deliver the Preferred Shares and, upon conversion of the Preferred Shares in accordance with their terms, the Conversion Shares. To the Purchasers ______________, 1996 Page 3 3. The execution and delivery by the Company of the Purchase Agreement and the Registration Rights Agreement, the performance by the Company of its obligations thereunder, and the issuance of the Preferred Shares and, upon conversion of the Preferred Shares in accordance with their terms, the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company of which we have knowledge, the Certificate of Incorporation of the Company, as amended, or the By-laws of the Company, as amended, or violate or conflict with, result in or constitute (with due notice or lapse of time or both) a default under or result in the creation or imposition of any material lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company pursuant to any indenture, agreement, or other instrument of which we have knowledge and to which the Company or any of its properties or assets is bound. 4. The Preferred Shares and the Conversion Shares have been duly authorized and, when issued in accordance with the Purchase Agreement (in the case of the Preferred Shares) or upon conversion of the Preferred Shares in accordance with their terms (in the case of the Conversion Shares), will be validly issued, fully paid and nonassessable shares, with no personal liability attaching to the ownership thereof, and will be free and clear of all liens, charges, restrictions, claims and encumbrances created by or through the Company. The issuance, sale and delivery of the Preferred Shares and the Conversion Shares will not subject to any preemptive right of stockholders of the Company arising pursuant to the DGCL, the Certificate of Incorporation or the Bylaws of the Company or, to our knowledge, otherwise existing or, to our knowledge, to any right of first refusal or other right in favor of any person. 5. The Purchase Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms. 6. The Co-Sale Rights Agreement and the Voting Agreement have been duly authorized, executed and delivered by each of the Principal Shareholders who is a party thereto and constitute the legal, valid and binding obligations of such Principal Shareholders, enforceable in accordance with their terms. 7. The authorized capital stock of the Company consists solely of 30,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock (1,750,000 of which have been designated Series B Convertible Preferred Stock and 1,250,000 of which remain undesignated). Immediately prior to the Closing, 16,204,545 shares of Common Stock were validly issued and outstanding, and no other shares of Common Stock or Preferred Stock were outstanding. To the Purchasers ______________, 1996 Page 4 8. To our knowledge, there is no (i) action, suit, claim, proceeding or investigation pending against the Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending against the Company. To our knowledge, the Company is not in default with respect to any order, writ, injunction or decree of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. 9. Assuming the accuracy of the representations and warranties of the Purchasers made in Article III of the Purchase Agreement, the offering, issuance and sale of the Preferred Shares and the Conversion Shares is exempt from the registration provisions of the Securities Act of 1933, as amended. Our opinions set forth above are subject to the following general qualifications: a. The validity and enforceability of any obligation and the exercise of rights and remedies may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement generally of the rights and remedies of creditors or the obligations of debts, and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding at law or in equity), including, without limitation, the discretion of any court of competent jurisdiction in granting specific performance or injunctive or other equitable relief. b. The enforcement of any rights or remedies is or may be subject to an implied duty on the part of the party seeking to enforce such rights to take action and made determinations on a reasonable basis and in good faith. c. The enforceability of the Transaction Documents may be limited by general principals of contract law which include (i) the unenforceability of provisions to the effect that provisions therein may only be amended or waived in writing to the extent that an oral agreement modifying such provisions has been entered into, and (ii) the general rule that, where less than all of an agreement is enforceable, the balance is enforceable only when the unenforceable portion is not an essential part of the agreed exchange. d. The indemnification and contribution provisions set forth in Section 7 of the Registration Rights Agreement may not be enforceable to the extent that they should be found contrary to public policy. To the Purchasers ______________, 1996 Page 5 e. We express no opinion with respect to the choice of law provisions contained in the Transaction Documents. This opinion is furnished to you solely for your benefit in connection with the consummation of the Closing under the Purchase Agreement and may not be relied upon by any other person or entity or for any other purpose without our express, prior written consent. All of the opinions set forth herein are rendered as of the date hereof, and we assume no obligation to update such opinions to reflect any facts or circumstances which may hereafter come to our attention or any changes in the law which may hereafter occur. Very truly yours, Peabody & Arnold REGISTRATION RIGHTS AGREEMENT March 6, 1996 To the Investors named on Schedule I hereto Ladies and Gentlemen: In connection with the agreement by Hewlett-Packard Company ("HP") on the date hereof to purchase shares of Series B Convertible Preferred Stock, $1.00 par value ("Preferred Stock"), of Business@Web, Inc., a Delaware corporation (the "Company"), pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of February 27, 1996 (the "HP Agreement") between the Company and HP, and in connection with the agreement by the other Investors named on Schedule I hereto (with HP, the "Investors") on the date hereof to purchase shares of Preferred Stock of the Company, pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of March 6, 1996 (with the HP Agreement, the "Purchase Agreements") among the Company and such Investors and as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreements, the Company covenants and agrees with the Investors as follows: 1. Certain Definitions As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.001 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of the Preferred Shares. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Preferred Shares" shall mean all shares of the Company's Preferred ---------------- Stock issued to the Investors. "Registration Expenses" shall mean the expenses so described in --------------------- Section 8. "Restricted Stock" shall mean the Conversion Shares, but excluding ---------------- shares of Common Stock which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act, provided, however, that the term -------- ------- "Restricted Stock" shall be deemed to include the number of shares of Restricted Stock that would be issuable to a holder of Preferred Shares upon conversion of all Preferred Shares held by such holder at such time. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8. ---------------- 2. Restrictive Legend. Each certificate representing Preferred Shares or ------------------ Conversion Shares shall, except as otherwise provided in Section 3, be stamped or otherwise imprinted with a legend substantially in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. 3. Required Registration. --------------------- (a) At any time after March 31, 1998, the holders of Restricted Stock constituting at least 40% of the total shares of Restricted Stock then owned beneficially or of record by Investors and Investor Transferees (as such term is hereinafter defined) may request the Company to register under the Securities Act all or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice, provided that the reasonably anticipated aggregate price to the public of such public offering would exceed $10,000,000. Notwithstanding the foregoing, the only securities that the Company shall be required to register pursuant hereto shall be shares of Common Stock, provided, however, that in any underwritten public offering contemplated by this - -------- ------- Agreement, the holders of Preferred Shares shall be entitled to sell such Preferred Shares to the underwriters for conversion and sale of the shares of Common Stock issued upon conversion thereof. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 3 within 180 days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering of securities of the Company under the Securities Act. (b) Following receipt of any notice under this Section 3, the Company shall immediately notify all Investors and Investor Transferees from whom notice has not been received and shall use it best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in all notices received by the Company from other holders within 30 days after the giving of such notice by the Company). If such method of disposition shall be an underwritten public offering, the holders of a majority of the shares of Restricted Stock to be sold in such offering may designate the managing underwriter of such offering, subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall be obligated to register restricted Stock pursuant to this Section 3 on two occasions only, provided, however, that such obligation shall be deemed -------- ------- satisfied only when a registration statement covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. (c) The Company shall be entitled to include in any registration statement referred to in this Section 3, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account and for the account of other selling stockholders, except as and to the extent that, in the reasonable opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would materially adversely affect the marketing of the Restricted Stock to be sold. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the Commission any other registration statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting holders pursuant to this Section 3 until the completion of the period of distribution of the shares of Restricted Stock registered thereby. 4. Incidental Registration. If the Company at any time (other than ----------------------- pursuant to Section 3 or Section 5) proposes to register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do and of the proposed method of distribution of such securities. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of its Restricted Stock, the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent and under the conditions such registration is permitted under the Securities Act. In the event that any registration pursuant to this Section 4 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that the inclusion of some or all of the Restricted Stock would adversely affect the marketing of the securities to be sold by the Company therein, provided, however, that such number of shares of Restricted -------- ------- Stock (if reduced) shall not be reduced to a number which is less than 35% of the total number of shares are to be include in such underwriting for the account of persons other than the Company or requesting holders of Restricted Stock. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 4 without thereby incurring any liability to the holders of Restricted Stock. 5. Registration on form S-3. If at any time (i) a holder or holders of ------------------------ Preferred Shares or Restricted Stock holding, in the aggregate, in excess of ten percent (10%) of the then-outstanding Common Stock and Conversion Shares request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Restricted Stock held by such requesting holder or holders, the reasonably anticipated aggregate price (net of underwriting discounts and commissions) of which would exceed $1,000,000 and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Restricted Stock specified in such notice. Whenever the Company is required by this Section 5 to use its best efforts to effect the registration of Restricted Stock, each of the procedures and requirements of Section 3 (including but not limited to the requirement that the Company notify all holders of Restricted Stock from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration. 6. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of Sections 3, 4 or 5 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering pursuant to Section 3, shall be on Form S-1 or other forms of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 6(a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided, however, that the Company shall not for any such purpose be required - -------- ------- to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter under 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 of which the Company has knowledge as a result of which the prospectus contained 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 light of the circumstances then existing. The Sellers of Restricted Stock agree upon receipt of such notice forthwith to cease making offers and sales of Restricted Stock pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose until the Company has prepared and furnished such amendment or supplement to the prospectus as may be necessary so that, as thereafter delivered to purchasers of such Restricted Stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements and the notes thereto and the schedules and other financial and statistical data contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and (h) make available for inspection upon reasonable notice during the Company's regular business hours by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposes of Section 6(a) and 6(b) and of Section 3(c), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) agree to sell Restricted Stock on the basis provided in any underwriting arrangements and (c) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. In connection with each registration pursuant to Sections 3, 4 or 5 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 7. Expenses. All expenses incurred by the Company in complying with -------- Sections 3, 4 and 5, including, without limitations, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue Sky" laws, fees of the National Association of Securities Dealers, Inc. transfer taxes, fees of transfer agents and registrars, and fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement under Sections 3, 4 or 5. All Selling Expenses in connection with each registration statement under Sections 3, 4 or 5 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 8. Indemnification and Contribution. -------------------------------- (a) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 3, 4 or 5, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims,damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of each such seller, each such underwriter and each such controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, -------- ------- that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus, and, provided -------- further, however, that the Company will not be liable to any such seller, any - ------- ------- such underwriter or any such controlling person in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue or alleged untrue statement or omission or an alleged omission made in any preliminary prospectus or final prospectus delivered by such seller, underwriter or controlling person in connection with the sale of the Restricted Stock if (1) the final prospectus or prospectus supplement corrected such untrue statement or omission and (2) the Company advised such seller, underwriter or controlling person that such correction had been made and (3) such seller, underwriter or controlling person failed to send or deliver a copy of the final prospectus or prospectus supplement with or prior to the delivery of written confirmation of the sale of the Restricted Stock. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 3, 4 or 5, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of the Company and each such officer, director, underwriter and controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such seller will be liable hereunder in any such case if - -------- ------- and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the -------- ------- ------- liability of each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability that it may have to such indemnified party other than under this Section 8 and shall only relieve it from any liability that it may have to such indemnified party under this Section 8 if and to the extent the indemnifying party is prejudiced by such omission. in case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 8 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided however, that, if the defendants in any such -------- ------- action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel) that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interest of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel as required by the local rules of such jurisdiction) at any time for all such indemnified parties. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 8; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided however, that, in any such case, (A) no such holder will be -------- ------- require to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 8. Changes in Common Stock or Preferred Stock. If, and as often as, ------------------------------------------ there is any change in the Common Stock or the Preferred Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted shall continue with respect to the Common Stock or the Preferred Stock as so changed. 9. Rule 144 Reporting and Rule 144A Information. With a view to making -------------------------------------------- available the benefits of certain rules and regulations of the Commission that may at any time permit the resale of the Restricted Stock without registration, the Company will: (a) at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in available itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration; and (b) at any time, at the request of any holder of Preferred Shares or shares of Restricted Stock, make available to such holder and to any prospective transferee of such Preferred Shares of Restricted Stock the information concerning the Company described in Rule 144A(d)(4) under the Securities Act. 11. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to Investors as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not cause a material violation of any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any or its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. 12. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not; provided, however, that registration rights conferred herein -------- ------- on Investor shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if there is transferred to such transferee at least 60,000 shares of Restricted Stock (the transferee in any such case being referred to as an "Investor Transferee"). (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (a) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 03172 Attn: Chief Financial Officer with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (b) if to any Investor, at such Investor's address as set forth on Schedule I hereto (c) if to any of Investor's Transferees, at such address as may have been furnished to the Company in writing by it; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this Section 12(b). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of a majority of the outstanding shares of Restricted Stock. (e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement is sought. (f) If requested in writing by the underwriters for an underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period following the effective date of the registration statement relating to such offering to be reasonably determined by the underwriters. (g) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (h) This Agreement and the rights granted herein shall terminate on the date all of the Restricted Stock may be sold pursuant to Rule 144 under the Securities Act without regard to the volume limitations contained in Rule 144(e), except that the indemnification provisions set forth in Section 8 shall survive indefinitely. Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this Agreement shall be a binding agreement between the Company and you. Very truly yours, BUSINESS@WEB, INC. By:______________________ AGREED TO AND ACCEPT as of the date first above written. HEWLETT-PACKARD COMPANY By:_____________________________ FALCON VENTURES II, L.P. By: Back Bay Partners XIII L.P. By: Hancock Venture Partners, Inc. By:_____________________________ HANCOCK VENTURE PARTNERS IV-DIRECT FUND L.P. By: Back Bay Partners XII L.P. By: Hancock Venture Partners, Inc. By:_____________________________ PANTIO HOLDING LTD. By:_____________________ JUILLIARD INVESTMENTS, INC. By:_____________________ ________________________ Jan Baan ________________________ J.G. Paul Baan ________________________ Lorenzo Cue ________________________ Tom C. Tinsley CO-SALE RIGHTS AGREEMENT This CO-SALE RIGHTS AGREEMENT, made as of the 6th day of March 1996 by and among those investors listed on Schedule A hereto (the "Investors") and the holders of shares of the Common Stock, $0.001 par value (the "Common Stock") of the Company and options to purchase the Company's Common Stock listed on Schedule B hereto (the "Principal Shareholders"). WHEREAS, Hewlett-Packard Company ("HP") is purchasing shares of Series B Convertible Preferred Stock, $1.00 par value ("Preferred Stock"), of Business@Web, Inc., a Delaware corporation (the "Company"), pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated February 27, 1996 (the "HP Agreement") between the Company and HP, and the other Investors are purchasing shares of Preferred Stock of the Company pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated March 6, 1996 (with the HP Agreement, the "Purchase Agreements") among the Company and such Investors; and WHEREAS, in order to induce the Investors to consummate the transactions contemplated by the Purchase Agreements, the Principal Shareholders have agreed to grant certain rights of first offer to the Company and the Investors and certain co-sale rights to the Investors on the terms and conditions contained herein. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. As used herein, the term "Shares" shall refer to shares of Preferred Stock and to shares of Common Stock, and the term "fully diluted Shares" shall mean the maximum number of Common Shares into which the subject Shares of Preferred Stock could then be converted. 2. In the event any Principal Shareholder (a "Transferring Shareholder") proposes to sell, transfer, assign or otherwise dispose of (a "Transfer") any Shares held by such Transferring Shareholder (except as otherwise provided below), such Transferring Shareholder shall deliver a written notice (the "Offer Notice") to the Company and to each Investor. The Offer Notice will disclose in reasonable detail the proposed number of Shares to be transferred and the proposed terms and conditions of the Transfer. First, the Company may elect to purchase some or all of the Shares specified in the Offer Notice at the price and on the terms and conditions specified therein by delivering written notice of such election to the Transferring Shareholder and the Investors as soon as practicable but in any event within ten days after the receipt of the Offer Notice. If the Company has not elected to purchase all of the Shares within such 10-day period, each Investor may elect to purchase all (but not less than all) of such Investor's Pro Rata Share (as defined below) of the remaining available Shares specified in the Offer Notice at the price and on the terms and conditions specified therein by delivering written notice of such election to the Transferring Shareholder as soon as practicable but in any event within 30 days after delivery of the Offer Notice. Any Shares not elected to be purchased by the end of such 30-day period will be reoffered for period of ten days on a pro rata basis to the other Investors who have elected to purchase their full respective Pro Rata Shares. If the Company or any Investors have elected to purchase all of the Shares specified in the Offer Notice from the Transferring Shareholder, the transfer of such Shares will be consummated as soon as practicable after the delivery of the election notices, but in any event within 60 days after the date of the Offer Notice. In the event that the Company and the other Investors have not elected to purchase all of the Shares specified in the Offer Notice, the Transferring Shareholder may, within 120 days after the expiration of the 30-day offer period, and subject to the provisions of Paragraph 3 below, Transfer such Shares to one or more transferees at a price no less than the price per Share specified in the Offer Notice and on other terms and conditions no more favorable to the transferee(s) than offered to the Company and the other Investors in the Offer Notice. Each Investor's "Pro Rata Share" shall be the percentage that the number of fully diluted Shares held by such Investor represents of the aggregate of all fully diluted Shares held by all Investors. 3. Prior to effecting any Transfer of Shares, the Transferring Shareholder shall deliver a written notice (the "Sale Notice") to each Investor, specifying in reasonable detail the identity of the proposed transferee(s) and the terms and conditions of the Transfer. Any Investor may elect to participate in the contemplated Transfer by delivering written notice to the Transferring Shareholder within 30 days after receipt by such Investor of the Sale Notice. If any Investor elects to participate in such Transfer, such Investor will be entitled to sell in the contemplated Transfer, at a price, proportionate to the price per fully diluted Share, and otherwise on the same terms and conditions as the Transferring Shareholder, a number of Shares determined by multiplying (i) the number of fully diluted Shares to be sold in the contemplated Transfer by (ii) the quotient determined by dividing (A) the number of fully diluted Shares held by such Investor, by (B) the sum of (1) the number of fully diluted Shares held by the Investors electing to participate in such sale and (2) the number of fully diluted Shares held by the Transferring Shareholder. 4. Each Transferring Shareholder shall use such Principal Shareholder's best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Investors who chose to participate in the Transfer in any contemplated Transfer, to the extent the Investors elect to participate in the manner set forth above, and no Transferring Shareholder shall Transfer any of its Shares to the prospective transferee(s) if the prospective transferee(s) declines to allow such participation of such Investors (except to the extent provided below). 5. The restrictions on Transfer and the right of co-sale set forth herein shall not apply to any Transfer (i) in the case of an individual, to or among such Principal Shareholder's Family Group (as defined below) or by will or the laws of descent and distribution to such Principal Shareholder's Family Group, (ii) in the case of an entity, to or among its Affiliates (as defined below), or (iii) by way of or pursuant to the pledge of a Principal Shareholder's Shares as collateral security for a loan made to such Principal Shareholder or to an Affiliate or a member of the Family Group of such Principal Shareholder by a bank or other financial institution (the persons to whom Transfers are permitted pursuant to clauses (i), (ii), and (iii) being collectively referred to herein as "Permitted Transferees"); provided, that the restrictions contained herein shall continue to be applicable to the Transferred Shares after any such Transfer; and provided further that the transferees of such Shares shall have agreed in writing to be bound by the provisions of this Agreement with respect to the Shares so transferred. "Family Group" means an individual's spouse and lineal descendants and any trust or other fiduciary solely for the benefit of such individual and/or such individual's spouse and/or lineal descendants. "Affiliate" of a person means (i) any other person controlling, controlled by or under common control with such person and (ii) any partner of any such person which is a partnership. 6. The restrictions on Transfer and the right of co-sale set forth herein shall not apply to any Transfer by a Principal Shareholder until the aggregate number of Shares Transferred by such Principal Shareholder from and after the date hereof (other than Transfers permitted under Paragraph 5 above) exceed 15% of the number of Shares held by such Principal Shareholder on the date hereof, as set forth on the attached Schedule of Principal Shareholders. 7. The restrictions on the Transfer and the right of co-sale set forth herein shall not apply to the sale of Shares in a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act") and shall terminate with respect to all Shares upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale to of Common Stock to the public at an initial public offering price of not less than $8.25 per share and with gross proceeds of not less than $15,000,000. 8. No Principal Shareholder shall permit any Transfer of any equity interest in such Principal Shareholder without the written consent of Investors holding at least a majority of the fully-diluted Shares held by Investors; provided, however, any holder of an equity interest in a Principal Shareholder - -------- ------- may Transfer all or any portion of such equity interest without the consent of the Investors (i) in the case of an individual, to or among such individual's Family Group or by will or the laws of descent and distribution to such individual's Family Group, (ii) in the case of an entity, to or among its Affiliates, or (iii) by way of or pursuant to the pledge of an equity interest in such Principal Shareholder as collateral security for a loan made to the holder of such equity interest or to an Affiliate or a member of the Family Group of the holder of such equity interest by a bank or other financial institution. 9. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares), whether so expressed or not; provided, however, that the rights of co-sale conferred herein on Investor shall - --------- ------- only inure to the benefit of a transferee of Preferred Shares at least 50,000 shares of Preferred Shares are transferred to such transferee . 10. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: if to any Investor, at the address of such Investor set forth on Schedule A hereto; if to any Principal Shareholder, at the address of such Principal Shareholder set forth on Schedule B hereto; or, in any case, at such other address or addresses as shall have been furnished in writing to Investor (in the case of a Principal Shareholder) or to the Principal Shareholders (in the case of Investor) in accordance with the provisions of this Paragraph 10. 11. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 12. This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of both (i) Principal Shareholders holding at least a majority of the Shares held by Principal Shareholders and (ii) Investors holding at least a majority of the fully-diluted Shares held by Investors. 13. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as an instrument under seal by its officer thereunto duly authorized as of the date first above written. INVESTORS: HEWLETT-PACKARD COMPANY By:____________________________ FALCON VENTURES II, L.P. By: Back Bay Partners XIII L.P. By: Hancock Venture Partners, Inc. By:___________________________ HANCOCK VENTURE PARTNERS IV-DIRECT FUND L.P. By: Back Bay Partners XII L.P. By: Hancock Venture Partners, Inc. By:____________________________ PANTIO HOLDING LTD. By:____________________________ JUILLIARD INVESTMENTS, INC. By:____________________________ _______________________________ Jan Baan _______________________________ J.G. Paul Baan _______________________________ Lorenzo Cue _______________________________ Tom C. Tinsley PRINCIPAL SHAREHOLDERS: J&S LIMITED PARTNERSHIP By: Controller Corp., Inc., General Partner By:____________________________ President LEGACY INVESTMENT PARTNERSHIP By:____________________________ Managing Partner HARRINGTON TRUST LIMITED as Trustee of The Appleby Trust By:____________________________ Director _______________________________ Sundar Subramaniam VOTING AGREEMENT This VOTING AGREEMENT, made as of the 6th day of March, 1996 by and among those investors listed on Schedule A hereto (the "Investors") and the holders of shares of the Common Stock, $0.001 par value (the "Common Stock") of Business@Web, Inc., a Delaware corporation (the "Company") listed on Schedule B hereto (the "Principal Shareholders"). WHEREAS, the Investors are purchasing shares of Series B Convertible Preferred Stock, $1.00 par value ("Preferred Stock"), of the Company pursuant to that certain Series B Convertible Preferred Stock Purchase Agreement dated March 6, 1996 (the "Purchase Agreement") among the Company and the Investors; and WHEREAS, in order to induce the Investors to consummate the transactions contemplated by the Purchase Agreement, the Shareholders have agreed to vote the voting securities of the Company held by them as set forth herein. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Election of the Investor Director. In any and all elections of --------------------------------- directors of the Company (whether at a meeting or by written consent in lieu of a meeting), each Principal Shareholder and each Investor shall vote or cause to be voted the Shares owned by such Principal Shareholder or Investor, as the case may be, or over which such Principal Shareholder or Investor has voting control, and otherwise use his, her or its best efforts, so as to elect as a director of the Company one person designated by written notice from the holders of a majority of the shares of Preferred Stock or Common Stock issued upon conversion of Preferred Stock held by all Investors. The person to be elected as a director of the Company at the designation of the Investors (the "Investor Director") shall initially be Ofer Nemirovsky. As used herein, the term "Shares" shall refer to shares of Preferred Stock, Common Stock, and all other voting securities of the Company. 2. Removal of the Investor Director. No Principal Shareholder -------------------------------- (either as a shareholder or as a director of the Company) shall vote to remove any Investor Director, except (i) for bad faith or willful misconduct or (ii) with or without cause at the written direction of the holders of a majority of the shares of Preferred Stock or Common Stock issued upon conversion of Preferred Stock held by all Investors. At the written direction of the holders of a majority of the shares of Preferred Stock or Common Stock issued upon conversion of Preferred Stock held by all Investors, each Principal Shareholder shall take any necessary action to cause any Investor Director previously elected at the designation of the Investors to be removed from office. In the event any Investor Director is so removed, or if a vacancy is created by the death, resignation or removal of any Investor Director, the vacancy so created shall be filled in accordance with Section 1 hereof by a designee selected by the Investors. 3. Voting on Other Matters. Except as provided in Sections 1 and 2, ----------------------- above, each Principal Shareholder and the Investor may vote the Shares held by him, her or it on any and all matters presented to the stockholders of the Company (including, without limitation, the election of directors of the Company) as he, she or it may, in his, her or its sole discretion, determine. Nothing herein shall be deemed to create any ownership interest on the part of any Investor in any Shares held by the Principal Shareholders. 4. Termination; Suspension Upon Redemption Default. This Agreement ----------------------------------------------- shall terminate upon the earlier to occur of (i) December 31, 2005 or (ii) the consummation of a firm commitment underwritten public offering of Common Stock pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock to the public at an initial public offering price of not less than $8.25 per shares and with gross proceeds of not less than $15,000,000. The obligations of the Principal Shareholders under this Agreement shall be suspended in the event and for so long as, following a default in redemption of the Preferred Stock pursuant to the terms of the Company's Certificate of Incorporation, as amended, the holders of the Preferred Stock are entitled to elect a majority of the members of the Company's Board of Directors. 5. Specific Performance. In addition to any and all other remedies -------------------- that may be available at law in the event of any breach of this Agreement, the Investors shall be entitled to specific performance of the agreements and obligations of the Principal Shareholders hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction. 6. Notices. All notices, requests, consents and other communications ------- hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows:All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: if to any Investor, at the address of such Investor set forth on Exhibit A hereto; if to any Principal Shareholder, at the address of such Principal Shareholder set forth on Exhibit B hereto; or, in any case, at such other address or addresses as shall have been furnished in writing to the Investors (in the case of a Principal Shareholder) or to the Principal Shareholders (in the case of an Investor) in accordance with the provisions of this Paragraph 6. 7. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware. 8. Amendment; Modification; Waiver. This Agreement may not be amended or --------------------------------- modified, and no provision hereof may be waived, without the written consent of both (i) Principal Shareholders holding at least a majority of the Shares held by Principal Shareholders and (ii) Investors holding at least a majority of the Shares held by Investors. 9. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10. Illegality, etc. If any provision of this Agreement shall be held to --------------- be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as an instrument under seal by its officer thereunto duly authorized as of the date first above written. INVESTORS: FALCON VENTURES II, L.P. By: Back Bay Partners XIII L.P. By: Hancock Venture Partners, Inc. By: --------------------------- HANCOCK VENTURE PARTNERS IV-DIRECT FUND L.P. By: Back Bay Partners XII L.P. By: Hancock Venture Partners, Inc. By: ---------------------------- PANTIO HOLDING LTD. By: ---------------------------- JUILLIARD INVESTMENTS, INC. By: ---------------------------- ------------------------------- Jan Baan ------------------------------- J.G. Paul Baan ------------------------------- Lorenzo Cue ------------------------------- Tom C. Tinsley PRINCIPAL SHAREHOLDERS: J&S LIMITED PARTNERSHIP By: Controller Corp., Inc., General Partner By: ------------------------- President LEGACY INVESTMENT PARTNERSHIP By: ------------------------- Managing Partner HARRINGTON TRUST LIMITED as Trustee of The Appleby Trust By: ------------------------- Director --------------------------- Sundar Subramaniam ---------------------------- Klaus Besier EX-10.19 12 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.19 REGISTRATION RIGHTS AGREEMENT March 6, 1996 To the Investors named on Schedule I hereto Ladies and Gentlemen: In connection with the agreement by Hewlett-Packard Company ("HP") on the date hereof to purchase shares of Series B Convertible Preferred Stock, $1.00 par value ("Preferred Stock"), of Business@Web, Inc., a Delaware corporation (the "Company"), pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of February 27, 1996 (the "HP Agreement") between the Company and HP, and in connection with the agreement by the other Investors named on Schedule I hereto (with HP, the "Investors") on the date hereof to purchase shares of Preferred Stock of the Company, pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of March 6, 1996 (with the HP Agreement, the "Purchase Agreements") among the Company and such Investors and as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreements, the Company covenants and agrees with the Investors as follows: 1. Certain Definitions As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.001 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of the Preferred Shares. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Preferred Shares" shall mean all shares of the Company's Preferred ---------------- Stock issued to the Investors. "Registration Expenses" shall mean the expenses so described in --------------------- Section 8. "Restricted Stock" shall mean the Conversion Shares, but excluding ---------------- shares of Common Stock which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the 1 registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act, provided, however, that the term "Restricted -------- ------- Stock" shall be deemed to include the number of shares of Restricted Stock that would be issuable to a holder of Preferred Shares upon conversion of all Preferred Shares held by such holder at such time. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 8. ---------------- 2. Restrictive Legend. Each certificate representing Preferred Shares or ------------------ Conversion Shares shall, except as otherwise provided in Section 3, be stamped or otherwise imprinted with a legend substantially in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. 3. Required Registration. --------------------- (a) At any time after March 31, 1998, the holders of Restricted Stock constituting at least 40% of the total shares of Restricted Stock then owned beneficially or of record by Investors and Investor Transferees (as such term is hereinafter defined) may request the Company to register under the Securities Act all or any portion of the shares of Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice, provided that the reasonably anticipated aggregate price to the public of such public offering would exceed $10,000,000. Notwithstanding the foregoing, the only securities that the Company shall be required to register pursuant hereto shall be shares of Common Stock, provided, however, that in any underwritten public offering contemplated by - -------- -------- this Agreement, the holders of Preferred Shares shall be entitled to sell such Preferred Shares to the underwriters for conversion and sale of the shares of Common Stock issued upon conversion thereof. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 3 within 180 days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering of securities of the Company under the Securities Act. (b) Following receipt of any notice under this Section 3, the Company shall immediately notify all Investors and Investor Transferees from whom notice has not been received and shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders, the number of shares of Restricted Stock specified in such notice (and in all notices received 2 by the Company from other holders within 30 days after the giving of such notice by the Company). If such method of disposition shall be an underwritten public offering, the holders of a majority of the shares of Restricted Stock to be sold in such offering may designate the managing underwriter of such offering, subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall be obligated to register Restricted Stock pursuant to this Section 3 on two occasions only, provided, however, that -------- ------- such obligation shall be deemed satisfied only when a registration statement covering all shares of Restricted Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. (c) The Company shall be entitled to include in any registration statement referred to in this Section 3, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account and for the account of other selling stockholders, except as and to the extent that, in the reasonable opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would materially adversely affect the marketing of the Restricted Stock to be sold. Except for registration statements on Form S-4, S-8 or any successor thereto, the Company will not file with the Commission any other registration statement with respect to its Common Stock, whether for its own account or that of other stockholders, from the date of receipt of a notice from requesting holders pursuant to this Section 3 until the completion of the period of distribution of the shares of Restricted Stock registered thereby. 4. Incidental Registration. If the Company at any time (other than ----------------------- pursuant to Section 3 or Section 5) proposes to register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do and of the proposed method of distribution of such securities. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of its Restricted Stock, the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent and under the conditions such registration is permitted under the Securities Act. In the event that any registration pursuant to this Section 4 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that the inclusion of some or all of the Restricted Stock would adversely affect the marketing of the securities to be sold by the Company therein, provided, however, that such number of shares of Restricted Stock (if -------- ------- reduced) shall not be reduced to a number which is less than 35% of the total number of shares are to be included in such underwriting for the account of persons other than the Company or requesting holders of Restricted Stock. Notwithstanding the 3 foregoing provisions, the Company may withdraw any registration statement referred to in this Section 4 without thereby incurring any liability to the holders of Restricted Stock. 5. Registration on Form S-3. If at any time (i) a holder or holders of ------------------------ Preferred Shares or Restricted Stock holding, in the aggregate, in excess of ten percent (10%) of the then-outstanding Common Stock and Conversion Shares request that the Company file a registration statement on Form S-3 or any successor thereto for a public offering of all or any portion of the shares of Restricted Stock held by such requesting holder or holders, the reasonably anticipated aggregate price to the public (net of underwriting discounts and commissions) of which would exceed $1,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any successor thereto to register such shares, then the Company shall use its best efforts to register under the Securities Act on Form S-3 or any successor thereto, for public sale in accordance with the method of disposition specified in such notice, the number of shares of Restricted Stock specified in such notice. Whenever the Company is required by this Section 5 to use its best efforts to effect the registration of Restricted Stock, each of the procedures and requirements of Section 3 (including but not limited to the requirement that the Company notify all holders of Restricted Stock from whom notice has not been received and provide them with the opportunity to participate in the offering) shall apply to such registration. 6. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of Sections 3, 4 or 5 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering pursuant to Section 3, shall be on Form S-1 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 6(a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing 4 underwriter reasonably shall request, provided, however, that the Company shall -------- ------- not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter under 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 of which the Company has knowledge as a result of which the prospectus contained 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 light of the circumstances then existing. The Sellers of Restricted Stock agree upon receipt of such notice forthwith to cease making offers and sales of Restricted Stock pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose until the Company has prepared and furnished such amendment or supplement to the prospectus as may be necessary so that, as thereafter delivered to purchasers of such Restricted Stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements and the notes thereto and the schedules and other financial and statistical data contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and 5 (h) make available for inspection upon reasonable notice during the Company's regular business hours by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposes of Section 6(a) and 6(b) and of Section 3(c), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) agree to sell Restricted Stock on the basis provided in any underwriting arrangements and (c) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. In connection with each registration pursuant to Sections 3, 4 or 5 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 7. Expenses. All expenses incurred by the Company in complying with -------- Sections 3, 4 and 5, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc. transfer taxes, fees of transfer agents and registrars, and fees and disbursements of one counsel for the sellers of Restricted Stock, but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement under Sections 3, 4 or 5. All Selling Expenses in connection with each registration statement under Sections 3, 4 or 5 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 6 8. Idemnification and Contribution ------------------------------- (a) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 3, 4 or 5, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of each such seller, each such underwriter and each such controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, -------- ------- that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus, and, provided -------- further, however, that the Company will not be liable to any such seller, any - ------- ------- such underwriter or any such controlling person in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue or alleged untrue statement or omission or an alleged omission made in any preliminary prospectus or final prospectus delivered by such seller, underwriter or controlling person in connection with the sale of the Restricted Stock if (1) the final prospectus or prospectus supplement corrected such untrue statement or omission and (2) the Company advised such seller, underwriter or controlling person that such correction had been made and (3) such seller, underwriter or controlling person failed to send or deliver a copy of the final prospectus or prospectus supplement with or prior to the delivery of written confirmation of the sale of the Restricted Stock. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Sections 3, 4 or 5, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a 7 material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of the Company and each such officer, director, underwriter and controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that such seller will be -------- ------- liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of each seller hereunder shall - -------- ------- ------- be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability that it may have to such indemnified party other than under this Section 8 and shall only relieve it from any liability that it may have to such indemnified party under this Section 8 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 8 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, -------- ------- that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel) that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel as required by the local rules of such jurisdiction) at any time for all such indemnified parties. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock 8 exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 8; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in -------- ------- any such case, (A) no such holder will be require to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 8. Changes in Common Stock or Preferred Stock. If, and as often as, ------------------------------------------ there is any change in the Common Stock or the Preferred Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock or the Preferred Stock as so changed. 9. Rule 144 Reporting and Rule 144A Information. With a view to making -------------------------------------------- available the benefits of certain rules and regulations of the Commission that may at any time permit the resale of the Restricted Stock without registration, the Company will: (a) at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; 9 (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration; and (b) at any time, at the request of any holder of Preferred Shares or shares of Restricted Stock, make available to such holder and to any prospective transferee of such Preferred Shares or shares of Restricted Stock the information concerning the Company described in Rule 144A(d)(4) under the Securities Act. 11. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to Investor as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not cause a material violation of any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any or its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. 12. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not; provided, however, that registration rights conferred herein --------- ------- on Investor shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if there is transferred to such transferee at least 60,000 shares of Restricted Stock (the transferee in any such case being referred to as an "Investor Transferee"). 10 (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (a) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 02172 Attn: Chief Financial Officer 11 with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (b) if to any Investor, at such Investor's address as set forth on Schedule I hereto (c) if to any of Investor's Transferees, at such address as may have been furnished to the Company in writing by it; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this Section 12(b). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of a majority of the outstanding shares of Restricted Stock. (e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement is sought. (f) If requested in writing by the underwriters for an underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period following the effective date of the registration statement relating to such offering to be reasonably determined by the underwriters. (g) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (h) This Agreement and the rights granted herein shall terminate on the date all of the Restricted Stock may be sold pursuant to Rule 144 under the Securities Act without regard to the volume limitations contained in Rule 144(e), except that the indemnification provisions set forth in Section 8 shall survive indefinitely. 12 Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this Agreement shall be a binding agreement between the Company and you. Very truly yours, BUSINESS@WEB, INC. By: /s/ James G. Nondorf -------------------------------- AGREED TO AND ACCEPTED as of the date first above written. HEWLETT-PACKARD COMPANY By: /s/ Ann O. Baskins -------------------------------- FALCON VENTURES II, L.P. By: Back Bay Partners XIII L.P. By: Hancock Venture Partners, Inc. By: /s/ Robert Wadsworth -------------------------------- authorized officer HANCOCK VENTURE PARTNERS IV-DIRECT FUND L.P. By: Back Bay Partners XII L.P. By: Hancock Venture Partners, Inc. By: /s/ Robert Wadsworth -------------------------------- PANTIO HOLDING LTD. By: /s/ Marlene Boesch-Weber -------------------------------- Marlene Boesch-Weber, Secretary 13 JUILLIARD INVESTMENTS, INC. By: /s/ Javier Baz -------------------------------- Javier Baz /s/ Jan Baan ----------------------------------- Jan Baan /s/ J.G. Paul Baan ----------------------------------- J.G. Paul Baan /s/ Lorenzo Cue ----------------------------------- Lorenzo Cue /s/ Tom C. Tinsley ----------------------------------- Tom C. Tinsley 14 SCHEDULE I INVESTORS
Name and Address Number of Shares Held - ---------------- --------------------- Hancock Venture Partners 685,921 IV- Direct Fund L.P. One Financial Center Boston, MA 02111 Falcon Ventures II L. P. 36,101 One Financial Center Boston, MA 02111 Hewlett-Packard Company. 180,506 3000 Hanover Street Palo Alto, CA 94304 Pantio Holding Ltd. 180,506 Omar Hodge Building Wyckam's Cay Road Town, Tortolla British Virgin Islands copy to: CISSA 13, avenue de Bude 1202 Geneva Switzerland Lorenzo Cue 36,101 1451 Montgomery Street San Francisco, CA 94133 Juilliard Investments, Inc. 27,076 Palm Bay Towers 26 S. 720 NE 69th Street Miami, FL 33138
15 Jan Baan 60,169 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands J.G. Paul Baan 60,169 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands Tom C. Tinsley 60,169 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands
16 EX-10.20 13 CO-SALE RIGHTS AGREEMENT EXHIBIT 10.20 CO-SALE RIGHTS AGREEMENT This CO-SALE RIGHTS AGREEMENT, made as of the 6th day of March 1996 by and among those investors listed on Schedule A hereto (the "Investors") and the holders of shares of the Common Stock, $0.001 par value (the "Common Stock") of the Company and options to purchase the Company's Common Stock listed on Schedule B hereto (the "Principal Shareholders"). WHEREAS, Hewlett-Packard Company ("HP") is purchasing shares of Series B Convertible Preferred Stock, $1.00 par value ("Preferred Stock"), of Business@Web, Inc., a Delaware corporation (the "Company"), pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated February 27, 1996 (the "HP Agreement") between the Company and HP, and the other Investors are purchasing shares of Preferred Stock of the Company pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated March 6, 1996 (with the HP Agreement, the "Purchase Agreements") among the Company and such Investors; and WHEREAS, in order to induce the Investors to consummate the transactions contemplated by the Purchase Agreements, the Principal Shareholders have agreed to grant certain rights of first offer to the Company and the Investors and certain co-sale rights to the Investors on the terms and conditions contained herein. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. As used herein, the term "Shares" shall refer to shares of Preferred Stock and to shares of Common Stock, and the term "fully diluted Shares" shall mean the maximum number of Common Shares into which the subject Shares of Preferred Stock could then be converted. 2. In the event any Principal Shareholder (a "Transferring Shareholder") proposes to sell, transfer, assign or otherwise dispose of (a "Transfer") any Shares held by such Transferring Shareholder (except as otherwise provided below), such Transferring Shareholder shall deliver a written notice (the "Offer Notice") to the Company and to each Investor. The Offer Notice will disclose in reasonable detail the proposed number of Shares to be transferred and the proposed terms and conditions of the Transfer. First, the Company may elect to purchase some or all of the Shares specified in the Offer Notice at the price and on the terms and conditions specified therein by delivering written notice of such election to the Transferring Shareholder and the Investors as soon as practicable but in any event within ten days after the receipt of the Offer Notice. If the Company has not elected to purchase all of the Shares within such 10-day period, each Investor may elect to purchase all (but not less than all) of such Investor's Pro Rata Share (as defined below) of the remaining available Shares specified in the Offer Notice at the price and on the terms and conditions specified therein by delivering written notice of such election to the Transferring Shareholder as soon as practicable but in any event within 30 days after delivery of the Offer Notice. Any Shares not elected to be purchased by the end of such 30-day period will be reoffered for period of ten days on a pro rata basis to the other Investors who have elected to purchase their full respective Pro Rata Shares. If the Company or any Investors have elected to purchase all of the Shares specified in the Offer Notice from the Transferring Shareholder, the transfer of such Shares will be consummated as soon as practicable after the delivery of the election notices, but in any event within 60 days after the date of the Offer Notice. In the event that the Company and the other Investors have not elected to purchase all of the Shares specified in the Offer Notice, the Transferring Shareholder may, within 120 days after the expiration of the 30-day offer period, and subject to the provisions of Paragraph 3 below, Transfer such Shares to one or more transferees at a price no less than the price per Share specified in the Offer Notice and on other terms and conditions no more favorable to the transferee(s) than offered to the Company and the other Investors in the Offer Notice. Each Investor's "Pro Rata Share" shall be the percentage that the number of fully diluted Shares held by such Investor represents of the aggregate of all fully diluted Shares held by all Investors. 3. Prior to effecting any Transfer of Shares, the Transferring Shareholder shall deliver a written notice (the "Sale Notice") to each Investor, specifying in reasonable detail the identity of the proposed transferee(s) and the terms and conditions of the Transfer. Any Investor may elect to participate in the contemplated Transfer by delivering written notice to the Transferring Shareholder within 30 days after receipt by such Investor of the Sale Notice. If any Investor elects to participate in such Transfer, such Investor will be entitled to sell in the contemplated Transfer, at a price, proportionate to the price per fully diluted Share, and otherwise on the same terms and conditions as the Transferring Shareholder, a number of Shares determined by multiplying (i) the number of fully diluted Shares to be sold in the contemplated Transfer by (ii) the quotient determined by dividing (A) the number of fully diluted Shares held by such Investor, by (B) the sum of (1) the number of fully diluted Shares held by the Investors electing to participate in such sale and (2) the number of fully diluted Shares held by the Transferring Shareholder. 4. Each Transferring Shareholder shall use such Principal Shareholder's best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Investors who chose to participate in the Transfer in any contemplated Transfer, to the extent the Investors elect to participate in the manner set forth above, and no Transferring Shareholder shall Transfer any of its Shares to the prospective transferee(s) if the prospective transferee(s) declines to allow such participation of such Investors (except to the extent provided below). 5. The restrictions on Transfer and the right of co-sale set forth herein shall not apply to any Transfer (i) in the case of an individual, to or among such Principal Shareholder's Family Group (as defined below) or by will or the laws of descent and distribution to such Principal Shareholder's Family Group, (ii) in the case of an entity, to or among its Affiliates (as defined below), or (iii) by way of or pursuant to the pledge of a Principal Shareholder's Shares as collateral security for a loan made to such Principal Shareholder or to an Affiliate or a member of the Family Group of such Principal Shareholder by a bank or other financial institution (the persons to whom Transfers are permitted pursuant to clauses (i), (ii), and (iii) being collectively referred to herein as "Permitted Transferees"); provided, that the restrictions contained herein shall continue to be applicable to the Transferred Shares after any such Transfer; and provided further that the transferees of such 2 Shares shall have agreed in writing to be bound by the provisions of this Agreement with respect to the Shares so transferred. "Family Group" means an individual's spouse and lineal descendants and any trust or other fiduciary solely for the benefit of such individual and/or such individual's spouse and/or lineal descendants. "Affiliate" of a person means (i) any other person controlling, controlled by or under common control with such person and (ii) any partner of any such person which is a partnership. 6. The restrictions on Transfer and the right of co-sale set forth herein shall not apply to any Transfer by a Principal Shareholder until the aggregate number of Shares Transferred by such Principal Shareholder from and after the date hereof (other than Transfers permitted under Paragraph 5 above) exceed 15% of the number of Shares held by such Principal Shareholder on the date hereof, as set forth on the attached Schedule of Principal Shareholders. 7. The restrictions on the Transfer and the right of co-sale set forth herein shall not apply to the sale of Shares in a public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act") and shall terminate with respect to all Shares upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale to of Common Stock to the public at an initial public offering price of not less than $8.25 per share and with gross proceeds of not less than $15,000,000. 8. No Principal Shareholder shall permit any Transfer of any equity interest in such Principal Shareholder without the written consent of Investors holding at least a majority of the fully-diluted Shares held by Investors; provided, however, any holder of an equity interest in a Principal Shareholder - -------- ------- may Transfer all or any portion of such equity interest without the consent of the Investors (i) in the case of an individual, to or among such individual's Family Group or by will or the laws of descent and distribution to such individual's Family Group, (ii) in the case of an entity, to or among its Affiliates, or (iii) by way of or pursuant to the pledge of an equity interest in such Principal Shareholder as collateral security for a loan made to the holder of such equity interest or to an Affiliate or a member of the Family Group of the holder of such equity interest by a bank or other financial institution. 9. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares), whether so expressed or not; provided, however, that the rights of co-sale conferred herein on Investor shall - --------- ------- only inure to the benefit of a transferee of Preferred Shares at least 50,000 shares of Preferred Shares are transferred to such transferee. 10. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: 3 if to any Investor, at the address of such Investor set forth on Schedule A hereto; if to any Principal Shareholder, at the address of such Principal Shareholder set forth on Schedule B hereto; or, in any case, at such other address or addresses as shall have been furnished in writing to Investor (in the case of a Principal Shareholder) or to the Principal Shareholders (in the case of Investor) in accordance with the provisions of this Paragraph 10. 11. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 12. This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of both (i) Principal Shareholders holding at least a majority of the Shares held by Principal Shareholders and (ii) Investors holding at least a majority of the fully-diluted Shares held by Investors. 13. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. 4 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as an instrument under seal by its officer thereunto duly authorized as of the date first above written. INVESTORS: HEWLETT-PACKARD COMPANY /s/ Ann O. Baskins By:____________________________ FALCON VENTURES II, L.P. By: Back Bay Partners XIII L.P. By: Hancock Venture Partners, Inc. /s/ Robert Wadsworth By:___________________________ authorized officer HANCOCK VENTURE PARTNERS IV-DIRECT FUND L.P. By: Back Bay Partners XII L.P. By: Hancock Venture Partners, Inc. /s/ Robert Wadsworth By:____________________________ PANTIO HOLDING LTD. /s/ Marlene Boesch - Weber By:____________________________ Marlene Boesch - Weber, Secretary JUILLIARD INVESTMENTS, INC. /s/ Javier Baz By:____________________________ Javier Baz 5 /s/ Jan Baan ________________________________ Jan Baan /s/ J.G. Paul Baan ________________________________ J.G. Paul Baan /s/ Lorenzo Cue ________________________________ Lorenzo Cue /s/ Tom C. Tinsley ________________________________ Tom C. Tinsley PRINCIPAL SHAREHOLDERS: J&S LIMITED PARTNERSHIP By: Controller Corp., Inc., General Partner /s/ John J. Donovan By:_____________________________ President LEGACY INVESTMENT PARTNERSHIP /s/ John J. Donovan, Jr. By:_____________________________ Managing Partner 6 HARRINGTON TRUST LIMITED as Trustee of The Appleby Trust By: /s/ John Campbell ------------------------------ Director /s/ Sundar Subramaniam --------------------------------- Sundar Subramaniam 7 SCHEDULE A INVESTORS
Name and Address Number of Shares Held - ---------------- --------------------- Hancock Venture Partners 685,921 IV- Direct Fund L.P. One Financial Center Boston, MA 02111 Falcon Ventures II L.P. 36,101 One Financial Center Boston, MA 02111 Hewlett-Packard Company. 180,506 3000 Hanover Street Palo Alto, CA 94304 Pantio Holding Ltd. 180,506 Omar Hodge Building Wyckam's Cay Road Town, Tortolla British Virgin Islands copy to: CISSA 13, avenue de Bude 1202 Geneva Switzerland Lorenzo Cue 36,101 1451 Montgomery Street San Francisco, CA 94133 Juilliard Investments, Inc. 27,076 Palm Bay Towers 26 S. 720 NE 69th Street Miami, FL 33138
Jan Baan 60,169 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands J.G. Paul Baan 60,169 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands Tom C. Tinsley 60,169 Baan Company N.V. Zonneoordlaan 17 6718 GK Ede Netherlands
SCHEDULE B PRINCIPAL SHAREHOLDERS
Name and Address Number of Shares Held 15% Excluded Shares - ---------------- --------------------- ------------------- J&S Limited Partnership 2,000,000 300,000 219 Vassar Street Cambridge, Massachusetts 02139 Legacy Investment Partnership 2,000,000 300,000 219 Vassar Street Cambridge, Massachusetts 02139 Harrington Trust Limited as Trustee 4,864,545 729,682 of The Appleby Trust Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda Sundar Subramaniam 4,998,000 749,700 333 Commonwealth Avenue Boston, Massachusetts 02116
EX-10.22 14 SERIES C STOCK PURCHASE AGREEMENT EXHIBIT 10.22 BUSINESS@WEB, INC. SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT AS OF MARCH 29, 1996 TABLE OF CONTENTS ----------------- ARTICLE I - THE SHARES 1 Section 1.01 - Issuance, Sale and Delivery of the Shares 1 Section 1.02 - Closing 1 Section 1.03 - Payment of Purchase Price 1 ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2 Section 2.01 - Organization, Qualification and Corporate Power 2 Section 2.02 - Authorization of Agreements, etc. 2 Section 2.03 - Validity 3 Section 2.04 - Authorized Capital Stock 3 Section 2.05 - Financial Statements; Corporate Minutes 4 Section 2.06 - Certain Events 4 Section 2.07 - Litigation, Compliance with Law 5 Section 2.08 - Proprietary Information of Third Parties 5 Section 2.09 - Title to Properties 6 Section 2.10 - Leasehold Interests 6 Section 2.11 - Taxes 6 Section 2.12 - Intellectual Property 6 Section 2.13 - Material Contracts 7 Section 2.14 - Compliance with Governing Documents and Material Contracts 8 Section 2.15 - Loans and Advances 9 Section 2.16 - Assumptions and Guaranties of Indebtedness of Other Persons 9 Section 2.17 - Significant Customers and Suppliers 9 Section 2.18 - Employees 9 Section 2.19 - Transactions with Affiliates 9 Section 2.20 - Governmental Approvals 10 Section 2.21 - Disclosure 10 Section 2.22 - Offering of the Shares 10 ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 11 ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS 12 Section 4.01 - Opinion of Company's Counsel 12 Section 4.02 - Representations and Warranties to be True and Correct 12 Section 4.03 - Performance 12 Section 4.04 - Conduct of Business 12 Section 4.05 - Certificate of Designations 12
i Section 4.06 - Confidentiality Agreements 13 Section 4.07 - Registration Rights Agreement 13 Section 4.08 - Preemptive Rights 13 Section 4.09 - All Proceedings to be Satisfactory 13 ARTICLE V - COVENANTS OF THE COMPANY 13 Section 5.01 - Financial Statements, Reports, etc. 13 Section 5.02 - Reserve for Conversion of Shares 13 Section 5.03 - Corporate Existence 14 Section 5.04 - Properties, Business, Insurance 14 Section 5.05 - Visitation, Consultation and Advice 14 Section 5.06 - Notice of Extraordinary Corporate Actions 15 Section 5.07 - Transactions with Affiliates 15 Section 5.08 - Key Man Insurance 15 ARTICLE VI - MISCELLANEOUS 16 Section 6.01 - Expenses 16 Section 6.02 - Brokerage 16 Section 6.03 - Parties in Interest 16 Section 6.04 - Notices 16 Section 6.05 - Governing Law 17 Section 6.06 - Entire Agreement 17 Section 6.07 - Counterparts 17 Section 6.08 - Amendments and Waivers 17 Section 6.09 - Severability 17 Section 6.10 - Titles and Subtitles 17 Section 6.11 - Certain Defined Terms 17 Section 6.12 - No Waiver; Cumulative Remedies 17 Section 6.13 - Confidentiality 18 Section 6.14 - Further Assurances 18
ii SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of March 29, 1996, among Business@Web, Inc., a Delaware corporation (the "Company") and the purchasers listed on Schedule I hereto (individually, a "Purchaser" and collectively, the "Purchasers"). WHEREAS, the Company wishes to issue and sell to the Purchasers an aggregate of one million two hundred thousand (1,200,000) shares (the "Shares") of the authorized but unissued Series C Convertible Preferred Stock, $1.00 par value, of the Company (the "Series C Stock"); and WHEREAS, the Purchasers wish to purchase the Shares on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE I THE SHARES Section 1.01 Issuance, Sale and Delivery of the Shares. Subject to the ----------------------------------------- terms and conditions hereinafter set forth, the Company hereby agrees to issue and sell the Shares to the Purchasers, and each Purchaser, severally and not jointly, hereby agrees to purchase from the Company the number of Shares set forth under the heading "Shares Purchased" opposite such Purchaser's name on Schedule I hereto, at the purchase price of $5.00 per share. Section 1.02 Closing. The closing of the transactions contemplated hereby ------- shall take place at the offices of Peabody & Arnold, 50 Rowes Wharf, Boston, Massachusetts 02110, at 10:00 a.m., Boston time, on April 15, 1996, or at such other location, date and time as may be agreed upon between the Purchasers and the Company (such closing being called the "Closing" and such date and time being called the "Closing Date"). At the Closing, the Company shall issue and deliver to each Purchaser a stock certificate or certificates in definitive form, registered in the name of such Purchaser, representing the Shares being purchased by it. Section 1.03 Payment of Purchase Price. As payment in full for the Shares ------------------------- being purchased by it at the Closing, and against delivery of the stock certificate or certificates therefor as aforesaid, on the Closing Date each Purchaser shall deliver to the Company the amount set forth under the heading "Purchase Price" opposite such Purchaser's name on Schedule I hereto (the "Purchase Price"). Payment of the Purchase Price shall be made by check or checks payable to the order of the Company, by transfer to the account of the Company by wire transfer, by surrender for cancellation of promissory notes or other obligations of the Company, or by any combination thereof. 1 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each of the Purchasers that, except as set forth in the Disclosure Schedule attached hereto as Schedule II: ----------- Section 2.01 Organization, Qualification and Corporate Power. ----------------------------------------------- (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business in all jurisdictions in which the nature of the business transacted by the Company or the character of the properties owned or leased by the Company requires that the Company qualify to do business as a foreign corporation, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, operations or financial condition of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement and the Registration Rights Agreement (as such term is hereinafter defined), and to issue, sell and deliver the Shares and to issue and deliver the shares of Common Stock, $.001 par value, of the Company ("Common Stock") issuable upon conversion of the Shares (the "Conversion Shares"). (b) The Company has no subsidiaries. The Company does not own of record or beneficially, directly or indirectly, (i) any shares of capital stock or securities convertible into capital stock of any other corporation or (ii) any participating interest in any partnership, joint venture or other non-corporate business enterprise and does not control, directly or indirectly, any other entity. Section 2.02 Authorization of Agreements, etc. -------------------------------- (a) The execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder, and the issuance, sale and delivery of the Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Restated Certificate of Incorporation of the Company (the "Charter"), or the By-laws of the Company, as amended, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) The Shares have been duly authorized and, when issued in accordance with this Agreement, will be validly issued, fully paid and nonassessable shares of Series C Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. The Conversion Shares have 2 been duly reserved for issuance upon conversion of the Shares and, when so issued, will be duly authorized, validly issued, fully paid and nonassessable shares of Common Stock with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances. Neither the issuance, sale or delivery of the Shares nor the issuance or delivery of the Conversion Shares is subject to any preemptive right of stockholders of the Company or to any right of first refusal or other right in favor of any person which has not been effectively waived. Section 2.03 Validity. This Agreement has been duly executed and -------- delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. The Registration Rights Agreement when executed and delivered in accordance with this Agreement, will constitute the legal, valid and binding obligation of the Company and of the other parties thereto, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. Section 2.04 Authorized Capital Stock. The authorized capital stock of ------------------------ the Company will, immediately prior to the Closing, consist of (i) 3,000,000 shares of Preferred Stock, $1.00 par value (the "Preferred Stock"), of which 1,332,127 shares have been designated Series B Convertible Preferred Stock, 1,220,000 shares have been designated Series C Convertible Preferred Stock, and 447,873 shares remain undesignated and (ii) 30,000,000 shares of Common Stock. Immediately prior to the Closing, 16,204,545 shares of Common Stock and 1,332,127 shares of Series B Convertible Preferred Stock will be validly issued and outstanding, and no other shares of Common Stock or Preferred Stock will be outstanding. All shares of the series of Preferred Stock designated Series A Convertible Preferred Stock which had been issued prior to the date hereof have been surrendered for conversion into Common Stock and retired, and the series of Preferred Stock designated Series A Convertible Preferred Stock has been cancelled and eliminated from the shares which the Company is authorized to issue. The stockholders of record and holders of subscriptions, warrants, options, convertible securities, and other rights (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company, and the number of shares of Common Stock or Preferred Stock and the number of such subscriptions, warrants, options, convertible securities, and other such rights held by each, are as set forth in the attached Schedule III. ------------ The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Charter or, with respect to the Series C Stock, the Amendment to the Restated Certificate of Incorporation, a copy of which is attached as Exhibit A (the "Certificate of Designations"). Except as --------- set forth in the attached Schedule III, (i) no person owns of record or is known ------------ to the Company to own beneficially any share of Common Stock or Preferred Stock, (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire from the Company any equity securities of the Company is authorized or outstanding and (iii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset. Except as provided for in the Charter or as set forth in the attached Schedule III, the ------------ 3 Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Section 2.05 Financial Statements; Corporate Minutes. The Company has --------------------------------------- furnished to the Purchasers the unaudited balance sheet of the Company as of December 31, 1995 and the related statement of operations, shareholders' equity and cash flows for the fiscal year then ended (the "Financial Statements"). The Financial Statements are (a) complete and correct in all material respects, (b) in accordance with the Company's books and records, (c) present fairly the Company's financial position for the period and as of the date indicated and (d) have been prepared in conformity with generally accepted accounting principles consistently applied, subject to (i) adjustments which will not, in the aggregate, be material and (ii) the absence of footnotes. The Company has furnished to the Purchaser copies of the minutes of meetings and written consents in lieu of meetings of the Company's shareholders and Board of Directors from the date of the Company's incorporation through the date of this Agreement (the "Corporate Minutes"). The Corporate Minutes accurately reflect all actions taken by the Company's shareholders and Board of Directors. Section 2.06 Certain Events. Except as set forth in this Agreement and -------------- the Schedules hereto, and the documents referred to therein, the Company has not, since the date of the Financial Statements, (i) issued any stock, bond or other corporate security, (ii) borrowed any amount or incurred or become subject to any liability (absolute, accrued or contingent), except current liabilities incurred and liabilities under contracts entered into in the ordinary course of business, (iii) discharged or satisfied any lien or encumbrance or incurred or paid any obligation or liability (absolute, accrued or contingent) other than current liabilities incurred in the ordinary course of business, (iv) declared or made any payment or distribution to stockholders or purchased or redeemed any shares of its capital stock or other security, (v) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, other than liens of current real property taxes not yet due and payable, (vi) sold, assigned or transferred any of its tangible assets except in the ordinary course of business, or cancelled any debt or claim, (vii) sold, assigned, transferred or granted any exclusive license with respect to any patent, trademark, trade name, service mark, copyright, trade secret or other intangible asset, (viii) suffered any loss of property or waived any right of substantial value whether or not in the ordinary course of business, (ix) made any change in officer compensation except in the ordinary course of business and consistent with past practice, (x) made any material change in the manner of business or operations of the Company, (xi) entered into any transaction except in the ordinary course of business or as otherwise contemplated hereby or (xii) entered into any commitment (contingent or otherwise) to do any of the foregoing. Section 2.07 Litigation, Compliance with Law. There is no (i) action, ------------------------------- suit, claim, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against or affecting the Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending or, to the best of the Company's knowledge, threatened against or affecting the Company (in- 4 cluding without limitation any inquiry as to the qualification of the Company to hold or receive any governmental license or permit), and, to the best of the Company's knowledge, there is no basis for any of the foregoing. The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. To the best of the Company's knowledge, the Company has complied in all material respects with all laws, rules, regulations and orders applicable to its business, operations, properties, assets, products and services, and the Company has all necessary governmental permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted. There is no existing law, rule, regulation or order, and the Company is not aware of any proposed law, rule, regulation or order, whether federal or state, which would prohibit or restrict the Company from, or otherwise materially adversely affect the Company in conducting its business in any jurisdiction in which it is now conducting business or in which it proposes to conduct business. Section 2.08 Proprietary Information of Third Parties. To the best of the ---------------------------------------- Company's knowledge, no third party has claimed or has reason to claim that any person employed by the Company has (a) violated or may be violating any of the terms or conditions of his employment, non-competition or nondisclosure agreement with such third party, (b) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (c) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company which suggests that such a claim might be contemplated. To the best of the Company's knowledge, no person employed by the Company has utilized or proposes to utilize any trade secret or any information or documentation proprietary to any third party, and to the best of the Company's knowledge, no person employed by the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such utilization or violation. Section 2.09 Title to Properties. The Company has good and marketable ------------------- title to its properties and assets reflected in the Financial Statements and all such properties and assets are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances, except for liens for current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company and its subsidiaries. Section 2.10 Leasehold Interests. Each lease or agreement to which the ------------------- Company is a party under which it is a lessee of any property, real or personal, is a valid and subsisting agreement without any default of the Company thereunder and, to the best of the Company's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which, with due notice or lapse of time or both, would constitute a default 5 or event of default by the Company under any such lease or agreement or, to the best of the Company's knowledge, by any other party thereto. The Company's possession of such property has not been disturbed and, to the best of the Company's knowledge, no claim has been asserted against the Company adverse to its rights in such leasehold interests. Section 2.11 Taxes. The Company has filed all tax returns, federal, ----- state, county and local, required to be filed by it, and the Company has paid all taxes shown to be due by such returns as well as all other taxes, assessments and governmental charges which have become due or payable, including without limitation all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties. The Company has established adequate reserves for all taxes accrued but not yet payable. The federal income tax returns of the Company have never been audited by the Internal Revenue Service. No deficiency assessment with respect to or proposed adjustment of the Company's federal, state, county or local taxes is pending or, to the best of the Company's knowledge, threatened. There is no tax lien, whether imposed by any federal, state, county or local-taxing authority, outstanding against the assets, properties or business of the Company. Neither the Company nor any of its stockholders has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Company be taxed as an S corporation or (b) consent pursuant to Section 341(f) of the Code, relating to collapsible corporations. Section 2.12 Intellectual Property. The Company possesses adequate --------------------- licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, manufacturing processes, formulae, trade secrets and know how (collectively, "Intellectual Property") which are necessary or desirable to the conduct of the Company's business as conducted and as proposed to be conducted or the lack of which would materially adversely affect the Company or its business. No claim is pending or, to the best of the Company's knowledge, threatened to the effect that the operations of the Company infringe upon or conflict with the asserted rights of any other person under any Intellectual Property, and, to the best of the Company's knowledge, there is no basis for any such claim (whether or not pending or threatened). No claim is pending or threatened to the effect that any such Intellectual Property owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable by the Company, and to the best of the Company's knowledge there is no basis for any such claim (whether or not pending or threatened). To the best of the Company's knowledge, all technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company has not granted or assigned to any other person or entity any right to manufacture, have manufactured, assemble or sell the products or proposed products or to provide the services or proposed services of the Company. Section 2.13 Material Contracts. Except for the agreements identified in ------------------ the Schedule of Material Contracts attached hereto as Schedule IV (the "Material ----------- Contracts"), the Company is not a party to or otherwise bound by any written or oral contract or instrument or other restriction which individually or in the aggregate could materially adversely affect the 6 business, prospects, financial condition, operations, property or affairs of the Company, including any written or oral: (a) contract or agreement which is not terminable on less than ninety (90) days' notice without cost or other liability to the Company (except for contracts which, in the aggregate, are not material to the business of the Company); (b) contract which entitles any customer to a rebate or right of set-off, or which varies in any material respect from the Company's standard form contracts; (c) contract with any labor union; (d) contract or other commitment with any supplier of goods or services containing any provision permitting any party other than the Company to renegotiate the price or other terms, or containing any pay-back or other similar provision, upon the occurrence of a failure by the Company to meet its obligations under the contract when due or the occurrence of any other event; (e) contract for the future purchase of fixed assets or for the future purchase of materials, supplies or equipment in excess of the Company's normal operating requirements; (f) contract for the employment of any officer, employee or other person (whether of a legally binding nature or in the nature of informal understandings) on a full-time or consulting basis which is not terminable on notice without cost or other liability to the Company, except normal severance arrangements and accrued vacation pay; (g) bonus, pension, profit-sharing, retirement, hospitalization, insurance, stock purchase, stock option or other plan, contract or understanding pursuant to which benefits are provided to any employee of the Company (other than group insurance plans applicable to employees generally); (h) agreement or indenture relating to the borrowing of money or to the mortgaging or pledging of, or otherwise placing a lien or security interest on, any asset of the Company; (i) guaranty of any obligation for borrowed money or otherwise; (j) voting trust or agreement, stockholders' agreement, pledge agreement, buy-sell agreement or first refusal or preemptive rights agreement relating to any securities of the Company; (k) agreement, or group of related agreements with the same party or any group of affiliated parties, under which the Company has advanced or agreed to advance money or has agreed to lease any property as lessee or lessor;. 7 (1) agreement or obligation (contingent or otherwise) to issue, sell or otherwise distribute or to repurchase or otherwise acquire or retire any share of its capital stock or any of its other equity securities; (m) assignment, license or other agreement with respect to any form of intangible property; (n) agreement under which it has granted any person any registration rights, other than the Registration Rights Agreement (as such term is hereinafter defined); (o) agreement under which it has limited or restricted its right to compete with any person in any respect; or (p) other contract or group of related contracts with the same party involving more than $1,000,000 or continuing over a period of more than two (2) years from the date or dates thereof (including renewals or extensions optional with another party), which contract or group of contracts is not terminable by the Company without penalty upon notice of thirty (30) days or less. Section 2.14 Compliance with Governing Documents and Material Contracts. ---------------------------------------------------------- The Company and, to the best of the Company's knowledge, each other party thereto have in all material respects performed all the obligations required to be performed by them to date under each of the Material Contracts and have received no notice of default and are not in default (with due notice or lapse of time or both) under any Material Contract. The Company has no present expectation or intention of not fully performing all its obligations under each Material Contract, and the Company has no knowledge of any breach or anticipated breach by the other party to any Material Contract. The Company is in full compliance with all of the terms and provisions of its Charter and By-laws. Section 2.15 Loans and Advances. The Company does not have any ------------------ outstanding loans or advances to any person and is not obligated to make any such loans or advances, except, in each case, for advances to employees of the Company in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for the Company. Section 2.16 Assumptions and Guaranties of Indebtedness of Other Persons. ----------------------------------------------------------- The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor, or otherwise to assure the creditor against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business. Section 2.17 Significant Customers and Suppliers. No customer or supplier ----------------------------------- which is significant to the Company has terminated, materially reduced or threatened to terminate or materially reduce its purchases from or provision of products or services to the Company, as the case may be. 8 Section 2.18 Employees. Each of the officers of the Company and each --------- other person now employed by the Company who has access to confidential information of the Company has executed an Employee Agreement substantially in the form of Exhibit B (collectively, the "Confidentiality Agreements"), and such --------- agreements are in full force and effect. No officer or key employee of the Company has advised the Company (orally or in writing) that he intends to terminate employment with the Company. To the best of the Company's knowledge, the Company has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other taxes, and with the Employee-Retirement Income Security Act of 1974, as amended. Section 2.19 Transactions with Affiliates. No director, officer, employee ---------------------------- or stockholder of the Company, or, to the Company's knowledge, any member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or, to the Company's knowledge, any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, (i) is a party to any transaction with the Company, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from, transfer of any asset (including any Intellectual Property) from or to, or otherwise requiring payments to any such person or firm or (ii) to the Company's knowledge, is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest in any entity engaged directly or indirectly in competition with the Company. Section 2.20 Governmental Approvals. Subject to the accuracy of the ---------------------- representations and warranties of the Purchasers set forth in Article III, no registration or filing with, or consent or approval of or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement or the issuance, sale and delivery of the Shares, other than (i) the filing of the Certificate of Designations with the Secretary of State of the State of Delaware and (ii) the filing of notice subsequent to the Closing that may be required pursuant to federal and state securities laws in connection with the sale of the Shares. Section 2.21 Disclosure. Neither the Company's representations and ---------- warranties in this Agreement and in the Schedules and Exhibits to this Agreement nor any statement made by the Company in the Confidential Private Placement Memorandum dated February 1996 (a copy of which the Company has been provided to each of the Purchasers) contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. There is no fact relating particularly to the Company or its proposed operations which the Company has not disclosed to the Purchasers and their counsel in writing and of which the Company is aware which materially and adversely affects or could materially and adversely affect the business, prospects, financial condition, operations, property or affairs of the Company or any of its subsidiaries. 9 Section 2.22 Offering of the Shares. Neither the Company nor any person ---------------------- authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Shares or any security of the Company similar to the Shares has offered the Shares or any such similar security for sale to, or solicited any offer to buy the Shares or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Shares under the Securities Act of 1933, as amended (the "Securities Act") or the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder), in either case so as to subject the offering, issuance or sale of the Shares to the registration provisions of the Securities Act or of any applicable state securities (Blue Sky) laws or regulations. 10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each of the Purchasers, severally and not jointly, represents and warrants to the Company that: (a) it is an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act and was not organized for the specific purpose of acquiring the Preferred Shares; (b) it has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; (c) it has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management; (d) the Shares being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and if such Purchaser is a resident of Pennsylvania, it intends to hold the Shares being purchased by it (or the Conversion Shares issuable upon conversion of such Shares) for a period of twelve following the Closing Date; (e) it understands that (i) the Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act, (ii) the Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (iii) the Shares will bear a legend to such effect, and (iv) the Company will make a notation on its transfer books to such effect; (f) it has no present need for liquidity in connection with its purchase of the Shares; (g) the purchase of the Shares is consistent with the general investment objectives of such Purchaser, and that it understands that the purchase of the Shares involves a high degree of risk in view of the fact that, among other things, the Company is a start-up enterprise, and there may never be an established market for the Company's capital stock; and (h) the individual executing this Agreement on its behalf has been duly authorized to execute and deliver this Agreement; the signature of such individual is binding upon the Purchaser; such Purchaser is duly organized, validly existing and in good standing in its jurisdiction of incorporation of organization and has all requisite power and authority to execute and deliver this Agreement; and the execution and 11 delivery of this Agreement and the purchase of the Shares hereunder will not result in the violation of, constitute a breach of default under, or conflict with, any term or provision of the charter, bylaws, or other governing document of the Purchaser or, to its knowledge, material breach of default under any material agreement, judgment, decree, order, statute or regulation by which it is bound or applicable to it. ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS The obligation of the Purchaser to purchase and pay for the Shares to be purchased by it on the Closing Date is, at its option, subject to the satisfaction, on or before the Closing Date, of the following conditions: Section 4.01 Opinion of Company's Counsel. The Purchaser shall have ---------------------------- received from Peabody & Arnold, counsel for the Company, an opinion dated the Closing Date, substantially in the form attached to this Agreement as Exhibit C. --------- Section 4.02 Representations and Warranties to be True and Correct. The ------------------------------------------------------ representations and warranties contained in Article II shall be true, complete and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and the President and Treasurer of the Company shall have certified to such effect to the Purchasers in writing on behalf of the Company. Section 4.03 Performance. The Company shall have performed and complied ----------- in all material respects with all agreements contained herein required to be performed or complied with by it prior to or at the Closing Date, and the President and Treasurer of the Company shall have certified to the Purchasers in writing to such effect on behalf of the Company. Section 4.04 Conduct of Business. From the date of this Agreement through ------------------- the Closing Date, the Company shall have conducted its business in the ordinary course, shall have complied in all material respects with all applicable laws, rules regulations and orders, noncompliance with which could materially adversely affect the Company's business or financial condition, and shall not have made any material change in the nature of its business. Section 4.05 Certicate of Designations. The Certificate of Designations ------------------------- shall have been duly filed with the Office of the Secretary of State of Delaware and shall read in its entirety as set forth in Exhibit A. --------- Section 4.06 Confidentiality Ageements. All officers of the Company and ------------------------- all employees of the Company who have access to confidential information of the Company shall have signed Confidentiality Agreements and all such Confidentiality Agreements shall be in full force and effect. 12 Section 4.07 Registration Rights Agreement. The Company shall have ----------------------------- executed and delivered the Registration Rights Agreement in the form attached hereto as Exhibit D (the "Registration Rights Agreement"). --------- Section 4.08 Preemptive Rights. All stockholders, if any, of the Company ----------------- having any preemptive, first refusal or other rights with respect to the issuance of the Shares or the Conversion Shares shall have irrevocably waived the same in writing. Section 4.09 All Proceedings to be Satisfactory. All corporate and other ---------------------------------- proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchasers. ARTICLE V COVENANTS OF THE COMPANY The Company covenants and agrees with the Purchasers as follows: Section 5.01 Financial Statements, Reports, etc. The Company shall ---------------------------------- furnish to the Purchaser, so long as the Purchaser owns at least 50,000 Shares or Conversion Shares: (a) within one hundred twenty (120) after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries as of the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal year then ended, prepared in accordance with generally accepted accounting principles and audited by a firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company; and (b) within sixty (60) days after the end of each fiscal quarter in each fiscal year (other than the last fiscal quarter in each fiscal year), a consolidated balance sheet of the Company and its subsidiaries and the related consolidated statements of income, stockholders' equity and cash flows, unaudited but prepared in accordance with generally accepted accounting principles and accompanied by a statement of the Chief Financial Officer or other senior executive officer of the Company to the effect that such financial statements have been prepared in accordance with generally accepted accounting principals, subject to normal year-end adjustments and the omission of notes, such consolidated balance sheet to be as of the end of such fiscal quarter and such consolidated statements of income, stockholders' equity and cash flows to be for such fiscal quarter and for the period from the beginning of the fiscal year to the end of such fiscal quarter. 13 The obligations of the Company to furnish financial information to the Purchaser pursuant to this Section 5.01 shall terminate at such time as the Company becomes subject to the reporting requirements of the Securities Exchange Act of 1934. Section 5.02 Reserve for Conversion of Shares. The Company shall at all -------------------------------- times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Preferred Shares and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Preferred Shares from time to time outstanding or otherwise to comply with the terms of this Agreement. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Preferred Shares or otherwise to comply with the terms of this Agreement, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Preferred Shares. Section 5.03 Corporate Existence. So long as any Preferred Shares are ------------------- outstanding, the Company shall maintain and cause each of its subsidiaries to maintain their respective corporate existence, rights and franchises in full force and effect. Section 5.04 Properties, Business, Insurance. So long as any Preferred ------------------------------- Shares are outstanding, the Company shall maintain and cause each of its subsidiaries to maintain as to their respective properties and business, with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is approved by its Board of Directors. Section 5.05 Visitation, Consultation and Advice. So long as a Purchaser ----------------------------------- holds at least 50,000 Shares or Conversion Shares, the Company shall permit and cause each of its subsidiaries to permit such Purchaser and such persons as it may designate, at such Purchaser's expense, upon reasonable notice, reasonable access during normal business hours to visit the Company and its subsidiaries, discuss the affairs of the Company and its subsidiaries with their officers, and consult with and advise the management of the Company and its subsidiaries; provided, however, the (i) the Company may require such Purchaser and any person conducting such a visit or discussion to execute an agreement not to use or disclose any information discovered during such visit or discussion and (ii) the Company may withhold from such Purchaser and its designees any documents or information relating to the following matters (hereinafter referred to as "Confidential Matters"): (a) the Company's relationships or contemplated relationships with any business competitor of such Purchaser or (b) the Company's business relationships or contemplated business relationships (as opposed to shareholder relationships) with such Purchaser or any affiliate of such Purchaser. Section 5.06 Notice of Extraordinary Corporate Actions. So long as a ----------------------------------------- Purchaser holds at least 50,000 Shares or Conversion Shares, the Company shall, at least 20 days prior to the earlier of effecting or entering into any binding agreement to effect (i) any sale, lease, 14 assignment, transfer or other conveyance (other than the grant of a mortgage or security interest) of all or substantially all the assets of the Company, (ii) any liquidation, dissolution or winding up of the affairs of the Company, (iii) any consolidation or merger of the Company with or into another corporation (other than a transaction in which the holders of the Company's equity securities outstanding immediately prior to the effectiveness of such transaction hold, in the aggregate, at least 51% of the equity securities of the surviving entity immediately following the effectiveness of such transaction), or (iv) any recapitalization of the Company (in each case, an "Extraordinary Corporate Action"), give such Purchaser written notice of the proposed Extraordinary Corporate Action. Section 5.07 Transactions with Affiliates. Neither the Company nor any ---------------------------- of its subsidiaries or entities under its control shall enter into any transaction with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Company or other ownership interest in the Company, or with any of member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person or member of the family of any such person, is a director, officer, trustee, partner or holder of more than 5% of the outstanding capital stock or other ownership interest thereof, except for transactions on terms no less favorable to the Company or its subsidiary or such controlled entity than it would obtain in a transaction between unrelated parties. Section 5.08 Key Man Insurance. The Company shall use its best efforts to ----------------- obtain, promptly after the Closing, and to maintain in force a key man insurance policy in the amount of at least $2,000,000 on the life of Klaus Besier, the Company's Chairman and Chief Executive Officer. 15 ARTICLE VI MISCELLANEOUS Section 6.01 Expenses. Each party hereto will pay its own expenses in -------- connection with the transactions contemplated hereby whether or not the Closing occurs. Section 6.02 Brokerage. Each party hereto will indemnify and hold --------- harmless the other against and in respect of any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby, based in any way on agreements, arrangements or understandings made or claimed to have been made by such party with any third party. Section 6.03 Parties in Interest. All representations, covenants and ------------------- agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not; provided, however, that the rights of the Purchasers under Section 5.01, 5.05 and 5.06 may not be assigned without the prior written consent of the Company. Section 6.04 Notices. All notices, requests, consents and other ------- communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (a) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 02172 Attn: Chief Financial Officer with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (b) if to any of the Purchasers, at the address set forth below such Purchaser's name on Schedule I hereto; or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others. Section 6.05 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware. 16 Section 6.06 Entire Agreement. This Agreement, including the Schedules ---------------- and Exhibits hereto, constitutes the sole and entire agreement of the parties with respect to the subject matter hereof. All Schedules and Exhibits hereto are hereby incorporated herein by reference. Section 6.07 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. Section 6.08 Amendments and Waivers. This Agreement may be amended or ---------------------- modified, and provisions hereof may be waived, only with the written consent of the Company and of Purchasers holding at least a majority of the Shares. Section 6.09 Severability. If any provision of this Agreement shall be ------------ declared void or unenforceable by any judicial or administrative authority, the validity of any other provision and of the entire Agreement shall not be affected thereby. Section 6.10 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement. Section 6.11 Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): (a) "person" shall mean an individual, corporation, trust, partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity. (b) "subsidiary" shall mean, as to the Company, any corporation of which more than 50% of the outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company, or by one or more of its subsidiaries, or by the Company and one or more of its subsidiaries. Section 6.12 No Waiver; Cumulative Remedies. No failure or delay on the ------------------------------ part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall nay single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 6.13 Confidentiality. Each of the Purchasers agrees that it will --------------- maintain with the same degree of care it uses with respect to its own confidential information all confidential, proprietary or secret information which such Purchaser may obtain from the 17 Company pursuant to financial statements, reports and other materials submitted by the Company to such Purchaser pursuant to this Agreement, or pursuant to visitation or inspection rights granted hereunder, unless such information is known, or until such information becomes known through no fault of such Purchaser, to the public; provided, however, that such Purchaser may disclosure -------- ------- such information (i) on a confidential basis to its attorneys, accountants, consultants any other professionals to the extent necessary to obtain their services in connection with its investment in the Company, (ii) to any affiliate of such Purchaser on a "need to know basis", (iii) with respect to financial information, in summary fashion as part of general financial reports by such Purchaser to its partners and affiliates, and (iv) as required by applicable law. If such Purchaser is required in any legal or administrative or other governmental proceeding to disclose any of such information, such Purchaser shall give the Company timely notice of the pending requirement and use its best efforts to provide the Company an opportunity to obtain protective provisions against further disclosure. Section 6.14 Further Assurances. From and after the date of this ------------------ Agreement, upon the request of the Purchasers or the Company, the Company and the Purchasers shall execute and deliver such instruments, documents and 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 and the Shares. IN WITNESS WHEREOF, the Company and the Purchasers have executed this Agreement as of the day and year first above written. BUSINESS@WEB, INC. By:/s/ James Nondorf ---------------------------- President [Corporate Seal] Attest: /s/ William E. Kelly - --------------------- Secretary 18 PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. MARITIME CAPITAL PARTNERS, L.P. By Maritime Capital Management, L.P., its General Partners Date: 4-4 96 By: Maryanne Miller ---------- ------------------------------------------------------- PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. ALEX BROWN LEASING SERVICES COMPANY Date: March 18, 1996 By: /s/ Beverly L. White ----------------- -------------------------------------- Beverly L. White Treasurer PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. DAVID A. DUFFIELD TRUST DATED 7/14/88 Date: 3-14-96 By: /s/ David A. Duffield --------------- -------------------------------------- David A. Duffield Trustee PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: By: /s/ Margaret L. Taylor ---------------- -------------------------------- Margaret L. Taylor PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: 3/14/96 By: /s/ John F. McKenna --------------- -------------------------------- John McKenna PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: 3/14/96 By: /s/ Juergen Sattler --------------- -------------------------------- Juergen Sattler PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: 3/14/96 By: /s/ Randa Pehl --------------- -------------------------------- Randa Pehl PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: 3/15/96 By: /s/ Ulrich Schell --------------- -------------------------------- Ulrich Schell P.S.: Should there be any questions please call +49-6202-64243! PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: 4/5/96 By: /s/ Stephen Levy --------------- -------------------------------- Stephen Levy PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: By: /s/ Les Hayman ---------------- -------------------------------- Les Hayman PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. ONELUX, INC. Date: By: /s/ Paul Appleby ---------------- -------------------------------------- Paul Appleby PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. Date: By: /s/ Anthony Harris -------------- -------------------------------------- Anthony Harris PURCHASERS SIGNATURE PAGE The undersigned hereby executes the Series C Preferred Stock Purchase Agreement of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Purchase Agreement, understanding and intending thereby that he shall become party, as a Purchaser, to such Purchase Agreement. INFORMIX CORPORATION Date: April 5, 1996 By: /s/ David H. Stanley ---------------- -------------------------------------- David H. Stanley Vice President-Legal and General Counsel SCHEDULE I
Purchaser Shares Purchased Purchase Price - --------- ---------------- -------------- Maritime Capital Partners, L.P. 200,000 $1,000,000 15302 25th Drive S.E. Mill Creek, WA 98012 Alex. Brown Leasing 100,000 $500,000 Services Company 135 E. Baltimore Street Baltimore, MD 21202 David A. Duffield Trust 200,000 $1,000,000 dated 7/14/88 c/o PeopleSoft, Inc. 4440 Rosewood Drive Pleasanton, CA 94588 Margaret L. Taylor 40,000 $200,000 c/o PeopleSoft, Inc. 4440 Rosewood Drive Pleasanton, CA 94588 John McKenna 20,000 $100,000 525 North Old Middletown Road Media, PA 19063 Juergen Sattler 40,000 $200,000 306 Joseph's Way Media, PA 19063 Randa Pehl 20,000 $100,000 920 Drovers Lane Chester Springs, PA 19425
Ulrich Schell 20,000 $100,000 Bruchhauser Strasse 39 68723 Schwetzingen Germany Stephen R. Levy 50,000 $250,000 300 Boylston Street #1204 Boston, MA 02116 Les Hayman 20,000 $100,000 SAP Australia Level 1 Northside Garden 168 Walker Street North Sydney, N.S.W. 2060 Australia Onelux, Inc. 50,000 $250,000 P.O. Box 438 Road Town Tortola British Virgin Islands Anthony Harris 40,000 $200,000 SAP Australia Level 1 Northside Garden 168 Walker Street North Sydney, N.S.W. 2060 Australia NEC Corporation 200,000 $1,000,000 7-1 Shiba 5-chome Minato-ku Tokyo 108-01 Japan Informix Software Inc. 200,000 $1,000,000 4100 Bohannan Drive Menlo Park, CA 94025 NEC Corporation 200,000 $1,000,000 7-1 Shiba 5-chome Minato-ku Tokyo 108-01 Japan Informix Software Inc. 200,000 $1,000,000 4100 Bohannan Drive Menlo Park, CA 94025
Exhibits to Series C Preferred Stock Purchase Agreement Exhibits to Series C Preferred Stock Purchase Agreement SCHEDULE I Purchaser Shares Purchased Purchase Price - --------- ---------------- -------------- Maritime Capital Partners, L.P. 200,000 $1,000,000 15302 25th Drive S.E. Mill Creek, WA 98012 Alex. Brown Leasing 100,000 $500,000 Services Company 135 E. Baltimore Street Baltimore, MD 21202 David A. Duffield Trust 200,000 $1,000,000 dated 7/14/88 c/o PeopleSoft, Inc. 4440 Rosewood Drive Pleasanton, CA 94588 Margaret L. Taylor 40,000 $200,000 c/o PeopleSoft, Inc. 4440 Rosewood Drive Pleasanton, CA 94588 John McKenna 20,000 $100,000 525 North Old Middletown Road Media, PA 19063 Juergen Sattler 40,000 $200,000 306 Joseph's Way Media, PA 19063 Randa Pehl 20,000 $100,000 920 Drovers Lane Chester Springs, PA 19425 Ulrich Schell 20,000 $100,000 Bruchhauser Strasse 39 68723 Schwetzingen Germany Stephen R. Levy 50,000 $250,000 300 Boylston Street #1204 Boston, MA 02116 Les Hayman 20,000 $100,000 SAP Australia Level 1 Northside Garden 168 Walker Street North Sydney, N.S.W. 2060 Australia Onelux, Inc. 50,000 $250,000 P.O. Box 438 Road Town Tortola British Virgin Islands Anthony Harris 40,000 $200,000 SAP Australia Level 1 Northside Garden 168 Walker Street North Sydney, N.S.W. 2060 Australia NEC Corporation 200,000 $1,000,000 7-1 Shiba 5-chome Minato-ku Tokyo 108-01 Japan Informix Software Inc. 200,000 $1,000,000 4100 Bohannan Drive Menlo Park, CA 94025 SCHEDULE II Exceptions to the representations and warranties of the Company set forth in Article II. Section 2.06: Since December 31, 1995, the following events have occurred: ------------ a. The Company has entered into the following credit facilities with State Street Bank and Trust Company, and has granted State Street Bank and Trust Company a security interest in substantially all of the Company's assets as security therefor: $2,500,000 revolving line of credit, $500,000 equipment line of credit, $2,000,000 term loan due September 30, 1996. b. Klaus Besier has been appointed chief executive officer of the Company, at a base salary of $300,000 per annum. The Company expects to enter into a performance bonus plan with Mr. Besier under which Mr. Besier's bonus targets would be $400,000 for 1996, $1,000,000 for 1997 and $2,500,000 for 1998. c. The Company and Hewlett-Packard Company entered into a Series B Preferred Stock Purchase Agreement on February 27, 1996, pursuant to which the Company agreed to sell to Hewlett-Packard Company 180,506 shares of Series B Convertible Preferred Stock. d. The Company entered into a Marketing Agreement with Hewlett- Packard Company on February 27, 1996. e. On March __, 1996, the Company entered into a 5-year lease of premises at One Arsenal Marketplace, Watertown, Massachusetts to be used as the Company's principal offices. Section 2.09: State Street Bank and Trust Company holds a security ------------ interest in substantially all assets of the Company to secure the credit facilities identified above. Section 2.12: InterGroup Technologies, Inc. has communicated with the ------------ Company regarding alleged use of InterGroup's VisualWare software product by the Company in violation of the Software License Agreement between InterGroup and the Company. The Company believes that there is no basis for InterGroup's allegations and has been engaged in friendly discussions with InterGroup in an effort to resolve this issue. Section 2.19: ------------ a. The Company is an authorized distributor and reseller of OEC software. b. The Company has purchased technology (Toolkit source code) from OEC for $2.2 million dollars, with payment due on March 15, 1996. The Company intends to pay this amount from the proceeds of this offering. c. The Company sold technology (SAP Make tools) to OEC for $500,000. d. Klaus Besier and James Nondorf are employees of the Company. e. The Company has a strategic partnership relationship with I-Cube, pursuant to which the Company and I-Cube make joint proposals and the Company subcontracts services to I-Cube. The Company and I- Cube are not parties to a formal agreement. f. The Company has a strategic partnership relationship with Cambridge Technology Group, pursuant to which CTG promotes the products and services of the Company through CTG's executive education programs. The Company and CTG are not parties to a formal agreement. g. Cambridge Technology Group, Professor John Donovan and John J. Donovan, Jr. have guaranteed the Company's obligations to State Street Bank and Trust Company. h. The Company has licensed software (Logical Data Integrator) from Mentor Communications Ltd., of which Len Hafetz (a shareholder of the Company) is president. i. The Company is a party to a Marketing Agreement with Hewlett- Packard Company. SCHEDULE III I. 16,204,545 Common Shares are issued and outstanding: Sundar Subramaniam 4,998,000 Common Shares Len Hafetz 400,000 Common Shares* James Nondorf 100,000 Common Shares* Legacy Investment Partnership 2,000,000 Common Shares J&S Limited Partnership 2,000,000 Common Shares** Enamullah Khan 2,000 Common Shares Isao Okawa 200,000 Common Shares CSK Corporation 200,000 Common Shares Klaus Besier 1,440,000 Common Shares Harrington Trust Limited 4,864,545 Common Shares** as Trustee of The Appleby Trust - ------------- * These shares will be retired and cancelled upon issuance of the Series C Convertible Preferred Shares ** 360,000 of the shares held by each of J&S Limited Partnership and Harrington Trust will be retired and cancelled upon issuance of the Series C Convertible Preferred Shares. II. There are no Series A Preferred Shares authorized, issued or outstanding (all previously outstanding Series A Preferred Shares were surrendered in 1995 for conversion into Common Shares). III. 1,332,127 Series B Convertible Preferred Shares are issued and outstanding: Hancock Venture Partners 685,921 Preferred Shares IV-Direct Fund L.P. Falcon Ventures II, L.P. 36,101 Preferred Shares Pantio Holding Ltd. 180,506 Preferred Shares Hewlett-Packard Company 180,506 Preferred Shares Lorenzo Cue 36,101 Preferred Shares John C. Howe 5,415 Preferred Shares Juilliard Investments, Inc. 27,076 Preferred Shares Jan Baan 60,169 Preferred Shares J.G. Paul Baan 60,169 Preferred Shares Tom C. Tinsley 60,169 Preferred Shares SCHEDULE IV The Company is a party to the following Material Contracts: 1. The Company has an understanding with Klaus Besier, who was recently appointed chief executive officer of the Company, pursuant to which it has committed to develop, within three months, a performance bonus compensation arrangement with Mr. Besier under which Mr. Besier will, upon achievement of certain goals (to be mutually agreed upon by the Company and Mr. Besier), be entitled to bonus compensation. Mr. Besier's bonus targets are $400,000 for 1996, $1,000,000 for 1997 and $2,500,000 for 1998. 2. The Company grants incentive stock options and non-qualified options to its employees and consultants under the Company's 1995 Stock Plan. 3. The Company has entered into a series of related credit facilities with State Street Bank and Trust Company providing for aggregate borrowings of up to $5,000,000. The Company has granted State Street Bank and Trust Company a security interest in substantially all of the Company's assets to secure its obligations under such credit facilities. 4. The Company has agreed to issue securities of the Company to certain persons and entities identified on Schedule III hereto. 5. The Company has granted Hewlett-Packard Company a right of first offer with respect to any proposed sale by the Company of its equity securities to any company engaged in the manufacture of computer hardware. 6. The Company leases its offices at One Arsenal Marketplace, Watertown, Massachusetts under a 5-year lease expiring in 2001. The Company expects to lease office furniture from a commercial office supply company. 7. The Company has acquired intellectual property rights from the following sources: (a) InterGroup Technologies, Inc. (VisualWare) (b) Mentor Communications Ltd. (Logical Data Integrator) (c) Mystic River Software Inc. (Softbridge Basic Language) (d) Open Environment Corporation (Toolkit) (e) VZ Corp. (object-oriented development platform) The Company has transferred intellectual property to the following entities: (a) Open Environment Corporation (SAP customization software) (b) Cambridge Executive Programme Ltd. (VZ development platform) 8. The Company has agreed to extend to SSB Investments, Inc. piggyback registration rights with respect to the shares of the Company's Common Stock issuable upon exercise of the warrant the Company has agreed to issue to SSB Investments, Inc. 9. The Company is a party to the following additional agreements involving more than $250,000 or continuing over a period of more than two years: (a) The Weber Group public relations project (b) Siemans Nixdorf master partnership (c) Shell Oil business management project (d) Marketing Agreement with Hewlett-Packard 10. The Company is a party to the following agreements in connection with the issuance and sale of Series B Convertible Preferred Stock: (a) Preferred Stock Purchase Agreements (b) Registration Rights Agreement 11. The holders of the Company's Series B Convertible Preferred Stock and certain holders of the Company's Common Stock are parties to a Voting Agreement (pursuant to which one person designated by holders of the Series B Convertible Preferred Stock is elected a director of the Company) and a Co-Sale Rights Agreement (pursuant to which the holders of the Series B Convertible Preferred Stock have certain rights with respect to proposed sales secondary sales of Common Stock buy the holders thereof who are parties to the agreement). Exhibit A Description of Series C Convertible Preferred Stock - --------------------------------------------------- Section 1. Liquidation Rights. ------------------ (a) Treatment at Liquidation, Dissolution or Winding Up. --------------------------------------------------- (i) In the event of any liquidation, dissolution or winding up of the affairs of the corporation, whether voluntary or involuntary, after payment in full of all amounts payable to the holders of the corporation's Series B Convertible Preferred Stock in accordance with Section 1(a)(i) of the terms of the Series B Convertible Preferred Stock set forth in Article IV of the Restated Certificate of Incorporation of the corporation, and before any payment is made to the holders of any other class or series of the corporation's capital stock designated to be junior to the Series C Convertible Preferred Stock, including the corporation's Common Stock, the holders of Series C Convertible Preferred Stock shall be entitled to be paid from the assets of the corporation available for distribution to holders of the Series C Convertible Preferred Stock and the holders of the Common Stock pursuant to Section 1(a)(ii) of the terms of the Series B Convertible Preferred Stock, pari passu with the payments required to be made to the holders of the Series B Convertible Preferred Stock in accordance with said Section 1(a)(ii), but allocating all payments otherwise required by the terms of said Section 1(a)(ii) to be made to the holders of the Common Stock to the holders of the Series C Preferred Stock, an amount equal to $5.00 per share of Series C Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to Series C Convertible Preferred Stock and, as so adjusted from time to time, is hereinafter referred to as the "Base Liquidation Price") plus all dividends thereon accrued but unpaid, to and including the date full payment shall be tendered to the holders of Series C Convertible Preferred Stock with respect to such liquidation, dissolution or winding up. (ii) Following payment in full to the holders of Series C Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the corporation shall be distributed among the holders of the Common Stock and the holders of the Series C Convertible Preferred Stock on a share for share basis, with each holder of a share of Series C Convertible Preferred Stock receiving the amount that would have been payable to the holder of such share had all shares of Series C Convertible Preferred Stock been converted to Common Stock pursuant to Section 2(a) hereof immediately following payment in full to the holders of Series C Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof. (iii) If the assets of the corporation shall be insufficient to permit the payment in full to the holders of Series C Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the corporation available for such distribution shall be distributed ratably among the holders of Series C Convertible Preferred Stock. (iv) In no event shall any payment be made with respect to any liquidation, dissolution or winding up to the holders of the Series C Convertible Preferred Stock or the holders of any other class or series of the corporation's capital stock designated to be junior to the Series C Convertible Preferred Stock, including the corporation's Common Stock, if and to the extent that, as a result of such payment, the amount available for distribution to the holders of the Series B Convertible Preferred Stock would be reduced to an amount less than the amount that would have been payable to the holders of the Series B Convertible Preferred Stock pursuant to Section 1 of the terms of the Series B Convertible Preferred Stock had all shares of the Series C Convertible Preferred Stock been converted into shares of Common Stock in accordance with Section 2 hereof immediately prior to such liquidation, dissolution or winding up. (b) Treatment of Reorganizations, Consolidations, Mergers and Sales of ------------------------------------------------------------------ Assets. A consolidation or merger of the corporation, or a sale of all or - ------ substantially all of the assets of the corporation (other than a merger, consolidation or sale of all or substantially all of the assets of the corporation in a transaction in which the shareholders of the corporation immediately prior to the transaction possess more than 50% of the voting securities of the surviving entity (or parent, if any) immediately after the transaction) shall be regarded as a liquidation, dissolution or winding up of the affairs of the corporation within the meaning of this Section 1. (c) Distributions Other than Cash. Whenever the distribution provided ----------------------------- for in this Section 1 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 of Directors of the corporation. Section 2. Conversion. The holders of Series C Convertible Preferred Stock ---------- shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert; Conversion Price. Each share of Series C ---------------------------------- Convertible Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for the Series C Convertible Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $5.00 by the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The Conversion Price for purposes of calculating the number of shares of Common Stock deliverable upon conversion without the payment of any additional consideration by the holder of Series C Convertible Preferred Stock (the "Conversion Price") shall initially be $5.00. Such initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which Series C Convertible Preferred Stock is convertible, as hereinafter provided. (b) Mechanics of Conversion. Before any holder of Series C Convertible ----------------------- Preferred Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series C Convertible Preferred Stock, and shall give written notice to the corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon conversion of any shares of Series C Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Convertible Preferred Stock, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series C Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (c) Automatic Conversion. -------------------- (i) Each share of Series C Convertible Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Price (subject to adjustment as provided in Section 2(c)(iii)) upon; (A) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public at an initial public offering price per share of not less than $8.25 (adjusted proportionately to give effect to any stock dividend, stock distribution or subdivision or any combination or consolidation of Common Stock) and with gross proceeds of not less than $15,000,000 (a "Qualified IPO") or (B) the written election of the holders of not less than a majority of the then outstanding shares of Series C Convertible Preferred Stock to require such mandatory conversion. (ii) Upon the occurrence of an event specified in Section 2(c)(i) hereof, all shares of Series C Convertible Preferred Stock shall be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares are surrendered to the corporation or the transfer agent for the Series C Convertible Preferred Stock; provided, however, that the corporation shall not be obligated to issue a certificate or certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificate or certificates evidencing such shares of Series C Convertible Preferred Stock being converted are either delivered to the corporation or the transfer agent of the Series C Convertible Preferred Stock, or the holder notifies the corporation or such transfer agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the corporation to indemnify the corporation from any loss incurred by it in connection therewith and, if the corporation so elects, provides an appropriate indemnity bond. Upon the automatic conversion of Series C Convertible Preferred Stock, each holder of Series C Convertible Preferred Stock shall surrender the certificate or certificates representing such holder's shares of Series C Convertible Preferred Stock at the office of the corporation or of the transfer agent for the Series C Convertible Preferred Stock. Thereupon, there shall be issued and delivered to such holder, promptly at such office and in such holder's name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series C Convertible Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. No fractional shares of Common Stock shall be issued upon the automatic conversion of Series C Convertible Preferred Stock. In lieu of any fractional shares of Common Stock to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (d) Adjustments to Conversion Price for Diluting Issues. --------------------------------------------------- (i) Special Definitions. For purposes of this Section 2(d), the ------------------- following definitions shall apply: (A) "Option" shall mean rights, options or warrants to -------- subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which a --------------------- share of Series C Convertible Preferred Stock was first issued. (C) "Convertible Securities" shall mean any evidences of ------------------------ indebtedness, shares (other than Common Stock and Series C Convertible Preferred Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock. (D) "Additional Shares of Common Stock" shall mean all ----------------------------------- shares of Common Stock issued (or, pursuant to Section 2(d)(iii), deemed to be issued) by the corporation after the Original Issue Date, other than the following (collectively, "Excluded Shares"): (I) shares of Common Stock issued or issuable upon conversion of shares of Series C Convertible Preferred Stock; or (II) shares of Common Stock issued or issuable upon exercise or conversion of Options or Convertible Securities outstanding on the Original Issue Date; or (III) shares of Common Stock issued or issuable to officers, employees or directors of, or consultants to, the corporation pursuant to a stock purchase or option plan or other employee stock bonus arrangement (collectively, the "Plans") approved by the Board of Directors; provided, however, that shares of Common Stock issued or deemed issued to a director of the corporation pursuant to options or other purchase rights granted after the Original Issue Date shall be Excluded Shares only if granted at the time of, or in connection with, such director's initial election to the Board of Directors; or (IV) shares of Common Stock issued or issuable pursuant to warrants issued in connection with the establishment of credit facilities for the corporation (including, without limitation, in connection with equipment leasing arrangements); or (V) shares of Common Stock or Convertible Securities issued with the unanimous consent of the Board of Directors of the corporation. (ii) No Adjustment of Conversion Price. No adjustment in the --------------------------------- number of shares of Common Stock into which a share of Series C Convertible Preferred Stock is convertible shall be made, by adjustment in the Conversion Price in respect of the issuance of Additional Shares of Common Stock or otherwise; (i) unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock or, (ii) if prior to such issuance, the corporation receives written notice from the holders of a majority of the then outstanding shares of Series C Convertible Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of -------------------------------------------------------- Common Stock. - ------------ (A) Options and Convertible Securities. In the event the ---------------------------------- corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then 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 upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 2(d)(v) hereof) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (I) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (II) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (III) upon the expiration of any such options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (a) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange; and (b) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the corporation (determined pursuant to Section 2(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (IV) no readjustment pursuant to clause (II) or (III) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (V) in the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (III) above; and (VI) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the actual date of their issuance. (B) Stock Dividends, Stock Distributions and Subdivisions. ----------------------------------------------------- In the event the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which corporate action becomes effective. If such record date shall have been fixed and no part of such dividend shall have been paid on the date fixed therefor, the adjustment previously made for the Conversion price which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 2(d)(iii) as of the time of actual payment of such dividend. (iv) Adjustment of Conversion Price Upon Issuance of Additional ---------------------------------------------------------- Shares of Common Stock. - ---------------------- (A) In the event the corporation shall issue Additional Shares of Common Stock (including, without limitation, Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii) but excluding Additional Shares of Common Stock deemed to be issued pursuant to Section 2(d)(iii)(B), which event is dealt with in Section 2(d)(vi) hereof), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of shares of Common Stock which the aggregate consideration received or deemed to have been received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, and the denominator of which shall be (I) the number of shares of Common Stock outstanding immediately prior to such issue plus (II) the number of Additional Shares of Common Stock so issued or deemed to be issued. (B) For the purposes of Section 2(d)(iv)(A) hereof, (i) all shares of Common Stock issuable upon conversion of shares of Series C Convertible Preferred Stock, and upon exercise of options or conversion or exchange of Convertible Securities which are part of the Excluded Shares, outstanding immediately prior to any issue of Additional Shares of Common Stock, or any event with respect to which Additional Shares of Common Stock shall be deemed to be issued, shall be deemed to be outstanding; and (ii) immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 2(d)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. (C) Notwithstanding anything to the contrary contained herein, the applicable Conversion Price in effect at the time Additional Shares of Common Stock are issued or deemed to be issued shall not be reduced pursuant to Section 2(d)(iv)(A) hereof at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (v) Determination of Consideration. For purposes of this Section 2(d), ------------------------------ the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: ----------------- (I) insofar as it consists of cash, be computed at the aggregate amounts of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2(d)(iii)(A), relating to Options and Convertible Securities, shall be determined by dividing (I) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustment for Dividends, Distributions, Subdivisions, ------------------------------------------------------ Combinations or Consolidations of Common Stock - ---------------------------------------------- (A) Stock Dividends, Distributions or Subdivisions. In the ---------------------------------------------- event the corporation shall issue Additional Shares of Common Stock pursuant to Section 2(d)(iii)(B) in a stock dividend, stock distribution or subdivision, the Conversion Price in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased. (B) Combinations or Consolidations. In the event the ------------------------------ outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (e) No Impairment. The corporation shall not, by amendment of its ------------- Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series C Convertible Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price pursuant to this Section 2, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each affected holder of Series C Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any affected holder of Series C Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price 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 conversion of each share of Series C Convertible Preferred Stock. (g) Notices of Record Date. In the event of any taking by the ---------------------- corporation of a record of the holders of any class or securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the corporation shall mail to each holder of Series C Convertible Preferred Stock at least ten (10) days prior to such record date a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. (h) Common Stock Reserved. The corporation shall reserve and keep --------------------- available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all convertible Series C Convertible Preferred Stock. (i) Certain Taxes. The corporation shall pay any issue or ------------- transfer taxes payable in connection with the conversion of any shares of Series C Convertible Preferred Stock; provided, however, that the corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of such Series C Convertible Preferred Stock. (j) Closing of Books. The corporation shall at no time close its ---------------- transfer books against the transfer of any Series C Convertible Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series C Convertible Preferred Stock, in any manner which interferes with the timely conversion or transfer of such Series C Convertible Preferred Stock. Section 3. Voting Rights. ------------- Except as otherwise provided herein or required by law or by the provisions establishing any other series of Preferred Stock, the holders of Common Stock and the holders of Series C Convertible Preferred Stock shall be entitled to notice of any stockholders' meeting and shall vote, together with the holders of Common Stock and the holders of any other series of Preferred Stock, as one class upon any matter submitted to the stockholders for a vote. Holders of Series C Convertible Preferred Stock shall have that number of votes per share of Series C Convertible Preferred Stock as is equal to the number of shares of Common Stock into which each such share of Series C Convertible Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting. Section 4. Covenants --------- (a) So long as at least twenty-five percent (25%) of the number of shares of Series C Convertible Preferred Stock outstanding on the Original Issue Date shall be outstanding, the corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Series C Convertible Preferred Stock required by Section 4(b) hereof and having obtained the affirmative vote or written consent of the holders of a majority of such outstanding shares of Series C Convertible Preferred Stock, amend, alter or repeal any provision of, or add any provision to, the corporation's Certificate of Incorporation or by-laws, if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series C Convertible Preferred Stock. (b) Notwithstanding any other provision of this Certificate of Incorporation or the corporation's by-laws to the contrary, notice of any action specified in Section 4(a) hereof shall be given by the corporation to each holder of shares of Series C Convertible Preferred Stock by first class mail, postage prepaid, addressed to such holder at the last address of such holder as shown by the records of the corporation, at least thirty (30) days before the date on which the books of the corporation shall close or a record shall be taken with respect to such proposed action, or, if there shall be no such date, at least thirty (30) days before the date when such proposed action is scheduled to take place. Any holder of outstanding shares of Series C Convertible Preferred Stock may waive any notice required by this Section 4(b) by a written document indicating such waiver. Section 5. No Reissuance of Series C Convertible Preferred Stock. No share ----------------------------------------------------- or shares of Series C Convertible Preferred Stock acquired by the corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the corporation shall be authorized to issue. Section 6. Residual Rights. All rights accruing to the outstanding shares --------------- of the corporation not expressly provided for to the contrary herein shall be vested in the Common Stock. PABOS:WEK:246344_1 IV. 1,837,750 Common Shares are reserved for issuance upon exercise of outstanding option grants to employees and consultants under the 1995 Stock Plan at an average exercise price of $2.15 per share; these options are subject to vesting (and the majority remain unvested). V. Commitments to issue options for an aggregate of 100,000 Common Shares have been made to persons who have accepted employment offers. VI. An employment offer has been extended to a candidate for the position of Vice President of Marketing; this candidate has been offered options for a total of 350,000 Common Shares VII. An employment offer has been extended to a candidate for the position of Vice President of Sales; this candidate has been offered options for a total of 500,000 Common Shares. VIII. In connection with the establishment of a credit facility with State Street Bank and Trust Company, the Company has agreed to issue to SSB Investments, Inc., an affiliate of such bank, a warrant for the purchase of 35,000 Common Shares on or before February 15, 2003 at an exercise price of $5.54 per share, and to extend, with respect to such shares, piggy-back registration rights in connection with any Company registration of its securities (other than in its initial public offering). IX. The Company intends to use the proceeds from the issuance and sale of the Series C Convertible Preferred Shares to repurchase and retire, at a repurchase price of $5.00 per share, shares of Common Stock as indicated in Item 1 above. X. Pursuant to the terms of the Series B Convertible Preferred Stock, the Company is obligated, at the request of the holders of the Series B Convertible Preferred Stock made on or after December 31, 2002, to redeem (in three equal annual installments) the Series B Convertible Preferred Stock. CONFIDENTIALITY AND NON-COMPETITION AGREEMENT This confidentiality and non-competition agreement is made as of the ___ day of ________ 1996 by and between Business@Web, Inc., a Delaware corporation ("Company"), and _________________________ ("Employee"). WHEREAS, the Company has developed, and the Company and/or Employee may continue to develop during the period Employee is retained by the Company, certain Proprietary Information, Inventions and Intellectual Property (as those terms are hereinafter defined), that the Company wishes to protect and maintain as confidential; WHEREAS, the Company from time to time has received, and may continue to receive during the period Employee is as retained by the Company, the Proprietary Information of others, and the Company wishes, and is (in certain circumstances) contractually obligated, to maintain the confidentiality of such Proprietary Information; and WHEREAS, the Company has developed, and will continue to develop during the period Employee is so retained by the Company, goodwill by, among other things, substantial expenditure of money and effort; NOW, THEREFORE, in consideration of the premises and the mutual covenants and undertakings contained in this agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, IT IS AGREED: 1. Definitions. As used in this Agreement, the following terms shall have ----------- the following meanings: (a) Agreement means this confidentiality and non-competition --------- agreement, including all exhibits, schedules and annexations, as all may be amended from time to time in the manner provided in this Agreement. (b) Employment means the current or anticipated or subsequent ---------- retention of Employee by the Company as a full-time employee, a part-time employee, a consultant or otherwise, or any other period during which Employee receives compensation from the company in any capacity. (c) Intellectual Property means any Invention, writing, trade name, --------------------- trademark, service mark or any other material registered or otherwise protected or protectible under state, federal, or foreign patent, trademark, copyright, or similar laws. (d) Inventions includes ideas, discoveries, inventions, developments ---------- and improvements, whether or not reduced to practice and whether or not patentable or otherwise within the definition of Intellectual Property. (e) Proprietary Information includes any scientific, technical, trade or business secrets of the Company and any scientific, technical, trade or business materials that the Company treats, or is obligated to treat, as confidential or proprietary, including, but not limited to, Inventions belonging to the Company and confidential information obtained by or given to the Company about or belonging to its suppliers, licensors, licensees, partners, affiliates, customers, potential customers or others. The definition of "Proprietary Information" herein shall not include Proprietary Information which (i) was known by Employee prior to its disclosure by the Company; (ii) is publicly known through publication or otherwise through no wrongful act of Employee; (iii) is received from a third party who rightfully discloses it to Employee without restriction on its subsequent disclosure; or (iv) is disclosed pursuant to the lawful requirement of a governmental agency or by order of court of competent jurisdiction. 2. Employee Acknowledgments. The Company has developed and will develop ------------------------ its Proprietary Information and Intellectual Property over a substantial period of time and at a substantial expense, and its Proprietary Information and Intellectual Property are integral to the goodwill of the Company. During the course of employment to the Company, Employee may develop or become aware of Proprietary Information and/or Intellectual Property. Protection of the Proprietary Information and Intellectual Property is necessary to the conduct of the Company's business, and the Company is and shall at all times remain the sole owner of the Company's Proprietary Information and Intellectual Property. 3. Confidentiality. Employee shall at all times, both during and after --------------- any termination of Employee's employment by the Company by either the Company or Employee, maintain in confidence and not utilize the Proprietary Information or the Intellectual Property of the Company, and/or technology or proprietary information of others under confidential evaluation by the Company except in performing services for the Company pursuant to his or her employment. Maintaining such Proprietary Information and Intellectual Property in confidence shall include refraining from disclosing such Proprietary Information or Intellectual Property to any third party (except when duly and specifically authorized in writing to do so for purpose of furthering the business of the Company), and refraining from using such Proprietary Information or Intellectual Property for the account of Employee or for any other person or business entity. Employee will not file patents based on the Company's technology or confidential information, nor seek to make improvements thereon, without the Company's written approval. Employee agrees not to make any copies of the Proprietary Information or Intellectual Property of the Company (except when appropriate for the furtherance of the business of the Company or duly and specifically authorized to do so) and promptly upon request, whether during or after the period of employment by the Company, to return to the Company any and all documentary, machine-readable or other elements of evidence of such Proprietary Information, Intellectual Property, and any copies of either that may be in Employee's possession or under Employee's control. 4. Rights to Inventions and Intellectual Property. In connection with ---------------------------------------------- Employee's employment by the Company, or by use of the resources of the Company, whether or not Employee is then retained by the Company, Employee may produce, develop, create, invent, conceive or reduce to practice Inventions and Intellectual Property related to the business of the Company. Employee shall maintain and furnish to the Company complete and current records of all such Inventions and Intellectual Property. Employee agrees that all such Inventions and Intellectual Property are and shall be the exclusive property of the Company, and that the Company may sue or pursue them without restriction or additional compensation. Employee: (i) hereby assigns, sets over and transfers to the Company all of his right, title and interest in and to such Inventions and Intellectual Property; (ii) agrees that Employee and his agents shall, during and after the period Employee is retained by the Company, cooperate fully in obtaining patent, trademark, service mark, copyright or other proprietary protection for such Inventions and Intellectual Property, all in the name of the Company (but only at Company expense), and, without limitation, shall execute all requested applications, assignments and other documents in furtherance of obtaining such protection or registration and confirming full ownership by the Company of such Inventions and Intellectual property; and (iii) shall, upon leaving the Company, provide to the Company in writing a full, signed statement of all Inventions and Intellectual property in which Employee participated prior to termination of Employee's employment by the Company. Employee hereby designates the Company as its agent, and grants to the Company a power of attorney with full substitution, which power of attorney shall be deemed coupled with an interest, for the purposes of effecting the foregoing assignments from the Employee to the Company. 5. Non-Solicitation. Employee shall not during the term of his or her ---------------- employment or at any time during the five (5) years following termination of the term of his or her employment solicit any person who is employed by or a consultant to the Company or any affiliate or subsidiary of the Company either during Employee's period or employment or during such five (5) year period, to terminate such person's employment by or consultancy to the Company, such affiliate or subsidiary. As used herein the term "solicit" shall include, without limitation, requesting, encouraging, assisting or causing, directly or indirectly, any such employee or consultant to terminate such person's employment by or consultancy to the Company, affiliate or subsidiary. 6. Prohibited Competition. Employee recognizes and acknowledges the ---------------------- competitive and proprietary nature of the Company's business operations. Employee acknowledges and agrees that a business will be deemed competitive with the Company if it engages in a line of business in which it performs any of the services, researches, develops or manufactures or sells any products provided or offered by the Company or under development by the Company, or any similar products or products fulfilling the same function, whether or not similar (the Company's "Field of Interest") (such business to be referred to as a "competitive business"). Employee further acknowledges and agrees that during the course of performing services for the Company, the Company will furnish, disclose or make available to Employee confidential and proprietary information related to the Company's business and that the Company may provide Employee with unique and specialized training. Employee also acknowledges that such confidential information and the training to be provided by the Company have been developed and will be developed by the Company through the expenditure by the Company of substantial time, effort and money and that all such confidential information and training could be used by Employee to compete with the Company. Accordingly, Employee hereby agrees in consideration of the Company's agreement to hire Employee and Employee's compensation for services rendered to the Company and in view of the confidential position to be held by Employee, the unique and specialized training which the Company may provide Employee and the confidential nature and proprietary value of the information which the Company may share with Employee, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, as follows: During the period during which Employee performs services for or at the request of the Company (the "Term") and for a period of eighteen months following the expiration or termination of the Term (the "Restricted Term"), whether such termination is voluntary or involuntary, Employee shall not, without the prior written consent of the Company: (i) For Employee or on behalf of any other, directly or indirectly, either as principal, agent, stockholder, employee, consultant, representative or in any other capacity, own, manage, operate or control, or be concerned, connected or employed by, or otherwise associate in any manner with, engage in or have a financial interest in any business whose primary line of business is in the Field of Interest, or in any other business in which Employee has any direct operating or scientific responsibility in the Field of Interest anywhere in the world (the "Restricted Territory"), except that nothing contained herein shall preclude Employee from purchasing or owning stock in any such competitive business if such stock is publicly traded, and provided that Employee's holdings do not exceed one percent (1%) of the issued and outstanding capital stock of such business. (ii) Either individually or on behalf of or through any third party, solicit, divert or appropriate or attempt to solicit, divert or appropriate, for the purpose of competing in the Field of Interest with the Company or any present or future parent, subsidiary or other affiliate of the Company which is engaged in the Field of Interest, any joint venture or collaborative research partners, customers or patrons of the Company, or any prospective customers or patrons with respect to which the Company as developed or made a presentation for the use of exploitation of products or processes in the Field of Interest (or similar offering of services), located within the Restricted Territory. Employee further recognizes and acknowledges that (i) the types of employment which are prohibited by this paragraph are narrow and reasonable in relation to the skills which represent Employee's principal salable asset both to the company and to Employee's other prospective employers, and (ii) the specified but broad geographical scope of the provisions of this paragraph is reasonable, legitimate and fair to Employee in light of the Company's need to perform its research and to develop and market its services and to develop and sell its products in a large geographic area in order to have a sufficient customer base to make the Company's business profitable and in light of the limited restrictions on the type of employment prohibited herein compared to the types of employment for which Employee is qualified to earn his or her livelihood. If any part of this section should be determined by a court of competent jurisdiction to be unreasonable in duration, geographic area, or scope, then this section is intended to and shall extend only for such period of time, in such area and with respect to such activity as is determined to be reasonable. 7. Continued Obligations. Employee's obligations under this Agreement --------------------- shall not be affected: (i) by any termination of Employee's employment, including termination upon the Company's initiative; nor (ii) by any change in Employee's position, title or function with the Company; nor (iii) by any interruption in employment during which Employee leaves and then rejoins the Company for any period within a period of one year and for any reason. Nothing herein shall be construed as constituting an employment agreement or an undertaking by the Company to retain Employee's services for any stated period of time. 8. No Conflicting Agreements. Employee represents and warrants that ------------------------- execution and performance of this Agreement does not and will not violate, conflict with, or constitute a default under any contract, commitment, agreement, understanding, arrangements, or restriction, or any adjudication, order, injunction or finding of any kind by any court or agency to which Employee may be a party or by which Employee may be bound. 9. Remedies. In the event of any breach by Employee of any of the -------- provisions of this Agreement, the Company shall be entitled, in addition to monetary damages and to any other remedies available to the Company under this Agreement and at law, to equitable relief, including injunctive relief, and to payment by Employee of all costs incurred by the Company in enforcement against Employee of the provisions of this Agreement, including reasonable attorneys' fees. 10. General Provisions. ------------------ (a) No Waiver. Waiver of any provision of this Agreement, in whole or --------- in part, in any one instance shall not constitute a waiver of any other provision in the same instance, nor any waiver of the same provision in another instance, but each provision shall continue in full force and effect with respect to any other than-existing or subsequent breach. (b) Notice. For purposes of this Agreement, notices and all other ------ communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered personally or by overnight courier with a receipt obtained therefor or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed, if to the Company, to its chief executive officer at the Company's principal office, and if to the Employee, at his residence address as shown on the Company's employment records, or to such other address as either party may furnish to the other in writing in accordance with this Section, except that notices of changes of address shall be effective upon receipt. (c) Severability. If any provision of this Agreement shall be found ------------ to be invalid, inoperative or unenforceable in law or equity, such finding shall not affect the validity of any other provisions of this Agreement, which shall be construed, reformed and enforced to effect the purposes of this Agreement to the fullest extent permitted by law. (d) Miscellaneous. This Agreement: (i) may be executed in any number ------------- of counterparts, each of which, when executed by both parties to the Agreement shall be deemed to be an original, and all of which counterparts together shall constitute one and the same instrument; (ii) shall be governed by and construed under the law of the Commonwealth of Massachusetts, without application of principles of conflicts of laws; (iii) shall constitute the entire agreement of the parties with respect to the subject matter hereof, superseding all prior oral and written communications, proposals, negotiations, representations, understandings, courses of dealing, agreements, contracts, and the like between the parties in such respect; (iv) may be amended, modified, or terminated, and any right under this Agreement may be waived in whole or in part, only by a writing signed by both parties; (v) contains headings only for convenience, which headings do not form part, and shall not be used in construction, of this Agreement; (vi) shall bind and inure to the benefit of the parties and their respective legal representatives, successors and assigns, except that no party may delegate any of its or his obligations under this Agreement, or assign this Agreement, without the prior written consent of the other party, except the Company may assign this Agreement in connection with the merger, consolidation, or sale of all or substantially all assets of the Company; and (vii) be enforced only in courts located within the Commonwealth of Massachusetts and the parties hereby agree that such courts shall have venue and exclusive subject matter and personal jurisdiction, and consent to service of process by registered mail, return receipt requested, or by any other manner provided by law. Executed under seal as of the date first above written. BUSINESS@WEB, INC. By: -------------------------------- -------------------------------- Employee Exhibit C DRAFT April ___, 1996 To the Purchasers listed on Schedule I to the Purchase Agreement hereinafter described Ladies and Gentlemen: We have acted as counsel for Business@Web, Inc., a Delaware corporation (the "Company") in connection with the issuance and sale of 1,220,000 shares of the Company's Series C Convertible Preferred Stock, par value $1.00 per share (the "Preferred Shares"), to the purchasers (the "Purchasers") identified on Schedule I to the Series C Convertible Preferred Stock Purchase Agreement dated April __, 1996 (the "Purchase Agreement") among the Company and Purchasers pursuant to the terms contained in the Purchase Agreement. Terms used in this opinion, unless otherwise defined, shall have the meanings assigned thereto in the Purchase Agreement. This opinion is furnished to you pursuant to Section 4.01 of the Purchase Agreement. For purposes of the opinions expressed below, we have examined original, faxed or photocopies of executed counterparts of: a. the Purchase Agreement; and b. the Registration Rights Agreement. The Purchase Agreement and the Registration Rights Agreement are together referred to herein as the "Transaction Documents". In addition, we have examined the originals or copies of such records, agreements and instruments of the Company, certificates of public officials and of officers of the Company and such other documents and records and such matters of law as we have deemed appropriate as a basis for the opinions hereinafter expressed. In making such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies, which facts we have not independently verified. As to various facts material to the opinions set forth herein, we have relied without independent verification upon factual representations made by the Company and the Purchasers in the Transaction Documents, upon certificates of public officials and upon facts certified to us by officers of the Company. With respect to the opinions expressed in To The Purchasers April , 1996 ---- Page 2 paragraph number 7 below, we draw your attention to the fact that we have not made any investigation of the records of any court or other governmental agency or body. Statements herein as to the truth of certain matters "to our knowledge", "known to us", or as to which we have "knowledge" refer to the knowledge consciously held by the individual lawyers in our firm who participated in the negotiation and drafting of the Transaction Documents without independent investigation. For purposes of the opinions expressed herein, we have assumed that at all relevant times the Purchasers had all requisite power and authority and had taken all necessary action to enter into and perform all of its obligations under the Transaction Documents and that each such Transaction Document was and will continue to be the valid, binding and enforceable obligation of each of the Purchasers. You have not asked us to express, and we do not express, any opinion concerning the application of any federal, state or local statute, law, rule or regulation to the authority of any of the Purchasers to enter into and to carry out its obligations, and to exercise its rights, under the Transaction Documents. This opinion is limited to the laws of the Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware (the "DGCL"), and the federal laws of the United States of America, and we express no opinions with respect to the law of any other jurisdiction. Based upon and subject to the foregoing and subject also to the general qualifications stated following paragraph number 8 below, we hereby advise you that, in our opinion, as of the date hereof: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business as a foreign corporation in the Commonwealth of Massachusetts. 2. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform the Transaction Documents to which it is a party, and to issue, sell and deliver the Preferred Shares and, upon conversion of the Preferred Shares in accordance with their terms, the Conversion Shares. 3. The execution and delivery by the Company of the Purchase Agreement and the Registration Rights Agreement, the performance by the Company of its obligations thereunder, and the issuance of the Preferred Shares and, upon conversion of the Preferred Shares in accordance with their terms, the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of any law applicable to the To The Purchasers April , 1996 ---- Page 3 Company, any order of any court or other agency of government applicable to the Company of which we have knowledge, the Restated Certificate of Incorporation of the Company, as amended, or the By-laws of the Company, as amended, or violate or conflict with, result in or constitute (with due notice or lapse of time or both) a default under or result in the creation or imposition of any material lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company pursuant to any indenture, agreement, or other instrument of which we have knowledge and to which the Company or any of its properties or assets is bound. 4. The Preferred Shares and the Conversion Shares have been duly authorized and, when issued in accordance with the Purchase Agreement (in the case of the Preferred Shares) or upon conversion of the Preferred Shares in accordance with their terms (in the case of the Conversion Shares), will be validly issued, fully paid and nonassessable shares, with no personal liability attaching to the ownership thereof, and will be free and clear of all liens, charges, restrictions, claims and encumbrances created by or through the Company. The issuance, sale and delivery of the Preferred Shares and the Conversion Shares will not subject to any preemptive right of stockholders of the Company arising pursuant to the DGCL, the Restated Certificate of Incorporation or the Bylaws of the Company or, to our knowledge, otherwise existing or, to our knowledge, to any right of first refusal or other right in favor of any person. 5. The Transaction Documents have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms. 6. The authorized capital stock of the Company consists solely of 30,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock (1,332,127 of which have been designated Series B Convertible Preferred Stock, 1,220,000 of which have been designated Series C Convertible Preferred Stock, and 447,8733 of which remain undesignated). Immediately prior to the Closing, 16,204,545 shares of Common Stock and 1,332,127 shares of Series B Convertible Preferred Stock were validly issued and outstanding, and no other shares of Common Stock or Preferred Stock were outstanding. 7. To our knowledge, there is no (i) action, suit, claim, proceeding or investigation pending against the Company, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise, or (iii) governmental inquiry pending against the Company. To our knowledge, the Company is not in default with respect to any order, writ, injunction or decree of any court or of any federal, state, municipal or other To The Purchasers April , 1996 ---- Page 4 governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. 8. Assuming the accuracy of the representations and warranties of the Purchasers made in Article III of the Purchase Agreement, the offering, issuance and sale of the Preferred Shares and the Conversion Shares is exempt from the registration provisions of the Securities Act of 1933, as amended. Our opinions set forth above are subject to the following general qualifications: a. The validity and enforceability of any obligation and the exercise of rights and remedies may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement generally of the rights and remedies of creditors or the obligations of debts, and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding at law or in equity), including, without limitation, the discretion of any court of competent jurisdiction in granting specific performance or injunctive or other equitable relief. b. The enforcement of any rights or remedies is or may be subject to an implied duty on the part of the party seeking to enforce such rights to take action and made determinations on a reasonable basis and in good faith. c. The enforceability of the Transaction Documents may be limited by general principals of contract law which include (i) the unenforceability of provisions to the effect that provisions therein may only be amended or waived in writing to the extent that an oral agreement modifying such provisions has been entered into, and (ii) the general rule that, where less than all of an agreement is enforceable, the balance is enforceable only when the unenforceable portion is not an essential part of the agreed exchange. d. The indemnification and contribution provisions set forth in Section 6 of the Registration Rights Agreement may not be enforceable to the extent that they should be found contrary to public policy . e. We express no opinion with respect to the choice of law provisions contained in the Transaction Documents . This opinion is furnished to you solely for your benefit in connection with the consummation of the Closing under the Purchase Agreement and may not be relied upon by any other person or entity or for any other purpose without our express, prior written consent. To the Purchasers April , 1996 ---- Page 5 All of the opinions set forth herein are rendered as of the date hereof, and we assume no obligation to update such opinions to reflect any facts or circumstances which may hereafter come to our attention or any changes in the law which may hereafter occur. Very truly yours, Peabody & Arnold REGISTRATION RIGHTS AGREEMENT As of March 29, 1996 To the Investors named on Schedule I hereto Ladies and Gentlemen: In connection with the agreement by the Investors named on Schedule I hereto (the "Investors") on the date hereof to purchase shares of Series C Convertible Preferred Stock, $1.00 par value (the "Series C Preferred Stock") of the Company, pursuant to the Series C Convertible Preferred Stock Purchase Agreement dated as of March 29, 1996 (the "Purchase Agreement") among the Company and such Investors and as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreement, the Company covenants and agrees with the Investors as follows: 1. Certain Definitions As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.001 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of shares of Preferred Stock. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statue, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Preferred Stock" shall mean all shares of the Company's Series C --------------- Preferred Stock, as constituted on the date of this Agreement. "Registration Expenses" shall mean the expenses so described in --------------------- Section 5. "Restricted Stock" shall mean the Conversion Shares, but excluding ------------------ shares of Common Stock which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act, provided, -------- however, that the term "Restricted Stock" shall be ------- deemed to include the number of shares of Restricted Stock that would be issuable to a holder of Preferred Shares upon conversion of all Preferred Shares held by such holder at such time. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 5. ---------------- 2. Restrictive Legend. Each certificate representing Preferred Shares or ------------------ Conversion Shares shall be stamped or otherwise imprinted with a legend substantially in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS. UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. 3. Incidental Registration. If the Company at any time proposes to ----------------------- register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention to do and of the proposed method of distribution of such securities. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of its Restricted Stock, the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent and under the conditions such registration is permitted under the Securities Act. In the event that any registration pursuant to this Section 3 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that the inclusion of some or all of the Restricted Stock would adversely affect the marketing of the securities to be sold by the Company therein, provided however, that such number of shares -------- ------- of Restricted Stock (if reduced) shall not be reduced to a number which is less than 15% of the total number of shares are to be included in such underwriting for the account of persons other than the Company or requesting holders of Restricted Stock. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 3 without thereby incurring any liability to the holders of Restricted Stock. 4. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of Section 3 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering shall be on Form S-1 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 4(a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided however, that the Company shall not for any such purpose be required to - -------- ------- qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter under such registration statement, any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained 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 light of the circumstances then existing. The sellers of Restricted Stock agree upon receipt of such notice forthwith to cease making offers and sales of Restricted Stock pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose until the Company has prepared and furnished such amendment or supplement to the prospectus as may be necessary so that, as thereafter delivered to purchasers of such Restricted Stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements and the notes thereto and the schedules and other financial and statistical data contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and (h) make available for inspection upon reasonable notice during the Company's regular business hours by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposed of Section 4(a) and 4(b), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) agree to sell Restricted Stock on the basis provided in any, underwriting arrangements and (c) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. In connection with each registration pursuant to Section 3 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing, underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 5. Expenses. All expenses incurred by the Company in complying with -------- Section 3, including without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc. transfer taxes, fees of transfer agents and registrars, and fees and disbursements of one counsel for the fees of transfer agents and registrars, and fees and disbursements of one counsel for the sellers of Restricted Stock (who shall also serve as counsel for, and be acceptable to, any other selling stockholders for whom the Company is obligated to bear Registration Expenses), but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement under Section 3. All Selling Expenses in connection with each registration statement under Section 3 shall be borne by the participating seller in proportion to the number of shares sold by each, or by such participating seller other than the Company (except to the extent the Company shall be a seller) as they may agree. 6. Indemnification and Contribution. -------------------------------- (a) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 3, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of each such seller, each such underwriter and each such controlling person incurred by them in connection with investigation or defending any such loss, claim, damage, liability or action, provided, however that the Company will not be liable in any such case if and to - -------- ------- the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus, and provided further, however, that the Company will not be liable -------- ------- ------- to any such seller, any such underwriter or any such controlling person in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue or alleged untrue statement or omission or an alleged omission made in any preliminary prospectus or final prospectus delivered by such seller, underwriter or controlling person in connection with the sale of the Restricted Stock if (1) the final prospectus or prospectus supplement corrected such untrue statement or omission and (2) the Company advised such seller, underwriter or controlling person that such correction had been made and (3) such seller, underwriter or controlling person failed to send or deliver a copy of the final prospectus or prospectus supplement with or prior to the delivery of written confirmation of the sale of the Restricted Stock. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 3, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 3, any preliminary prospectus of final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of the Company and each such officer, director, underwriter and controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, -------- ------- that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of each seller hereunder shall - -------- ------- ------- be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability that it may have to such indemnified party other than under this Section 6 and shall only relieve it from any liability that it may have to such indemnified party under this Section 6 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, -------- ------- that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel) that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel as required by the local rules of such jurisdiction) at any time for all such indemnified parties. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 6 but it is judicially determined (by the entry of final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 6; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided however, that, in any such case, (A) no such holder -------- ------- will be required to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 7. Changes in Common Stock or Preferred Stock. If, and as often as, ------------------------------------------ there is any change in Common Stock or the Preferred Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock or the Preferred Stock as so changed. 8. Rule 144 Reporting and Rule 144A Information. With a view to making -------------------------------------------- available the benefits of certain rules and regulations of the Commission that may at any time permit the resale of the Restricted Stock without registration, the Company will: (a) at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration; and (b) at any time, at the request of any holder of Preferred Shares of shares of Restricted Stock, make available to such holder and to any prospective transferee of such Preferred Shares or shares of Restricted Stock the information concerning the Company described in Rule 144A(d)(4) under the Securities Act. 9. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to Investor as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not cause a material violation of any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Charter or By-laws of the Company or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. 10. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not; provided, however, that registration rights conferred herein -------- ------- on Investor shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if there is transferred to such transferee at least 50,000 shares of Restricted Stock (the transferee in any such case being referred to as an "Investor Transferee"). (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (i) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 02172 Attn: Chief Financial Officer with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (ii) if to any Investor, at such Investor's address as set forth on Schedule I hereto (iii) if to any of Investor's Transferees, at such address as may have been furnished to the Company in writing by it; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this Section 10(b). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of a majority of the outstanding shares of Restricted Stock. (e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement is sought. (f) If requested in writing by the underwriters for an underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period following the effective date of the registration statement relating to such offering to be reasonably determined by the underwriters. (g) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (h) This Agreement and the rights granted herein shall terminate on the date all of the Restricted Stock may be sold pursuant to Rule 144 under the Securities Act without regard to the volume limitations contained in Rule 144(e), except that the indemnification provisions set forth in Section 6 shall survive indefinitely. Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this Agreement shall be a binding agreement between the Company and you. Very truly yours, BUSINESS@WEB, INC. By:________________________ EX-10.23 15 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.23 REGISTRATION RIGHTS AGREEMENT As of March 29, 1996 To the Investors named on Schedule I hereto Ladies and Gentlemen: In connection with the agreement by the Investors named on Schedule I hereto (the "Investors") on the date hereof to purchase shares of Series C Convertible Preferred Stock, $1.00 par value (the "Series C Preferred Stock") of the Company, pursuant to the Series C Convertible Preferred Stock Purchase Agreement dated as of March 29, 1996 (the "Purchase Agreement") among the Company and such Investors and as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreement, the Company covenants and agrees with the Investors as follows: 1. Certain Definitions As used in this Agreement, the following terms ------------------- shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission, or any ---------- other federal agency at the time administering the Securities Act. "Common Stock" shall mean the Common Stock, $.001 par value, of the ------------ Company, as constituted as of the date of this Agreement. "Conversion Shares" shall mean shares of Common Stock issued upon ----------------- conversion of shares of Preferred Stock. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Preferred Stock" shall mean all shares of the Company's Series C --------------- Preferred Stock, as constituted on the date of this Agreement. "Registration Expenses" shall mean the expenses so described in --------------------- Section 5. "Restricted Stock" shall mean the Conversion Shares, but excluding ---------------- shares of Common Stock which have been (a) registered under the Securities Act pursuant to an effective registration statement filed thereunder and disposed of in accordance with the registration statement covering them or (b) publicly sold pursuant to Rule 144 under the Securities Act, provided, -------- however, that the term "Restricted Stock" shall be deemed to include the ------- number of shares of Restricted Stock that would be issuable to a holder of Preferred Shares upon conversion of all Preferred Shares held by such holder at such time. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean the expenses so described in Section 5. ---------------- 2. Restrictive Legend. Each certificate representing Preferred Shares or ------------------ Conversion Shares shall be stamped or otherwise imprinted with a legend substantially in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE. 3. Incidental Registration. If the Company at any time proposes to ----------------------- register any of its securities under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Restricted Stock for sale to the public), each such time it will give written notice to all holders of outstanding Restricted Stock of its intention so to do and of the proposed method of distribution of such securities. Upon the written request of any such holder, received by the Company within 30 days after the giving of any such notice by the Company, to register any of its Restricted Stock, the Company will use its best efforts to cause the Restricted Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent and under the conditions such registration is permitted under the Securities Act. In the event that any registration pursuant to this Section 3 shall be, in whole or in part, an underwritten public offering of Common Stock, the number of shares of Restricted Stock to be included in such an underwriting may be reduced (pro rata among the requesting holders based upon the number of shares of Restricted Stock owned by such holders) if and to the extent that the managing underwriter shall be of the opinion that the inclusion of some or all of the Restricted Stock would adversely affect the marketing of the securities to be sold by the Company therein, provided, however, that such number of shares of -------- ------- Restricted Stock (if reduced) shall not be reduced to a number which is less than 15% of the total number of shares are to be included in such underwriting for the account of persons other than the Company or requesting holders of Restricted Stock. Notwithstanding the foregoing provisions, the Company may withdraw any registration statement referred to in this Section 3 without thereby incurring any liability to the holders of Restricted Stock. 4. Registration Procedures. If and whenever the Company is required by ----------------------- the provisions of Section 3 to use its best efforts to effect the registration of any shares of Restricted Stock under the Securities Act, the Company will, as expeditiously as possible: 2 (a) prepare and file with the Commission a registration statement (which, in the case of an underwritten public offering shall be on Form S-1 or other form of general applicability satisfactory to the managing underwriter selected as therein provided) with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as hereinafter provided); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in Section 4(a) above and comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller of Restricted Stock and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such registration statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in the case of an underwritten public offering, the managing underwriter reasonably shall request, provided, however, that the Company shall not for any such purpose be required - -------- ------- to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) use its best efforts to list the Restricted Stock covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify each seller of Restricted Stock and each underwriter under 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 of which the Company has knowledge as a result of which the prospectus contained 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 light of the circumstances then existing. The sellers of Restricted Stock agree upon receipt of such notice forthwith to cease making offers and sales of Restricted Stock pursuant to such registration statement or deliveries of the prospectus contained therein for any purpose until the Company has prepared and furnished such amendment or supplement to the prospectus as may be necessary so that, as thereafter delivered to purchasers of such Restricted Stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; 3 (g) if the offering is underwritten and at the request of any seller of Restricted Stock, use its best efforts to furnish on the date that Restricted Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements and the notes thereto and the schedules and other financial and statistical data contained therein) and (C) to such other effects as reasonably may be requested by counsel for the underwriters or by such seller or its counsel and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such seller, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to such registration as such underwriters reasonably may request; and (h) make available for inspection upon reasonable notice during the Company's regular business hours by each seller of Restricted Stock, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. For purposes of Section 4(a) and 4(b), the period of distribution of Restricted Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Restricted Stock in any other registration shall be deemed to extend until the earlier of the sale of all Restricted Stock covered thereby and 120 days after the effective date thereof. In connection with each registration hereunder, the sellers of Restricted Stock shall (a) provide such information and execute such documents as may reasonably be required in connection with such registration, (b) agree to sell Restricted Stock on the basis provided in any underwriting arrangements and (c) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements, which arrangements shall not be inconsistent herewith. 4 In connection with each registration pursuant to Section 3 covering an underwritten public offering, the Company and each seller agree to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 5. Expenses. All expenses incurred by the Company in complying with -------- Section 3, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc. transfer taxes, fees of transfer agents and registrars, and fees and disbursements of one counsel for the sellers of Restricted Stock (who shall also serve as counsel for, and be acceptable to, any other selling stockholders for whom the Company is obligated to bear Registration Expenses), but excluding any Selling Expenses, are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Restricted Stock are called "Selling Expenses". The Company will pay all Registration Expenses in connection with each registration statement under Section 3. All Selling Expenses in connection with each registration statement under Section 3 shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such participating sellers other than the Company (except to the extent the Company shall be a seller) as they may agree. 6. Indemnification and Contribution. -------------------------------- (a) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 3, the Company will indemnify and hold harmless each seller of such Restricted Stock thereunder, each underwriter of such Restricted Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of each such seller, each such underwriter and each such controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Company will not be liable in any such case if and - -------- ------- to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by any such seller, any such underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus, 5 and, provided further, however, that the Company will not be liable to any such -------- ------- ------- seller, any such underwriter or any such controlling person in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue or alleged untrue statement or omission or an alleged omission made in any preliminary prospectus or final prospectus delivered by such seller, underwriter or controlling person in connection with the sale of the Restricted Stock if (1) the final prospectus or prospectus supplement corrected such untrue statement or omission and (2) the Company advised such seller, underwriter or controlling person that such correction had been made and (3) such seller, underwriter or controlling person failed to send or deliver a copy of the final prospectus or prospectus supplement with or prior to the delivery of written confirmation of the sale of the Restricted Stock. (b) In the event of a registration of any of the Restricted Stock under the Securities Act pursuant to Section 3, each seller of such Restricted Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Restricted Stock was registered under the Securities Act pursuant to Section 3, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will pay the legal fees and other expenses of the Company and each such officer, director, underwriter and controlling person incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, -------- ------- that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of -------- ------- ------- each seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the public offering price of the shares sold by such seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the proceeds received by such seller from the sale of Restricted Stock covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability that it may have to such indemnified party other than under this Section 6 and shall only relieve it from any liability that it may have to such indemnified party under this Section 6 6 if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, -------- ------- that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded (based on the advice of counsel) that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel as required by the local rules of such jurisdiction) at any time for all such indemnified parties. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Restricted Stock exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling holder or any such controlling person in circumstances for which indemnification is provided under this Section 6; then, and in each such case, the Company and such holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such holder is responsible for the portion represented by the percentage that the public offering price of its Restricted Stock offered by the registration statement bears to the public offering price of all securities offered by such registration statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such holder will be -------- ------- require to contribute any amount in excess of the public offering price of all such Restricted Stock offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or 7 proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 7. Changes in Common Stock or Preferred Stock. If, and as often as, ------------------------------------------ there is any change in the Common Stock or the Preferred Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Common Stock or the Preferred Stock as so changed. 8. Rule 144 Reporting and Rule 144A Information. With a view to making -------------------------------------------- available the benefits of certain rules and regulations of the Commission that may at any time permit the resale of the Restricted Stock without registration, the Company will: (a) at all times after 90 days after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to each holder of Restricted Stock forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such holder to sell any Restricted Stock without registration; and (b) at any time, at the request of any holder of Preferred Shares or shares of Restricted Stock, make available to such holder and to any prospective transferee of such Preferred Shares or shares of Restricted Stock the information concerning the Company described in Rule 144A(d)(4) under the Securities Act. 9. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to Investor as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not cause a material violation of any provision of any law applicable to the Company, any order of any court or other agency of government applicable to the Company, the Charter or By-laws of 8 the Company or any provision of any indenture, agreement or other instrument to which it or any or its properties or assets is bound, conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to laws of general application from time to time in effect affecting creditors' rights and the exercise of judicial discretion in accordance with general equitable principles. 10. Miscellaneous. ------------- (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including without limitation transferees of any Preferred Shares or Restricted Stock), whether so expressed or not; provided, however, that registration rights conferred herein -------- ------- on Investor shall only inure to the benefit of a transferee of Preferred Shares or Restricted Stock if there is transferred to such transferee at least 50,000 shares of Restricted Stock (the transferee in any such case being referred to as an "Investor Transferee"). (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed delivered (i) when delivered in person or (ii) one business day after being mailed by certified or registered mail, return receipt requested, or sent by a recognized overnight courier service, addressed as follows: (i) if to the Company, at Business@Web, Inc. One Arsenal Marketplace Watertown, Massachusetts 02172 Attn: Chief Financial Officer with a copy to William E. Kelly, Esq. Peabody & Arnold 50 Rowes Wharf Boston, Massachusetts 02110 (ii) if to any Investor, at such Investor's address as set forth on Schedule I hereto 9 (iii) if to any of Investor's Transferees, at such address as may have been furnished to the Company in writing by it; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Preferred Shares or Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in the case of the Company) in accordance with the provisions of this Section 10(b). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (d) This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of the Company and the holders of a majority of the outstanding shares of Restricted Stock. (e) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement is sought. (f) If requested in writing by the underwriters for an underwritten public offering of securities of the Company, each holder of Restricted Stock who is a party to this Agreement shall agree not to sell publicly any shares of Restricted Stock or any other shares of Common Stock (other than shares of Restricted Stock or other shares of Common Stock being registered in such offering), without the consent of such underwriters, for a period following the effective date of the registration statement relating to such offering to be reasonably determined by the underwriters. (g) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. (h) This Agreement and the rights granted herein shall terminate on the date all of the Restricted Stock may be sold pursuant to Rule 144 under the Securities Act without regard to the volume limitations contained in Rule 144(e), except that the indemnification provisions set forth in Section 6 shall survive indefinitely. 10 Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this Agreement shall be a binding agreement between the Company and you. Very truly yours, BUSINESS@WEB, INC. /s/ James Nondorf By:__________________________ 11 INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March 29, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. MARITIME CAPITAL PARTNERS, L.P. By Maritime Capital Management, L.P., its General Partner By: /s/ Maryanne Miller ------------------------------------------------ Date: 4-4-96 -------- INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March ___, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. ALEX BROWN LEASING SERVICES COMPANY By: /s/ Beverly L. Wright ---------------------------------- Date: March 18, 1996 Beverly L. Wright -------------------- Treasurer INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March ___, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. DAVID A. DUFFIELD TRUST DATED 7/14/88 By: /s/ David A. Duffield ----------------------------------- Date: 3-14-96 David A. Duffield -------------- Trustee INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March __, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. By: /s/ Margaret L. Taylor ----------------------------- Date: Margaret L. Taylor ----------------- INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March 29, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. By: /s/ Stephen Levy ------------------------------------- Date: 4/5/96 Stephen Levy ---------- INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March ___, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. By: /s/ Les Hayman ------------------------------------ Date: Les Hayman ---------------- INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March ___, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. ONELUX, INC. By: /s/ Paul Appleby ------------------------------------ Date: Paul Appleby ------------- INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March ___, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. By: /s/ Anthony Harris ------------------------------------- Date: Anthony Harris --------------- INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March 29, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. INFORMIX CORPORATION By: /s/ David H. Stanley ------------------------------------- Date: April 5, 1996 David H. Stanley ----------------- Vice President-Legal and General Counsel INVESTOR'S SIGNATURE PAGE The undersigned hereby accepts and agrees to the terms and conditions of the Registration Rights Agreement dated March 29, 1996 relating to shares of the Series C Convertible Preferred Stock of Business@Web, Inc. and authorizes the attachment of this Signature Page to such Registration Rights Agreement, understanding and intending thereby that it shall become a party, as an Investor, to such Registration Rights Agreement. INFORMIX CORPORATION By: /s/ David H. Stanley ------------------------------------- Date: April 5, 1996 David H. Stanley ----------------- Vice President-Legal and General Counsel SCHEDULE I
Purchaser Shares Purchased Purchase Price - --------- ---------------- -------------- Maritime Capital Partners, L.P. 200,000 $1,000,000 15302 25th Drive S.E. Mill Creek, WA 98012 Alex. Brown Leasing 100,000 $500,000 Services Company 135 E. Baltimore Street Baltimore, MD 21202 David A. Duffield Trust 200,000 $1,000,000 dated 7/14/88 c/o PeopleSoft, Inc. 4440 Rosewood Drive Pleasanton, CA 94588 Margaret L. Taylor 40,000 $200,000 c/o PeopleSoft, Inc. 4440 Rosewood Drive Pleasanton, CA 94588 John McKenna 20,000 $100,000 525 North Old Middletown Road Media, PA 19063 Juergen Sattler 40,000 $200,000 306 Joseph's Way Media, PA 19063 Randa Pehl 20,000 $100,000 920 Drovers Lane Chester Springs, PA 19425
Ulrich Schell 20,000 $100,000 Bruchhauser Strasse 39 68723 Schwetzingen Germany Stephen R. Levy 50,000 $250,000 300 Boylston Street #1204 Boston, MA 02116 Les Hayman 20,000 $100,000 SAP Australia Level 1 Northside Garden 168 Walker Street North Sydney, N.S.W. 2060 Australia Onelux, Inc. 50,000 $250,000 P.O. Box 438 Road Town Tortola British Virgin Islands Anthony Harris 40,000 $200,000 SAP Australia Level 1 Northside Garden 168 Walker Street North Sydney, N.S.W. 2060 Australia NEC Corporation 200,000 $1,000,000 7-1 Shiba 5-chome Minato-ku Tokyo 108-01 Japan Informix Software Inc. 200,000 $1,000,000 4100 Bohannan Drive Menlo Park, CA 94025
EX-10.24 16 STOCK PURCHASE AGREEMENT (J. DONOVAN) Exhibit 10.24 STOCK PURCHASE AGREEMENT AGREEMENT, made as of the 22nd day of February 1996, between John J. Donovan (the "Buyer") and Len Hafetz (the "Seller"). WHEREAS, the Seller is the registered owner of Four Hundred Thousand (400,000) shares (the "Shares") of the common stock of Business@Web, Inc., a Delaware corporation (the "Company"); and WHEREAS, the Seller and the Buyer have reached an understanding with respect to the sale by the Seller and the purchase by the Buyer of the Shares; ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. Sale of Capital Stock. The Seller hereby agrees to sell to the Buyer, --------------------- and the Buyer hereby agrees to purchase from the Seller, all of the Shares, at a purchase price of Five Dollars ($5.00) per share, for an aggregate purchase price of Two Million Dollars ($2,0000,000) (the "Purchase Price"). The purchase and sale of the Shares contemplated hereunder shall take place at a closing to be held on March 31, 1996 (or such earlier date as the Buyer may determine) at which closing the Seller shall deliver to the Buyer, against payment by the Buyer of the full Purchase Price for the Shares, the certificate representing the Shares, together with stock powers executed in blank in form sufficient to permit transfer of the Shares to the Buyer on the books of the Company . 2. Representations and Warranties of the Seller. The Seller represents -------------------------------------------- and warrants to the Buyer as follows: (a) Ownership of the Shares. The Seller is the lawful owner of the ----------------------- Shares, and the Seller has the full power and authority to sell such Shares, free and clear of any liens or encumbrances whatsoever. All of the Shares have been, to the best knowledge of the Seller, validly issued and are fully paid and nonassessable; and no person has any present or future right (conditional, preemptive or otherwise) to acquire any of the Shares. (b) No Breach or Conflict. The sale of the Shares contemplated by this --------------------- Agreement does not conflict with, or result in a breach of, or a default under, or give rise to a right of acceleration under, any agreement or instrument to which the Seller is a party or by which the Shares are bound. (c) Familiarity with Company Equity Offering Objectives. The Seller is --------------------------------------------------- aware that the Company is engaged in a private placement of shares of the Company's Preferred Stock based on a Company valuation of $100,000,000. The Seller also understands that it is the objective of the Company, at some time in the future, to offer shares of its Common Stock to the public pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act") and that additional shares of Common Stock may be included therein to be sold for the account of individual shareholders of the Company. The Seller acknowledges that, in the event such public offering is consummated, the shares sold by the Company and by selling shareholders may be offered at a price in excess of the Purchase Price to be paid by the Buyer for purchase of the Shares hereunder and that the Shares may be included among the shares to be registered for sale in such offering. (d) Truth and Completeness of Representations and Warranties. None of the -------------------------------------------------------- information contained in the representations and warranties of the Seller set forth in this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 3. Representations and Warranties of the Buyer. The Buyer represents and ------------------------------------------- warrants to the Seller as follows: (a) Investment Intent. The Buyer is purchasing the Shares for ----------------- investment and has no present intent of engaging in a distribution (as such term is defined in the Securities Act) of such Shares. (b) Knowledge and Experience. The Buyer is knowledgeable and in ------------------------ businesses of the sort conducted by the Company and the Buyer acknowledges that he has had the opportunity to make inquiry of officers and management employees of the Company concerning the business and financial condition of the Company and has received answers to its inquiries that he considers fully responsive and satisfactory. (c) Investment Risk. The Buyer understands that there is no public --------------- market for the Shares and that the Buyer may be required to hold the Shares indefinitely. The Buyer is capable of evaluating the merits and risks involved in the acquisition of the Shares and is capable of bearing the economic risk of such investment. 4. Conditions to the Buyer's Obligations. The obligations of the Buyer ------------------------------------- hereunder shall be subject to the satisfaction, as of the date of closing, of the following conditions: (a) Truth and Accuracy of Seller's Representations The ---------------------------------------------- representations and warranties of the Seller made herein shall have been true and correct when made and shall be true and correct in all material respects on and as of the closing date. (b) Absence of Material Adverse Change. There shall not have occurred ---------------------------------- any event which, in the reasonable judgment of the Buyer, has resulted or is likely to result in a material adverse change in the Company or the Company's business, financial condition or prospects. (c) Litigation. There shall not be pending or threatened any ---------- litigation, investigation or proceeding challenging the transactions contemplated hereby. 5. Brokers. The Seller and the Buyer each represents and warrants to the ------- other that he has not engaged any broker or other person who would be entitled to any brokerage fee or commission with respect to the execution of this Agreement or the consummation of the transactions contemplated hereby. The Seller and the Buyer each agrees to indemnify and hold harmless the other against and in respect of any and all liabilities or expenses which may be incurred by the other as a result of claims asserted against the indemnified party or the Company by any broker or other person claiming brokerage commissions or finder's fees on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby. 6. Successors and Assigns. This Agreement shall be binding upon and shall ---------------------- inure to the benefit of the undersigned parties and their respective successors and assigns. The rights and obligations of the Buyer hereunder may be assigned by him, in whole or in part, to any person or entity; provided, however, that such assignment shall not relieve the Buyer of his obligation hereunder to purchase the Shares in the event the assignee or assignees breach such obligation. 7. Entire Agreement and Amendments. This documents represents the entire ------------------------------- agreement of the parties, and no other prior written or oral representation or understanding of the parties shall have any further force or effect. The Buyer and the Seller each represents and warrants to the other that, in entering this Agreement, he has relied on no statements, representations, inducements or promises made by such other party except as are expressly set forth in this Agreement. This Agreement may be modified only by a subsequent writing signed by both parties to this Agreement. Any provision hereof may be waived in any case by the written action of the party for whose benefit such provision was intended. 8. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE BUYER: THE SELLER: /s/ John J. Donovan /s/ Len Hafetz _____________________________ _____________________________________ John J. Donovan Len Hafetz PABOS:WEK:236786_1 -3- EX-10.25 17 ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 10.25 ASSIGNMENT AND ASSUMPTION AGREEMENT Agreement made as of March 15, 1996 by and between John J. Donovan ("Assignor") and Business@Web, Inc., a Delaware corporation ("Assignee"). WHEREAS, pursuant to a certain Stock Purchase Agreement made as of February 22, 1996 (the "Purchase Agreement") by and between Assignor and Len Hafetz ("Hafetz"), Assignor has agreed to purchase from Hafetz, and Hafetz has agreed to sell to Assignor, 400,000 shares (the "Shares") of the Common Stock of Assignee for an aggregate purchase price of $2,000,000; and WHEREAS, pursuant to Section 6 of the Purchase Agreement, Assignor has the right to assign his rights, duties and obligations under the Purchase Agreement to any person or entity; and WHEREAS, Assignor desires to assign to Assignee all of his rights and interest in the Purchase Agreement and Assignee desires to assume all of Assignor's covenants and obligations under the Purchase Agreement, and thereby to purchase, and retire, the Shares. NOW, THEREFORE, it is agreed to between the parties as follows: 1. Assignment. For and in consideration of the sum of One Dollar ($1.00) and ----------- other good and valuable consideration, including the agreement of the Assignee hereinafter set forth, the Assignor hereby irrevocably assigns and transfers to Assignee and its successors and assigns, all of Assignor's right, title and interest in and to the Purchase Agreement. 2. Assumption. Assignee hereby agrees and does accept the assignment set ----------- forth in Section 1 and expressly assumes and agrees to keep, perform, and fulfill all of the terms, covenants, conditions and obligations required to be kept by Assignor under the Purchase Agreement. 3. No Discharge or Release. This Assignment does not discharge or release ------------------------ Assignor from any of its obligations under the Purchase Agreement. 4. Binding on Successors. This Agreement shall be binding upon and inure to ---------------------- the benefit of the parties hereto, and their respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed the Agreement the date and year aforesaid. ASSIGNOR: /s/ John J. Donovan ------------------------------------------ John J. Donovan ASSIGNEE: BUSINESS@WEB, INC. By: /s/ James G. Nondorf -------------------------------------- PABOS:WEK:258429_1 -2- EX-10.26 18 STOCK REPURCHASE AGREEMENT (J. NONDORF) Exhibit 10.26 BUSINESS@WEB, INC. STOCK REPURCHASE AGREEMENT AGREEMENT, made as of the 4th day of April 1996, between Business@Web, Inc., a Delaware corporation (the "Company") and James G. Nondorf (the "Seller"). WHEREAS, the Seller is willing to sell to the Company, and the Company desires to repurchase from the Seller and retire, One Hundred Thousand (100,000) shares (the "Shares") of the common stock of the Company currently held by the Seller; ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. Sale of Capital Stock. The Seller hereby agrees to sell to the --------------------- Company, and the Company hereby agrees to repurchase from the Seller, all of the Shares. The Company hereby acknowledges that the Shares do not represent the entire equity interest of the Seller in the Company and agrees that the transactions contemplated by this Agreement will not affect the Seller's interest in any other security of the Company held by the Seller. 2. Purchase Price. The repurchase price for the Shares is Five Dollars -------------- ($5.00) per share, for an aggregate purchase price of Five Hundred Thousand Dollars ($500,000) (the "Purchase Price"). The Purchase Price shall be paid in full, against delivery by the Seller to the Buyer of a certificate or certificates representing the Shares, accompanied by stock powers in form sufficient to permit transfer and/or cancellation of the Shares. 3. Representations and Warranties of the Seller. The Seller represents -------------------------------------------- and warrants to the Company as follows: (a) Capital Stock. The Seller is the lawful owner of the Shares, and ------------- the Seller has the full power and authority to sell such Shares, free and clear of any liens or encumbrances whatsoever. All of the Shares have been, to the best knowledge of the Seller, validly issued and are fully paid and nonassessable; and no person has any present or future right (conditional, preemptive or otherwise) to acquire any of the Shares. (b) No Breach or Conflict. The sale of the Shares contemplated by this --------------------- Agreement does not conflict with, or result in a breach of, or a default under, or give rise to a right of acceleration under, any agreement or instrument to which the Seller is a party. (c) Truth and Completeness of Representations and Warranties. None of -------------------------------------------------------- the information contained in the representations and warranties of the Seller set forth in this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 4. Representations, Warranties and Agreements of the Company. The Company --------------------------------------------------------- represents and warrants to the Seller, and agrees with the Seller, as follows: (a) Authorization of Repurchase. The repurchase of the Shares --------------------------- pursuant to this Agreement has been authorized by all necessary consents of the Board of Directors and shareholders of the Company. The consummation of the transactions contemplated hereby will not constitute a breach of, or give rise to any liability of the Company under, the Company's Restated Certificate of Incorporation or By-Laws or any agreement to which the Company is a party or by which the Company or any of its assets is bound. (b) Waiver. The Company acknowledges that the Seller holds, or has the ------ right to acquire pursuant to a certain Stock Option Agreement, 100,000 shares of the Company's Common Stock and the Company understands that the Seller proposes to sell such shares in a private transaction to Klaus Besier. The Company hereby consents to such sale and waives its rights of first refusal with respect to such proposed sale. 5. Successors and Assigns. This Agreement shall be binding upon and shall ---------------------- inure to the benefit of the undersigned parties and their respective heirs, personal representatives, successors and assigns. 6. Entire Agreement and Amendments. This documents represents the entire ------------------------------- agreement of the parties with respect to the subject matter hereof, and no other agreement with respect thereto, including any prior written or oral representation or understanding of the parties, shall have any further force or effect. The Company and the Seller each represents and warrants to the other that, in entering this Agreement,it or he has relied on no statements, representations, inducements or promises made by such other party except as are expressly set forth in this Agreement. This Agreement may be modified only by a subsequent writing signed by both parties to this Agreement. 7. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of Delaware. -2- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE COMPANY: BUSINESS@WEB, INC. By: /s/ Klaus Besier --------------------------------- THE SELLER: /s/ James G. Nondorf _________________________________ James G. Nondorf PABOS:WEK:248604_1 -3- EX-10.27 19 STOCK REPURCHASE AGREEMENT (J & S) Exhibit 10.27 BUSINESS@WEB, INC. STOCK REPURCHASE AGREEMENT AGREEMENT, made as of the 15th day of April 1996, between Business@Web, Inc., a Delaware corporation (the "Company") and J&S Limited Partnership, a Massachusetts limited partnership (the "Seller"). WHEREAS, the Seller is willing to sell to the Company, and the Company desires to repurchase from the Seller and retire, Three Hundred Fifty Thousand (350,000) shares (the "Shares") of the common stock of the Company currently held by the Seller; ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. Sale of Capital Stock. The Seller hereby agrees to sell to the --------------------- Company, and the Company hereby agrees to repurchase from the Seller, all of the Shares. The Company hereby acknowledges that the Shares do not represent the entire equity interest of the Seller in the Company and agrees that the transactions contemplated by this Agreement will not affect the Seller's interest in any other security of the Company held by the Seller. 2. Purchase Price. The repurchase price for the Shares is Five Dollars -------------- ($5.00) per share, for an aggregate purchase price of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) (the "Purchase Price"). The Purchase Price shall be paid in full, against delivery by the Seller to the Company of a certificate or certificates representing the Shares, accompanied by stock powers in form sufficient to permit transfer and/or cancellation of the Shares. 3. Representations and Warranties of the Seller. The Seller represents -------------------------------------------- and warrants to the Company as follows: (a) Ownership of Shares. The Seller is the lawful owner of the ------------------- Shares, and the Seller has the full power and authority to sell such Shares, free and clear of any liens or encumbrances whatsoever. All of the Shares have been, to the best knowledge of the Seller, validly issued and are fully paid and nonassessable; and no person has any present or future right (conditional, preemptive or otherwise) to acquire any of the Shares. (b) No Breach or Conflict. The sale of the Shares contemplated by this --------------------- Agreement does not conflict with, or result in a breach of, or a default under, or give rise to a right of acceleration under, any agreement or instrument to which the Seller is a party or by which the Seller or the Shares are bound. (c) Truth and Completeness of Representations and Warranties. None -------------------------------------------------------- of the information contained in the representations and warranties of the Seller set forth in this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 4. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to the Seller that the repurchase of the Shares pursuant to this Agreement has been authorized by all necessary consents of the Board of Directors and shareholders of the Company. The consummation of the transactions contemplated hereby will not constitute a breach of, or give rise to any liability of the Company under, the Company's Restated Certificate of Incorporation or By-Laws or any agreement to which the Company is a party or by which the Company or any of its assets is bound. 5. Successors and Assigns. This Agreement shall be binding upon and shall ---------------------- inure to the benefit of the undersigned parties and their respective successors and assigns. 6. Entire Agreement and Amendments. This document represents the entire ------------------------------- agreement of the parties with respect to the subject matter hereof, and no other agreement with respect thereto, including any prior written or oral representation or understanding of the parties, shall have any further force or effect. Each of the Company and the Seller represents and warrants to the other that, in entering this Agreement, it has relied on no statements, representations, inducements or promises made by such other party except as are expressly set forth in this Agreement. This Agreement may be modified only by a subsequent writing signed by both parties to this Agreement. 7. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE SELLER: THE COMPANY: J&S LIMITED PARTNERSHIP BUSINESS@WEB, INC. By CONTROLLER CORP.,INC., its general partner By: /s/ Klaus Besier ---------------------------- By: /s/ John J. Donovan -------------------------- PABOS:WEK:255088_1 -2- EX-10.28 20 STOCK REPURCHASE AGREEMENT (HARRINGTON) Exhibit 10.28 BUSINESS@WEB, INC. STOCK REPURCHASE AGREEMENT AGREEMENT, made as of the 15th day of April 1996, between Business@Web, Inc., a Delaware corporation (the "Company") and Harrington Trust Limited as Trustee of the Appleby Trust, a Bermuda trust (the "Seller"). WHEREAS, the Seller is willing to sell to the Company, and the Company desires to repurchase from the Seller and retire, Three Hundred Fifty Thousand (350,000) shares (the "Shares") of the common stock of the Company currently held by the Seller; ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS: 1. Sale of Capital Stock. The Seller hereby agrees to sell to the --------------------- Company, and the Company hereby agrees to repurchase from the Seller, all of the Shares. The Company hereby acknowledges that the Shares do not represent the entire equity interest of the Seller in the Company and agrees that the transactions contemplated by this Agreement will not affect the Seller's interest in any other security of the Company held by the Seller. 2. Purchase Price. The repurchase price for the Shares is Five Dollars -------------- ($5.00) per share, for an aggregate purchase price of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) (the "Purchase Price"). The Purchase Price shall be paid in full, against delivery by the Seller to the Company of a certificate or certificates representing the Shares, accompanied by stock powers in form sufficient to permit transfer and/or cancellation of the Shares. 3. Representations and Warranties of the Seller. The Seller represents -------------------------------------------- and warrants to the Company as follows: (a) Ownership of Shares. The Seller is the lawful owner of the ------------------- Shares, and the Seller has the full power and authority to sell such Shares, free and clear of any liens or encumbrances whatsoever. All of the Shares have been, to the best knowledge of the Seller, validly issued and are fully paid and nonassessable; and no person has any present or future right (conditional, preemptive or otherwise) to acquire any of the Shares. (b) No Breach or Conflict. The sale of the Shares contemplated by this --------------------- Agreement does not conflict with, or result in a breach of, or a default under, or give rise to a right of acceleration under, the Agreement of Limited Partnership or the Limited partnership Certificate of the Seller or any other agreement or instrument to which the Seller is a party or by which the Seller or the Shares are bound. (c) Truth and Completeness of Representations and Warranties. None of -------------------------------------------------------- the information contained in the representations and warranties of the Seller set forth in this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 4. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to the Seller that the repurchase of the Shares pursuant to this Agreement has been authorized by all necessary consents of the Board of Directors and shareholders of the Company. The consummation of the transactions contemplated hereby will not constitute a breach of, or give rise to any liability of the Company under, the Company's Restated Certificate of Incorporation or By-Laws or any agreement to which the Company is a party or by which the Company or any of its assets is bound. 5. Successors and Assigns. This Agreement shall be binding upon and shall ---------------------- inure to the benefit of the undersigned parties and their respective successors and assigns. 6. Entire Agreement and Amendments. This document represents the entire ------------------------------- agreement of the parties with respect to the subject matter hereof, and no other agreement with respect thereto, including any prior written or oral representation or understanding of the parties, shall have any further force or effect. Each of the Company and the Seller represents and warrants to the other that, in entering this Agreement, it has relied on no statements, representations, inducements or promises made by such other party except as are expressly set forth in this Agreement. This Agreement may be modified only by a subsequent writing signed by both parties to this Agreement. 7. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE SELLER: THE COMPANY: HARRINGTON TRUST LIMITED BUSINESS@WEB, INC. as Trustee of The Appleby Trust By: /s/ James G. Nondorf ------------------------------ By: /s/ John Campbell Director -------------------------- By: /s/ Michael Pelgrin Asst. Secry -------------------------- PABOS:WEK:255088_1 -2- EX-10.29 21 FIVE-YEAR 9% SUBORDINATED NOTES EXHIBIT 10.29 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE. OBJECT POWER, INCORPORATED Five-Year 9% Subordinated Note ------------------------------ $750,000.00 Cambridge, Massachusetts December 29, 1995 Object Power, Incorporated, a Delaware corporation (the "Company"), for value received, hereby promises to pay to Harrington Trust Limited as Trustee of The Appleby Trust, or registered assigns, the principal sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) on December 31, 2000, together with interest (computed on the basis of a 360-day year) from the date hereof on the unpaid balance of such principal amount from time to time outstanding at the rate of nine percent (9%) per annum. 1. Subordination ------------- (a) Subordination to Senior Indebtedness. The indebtedness evidenced by ------------------------------------ this Note, and the payment of the principal hereof, and any interest hereon, is wholly subordinated, junior and subject in right of payment, to the extent and in the manner hereinafter provided, to the prior payment of all Senior Indebtedness of the Company now outstanding or hereinafter incurred. "Senior Indebtedness" means the principal of, and premium, if any, and interest on all indebtedness of the Company, to banks, trust companies, insurance companies and other financial institutions, including commercial paper and accounts receivable sold or assigned by the Company to such institutions, any and all deferrals, renewals, extensions and refundings of any such indebtedness or obligations, and any other indebtedness of the Company which the Company and the holder of this Note may hereafter from time to time expressly and specifically agree in writing shall constitute Senior Indebtedness. (b) No Payment if Default in Senior Indebtedness. No payment on account of -------------------------------------------- principal of or interest on this Note shall be made, and this Note shall not be redeemed or purchased directly or indirectly by the Company (or any of its subsidiaries), if at the time of such payment or purchase or immediately after giving effect thereto, (i) there shall exist a default in any payment with respect to any Senior Indebtedness or (ii) there shall have occurred an event of default (other than a default in the payment of amounts due thereon) with respect any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. (c) Payment upon Dissolution, Etc. Upon payment or distribution of assets ----------------------------- of the Company of any kind or character, whether in cash property or securities, to creditors upon any dissolution or winding-up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, in bankruptcy, insolvency, receivership or other proceedings, all principal and interest due upon any Senior Indebtedness shall first be paid in full, or payment thereof in full duly provided for, before the holder of this Note shall be entitled to receive or, if received, to retain any payment or distribution on account of this Note; and upon any such dissolution or winding-up or liquidation or reorganization, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 1 shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the holder of this Note who shall have received such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to each such holder on the basis of the respective --- ---- amounts of such Senior Indebtedness held by such holder) or their representatives to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holder of this Note. In the event of any such dissolution, winding-up, liquidation or reorganization of the Company, the holder of this Note shall be entitled to be paid one hundred percent (100%) of the principal amount thereof and accrued interest thereon before any distribution of assets shall be made among the holders of any class of shares of the capital stock of the Company in their capacities as holders of such shares. For purposes of this paragraph (c), the words "assets" and "cash, property or securities" shall not be deemed to include shares of Common Stock of the Company as reorganized or readjusted, or securities of the Company or any other person provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Section 1 with respect to this Note to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the -------- new person, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. (d) Subrogation. Subject to payment in full of all Senior Indebtedness, ----------- the holder of this Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of the assets of the Company made on such Senior Indebtedness until all principal and interest on the Senior Indebtedness shall be paid in full; and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the holder of this Note would be entitled except for the subordination provisions of this Section 1 shall, as between the holder of this Note and the Company and/or its creditors other than the holders of the Senior Indebtedness, be deemed to be a payment on account of the Senior Indebtedness. (e) Rights of Holder Unimpaired. The provisions of this Section 1 are, and --------------------------- are intended, solely for the purposes of defining the relative rights of the holder of this Note (solely in its capacity as holder of this Note) and the holders of Senior Indebtedness and nothing in this Section 1 shall impair, as between the Company and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal thereof and interest thereon, in accordance with the terms hereof, nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default, subject to the rights set forth above of holders of Senior Indebtedness to receive cash, property, or securities otherwise payable or deliverable to the holder of this Note. Furthermore, no provision 2 hereof shall prevent the holder of this Note from exercising any rights it may have against the Company or against any holder of Senior Indebtedness in any capacity other than as holder of this Note. (f) Holders of Senior Indebtedness. These provisions regarding ------------------------------ subordination will constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness; such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees under such provisions to the same extent as if they were named therein, and they or any of them may proceed to enforce such subordination. The holder of this Note shall execute and deliver to any holder of Senior Indebtedness (i) any such instrument as such holder of Senior Indebtedness may request in order to confirm the subordination of this Note to such Senior Indebtedness upon the terms set forth in this Note, and (ii) any powers of attorney specifically confirming the rights of holders of Senior Indebtedness to enforce such subordination and all such proofs of claim, assignments of claim and other instruments as may be requested by the holders of Senior Indebtedness or their representatives to enforce all claims upon or in respect of this Note. (g) Payments on Subordinated Note. Subject to paragraph (c), the Company ----------------------------- may make payments of the principal of, and any interest or premium on, this Note, if at the time of payment, and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Indebtedness and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist. 2. Redemption ---------- (a) Subject to the subordination provisions of Section 1, this Note may, at the option of the Company, be called for redemption, in whole or in part at any time, at one hundred percent (100%) of the principal amount so redeemed, plus accrued and unpaid interest on such redeemed principal amount to the date fixed for redemption. The Company shall give at least thirty (30) days prior written notice of redemption to the registered holder at its address as shown in the Note Register (as defined below), and the notice of redemption shall specify the date and place designated for redemption. (b) On or after the redemption date fixed in the notice of redemption, no further interest shall accrue on the principal amount so redeemed. Payment of the redemption price shall be made to the registered holder of this Note upon presentation and surrender of this Note accompanied by a duly executed instrument of transfer in blank, at the principal executive office of the Company. In the event of a partial redemption, this Note shall be presented to the Company for endorsement of the amount of payment and date paid as a condition precedent to such payment. 3. No Prepayment of Principal -------------------------- Except as otherwise provided in Section 2, the principal indebtedness represented by this Note may not be prepaid in whole or in part, without the prior written consent of the holder of this Note. 3 4. Default ------- The entire unpaid principal of this Note and the interest then accrued on this Note shall become and be immediately due and payable upon written demand of the holder of this Note, without any other notice or demand of any kind or any presentment or protest, if any one of the following events (an "Event of Default") shall occur and be continuing at the time of such demand, whether voluntarily or involuntarily, or, without limitation, occurring or brought about by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any governmental body: (a) If default shall be made in the payment of any installment of principal or interest on this Note, and such default shall remain unremedied for ten (10) days; or (b) If the Company (i) makes a general assignment for the benefit of creditors, (ii) applies for, consents to, acquiesces in, files a petition or an answer seeking, or admits (by answer, default or otherwise) the material allegations of a petition filed against it seeking the appointment of a trustee, receiver, liquidator or assignee in bankruptcy or insolvency of itself or of all or a substantial portion of its assets, or a reorganization, arrangement with creditors or other remedy, relief or adjudication available to or against a bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law relating to relief of debtors, or (iii) admits in writing its inability to pay its debts generally as they become due; or (c) If a decree, order or judgment shall have been entered adjudging the Company a bankrupt or insolvent, or appointing a receiver, liquidator, trustee or assignee in bankruptcy or insolvency for it or for all or a substantial portion of its assets, or approving a petition seeking a reorganization, arrangement, or the winding-up or liquidation of its affairs on the grounds of insolvency or nonpayment of debts, and such decree, order or judgment shall remain undischarged and unstayed for a period of sixty (60) days; or if any substantial part of the property of the Company is sequestered or attached and shall not be returned to the possession of the Company or such subsidiary or released from such attachment within sixty (60) days. 5. Note Register ------------- (a) The Company shall keep at its principal executive office a register (herein sometimes referred to as the "Note Register"), in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), the Company shall provide for the registration and transfer of this Note. (b) Whenever this Note shall be surrendered at the principal executive office of the Company for transfer or exchange, accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the holder hereof or his attorney duly authorized in writing, the Company shall execute and deliver in exchange therefor a new Note or Notes, as may be requested by such holder, in the same aggregate unpaid principal amount and payable on the same date as the principal amount of the Note or Notes so surrendered; each such new Note shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Note or Notes so surrendered and shall be in such principal amount and registered in such name or names as such holder may designate in writing. 4 (c) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note and of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Note (in case of mutilation) the Company will make and deliver in lieu of this Note a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on the unpaid principal amount of this Note in lieu of which such new Note is made and delivered. 6. General ------- (a) Successors and Assigns. This Note, and the obligations and rights of ---------------------- the Company hereunder, shall be binding upon and inure to the benefit of the Company, the holder of this Note, and their respective heirs, successors and assigns. (b) Recourse. Recourse under this Note shall be to the general unsecured -------- assets of the Company only and in no event to the officers, directors of stockholders of the Company. (c) Changes. Changes in or additions to this Note may be made or ------- compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), only upon written consent of the Company and the holder of this Note. (d) Currency. All payments shall be made in such coin or currency of the -------- United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts. (e) Notices. All notices, requests, consents and demands shall be made in ------- writing and shall be mailed postage prepaid, or delivered by hand, to the Company or to the holder hereof at their respective addresses set forth below or to such other address as may be furnished in writing to the other party hereto: If to the holder: Harrington Trust Limited Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda If to the Company: Object Power, Incorporated 219 Vassar Street Cambridge, Massachusetts 02139 (f) Saturdays, Sundays, Holidays. If any date that may at any time be ---------------------------- specified in this Note as a date for the making of any payment of principal or interest under this Note shall fall on Saturday, Sunday or on a day which in the City of Boston shall be a legal holiday, then the date for the making of that payment shall be the next subsequent day which is not a Saturday, Sunday or legal holiday. 5 (g) Costs of Collection. In the event of any default under this Note, the ------------------- Company shall pay any costs of collection incurred by the holder (including reasonable attorneys' fees). (h) Governing Law. This Note shall be construed and enforced in accordance ------------- with, and the rights of the parties shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed instrument on the date first above written by the duly authorized President of the Company. OBJECT POWER, INCORPORATED By:/s/ James G. Nondorf ------------------------------ President (Corporate Seal) ATTEST:/s/ William E. Kelly ----------------------------- Secretary 6 EX-10.30 22 FIVE YEAR 6% SUBORDINATED NOTES EXHIBIT 10.30 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE. OBJECT POWER, INCORPORATED Five-Year 6% Convertible Subordinated Note ------------------------------------------ $750,000.00 Cambridge, Massachusetts May 3, 1995 Object Power, Incorporated, a Delaware corporation (the "Company"), for value received, hereby promises to pay to Harrington Trust Limited as Trustee of The Appleby Trust, or registered assigns, the principal sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) on April 30, 2000, together with interest (computed on the basis of a 360-day year) from the date hereof on the unpaid balance of such principal amount from time to time outstanding at the rate of six percent (6%) per annum. 1. Subordination ------------- (a) Subordination to Senior Indebtedness. The indebtedness evidenced by ------------------------------------ this Note, and the payment of the principal hereof, and any interest hereon, is wholly subordinated, junior and subject in right of payment, to the extent and in the manner hereinafter provided, to the prior payment of all Senior Indebtedness of the Company now outstanding or hereinafter incurred. "Senior Indebtedness" means the principal of, and premium, if any, and interest on all indebtedness of the Company, to banks, trust companies, insurance companies and other financial institutions, including commercial paper and accounts receivable sold or assigned by the Company to such institutions, any and all deferrals, renewals, extensions and refundings of any such indebtedness or obligations, and any other indebtedness of the Company which the Company and the holder of this Note may hereafter from time to time expressly and specifically agree in writing shall constitute Senior Indebtedness. (b) No Payment if Default in Senior Indebtedness. No payment on account of -------------------------------------------- principal of or interest on this Note shall be made, and this Note shall not be redeemed or purchased directly or indirectly by the Company (or any of its subsidiaries), if at the time of such payment or purchase or immediately after giving effect thereto, (i) there shall exist a default in any payment with respect to any Senior Indebtedness or (ii) there shall have occurred an event of default (other than a default in the payment of amounts due thereon) with respect any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. (c) Payment upon Dissolution, Etc. Upon payment or distribution of assets ----------------------------- of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, in bankruptcy, insolvency, receivership or other proceedings, all principal and interest due upon any Senior Indebtedness shall first be paid in full, or payment thereof in full duly provided for, before the holder of this Note shall be entitled to receive or, if received, to retain any payment or distribution on account of this Note; and upon any such dissolution or winding-up or liquidation or reorganization, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 1 shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the holder of this Note who shall have received such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to each such holder on the basis of the respective --- ---- amounts of such Senior Indebtedness held by such holder) or their representatives to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holder of this Note. In the event of any such dissolution, winding-up, liquidation or reorganization of the Company, the holder of this Note shall be entitled to be paid one hundred percent (100%) of the principal amount thereof and accrued interest thereon before any distribution of assets shall be made among the holders of any class of shares of the capital stock of the Company in their capacities as holders of such shares. For purposes of this paragraph (c), the words "assets" and "cash, property or securities" shall not be deemed to include shares of Common Stock of the Company as reorganized or readjusted, or securities of the Company or any other person provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Section 1 with respect to this Note to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the -------- new person, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. (d) Subrogation. Subject to payment in full of all Senior Indebtedness, ----------- the holder of this Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of the assets of the Company made on such Senior Indebtedness until all principal and interest on the Senior Indebtedness shall be paid in full; and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the holder of this Note would be entitled except for the subordination provisions of this Section 1 shall, as between the holder of this Note and the Company and/or its creditors other than the holders of the Senior Indebtedness, be deemed to be a payment on account of the Senior Indebtedness. (e) Rights of Holder Unimpaired. The provisions of this Section 1 are, and --------------------------- are intended, solely for the purposes of defining the relative rights of the holder of this Note (solely in its capacity as holder of this Note) and the holders of Senior Indebtedness and nothing in this Section 1 shall impair, as between the Company and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal thereof and interest thereon, in accordance with the terms hereof, nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default, subject to the rights set forth above of holders of Senior Indebtedness to receive cash, property, or securities otherwise payable or deliverable to the holder of this Note. Furthermore, no provision 2 hereof shall prevent the holder of this Note from exercising any rights it may have against the Company or against any holder of Senior Indebtedness in any capacity other than as holder of this Note. (f) Holders of Senior Indebtedness. These provisions regarding ------------------------------ subordination will constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness; such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees under such provisions to the same extent as if they were named therein, and they or any of them may proceed to enforce such subordination. The holder of this Note shall execute and deliver to any holder of Senior Indebtedness (i) any such instrument as such holder of Senior Indebtedness may request in order to confirm the subordination of this Note to such Senior Indebtedness upon the terms set forth in this Note, and (ii) any powers of attorney specifically confirming the rights of holders of Senior Indebtedness to enforce such subordination and all such proofs of claim, assignments of claim and other instruments as may be requested by the holders of Senior Indebtedness or their representatives to enforce all claims upon or in respect of this Note. (g) Payments on Subordinated Note. Subject to paragraph (c), the Company ----------------------------- may make payments of the principal of, and any interest or premium on, this Note, if at the time of payment, and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Indebtedness and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist. 2. Optional Conversion ------------------- (a) Conversion. The holder of this Note has the right, at its option, at ---------- any time prior to the close of business on April 14, 2000, to convert the outstanding principal amount of this Note into fully paid and non-assessable shares of Common Stock of the Company ("Common Stock"), at the rate of one share of Common Stock for each $0.44 of the principal amount hereof surrendered for conversion, subject to adjustment as set forth herein. (b) Exercise of Conversion Privilege. -------------------------------- (i) In order to exercise the conversion privilege, the holder of this Note shall surrender this Note to the Company during usual business hours at the Company's principal executive office, accompanied by written notice in form satisfactory to the Company that the holder elects to convert the principal amount of this Note or a portion hereof specified in such notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. The Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the name in which the Note is then registered, be duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. (ii) As promptly as practicable after the surrender of this Note for conversion and the 3 receipt of the notice, as required above, the Company shall deliver or cause to be delivered at its principal executive office to the holder, or on the holder's written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of this Note, or portion hereof, in accordance with the provisions hereof. Such conversion shall be deemed to have been made out the time this Note shall have been surrendered for conversion and the notice required above shall have been received by the Company at its principal executive office (the "Conversion Date"), and the holder in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on the Conversion Date the holder of record of the shares represented thereby. If less than the entire outstanding principal amount of this Note is being converted, a new Note shall promptly be delivered to the holder for the unconverted principal balance and shall be of like tenor as to all terms as the Note surrendered. (c) Adjustment of Conversion Rate. ----------------------------- (i) In case the Company shall: (A) declare a stock dividend on its Common Stock, (B) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, (C) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, or (D) cancel its class of Common Stock and convert all of the outstanding shares of Common Stock into another class of securities of the Company, the number of shares of Common Stock issuable upon conversion of this Note immediately prior to any such event shall be adjusted proportionately so that thereafter the holder of this Note shall be entitled to receive upon conversion of this Note the securities which such holder would have owned after the happening of any of the events described above had this Note been converted immediately prior to the happening of such event, provided that the conversion price shall in no event be reduced to less than the par value of the shares issuable upon conversion. An adjustment made pursuant to this paragraph shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or combination. (ii) If, prior to maturity of this Note, the Company shall at any time consolidate or merge with another corporation (other than a merger or consolidation in which the Company is the surviving corporation), the registered holder hereof will thereafter be entitled to receive, upon the conversion hereof, the securities or property to which a holder of the number of shares of Common Stock then deliverable upon the conversion hereof would have been entitled upon such consolidation or merger, and the Company shall take such steps in connection with such consolidation or merger as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter deliverable upon the conversion of this Note. (d) Notice. In case the Company proposes to take any action referred to in ------ paragraph 4 (c) above, or to effect the liquidation, dissolution or winding up of the Company, then the Company shall cause notice thereof to be mailed to the registered holder of this Note, at such holder's address appearing in the Note Register (as defined below), at least twenty (20) days prior to the date on which the transfer books of the Company shall close or a record be taken for such stock dividend or the date when such reclassification, liquidation, dissolution or winding up shall be effective, as the case may be. (e) Statement of Adjustment. Whenever the conversion rate shall be ----------------------- adjusted as provided above, the Company shall forthwith deliver to the holder of this Note, at said holder's address appearing in the Note Register, a statement, signed by the Chairman of the Board, the President, any Vice President, the Treasurer or Secretary of the Company, showing in reasonable detail the facts requiring such adjustment and the conversion rate that will be effective after such adjustment. Where appropriate, such notice may be given in advance and may be included as part of a notice required to be mailed under the provisions of paragraph (d) hereof. (f) Fractional Shares. No fractional shares of Common Stock shall be ----------------- issuable upon conversion of this Note, but an adjustment in cash will be made in respect of any fraction of a share which would otherwise be issuable upon the surrender of this Note, or portion hereof, for conversion. (g) Accrued Interest. Upon the conversion of this Note, the Company shall ---------------- not be required to pay any accrued but unpaid interest on the amount so converted up to the Conversion Date. (h) Termination. The conversion privilege of this Note will become wholly ----------- void and of no effect and the rights evidenced hereby will terminate unless exercised in accordance with the terms and provisions hereof prior to the payment in full of the unpaid principal balance of, and all accrued interest on, this Note. (i) Securities Act of 1933. Upon conversion of this Note, the registered ---------------------- holder may be required to execute and deliver to the Company an instrument, in form satisfactory to the Company, representing that the shares issuable upon conversion hereof are being acquired for investment and not with a view to distribution within the meaning of the Securities Act of 1933, as amended. 3. Redemption ---------- (a) Subject to the subordination provisions of Section 1, this Note may, at the option of the Company, be called for redemption, in whole or in part at any time after January 1, 1996, at one hundred percent (100%) of the principal amount so redeemed, plus accrued and unpaid interest on such redeemed principal amount to the date fixed for redemption. The Company shall give at least thirty (30) days prior written notice of redemption to the registered holder at its address as shown in the Note Register (as defined below), and the notice of redemption shall specify the date and place designated for redemption. (b) On or after the redemption date fixed in the notice of redemption, no further interest shall accrue on the principal amount so redeemed, and this Note (to the extent so redeemed) shall cease to be convertible as set forth in Section 2. Payment of the redemption price shall be made to the registered holder of this Note upon presentation and surrender of this Note accompanied by a duly 5 executed instrument of transfer in blank, at the principal executive office of the Company. In the event of a partial redemption, this Note shall be presented to the Company for endorsement of the amount of payment and date paid as a condition precedent to such payment. 4. No Prepayment of Principal -------------------------- Except as otherwise provided in Section 3, the principal indebtedness represented by this Note may not be prepaid in whole or in part, without the prior written consent of the holder of this Note. 5. Default ------- The entire unpaid principal of this Note and the interest then accrued on this Note shall become and be immediately due and payable upon written demand of the holder of this Note, without any other notice or demand of any kind or any presentment or protest, if any one of the following events (an "Event of Default") shall occur and be continuing at the time of such demand, whether voluntarily or involuntarily, or, without limitation, occurring or brought about by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any governmental body: (a) If default shall be made in the payment of any installment of principal or interest on this Note, and such default shall remain unremedied for ten (10) days; or (b) If the Company (i) makes a general assignment for the benefit of creditors, (ii) applies for, consents to, acquiesces in, files a petition or an answer seeking, or admits (by answer, default or otherwise) the material allegations of a petition filed against it seeking the appointment of a trustee, receiver, liquidator or assignee in bankruptcy or insolvency of itself or of all or a substantial portion of its assets, or a reorganization, arrangement with creditors or other remedy, relief or adjudication available to or against a bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law relating to relief of debtors, or (iii) admits in writing its inability to pay its debts generally as they become due; or (c) If a decree, order or judgment shall have been entered adjudging the Company a bankrupt or insolvent, or appointing a receiver, liquidator, trustee or assignee in bankruptcy or insolvency for it or for all or a substantial portion of its assets, or approving a petition seeking a reorganization, arrangement, or the winding-up or liquidation of its affairs on the grounds of insolvency or nonpayment of debts, and such decree, order or judgment shall remain undischarged and unstayed for a period of sixty (60) days; or if any substantial part of the property of the Company is sequestered or attached and shall not be returned to the possession of the Company or such subsidiary or released from such attachment within sixty (60) days. 6. Note Register ------------- (a) The Company shall keep at its principal executive office a register (herein sometimes referred to as the "Note Register"), in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), the Company shall provide for the registration and transfer of this Note. 6 (b) Whenever this Note shall be surrendered at the principal executive office of the Company for transfer or exchange, accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the holder hereof or his attorney duly authorized in writing, the Company shall execute and deliver in exchange therefor a new Note or Notes, as may be requested by such holder, in the same aggregate unpaid principal amount and payable on the same date as the principal amount of the Note or Notes so surrendered; each such new Note shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Note or Notes so surrendered and shall be in such principal amount and registered in such name or names as such holder may designate in writing. (c) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note and of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Note (in case of mutilation) the Company will make and deliver in lieu of this Note a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on the unpaid principal amount of this Note in lieu of which such new Note is made and delivered. 7. General ------- (a) Successors and Assigns. This Note, and the obligations and rights of ---------------------- the Company hereunder, shall be binding upon and inure to the benefit of the Company, the holder of this Note, and their respective heirs, successors and assigns. (b) Recourse. Recourse under this Note shall be to the general unsecured -------- assets of the Company only and in no event to the officers, directors of stockholders of the Company. (c) Changes. Changes in or additions to this Note may be made or ------- compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), only upon written consent of the Company and the holder of this Note. (d) Currency. All payments shall be made in such coin or currency of the -------- United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts. (e) Notices. All notices, requests, consents and demands shall be made in ------- writing and shall be mailed postage prepaid, or delivered by hand, to the Company or to the holder hereof at their respective addresses set forth below or to such other address as may be furnished in writing to the other party hereto: If to the holder: Harrington Trust Limited Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda 7 If to the Company: Object Power, Incorporated 219 Vassar Street Cambridge, Massachusetts 02139 (f) Saturdays, Sundays, Holidays. If any date that may at any time be ---------------------------- specified in this Note as a date for the making of any payment of principal or interest under this Note shall fall on Saturday, Sunday or on a day which in the City of Boston shall be a legal holiday, then the date for the making of that payment shall be the next subsequent day which is not a Saturday, Sunday or legal holiday. (g) Costs of Collection. In the event of any default under this Note, the ------------------- Company shall pay any costs of collection incurred by the holder (including reasonable attorneys' fees). (h) Governing Law. This Note shall be construed and enforced in accordance ------------- with, and the rights of the parties shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed instrument on the date first above written by the duly authorized President of the Company. OBJECT POWER, INCORPORATED By: /s/ John J. Donovan ------------------------------------------------ President (Corporate Seal) ATTEST:/s/ William E. Kelly -------------------------------------- Secretary 8 EX-10.31 23 FIVE YEAR 6% SUBORDINATED NOTES EXHIBIT 10.31 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE. OBJECT POWER, INCORPORATED Five-Year 6% Convertible Subordinated Note ------------------------------------------ $250,000.00 Cambridge, Massachusetts May 3, 1995 Object Power, Incorporated, a Delaware corporation (the "Company"), for value received, hereby promises to pay to J&S Limited Partnership, or registered assigns, the principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00) on April 30, 2000, together with interest (computed on the basis of a 360-day year) from the date hereof on the unpaid balance of such principal amount from time to time outstanding at the rate of six percent (6%) per annum. 1. Subordination ------------- (a) Subordination to Senior Indebtedness. The indebtedness evidenced by ------------------------------------ this Note, and the payment of the principal hereof, and any interest hereon, is wholly subordinated, junior and subject in right of payment, to the extent and in the manner hereinafter provided, to the prior payment of all Senior Indebtedness of the Company now outstanding or hereinafter incurred. "Senior Indebtedness" means the principal of, and premium, if any, and interest on all indebtedness of the Company, to banks, trust companies, insurance companies and other financial institutions, including commercial paper and accounts receivable sold or assigned by the Company to such institutions, any and all deferrals, renewals, extensions and refundings of any such indebtedness or obligations, and any other indebtedness of the Company which the Company and the holder of this Note may hereafter from time to time expressly and specifically agree in writing shall constitute Senior Indebtedness. (b) No Payment if Default in Senior Indebtedness. No payment on account of -------------------------------------------- principal of or interest on this Note shall be made, and this Note shall not be redeemed or purchased directly or indirectly by the Company (or any of its subsidiaries), if at the time of such payment or purchase or immediately after giving effect thereto, (i) there shall exist a default in any payment with respect to any Senior Indebtedness or (ii) there shall have occurred an event of default (other than a default in the payment of amounts due thereon) with respect any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, and such event of default shall not have been cured or waived or shall not have ceased to exist. (c) Payment upon Dissolution, Etc. Upon payment or distribution of assets ----------------------------- of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, in bankruptcy, insolvency, receivership or other proceedings, all principal and interest due upon any Senior Indebtedness shall first be paid in full, or payment thereof in full duly provided for, before the holder of this Note shall be entitled to receive or, if received, to retain any payment or distribution on account of this Note; and upon any such dissolution or winding- up or liquidation or reorganization, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 1 shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the holder of this Note who shall have received such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to --- ---- each such holder on the basis of the respective amounts of such Senior Indebtedness held by such holder) or their representatives to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holder of this Note. In the event of any such dissolution, winding-up, liquidation or reorganization of the Company, the holder of this Note shall be entitled to be paid one hundred percent (100%) of the principal amount thereof and accrued interest thereon before any distribution of assets shall be made among the holders of any class of shares of the capital stock of the Company in their capacities as holders of such shares. For purposes of this paragraph (c), the words "assets" and "cash, property or securities" shall not be deemed to include shares of Common Stock of the Company as reorganized or readjusted, or securities of the Company or any other person provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Section 1 with respect to this Note to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the -------- new person, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. (d) Subrogation. Subject to payment in full of all Senior Indebtedness, ----------- the holder of this Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of the assets of the Company made on such Senior Indebtedness until all principal and interest on the Senior Indebtedness shall be paid in full; and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the holder of this Note would be entitled except for the subordination provisions of this Section 1 shall, as between the holder of this Note and the Company and/or its creditors other than the holders of the Senior Indebtedness, be deemed to be a payment on account of the Senior Indebtedness. (e) Rights of Holder Unimpaired. The provisions of this Section 1 are, and --------------------------- are intended, solely for the purposes of defining the relative rights of the holder of this Note (solely in its capacity as holder of this Note) and the holders of Senior Indebtedness and nothing in this Section 1 shall impair, as between the Company and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal thereof and interest thereon, in accordance with the terms hereof, nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default, subject to the rights set forth above of holders of Senior Indebtedness to receive cash, property, or securities otherwise payable or deliverable to the holder of this Note. Furthermore, no provision hereof shall prevent the holder of this Note from exercising any rights it may have against the 2 Company or against any holder of Senior Indebtedness in any capacity other than as holder of this Note. (f) Holders of Senior Indebtedness. These provisions regarding ------------------------------ subordination will constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness; such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are hereby made obligees under such provisions to the same extent as if they were named therein, and they or any of them may proceed to enforce such subordination. The holder of this Note shall execute and deliver to any holder of Senior Indebtedness (i) any such instrument as such holder of Senior Indebtedness may request in order to confirm the subordination of this Note to such Senior Indebtedness upon the terms set forth in this Note, and (ii) any powers of attorney specifically confirming the rights of holders of Senior Indebtedness to enforce such subordination and all such proofs of claim, assignments of claim and other instruments as may be requested by the holders of Senior Indebtedness or their representatives to enforce all claims upon or in respect of this Note. (g) Payments on Subordinated Note. Subject to paragraph (c), the Company ----------------------------- may make payments of the principal of, and any interest or premium on, this Note, if at the time of payment, and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Indebtedness and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Indebtedness, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist. 2. Optional Conversion ------------------- (a) Conversion. The holder of this Note has the right, at its option, at ---------- any time prior to the close of business on April 14, 2000, to convert the outstanding principal amount of this Note into fully paid and non-assessable shares of Common Stock of the Company ("Common Stock"), at the rate of one share of Common Stock for each $0.44 of the principal amount hereof surrendered for conversion, subject to adjustment as set forth herein. (b) Exercise of Conversion Privilege. -------------------------------- (i) In order to exercise the conversion privilege, the holder of this Note shall surrender this Note to the Company during usual business hours at the Company's principal executive office, accompanied by written notice in form satisfactory to the Company that the holder elects to convert the principal amount of this Note or a portion hereof specified in such notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. The Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the name in which the Note is then registered, be duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. (ii) As promptly as practicable after the surrender of this Note for conversion and the receipt of the notice, as required above, the Company shall deliver or cause to be delivered at its 3 principal executive office to the holder, or on the holder's written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of this Note, or portion hereof, in accordance with the provisions hereof. Such conversion shall be deemed to have been made out the time this Note shall have been surrendered for conversion and the notice required above shall have been received by the Company at its principal executive office (the "Conversion Date"), and the holder in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on the Conversion Date the holder of record of the shares represented thereby. If less than the entire outstanding principal amount of this Note is being converted, a new Note shall promptly be delivered to the holder for the unconverted principal balance and shall be of like tenor as to all terms as the Note surrendered. (c) Adjustment of Conversion Rate. ----------------------------- (i) In case the Company shall: (A) declare a stock dividend on its Common Stock, (B) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, (C) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, or (D) cancel its class of Common Stock and convert all of the outstanding shares of Common Stock into another class of securities of the Company, the number of shares of Common Stock issuable upon conversion of this Note immediately prior to any such event shall be adjusted proportionately so that thereafter the holder of this Note shall be entitled to receive upon conversion of this Note the securities which such holder would have owned after the happening of any of the events described above had this Note been converted immediately prior to the happening of such event, provided that the conversion price shall in no event be reduced to less than the par value of the shares issuable upon conversion. An adjustment made pursuant to this paragraph shall become effective immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or combination. (ii) If, prior to maturity of this Note, the Company shall at any time consolidate or merge with another corporation (other than a merger or consolidation in which the Company is the surviving corporation), the registered holder hereof will thereafter be entitled to receive, upon the conversion hereof, the securities or property to which a holder of the number of shares of Common Stock then deliverable upon the conversion hereof would have been entitled upon such consolidation or merger, and the Company shall take such steps in connection with such consolidation or merger as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter deliverable upon the conversion of this Note. (d) Notice. In case the Company proposes to take any action referred to in ------ paragraph (c) above, or to effect the liquidation, dissolution or winding up of the Company, then the Company 4 shall cause notice thereof to be mailed to the registered holder of this Note, at such holder's address appearing in the Note Register (as defined below), at least twenty (20) days prior to the date on which the transfer books of the Company shall close or a record be taken for such stock dividend or the date when such reclassification, liquidation, dissolution or winding up shall be effective, as the case may be. (e) Statement of Adjustment. Whenever the conversion rate shall be ----------------------- adjusted as provided above, the Company shall forthwith deliver to the holder of this Note, at said holder's address appearing in the Note Register, a statement, signed by the Chairman of the Board, the President, any Vice President, the Treasurer or Secretary of the Company, showing in reasonable detail the facts requiring such adjustment and the conversion rate that will be effective after such adjustment. Where appropriate, such notice may be given in advance and may be included as part of a notice required to be mailed under the provisions of paragraph (d) hereof. (f) Fractional Shares. No fractional shares of Common Stock shall be ----------------- issuable upon conversion of this Note, but an adjustment in cash will be made in respect of any fraction of a share which would otherwise be issuable upon the surrender of this Note, or portion hereof, for conversion. (g) Accrued Interest. Upon the conversion of this Note, the Company shall ---------------- not be required to pay any accrued but unpaid interest on the amount so converted up to the Conversion Date. (h) Termination. The conversion privilege of this Note will become wholly ----------- void and of no effect and the rights evidenced hereby will terminate unless exercised in accordance with the terms and provisions hereof prior to the payment in full of the unpaid principal balance of, and all accrued interest on, this Note. (i) Securities Act of 1933. Upon conversion of this Note, the registered ---------------------- holder may be required to execute and deliver to the Company an instrument, in form satisfactory to the Company, representing that the shares issuable upon conversion hereof are being acquired for investment and not with a view to distribution within the meaning of the Securities Act of 1933, as amended. 3. Redemption ---------- (a) Subject to the subordination provisions of Section 1, this Note may, at the option of the Company, be called for redemption, in whole or in part at any time after January 1, 1996, at one hundred percent (100%) of the principal amount so redeemed, plus accrued and unpaid interest on such redeemed principal amount to the date fixed for redemption. The Company shall give at least thirty (30) days prior written notice of redemption to the registered holder at its address as shown in the Note Register (as defined below), and the notice of redemption shall specify the date and place designated for redemption. (b) On or after the redemption date fixed in the notice of redemption, no further interest shall accrue on the principal amount so redeemed, and this Note (to the extent so redeemed) shall cease to be convertible as set forth in Section 2. Payment of the redemption price shall be made to the registered holder of this Note upon presentation and surrender of this Note accompanied by a duly executed instrument of transfer in blank, at the principal executive office of the Company. In the 5 event of a partial redemption, this Note shall be presented to the Company for endorsement of the amount of payment and date paid as a condition precedent to such payment. 4. No Prepayment of Principal -------------------------- Except as otherwise provided in Section 3, the principal indebtedness represented by this Note may not be prepaid in whole or in part, without the prior written consent of the holder of this Note. 5. Default ------- The entire unpaid principal of this Note and the interest then accrued on this Note shall become and be immediately due and payable upon written demand of the holder of this Note, without any other notice or demand of any kind or any presentment or protest, if any one of the following events (an "Event of Default") shall occur and be continuing at the time of such demand, whether voluntarily or involuntarily, or, without limitation, occurring or brought about by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any governmental body: (a) If default shall be made in the payment of any installment of principal or interest on this Note, and such default shall remain unremedied for ten (10) days; or (b) If the Company (i) makes a general assignment for the benefit of creditors, (ii) applies for, consents to, acquiesces in, files a petition or an answer seeking, or admits (by answer, default or otherwise) the material allegations of a petition filed against it seeking the appointment of a trustee, receiver, liquidator or assignee in bankruptcy or insolvency of itself or of all or a substantial portion of its assets, or a reorganization, arrangement with creditors or other remedy, relief or adjudication available to or against a bankrupt, insolvent or debtor under any bankruptcy or insolvency law or any law relating to relief of debtors, or (iii) admits in writing its inability to pay its debts generally as they become due; or (c) If a decree, order or judgment shall have been entered adjudging the Company a bankrupt or insolvent, or appointing a receiver, liquidator, trustee or assignee in bankruptcy or insolvency for it or for all or a substantial portion of its assets, or approving a petition seeking a reorganization, arrangement, or the winding-up or liquidation of its affairs on the grounds of insolvency or nonpayment of debts, and such decree, order or judgment shall remain undischarged and unstayed for a period of sixty (60) days; or if any substantial part of the property of the Company is sequestered or attached and shall not be returned to the possession of the Company or such subsidiary or released from such attachment within sixty (60) days. 6. Note Register ------------- (a) The Company shall keep at its principal executive office a register (herein sometimes referred to as the "Note Register"), in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), the Company shall provide for the registration and transfer of this Note. (b) Whenever this Note shall be surrendered at the principal executive office of the Company 6 for transfer or exchange, accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the holder hereof or his attorney duly authorized in writing, the Company shall execute and deliver in exchange therefor a new Note or Notes, as may be requested by such holder, in the same aggregate unpaid principal amount and payable on the same date as the principal amount of the Note or Notes so surrendered; each such new Note shall be dated as of the date to which interest has been paid on the unpaid principal amount of the Note or Notes so surrendered and shall be in such principal amount and registered in such name or names as such holder may designate in writing. (c) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note and of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Note (in case of mutilation) the Company will make and deliver in lieu of this Note a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on the unpaid principal amount of this Note in lieu of which such new Note is made and delivered. 7. General ------- (a) Successors and Assigns. This Note, and the obligations and rights of ---------------------- the Company hereunder, shall be binding upon and inure to the benefit of the Company, the holder of this Note, and their respective heirs, successors and assigns. (b) Recourse. Recourse under this Note shall be to the general unsecured -------- assets of the Company only and in no event to the officers, directors or stockholders of the Company. (c) Changes. Changes in or additions to this Note may be made or ------- compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), only upon written consent of the Company and the holder of this Note. (d) Currency. All payments shall be made in such coin or currency of the -------- United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts. (e) Notices. All notices, requests, consents and demands shall be made in ------- writing and shall be mailed postage prepaid, or delivered by hand, to the Company or to the holder hereof at their respective addresses set forth below or to such other address as may be furnished in writing to the other party hereto: If to the holder: Controller Corp., Inc., General Partner J&S Limited Partnership 219 Vassar Street Cambridge, Massachusetts 02139 7 If to the Company: Object Power, Incorporated 219 Vassar Street Cambridge, Massachusetts 02139 (f) Saturdays, Sundays, Holidays. If any date that may at any time be ---------------------------- specified in this Note as a date for the making of any payment of principal or interest under this Note shall fall on Saturday, Sunday or on a day which in the City of Boston shall be a legal holiday, then the date for the making of that payment shall be the next subsequent day which is not a Saturday, Sunday or legal holiday. (g) Costs of Collection. In the event of any default under this Note, the ------------------- Company shall pay any costs of collection incurred by the holder (including reasonable attorneys' fees). (h) Governing Law. This Note shall be construed and enforced in accordance ------------- with, and the rights of the parties shall be governed by the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed instrument on the date first above written by the duly authorized President of the Company. OBJECT POWER, INCORPORATED By: /s/ JOHN J. DONOVAN ------------------------ President (Corporate Seal) ATTEST: /s/ WILLIAM E. KELLY ------------------------ Secretary 8 EX-11 24 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 BUSINESS@WEB, INC. STATEMENT OF EARNINGS PER SHARE(1)
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, 1995 1996 ------------ ------------ Net Loss............................................. $(2,698,448) $(8,514,840) =========== =========== Weighted Average Common Shares Outstanding........... 9,491,957 9,761,364 Dilutive Effect of Common Stock and Common Stock Options and Warrants issued after March 31, 1995(2)............................................. 2,404,403 2,404,403 Common Stock issuable upon Conversion of Series B Preferred Stock..................................... 975,200 975,200 Common Stock issuable upon Conversion of Series C Preferred Stock..................................... 799,994 799,994 Repurchase and Retirement of Common Stock............ (800,000) (800,000) ----------- ----------- Pro Forma Weighted Average Number of Common and Com- mon equivalent shares outstanding....................... 12,871,554 13,140,961 =========== =========== Pro Forma Net Loss Per Common and Common Equivalent Share............................................... (0.21) (0.65) =========== ===========
- -------- (1) Primary and fully diluted net loss per share has not been separately presented, as the amounts would not be meaningful. (2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, stock, stock options and stock warrants issued at prices below the initial public offering price per share (cheap stock) during the 12-month period immediately preceding the initial filing date of the Company's Registration Statement of its initial public offering have been included as outstanding for all periods presented. The dilutive effect of the common stock equivalents was computed in accordance with the treasury stock method. EX-23.2 25 CONSENT OF ARTHUR ANDERSON LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To Business@Web, Inc.: As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this Registration Statement. Arthur Andersen LLP Boston, Massachusetts May 20, 1996 EX-27 26 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUSINESS@WEB INC.'S REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR 3-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 MAR-31-1996 104,622 4,822,127 0 0 2,008,541 1,925,199 100,000 150,000 292,000 227,000 2,462,496 7,566,448 226,550 1,487,566 63,118 115,483 2,625,928 8,938,531 4,429,846 8,491,191 1,000,000 0 0 7,379,984 0 0 10,803 10,803 (2,814,721) (6,943,447) 2,625,928 8,938,531 0 0 6,069,662 2,380,701 0 0 3,400,608 1,263,224 0 0 143,000 69,700 77,574 17,529 (2,698,448) (8,514,840) 0 0 (2,698,448) (8,514,840) 0 0 0 0 0 0 (2,698,448) (8,514,840) (.21) (.65) 0 0
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