-----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, DZK8OYcCD2D+Kxlsq46MaCMsJwyM+HfCW8G365G2GRur+2qbwxf+1p42MKtsTcef 0F2yMntCULNp0B6lyLemWw== 0000950103-02-000865.txt : 20020829 0000950103-02-000865.hdr.sgml : 20020829 20020828182545 ACCESSION NUMBER: 0000950103-02-000865 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020829 GROUP MEMBERS: WARBURG PINCUS &CO GROUP MEMBERS: WARBURG PINCUS LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: EVOLVE SOFTWARE INC CENTRAL INDEX KEY: 0001097002 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943219745 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-60105 FILM NUMBER: 02751704 BUSINESS ADDRESS: STREET 1: 1400 65TH STREET STREET 2: SUITE 100 CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 5104286000 MAIL ADDRESS: STREET 1: 1400 65TH STREET STREET 2: SUITE 100 CITY: EMERYVILLE STATE: CA ZIP: 94608 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WARBURG PINCUS PRIVATE EQUITY VIII L P CENTRAL INDEX KEY: 0001157334 IRS NUMBER: 134161869 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128780600 MAIL ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D/A 1 aug2702_13da4.txt =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- SCHEDULE 13D/A (Amendment No. 4)* EVOLVE SOFTWARE, INC. - ------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $0.001 Par Value - ------------------------------------------------------------------------------- (Title of Class of Securities) 30049P104 - ------------------------------------------------------------------------------- (CUSIP Number) Scott A. Arenare, Esq. Managing Director and General Counsel Warburg Pincus LLC 466 Lexington Avenue New York, New York 10017 (212) 878-0600 - ------------------------------------------------------------------------------- (Name, address and telephone Number of Person Authorized to Receive Notices And Communications) Copies to: Francis S. Currie, Esq. Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000 October 9, 2001 - ------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) ----------------- If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d 1(e), 13d-1(f) or 13d-1(g), check the following box G. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). (Continued on following pages) - ---------------------------- CUSIP No. 30049P104 13D - ---------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Warburg Pincus Private Equity VIII, L.P. I.R.S. #13-416869 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 NUMBER OF SHARES ----------------------------------------- BENEFICIALLY OWNED BY EACH 8 SHARED VOTING POWER REPORTING PERSON WITH 90,373,142(1) ----------------------------------------- 9 SOLE DISPOSITIVE POWER 0 ----------------------------------------- 10 SHARED DISPOSITIVE POWER 90,373,142(1) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 90,373,142(1) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 66.09%(2) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- [*SEE INSTRUCTIONS BEFORE FILLING OUT!] - -------------------------------------------------------------------------------- - --------------------- (1) Includes approximately 40,540,541 shares of Common Stock that may be acquired at any time upon the conversion of Series A Preferred Stock, 23,513,514 shares of Common Stock that may be acquired within 60 days pursuant to a Preferred Stock Warrant and Common Stock Warrants, 26,315,789 shares of Common Stock that may be acquired at any time upon conversion of Series B Preferred Stock (discussed in Items 3-5) and 3,298 shares of Common Stock owned by a Member and Managing Director of Warburg Pincus LLC and Partner of Warburg Pincus & Co. Does not include an adjustment to account for the 8.00% increase per year in the number of shares of Common Stock that the Series A and Series B Preferred Stock is convertible to, as described in Item 4. (2) Calculated in accordance with Rule 13d-3 under the Exchange Act, based upon the number of shares of Common Stock outstanding as of July 31, 2002 (as represented by the issuer in the Series B Preferred Stock Purchase Agreement, dated August 20, 2002, attached hereto as Exhibit 7) including shares issuable upon conversion of Series A Preferred Stock and Series B Preferred Stock issued and outstanding on the date hereof and shares issuable within 60 days to the Reporting Persons. - ---------------------------- CUSIP No. 30049P104 13D - ---------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Warburg Pincus & Co. I.R.S. #13-6358475 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* N/A - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 NUMBER OF SHARES ----------------------------------------- BENEFICIALLY OWNED BY EACH 8 SHARED VOTING POWER REPORTING PERSON WITH 90,373,142(1) ----------------------------------------- 9 SOLE DISPOSITIVE POWER 0 ----------------------------------------- 10 SHARED DISPOSITIVE POWER 90,373,142(1) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 90,373,142(1) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 66.09%(2) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- [*SEE INSTRUCTIONS BEFORE FILLING OUT!] - -------------------------------------------------------------------------------- - --------------------- (1) Includes approximately 40,540,541 shares of Common Stock that may be acquired at any time upon the conversion of Series A Preferred Stock, 23,513,514 shares of Common Stock that may be acquired within 60 days pursuant to a Preferred Stock Warrant and Common Stock Warrants, 26,315,789 shares of Common Stock that may be acquired at any time upon conversion of Series B Preferred Stock (discussed in Items 3-5) and 3,298 shares of Common Stock owned by a Member and Managing Director of Warburg Pincus LLC and Partner of Warburg Pincus & Co. Does not include an adjustment to account for the 8.00% increase per year in the number of shares of Common Stock that the Series A and Series B Preferred Stock is convertible to, as described in Item 4. (2) Calculated in accordance with Rule 13d-3 under the Exchange Act, based upon the number of shares of Common Stock outstanding as of July 31, 2002 (as represented by the issuer in the Series B Preferred Stock Purchase Agreement, dated August 20, 2002, attached hereto as Exhibit 7) including shares issuable upon conversion of Series A Preferred Stock and Series B Preferred Stock issued and outstanding on the date hereof and shares issuable within 60 days to the Reporting Persons. - ---------------------------- CUSIP No. 30049P104 13D - ---------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Warburg Pincus LLC I.R.S. #13-3536050 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* N/A - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 NUMBER OF SHARES ----------------------------------------- BENEFICIALLY OWNED BY EACH 8 SHARED VOTING POWER REPORTING PERSON WITH 90,373,142(1) ----------------------------------------- 9 SOLE DISPOSITIVE POWER 0 ----------------------------------------- 10 SHARED DISPOSITIVE POWER 90,373,142(1) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 90,373,142(1) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 66.09%(2) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO - -------------------------------------------------------------------------------- [*SEE INSTRUCTIONS BEFORE FILLING OUT!] - -------------------------------------------------------------------------------- - --------------------- (1) Includes approximately 40,540,541 shares of Common Stock that may be acquired at any time upon the conversion of Series A Preferred Stock, 23,513,514 shares of Common Stock that may be acquired within 60 days pursuant to a Preferred Stock Warrant and Common Stock Warrants, 26,315,789 shares of Common Stock that may be acquired at any time upon conversion of Series B Preferred Stock (discussed in Items 3-5) and 3,298 shares of Common Stock owned by a Member and Managing Director of Warburg Pincus LLC and Partner of Warburg Pincus & Co. Does not include an adjustment to account for the 8.00% increase per year in the number of shares of Common Stock that the Series A and Series B Preferred Stock is convertible to, as described in Item 4. (2) Calculated in accordance with Rule 13d-3 under the Exchange Act, based upon the number of shares of Common Stock outstanding as of July 31, 2002 (as represented by the issuer in the Series B Preferred Stock Purchase Agreement, dated August 20, 2002, attached hereto as Exhibit 7) including shares issuable upon conversion of Series A Preferred Stock and Series B Preferred Stock issued and outstanding on the date hereof and shares issuable within 60 days to the Reporting Persons. This Amendment No. 4 ("Amendment No. 4") to that certain statement on Schedule 13D of Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership ("WP VIII"), Warburg Pincus LLC, a New York limited liability company ("WP LLC") and Warburg, Pincus & Co., a New York general partnership ("WP," and together with WP VIII and WP LLC, the "Reporting Persons") filed on October 3, 2001 (the "Original Statement") and amended on October 17, 2001, February 4, 2002 and April 5, 2002 (the "Amended Statements" and together with the Original Statement, the "Statement") hereby amends and restates the Statement as provided herein. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Statement. This Amendment is being filed to reflect the purchase by WP VIII of 500,000 shares of Series B Preferred Stock of the Company. Items 3, 4, 5 and 6 of the Statement are hereby amended and restated in their entirety as follows: Item 3. Source and Amount of Funds or Other Consideration. Pursuant to the Series A Preferred Stock Purchase Agreement (the "Series A Purchase Agreement") attached hereto as Exhibit 2, dated as of September 23, 2001, by and between WP VIII, the Company and certain other investors named in the Schedule of Purchasers to the Series A Purchase Agreement, (1) WP VIII purchased 1,000,000 shares of the Company's Series A Preferred Stock (the "Series A Preferred Stock") at a price of $10 per share, with the purchase price paid in cash on October 9, 2001 (the "Series A Closing Date"); (2) the Company issued to WP VIII two warrants to purchase up to an aggregate of 1,000,000 additional shares of Series A Preferred Stock at a price of $10 per share in cash, which warrants are exercisable for up to one year after the Series A Closing Date in certain circumstances, in the forms attached hereto as Exhibit 3 ("Preferred Stock Warrants"); (3) the Company issued to WP VIII a warrant to purchase up to 5,000,000 shares of Common Stock at a price of $1.00 per share in the form attached hereto as Exhibit 4 ("Common Stock Warrant") and (4) the Company agreed to grant to WP VIII additional Common Stock Warrants to purchase that number of shares of Common Stock equal to 25% of the number of shares of Common Stock into which the shares of Series A Preferred Stock issued upon exercise of the Preferred Stock Warrants are convertible, at the time such Preferred Stock Warrants are exercised. Each share of Series A Preferred Stock will be convertible into Common Stock at an initial conversion price of $0.50, or at an initial conversion rate of 20 shares of Common Stock for each share of Series A Preferred Stock converted, subject to certain adjustments as set forth in the Certificate of Designation of Series A Preferred Stock of the Company, attached hereto as Exhibit 5 (the "Series A Certificate of Designation"). Pursuant to the adjustments described in the Series A Certificate of Designation, upon closing of the sale of the Series B Preferred Stock (described below), the conversion price of the Series A Preferred Stock was adjusted to $0.37, or a new conversion rate of approximately 27 shares of Common Stock for each share of Series A Preferred (not including any accretion in the Series A Preferred Stock liquidation preference). On March 25, 2002, WP VIII exercised a Preferred Stock Warrant to purchase 500,000 shares of Series A Preferred Stock (the "March 25 Preferred Stock Warrant") at a price of $10 per share, for an aggregate purchase price of $5,000,000. In connection with the exercise and pursuant to the terms of the Series A Purchase Agreement, the Company issued WP VIII a new Common Stock Warrant to purchase 2,500,000 shares of Common Stock at a purchase price of $1.00 per share, in the form attached hereto as Exhibit 4. Pursuant to the Series B Preferred Stock Purchase Agreement (the "Series B Purchase Agreement") attached hereto as Exhibit 7, dated as of August 20, 2002, by and between WP VIII, the Company and certain other investors named in the Schedule of Purchasers to the Series B Purchase Agreement, WP VIII purchased 500,000 shares of the Company's Series B Preferred Stock (the "Series B Preferred Stock") at a price of $10 per share, with the purchase price paid in cash on August 20, 2002 (the "Series B Closing Date"). Each share of Series B Preferred Stock will be convertible into Common Stock at an initial conversion price of $0.19, or at an initial conversion rate of approximately 52 shares of Common Stock for each share of Series B Preferred Stock converted, subject to certain adjustments as set forth in the Certificate of Designation of Series B Preferred Stock of the Company, attached hereto as Exhibit 8 (the "Series B Certificate of Designation"). 2 The total amount of funds used to purchase the Series A Preferred Stock pursuant to the Series A Purchase Agreement and the March 25 Preferred Stock Warrant was $15,000,000 and was furnished from the working capital of WP VIII. If WP VIII elects to exercise the remaining Preferred Stock Warrant in full, the total amount of funds that will be required to purchase the additional shares of Series A Preferred Stock issuable upon such exercise will be $5,000,000, which will be furnished from the working capital of WP VIII. If WP VIII elects to exercise the Common Stock Warrants in full for cash, the total amount of funds that will be required to purchase the Common Stock pursuant to such warrants will be $7,500,000 ($10,000,000 if the remaining Preferred Stock Warrant is exercised in full), which will be provided from the working capital of WP VIII. However, the Common Stock Warrants provide WP VIII the option to convert such warrants on a cashless basis by electing to have the Company withhold a number of shares otherwise issuable upon exercise of the Warrants that is equal in value at the time of conversion to the aggregate exercise price of the Common Stock Warrants. WP VIII has not made any determination as to whether it would exercise the Common Stock Warrants, if at all, either for cash or on a cashless basis. Except as otherwise expressly stated, all shares are reported on a common stock equivalent basis, assuming that all warrants issued or issuable pursuant to the Series A Purchase Agreement are exercised in full for cash. The total amount of funds used to purchase the Series B Preferred Stock pursuant to the Series B Purchase Agreement was $5,000,000 and was furnished from the working capital of WP VIII. Item 4. Purpose of Transaction. The transactions described herein are being effected because of the Reporting Persons' belief that the Company represents an attractive investment based on the Company's business prospects and strategy. Depending on prevailing market, economic and other conditions, the Reporting Persons may from time to time acquire additional shares of the Company or engage in discussions with the Company concerning further acquisitions of shares of the Company or further investments by them in the Company. The Reporting Persons intend to review their investment in the Company on a continuing basis and, depending upon the price and availability of shares of Common Stock, subsequent developments affecting the Company, the Company's business and prospects, other investment and business opportunities available to the Reporting Persons, general stock market and economic conditions, tax considerations and other factors considered relevant may decide at any time to increase or to decrease the size of their investment in the Company. WP VIII entered into the Series A Purchase Agreement pursuant to which the Company agreed to issue and sell and WP VIII agreed to purchase the shares of Series A Preferred Stock and the Company agreed to issue to WP VIII the Preferred Stock Warrants and Common Stock Warrants, all as described in Item 3 above. The Series A Preferred Stock and Common Stock Warrants contain adjustment provisions pursuant to which, in certain circumstances, WP VIII may be entitled to acquire additional shares of the Company's Common Stock. In addition, the number of shares of Common Stock into which the Preferred Stock is convertible will increase at the rate of 8.00% per year from the date of issue. The Company filed the Series A Certificate of Designation on the Series A Closing Date, which provides that the Series A Preferred Stock shall have dividend, liquidation, conversion and voting rights in preference to the Common Stock. Descriptions of such rights contained herein are qualified in their entirety by reference to the Series A Certificate of Designation attached as Exhibit 5 hereto. WP VIII entered into the Series B Purchase Agreement pursuant to which the Company agreed to issue and sell and WP VIII agreed to purchase shares of Series B Preferred Stock, as described in Item 3 above. The number of shares of Common Stock into which the Series B Preferred Stock is convertible will increase at the rate of 8.00% per year from the date of issue. The Company filed the Series B Certificate of Designation on the Series B Closing Date, which provides that the Series B Preferred Stock shall have liquidation rights in preference to the Series A Preferred Stock and the Common Stock and dividend, conversion and voting rights in parity with the Series A Preferred Stock and in preference to the Common Stock. Descriptions of such rights contained herein are qualified in their entirety by reference to the Series B Certificate of Designation attached as Exhibit 8 hereto. Conversion of Series A Preferred Stock and Series B Preferred Stock. Pursuant to the Certificate of Designation, the Company may cause all of the shares of Series A Preferred Stock and Series B Preferred Stock (together, the "Preferred Stock") to be automatically converted into Common Stock at any time after the fifth 3 anniversary of the date of initial issuance of such shares of Preferred Stock, provided that the Company may only cause such automatic conversion if the closing price per share of Common Stock for thirty (30) consecutive trading days ending within ten (10) days of the date on which notice of such automatic conversion is given to the holders of the Preferred Stock shall have been at least $5.00, as adjusted for any stock splits, stock dividends and similar events. All shares of Preferred Stock will also automatically convert into Common Stock at the election of the holders of a majority of the outstanding shares of Series A Preferred Stock. The Preferred Stock may also be converted at any time at the election of each holder. Voting. As set forth in the Series A Certificate of Designation, holders of Series A Preferred Stock are entitled to vote such stock on an as converted basis, together with the holders of Common Stock as a single class with respect to all matters, except under specified circumstances described below under "Board Representation" with respect to the election of directors and under "Change of Control," with respect to certain Change of Control transactions. In addition, the Company will not, without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock, (i) amend or repeal the provisions of the Series A Certificate of Designation; (ii) authorize or issue any shares of a class or series senior to the Series A Preferred Stock or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock senior to the Series A Preferred Stock; (iii) issue any bonds, debentures or notes or incur similar debt obligations, other than trade debt in the ordinary course of business; (iv) pay any dividend on any shares of stock junior to the Series A Preferred Stock or repurchase or redeem any such shares of stock junior to the Series A Preferred Stock, except for repurchases of unvested shares of stock at cost from employees, directors, consultants and other service providers; (v) repurchase any outstanding shares of stock, except for repurchase of shares held by employees pursuant to repurchase agreements approved by the board of directors and redemption of shares of Series A Preferred Stock; (vi) amend the bylaws to increase the authorized number of directors of the Company to more than eight; or (vii) authorize or issue any shares of any class or series of stock on parity with the Series A Preferred Stock or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock on parity with the Series A Preferred Stock unless Preferred Stock Warrants are not exercised to purchase 500,000 or more shares of Series A Preferred Stock prior to the six-month anniversary of the date of first issuance of Series A Preferred Stock. As set forth in the Series B Certificate of Designation, holders of Series B Preferred Stock are entitled to as many votes in all actions taken by the stockholders of the Company as the number of shares of Common Stock each share of Series B Preferred Stock were convertible into as of August 20, 2002. In addition, the Company will not, without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class on an as-converted to Common Stock basis (i) amend or repeal the provisions of the Certificate of Designation; (ii) authorize or issue any shares of a class or series senior to the Series B Preferred Stock or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock senior to the Series B Preferred Stock; (iii) issue any bonds, debentures or notes or incur similar debt obligations, other than trade debt in the ordinary course of business; (iv) pay any dividend on any shares of stock junior to the Series B Preferred Stock or repurchase or redeem any such shares of stock junior to the Series B Preferred Stock, except for repurchases of unvested shares of stock at cost from employees, directors, consultants and other service providers; (v) repurchase any outstanding shares of capital stock of the Company, except for repurchase of shares held by employees pursuant to repurchase agreements approved by the board of directors and redemption of shares of Preferred Stock; (vi) amend the bylaws of the Company to increase the authorized number of directors of the Company to more than eight; or (vii) authorize or issue any shares of any class or series of Preferred Stock ranking on a parity with the Series B Preferred Stock, or authorize or issue any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase any shares of Preferred Stock ranking on a parity with the Series B Preferred Stock. Board Representation. The terms of the Series A Preferred Stock, as set forth in the Series A Certificate of Designation, provide for holders of the Series A Preferred Stock to elect three members to the Board, voting separately as a class. Except as described in the next sentence, this provision remains in effect for so long as at least 75% of the shares of Series A Preferred Stock issued by the Company remain outstanding. If less than 75% but at least 50% of the shares of Series A Preferred Stock issued by the Company remain outstanding, or if WP VIII does 4 not exercise Preferred Stock Warrants to purchase at least 500,000 shares of Series A Preferred Stock, the number of directors to be elected by holders of Series A Preferred Stock voting separately shall be reduced to two. If less than 50% but at least 25% of the shares of Series A Preferred Stock issued by the Company remain outstanding, the number of directors to be elected by holders of the Series A Preferred Stock voting separately shall be reduced to one. If less than 25% of the shares of Series A Preferred Stock issued by the Company remain outstanding, the holders of Series A Preferred Stock will no longer have the right to elect any members of the board of directors voting separately. The initial designees of the holders of the Series A Preferred Stock, Cary Davis, Nancy Martin and Gayle Crowell, were appointed to the Board, effective as of the Series A Closing Date. Mr. Davis and Ms. Martin are Members and Managing Directors of WP LLC and are Partners of WP. Ms. Crowell is a full-time adviser of WP LLC. Subject to applicable federal rules and the rules of the Nasdaq Stock Market, the holders of the Series B Preferred Stock shall be entitled to elect such number of additional directors, in addition to the three directors that the holders of Series A Preferred Stock is entitled to elect, proportionate to the number of shares of Common Stock for which such Series A Preferred Stock and Series B Preferred Stock is convertible bears to the total outstanding shares (treating Series A Preferred Stock and Series B Preferred Stock on an as converted to Common Stock basis) of the Common Stock of the Company. Change of Control. Under the Series A Certificate of Designation, the Company may not consummate any Change of Control Transaction, as defined the Series A Certificate of Designation, without the affirmative vote of holders of a majority of the outstanding shares of Series A Preferred Stock, unless such transaction would result in aggregate consideration paid in respect of such Series A Preferred Stock equal to the original purchase price thereof, plus an internal rate of return equal to at least 50%. In addition, in the event of any Change of Control Transaction, holders of Common Stock Warrants will have the right to deliver such warrants to the Company in exchange for payments equal to the Black-Scholes value of such warrants at the time of such transaction, payable in cash or, subject to certain conditions, Common Stock of the Company. Under the Series B Certificate of Designation, the Company may not consummate any Change of Control Transaction, as defined in the Series B Certificate of Designation, without the affirmative vote of holders of a majority of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class, on an as-converted to Common Stock basis, unless such transaction would result in aggregate consideration paid in respect of all outstanding shares of Series B Preferred Stock equal is to the original purchase price thereof, plus an additional amount such that the internal rate of return equal is at least 50%. In the event a Change of Control Transaction occurs prior to the fifth anniversary of the Closing, the Series B Preferred Stock shall be treated as if had been outstanding for five years for purposes of determining the liquidation preference payable upon such shares. Preemptive Rights. Effective as of the Series B Closing Date and subject to certain exceptions, the Company granted to certain purchasers of Series B Preferred Stock rights to maintain their percentage ownership in the Company in the event of future equity issuances by the Company. A copy of the Series B Preemptive Rights Agreement providing for such rights is attached as Exhibit 9 hereto. The Series B Preemptive Rights Agreement supersedes the Preemptive Rights Agreement (previously filed as Exhibit 6 hereto) in its entirety. Registration of Shares of Common Stock for Resale. Pursuant to the terms of the Purchase Agreement, subject to certain conditions, the Company has agreed to prepare and file with the SEC, upon request of the purchasers of Series A Preferred Stock or Series B Preferred Stock, registration statements to enable the resale of the shares of Common Stock issued or issuable upon (i) conversion of the Series A Preferred Stock (including Series A Preferred Stock issuable upon exercise of the Preferred Stock Warrants) (ii) conversion of the Series B Preferred Stock and (iii) upon exercise or conversion of the Common Stock Warrants. The foregoing summary of the Series A Purchase Agreement and Series B Preferred Stock and the agreements and transactions contemplated thereby is qualified in its entirety by reference to the Series A Purchase Agreement and Series B Preferred Stock Agreement, the Preferred Stock Warrants, the Common Stock Warrants, the Series A Certificate of Designation, the Series B Certificate of Designation and the Series B Preemptive Rights Agreement, copies of which are set forth as Exhibits 2-9 and are incorporated herein by reference. 5 Except as set forth above in this statement, and in Item 6 below, none of the Reporting Persons nor, to the best of their knowledge, any person listed on Schedule I hereto or in Item 1(a) or (d) above, has any plans or proposals that relate to or would result in: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present Board of Directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) any material change in the present capitalization or dividend policy of the Company; (f) any other material change in the Company's business or corporate structure; (g) changes in the Company's charter, by-laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to any of those enumerated above. Item 5. Interest in Securities of the Issuer. (a) Assuming (i) exercise of the remaining Preferred Stock Warrant issued to WP VIII; (ii) full conversion of the shares of Series A Preferred Stock issued to WP VIII on the Series A Closing Date and upon exercise of the March 25 Preferred Stock Warrant and issuable pursuant to the remaining Preferred Stock Warrant; (iii) full exercise for cash of all Common Stock Warrants issued to WP VIII on the Series A Closing Date and upon exercise of the March 25 Preferred Stock Warrant and issuable upon exercise of the remaining Preferred Stock Warrant; and (iv) full conversion of the shares of Series B Preferred Stock issued to WP VIII on the Series B Closing Date, WP VIII may be deemed to beneficially own 90,369,844 shares of Common Stock, representing approximately 66.09% of the outstanding shares of Common Stock, based on the 46,381,006 shares of Common Stock outstanding as of July 31, 2002 (which number was represented by the Company in the Series B Preferred Stock Purchase Agreement, dated August 20, 2002, attached hereto as Exhibit 7), calculated in accordance with Rule 13d-3 under the Exchange Act. By reason of their respective relationships with WP VIII and each other, each of the other Reporting Persons may also be deemed under Rule 13d-3 under the Exchange Act to own beneficially 90,369,844 shares of Common Stock, representing approximately 66.09% of the outstanding Common Stock. Until such time as the Common Stock Warrant and the Preferred Stock Warrants are exercised, the Reporting Persons disclaim beneficial ownership of any shares of Common Stock issuable thereon. One Member and Managing Director of WP LLC and Partner of WP owns approximately 3,298 shares of Common Stock. The Reporting Persons expressly disclaim beneficial ownership of these shares. (b) WP and WP LLC share with WP VIII the power to vote or to direct the vote and to dispose or to direct the disposition of the 90,373,142 shares of Common Stock it may be deemed to beneficially own. The Reporting Persons are making this single, joint filing because they may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act. Each Reporting Person disclaims beneficial ownership of all shares of Common Stock, other than those reported herein as being owned by it. (c) Other than as set forth in Item 4 hereof, no transactions in the Common Stock were effected during the last sixty days by the Reporting Persons or any of the persons set forth on Schedule I or in Item 2(d) hereto. (d) Except as set forth in this Item 5, no person other than each respective record owner referred to herein of securities is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, such securities. (e) Not applicable. 6 Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to the Securities of the Issuer. Pursuant to Rule 13d-1(k) promulgated under the Exchange Act, the Reporting Persons have entered into an agreement attached hereto as Exhibit 1, with respect to the joint filing of this statement and any amendment or amendments hereto. As marked, the Series A Purchase Agreement and the agreements contemplated thereby were entered as of September 23, 2001 and are described in Item 3, Item 4 and Item 5 elsewhere in this Statement. As marked, the Series B Purchase Agreement and the agreements contemplated thereby were entered as of August 20, 2002 and are described in Item 3, Item 4 and Item 5 elsewhere in this Statement. Except as described above, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 above or between such persons and any other person with respect to any securities of the Company. Item 7. Material to be Filed as Exhibits. 1. Joint Filing Agreement* 2. Series A Preferred Stock Purchase Agreement, dated as of September 23, 2001, by and between the Company, WP VIII and certain other persons.* 3. Form of Form A Subscription Warrant and Form of Form B Subscription Warrant.* 4. Form of Warrant to Purchase Shares of Common Stock, as amended. 5. Form of Certificate of Designation of Series A Preferred Stock of Evolve Software, Inc. * 6. Form of Preemptive Rights Agreement between the Company, WP VIII and certain other persons.* 7. Series B Preferred Stock Purchase Agreement, dated August 20, 2002, by and between the Company, WP VIII and certain other persons. 8. Form of Certificate of Designation of Series B Preferred Stock of Evolve Software, Inc. 9. Form of Series B Preemptive Rights Agreement between the Company, WP VIII and certain other persons. 10. Power of Attorney.* - ----------------- * Previously filed 7 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated August 28, 2002 WARBURG PINCUS PRIVATE EQUITY VIII, L.P. By: Warburg, Pincus & Co., General Partner By: /s/ Scott Arenare -------------------------- Name: Scott Arenare Title: Partner Dated August 28, 2002 WARBURG PINCUS & Co. By: /s/ Scott Arenare -------------------------- Name: Scott Arenare Title: Managing Director Dated August 28, 2002 WARBURG PINCUS LLC By: /s/ Scott Arenare -------------------------- Name: Scott Arenare Title: Partner 8 Exhibit Index 1. Joint Filing Agreement* 2. Series A Preferred Stock Purchase Agreement, dated as of September 23, 2001, by and between the Company, WP VIII and certain other persons.* 3. Form of Form A Subscription Warrant and Form of Form B Subscription Warrant.* 4. Form of Warrant to Purchase Shares of Common Stock, as amended. 5. Form of Certificate of Designation of Series A Preferred Stock of Evolve Software, Inc. * 6. Form of Preemptive Rights Agreement between the Company, WP VIII and certain other persons.* 7. Series B Preferred Stock Purchase Agreement, dated August 20, 2002, by and between the Company, WP VIII and certain other persons. 8. Form of Certificate of Designation of Series B Preferred Stock of Evolve Software, Inc. 9. Form of Series B Preemptive Rights Agreement between the Company, WP VIII and certain other persons. 10. Power of Attorney.* - ----------------- * Previously filed 9 EX-7 3 aug2702_ex7.txt EXHIBIT 7 EVOLVE SOFTWARE, INC. SERIES B PREFERRED STOCK PURCHASE AGREEMENT dated as of August 20, 2002 TABLE OF CONTENTS Page ---- SECTION 1 Authorization and Sale of Preferred Stock...........................1 1.1 Authorization...............................................1 1.2 Sale of Series B Preferred Stock............................1 SECTION 2 Closing Date; Delivery..............................................1 2.1 Closing Date................................................1 2.2 Delivery....................................................2 SECTION 3 Representations and Warranties of the Company.......................2 3.1 Organization of the Company.................................2 3.2 Authority for Agreement.....................................2 3.3 Shares and Conversion Shares Issued.........................2 3.4 Governmental Authorization..................................3 3.5 Noncontravention............................................3 3.6 SEC Documents...............................................3 3.7 Financial Statements........................................3 3.8 No Material Adverse Change..................................4 3.9 Consent.....................................................5 3.10 Capitalization..............................................5 3.11 Subsidiaries................................................6 3.12 Intellectual Property.......................................7 3.13 Litigation, etc.............................................9 3.14 Compliance with Laws........................................9 3.15 Material Contracts..........................................9 3.16 Offering of Securities.....................................11 3.17 Environmental Compliance...................................11 3.18 Employment Matters; ERISA..................................11 3.19 Taxes......................................................12 3.20 Regulatory Matters.........................................13 3.21 Property...................................................13 3.22 Proxy Materials............................................13 3.23 State Takeover Statutes....................................13 3.24 Broker's and Finder's Fees.................................14 SECTION 4 Representations and Warranties of the Purchasers...................14 4.1 Investment for Own Account.................................14 4.2 Accredited Investor........................................14 4.3 Registration Exemption.....................................14 4.4 Disposition of Shares......................................14 4.5 Experience; Risks..........................................14 4.6 Transfer Restrictions......................................15 4.7 Rule 144...................................................15 4.8 Disclosure of Information..................................15 -i- TABLE OF CONTENTS (Continued) Page ---- SECTION 5 Additional Agreements..............................................15 5.1 Public Announcements.......................................15 5.2 Nasdaq Listing.............................................16 5.3 Proxy Statement and Other Filings..........................16 5.4 Conduct of the Company.....................................17 5.5 No Solicitation............................................17 5.6 Reasonable Best Efforts; Further Assurances................19 SECTION 6 Conditions to the Closing of All Parties...........................19 6.1 Conditions to Obligations of Each Party to Effect the Financing.............................................19 SECTION 7 Conditions to Closing of the Purchasers............................20 7.1 Representations and Warranties Correct.....................20 7.2 Opinion of Company Counsel.................................20 SECTION 8 Conditions to Closing of Company...................................20 8.1 Representations and Warranties Correct.....................21 8.2 Covenants..................................................21 SECTION 9 Miscellaneous......................................................21 9.1 Governing Law..............................................21 9.2 Survival...................................................21 9.3 Successors and Assigns.....................................21 9.4 Entire Agreement; Amendment................................21 9.5 Notices, etc...............................................21 9.6 Delays or Omissions........................................21 9.7 California Corporate Securities Law........................22 9.8 Waiver of Conflict.........................................22 9.9 Expenses...................................................22 9.10 Counterparts...............................................22 9.11 Severability...............................................22 9.12 Gender.....................................................23 9.13 Exculpation Among Purchasers...............................23 -ii- EXHIBITS A Certificate of Designation of Series B Preferred Stock B Form of Amended and Restated Registration Rights Agreement C Form of Amended and Restated Preemptive Rights Agreement D Form of Opinion of Legal Counsel -iii- EVOLVE SOFTWARE, INC. SERIES B PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of August 20, 2002, by and among Evolve Software, Inc., a Delaware corporation (the "Company"), with its principal office at 1400 65th Street, Suite 100, Emeryville, CA 94608, and the entities for which signatures appear on the signature pages hereto (the "Purchasers," and each a "Purchaser"). SECTION 1 Authorization and Sale of Preferred Stock 1.1 Authorization. The Company has authorized the sale and issuance of up to an aggregate of 700,000 shares of its Series B Preferred Stock ("Series B Preferred Stock"), having the rights, restrictions, privileges and preferences as set forth in the Company's Certificate of Designation of Series B Preferred Stock attached to this Agreement as Exhibit A (the "Certificate of Designation"), in accordance with the terms and conditions set forth herein. 1.2 Sale of Series B Preferred Stock. Subject to the terms and conditions hereof, at the Closing (as defined below) the Company will issue and sell to each Purchaser, and each Purchaser will buy from the Company, the number of shares of Series B Preferred Stock set forth opposite such Purchaser's name on the Schedule of Purchasers hereto, for a purchase price of $10.00 per share, payable by check or wire transfer in the amount set forth opposite such Purchaser's name in the Schedule of Purchasers (the "Financing"). The shares of Series B Preferred Stock issued hereunder are hereafter referred to as the "Shares." The Company's agreement with each Purchaser is a separate agreement, and the sale to each Purchaser is a separate sale. SECTION 2 Closing Date; Delivery 2.1 Closing Date. The closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held within two (2) business days of the satisfaction or waiver of all of the conditions set forth in Sections 6, 7 and 8 hereof (other than those conditions which by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver thereof) or on such later date or dates as the Company and the Purchasers may mutually agree (the date of such Closing being referred to as the "Closing Date"). The place of the Closing shall be at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, or such other place as the Purchasers and the Company may mutually agree. 2.2 Delivery. At the Closing, the Company will deliver to each Purchaser a certificate representing shares of the Series B Preferred Stock to be purchased by such Purchaser at such Closing against payment of the consideration therefor, specified in Section 1.2 hereof. SECTION 3 Representations and Warranties of the Company Except as set forth on the Company Disclosure Letter provided herewith (the "Company Disclosure Letter"), the Company hereby represents and warrants to the Purchasers as follows: 3.1 Organization of the Company. The Company is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation and has all corporate power and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified or in good standing would not have, individually or in the aggregate, a Material Adverse Effect. For the purposes of this Agreement, a "Material Adverse Effect" means, with respect to the Company, a current or reasonably anticipated material adverse effect on the business, assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole. For the purposes of this Agreement, "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by the Company. The Company has heretofore made available to the Purchasers or their counsel true and complete copies of the certificate of incorporation, as amended, and bylaws, as amended, of the Company as currently in effect. 3.2 Authority for Agreement. The Company has all requisite corporate power and authority to enter into this Agreement, the Amended and Restated Registration Rights Agreement in substantially the form as attached hereto as Exhibit B (the "Amended and Restated Registration Rights Agreement"), and the Series B Preemptive Rights Agreement in substantially the form as attached hereto as Exhibit C (the "Series B Preemptive Rights Agreement", and together with this Agreement and the Amended and Restated Registration Rights Agreement, the "Agreements") and to consummate the transactions contemplated hereby and thereby. The execution and delivery of the Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company. The Agreements, when duly executed and delivered by the Company, will constitute the valid and binding obligations of the Company, enforceable in accordance with their respective terms. 3.3 Shares and Conversion Shares Issued. The Shares and the Conversion Shares, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and nonassessable. For purposes of this Agreement, "Conversion Shares" shall mean the shares of common stock, $0.001 par value per share, of the Company ("Common Stock") issuable upon conversion of the Shares. -2- 3.4 Governmental Authorization. The execution, delivery and performance by the Company of the Agreements and the consummation by the Company of the transactions contemplated hereby and thereby require no consent, approval, authorization or other action by or in respect of any governmental authority or other party except with respect to (i) compliance with any applicable filing requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state securities laws and regulations, (ii) the filing of the Certificate of Designation in accordance with the law of the State of Delaware, and (iii) other filings, notifications and consents that are immaterial to the consummation of the transactions contemplated hereby. 3.5 Noncontravention. Neither the execution and the delivery of the Agreements, nor the consummation of the transactions contemplated hereby and thereby, will (i) violate any provision of the certificate of incorporation, as amended, or bylaws, as amended, of the Company or any Subsidiary, (ii) assuming compliance with the matters referred to in Section 3.4, violate any applicable law nor conflict with any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets, (iii) conflict with, require any consent under or result in the loss of any right under (a) any agreement, contract, lease, license, instrument, or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject or (b) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets, except for such conflicts which would not, either individually or in the aggregate, be material to the Company or interfere with the Company's ability to consummate the transactions contemplated hereby, or (iv) result in the creation or imposition of any lien on any material asset of the Company or any Subsidiary. 3.6 SEC Documents. The Company has furnished or made available to the Purchasers true and complete copies of the following filings with the Securities and Exchange Commission (the "SEC"): (i) its annual report on Form 10-K, as amended, for the fiscal year ended June 30, 2001; (ii) its quarterly reports on Form 10-Q for the fiscal quarters ended September 30, 2001, December 31, 2001, and March 31, 2002; and (iii) all current reports on Form 8-K filed with the SEC since June 30, 2001 (collectively, the "SEC Documents"). As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a document subsequently filed with the SEC. 3.7 Financial Statements. The Company has delivered or made available to the Purchasers its audited balance sheet, statement of operations and statement of cash flows as of and for the years ended June 30, 2001 and June 30, 2000 (the "Year-End Financials") and the unaudited balance sheet, statement of operations and statement of cash flows as of and for the fiscal quarters ended September 30, 2001, December 31, 2001 and March 31, 2002 (the "Interim Financials", which shall be referred to collectively with the Year-End Financials as the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), except (i) as may be indicated in the notes thereto, (ii) in the case of pro forma statements, if any, and (iii) in the case of the Interim Financials, as permitted under Form 10-Q of the Exchange Act. The Financial -3- Statements fairly present the financial condition and operating results of the Company as of the dates, and during the periods, indicated therein, subject to, in the case of the Interim Financials, normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no liabilities of any kind, whether accrued, contingent absolute, determined or determinable, and there is not existing any condition, situation or set of circumstances which could reasonably be expected, individually or in the aggregate, to result in such a liability, other than (i) liabilities incurred since March 31, 2002 in the ordinary course of business consistent with past practices and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements, and which are not material to the financial condition or operating results of the Company. 3.8 No Material Adverse Change. Since the date of the most recent balance sheet included in the Financial Statements, the Company has conducted its business in the ordinary course and, except for the execution and delivery of the Agreements and the consummation of the transactions contemplated thereby, there has not occurred: (a) any event which has had or is reasonably expected to have a Material Adverse Effect; (b) any amendment or change in the certificate of incorporation, as amended, or bylaws, as amended, of the Company; (c) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company or its Subsidiaries, or any repurchase, redemption or other acquisition by the Company or any Subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company or its Subsidiaries; (d) any amendment of any material term of any outstanding security of the Company or its Subsidiaries; (e) any incurrence, assumption or guarantee by the Company or its Subsidiaries of any indebtedness for borrowed money other than in the ordinary course of business and in amounts and on terms consistent with past practices; (f) any creation or other incurrence by the Company or its Subsidiaries of any lien on any material asset other than in the ordinary course of business consistent with past practices; (g) any making of any material loan, advance or capital contribution to or investment in any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or intermediary thereof (a "Person") other than loans, advances or capital contributions to or investments in any of the Company's Subsidiaries in the ordinary course of business consistent with past practices; (h) any damage, destruction or other casualty loss (whether or not covered by insurance) material to the business or assets of the Company or its Subsidiaries; -4- (i) any transaction or commitment made, or any contract or agreement entered into, by the Company or its Subsidiaries relating to its assets or business (including the acquisition or disposition of any assets) or any relinquishment by the Company or its Subsidiaries of any contract or other right, in either case, material to the Company and its Subsidiaries, taken as a whole, other than transactions and commitments in the ordinary course of business consistent with past practices; (j) any change in any method of accounting, method of tax accounting or accounting principles or practice by the Company or its Subsidiaries, except for any such change required by reason of a concurrent change in GAAP or Regulation S-X under the Exchange Act; (k) any (i) grant of any severance or termination pay to (or amendment to any existing arrangement with) any director, executive officer or employee of the Company or its Subsidiaries, (ii) increase in benefits payable under any existing severance or termination pay policies or employment agreements, (iii) entering into any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, executive officer or employee of the Company or its Subsidiaries, (iv) establishment, adoption or amendment (except as required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering any director, executive officer or employee of Company or any Subsidiary, (v) increase in compensation, bonus or other benefits payable to any director, executive officer or employee of the Company or its Subsidiaries, other than in the ordinary course of business consistent with past practice or (vi) any termination, change of position or hiring of any key employee or executive officer; (l) any material tax election made or changed, any annual tax accounting period changed, any method of tax accounting adopted or changed, any material amended tax returns or claims for material tax refunds filed, any material closing agreement entered into, any material tax claim, audit or assessment settled, or any right to claim a material tax refund, offset or other reduction in tax liability surrendered; or (m) any revaluation by the Company or its Subsidiaries of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable other than in the ordinary course of business. 3.9 Consent. No consent of any governmental entity or any third party is required by or with respect to the Company in connection with the execution and delivery of the Agreements or the consummation of the transactions contemplated hereby and thereby other than any such consents the absence of which would not cause a material adverse effect on the Company or on the Company's ability to consummate the transactions contemplated hereby. 3.10 Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 200,000,000 shares of Common Stock, of which 46,381,006 shares were issued and outstanding as of July 31, 2002, and 10,000,000 shares of Preferred Stock, of which (i) 2,800,000 shares are designated Series A Preferred Stock of which 1,875,000 shares are issued and outstanding and (ii) 700,000 shares are designated Series B Preferred Stock of which no shares were issued or outstanding prior to the date of this Agreement. All such outstanding shares have been duly authorized and validly issued, and are fully paid and nonassessable. Assuming the accuracy and -5- completeness of representations made by the purchasers of such outstanding shares in connection with the issuance of such securities, all such outstanding shares were issued in material compliance with applicable U.S. federal and state securities laws. The Company has reserved (i) sufficient shares of Common Stock for issuance upon conversion of the Shares, (ii) sufficient shares of Common Stock for issuance upon the conversion of the outstanding shares of Series A Preferred Stock, including (A) the shares of Series A Preferred Stock issuable upon the exercise of outstanding warrants to acquire shares of Series A Preferred Stock and (B) the shares of Common Stock issuable upon the exercise of warrants to purchase Common Stock issuable upon the exercise of warrants to purchase Series A Preferred Stock, (iii) 31,774,712 shares of Common Stock for issuance upon exercise of stock options pursuant to the Company's 1995 Stock Option Plan, Amended and Restated 2000 Stock Plan, Amended and Restated 2000 Employee Stock Purchase Plan and Amended and Restated 2002 Nonstatutory Stock Option Plan (collectively, the "Stock Plans"), and (iv) 4,167 shares of Common Stock for issuance upon exercise of outstanding warrants to acquire shares of Common Stock. Except as set forth above and except for (i) outstanding options to purchase 19,384,401 shares of Common Stock as of July 31, 2002 granted to employees and service providers under the Stock Plans, (ii) outstanding warrants to acquire shares of Series A Preferred Stock and (iii) outstanding warrants to acquire shares of Common Stock, there are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of capital stock or other securities of the Company. Except as set forth in the Preemptive Rights Agreement dated as of October 9, 2001 by and among the Company and the parties listed therein, there are no preemptive or other similar rights available to the existing holders of the capital stock of the Company. There are no voting trusts, stockholder agreements, material proxies or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting or transfer of registration of shares of capital stock of the Company. Neither the offer nor the issuance or sale of the Shares constitutes or will constitute (i) an event under any capital stock or convertible security or any anti-dilution or similar provision of any agreement or instrument to which the Company is a party or by which it is bound or affected, which shall either increase the number of shares of capital stock issuable upon conversion of any securities or upon exercise of any warrant or right to subscribe to or purchase any stock or similar security, or decrease the consideration per share of capital stock to be received by the Company upon such conversion or exercise, or (ii) an event under the vesting provisions of any outstanding option, warrant, restricted stock purchase agreement or other employment-related agreement of the Company which would cause such vesting provisions to accelerate. Assuming the accuracy of the Purchasers' representations in Section 4 below, upon issuance, the Shares will have been issued in compliance with all federal and state securities laws. 3.11 Subsidiaries. (a) Each of the Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all powers (corporate or otherwise) and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Each such Subsidiary of the Company is duly qualified to do business as a foreign corporation or limited liability company and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified or in good standing would not have, individually or in the aggregate, a Material Adverse Effect. -6- (b) All of the outstanding capital stock or other voting securities or other equity interests of each Subsidiary is owned by the Company, directly or indirectly, free and clear of any lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or other equity interests), other than any restrictions imposed by applicable securities laws. There are not outstanding (i) securities of the Company or any Subsidiary convertible into or exchangeable for shares of capital stock or voting securities or other equity securities of any Subsidiary, or (ii) options or other rights to acquire from the Company or any Subsidiary, or other obligation of the Company or any Subsidiary to issue, any capital stock, voting securities, other equity interests or securities convertible into or exchangeable for capital stock or voting securities or other equity interests of any Subsidiary (the items in clauses 3.11(b)(i) and 3.11(b)(ii) being referred to collectively as the "Subsidiary Securities"). There are not outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities. 3.12 Intellectual Property. (a) Definitions. For the purposes of this Agreement, the following terms have the following definitions: "Intellectual Property" shall mean any or all of the following and all rights in, arising, out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; (vii) all moral and economic rights of authors and inventors, however denominated, throughout the world, and (viii) any similar or equivalent rights to any of the foregoing anywhere in the world. "Company Intellectual Property" shall mean any Intellectual Property that is owned by, or exclusively licensed to, the Company or its Subsidiaries. "Registered Intellectual Property" means all United States, international and foreign: (i) patents and patent applications (including provisional applications); (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (iii) registered copyrights and applications for copyright registration; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any state, government or other public legal authority. "Company Registered Intellectual Property" means all of the Registered Intellectual Property owned by, or filed in the name of, the Company or its Subsidiaries. -7- (b) No Company Intellectual Property or product or service of the Company or its Subsidiaries is subject to any proceeding or outstanding decree, order or judgment restricting in any manner the use, transfer, or licensing thereof by the Company or its Subsidiaries, or which may affect the validity, use or enforceability of such Company Intellectual Property (nor, to the Company's knowledge is there any basis therefor). (c) The Company or its Subsidiaries own and have good and exclusive title to, or have license to use (sufficient for the conduct of its business as currently conducted and as proposed to be conducted), each item of Company Intellectual Property or other Intellectual Property used by the Company or its Subsidiaries free and clear of any lien or encumbrance (excluding licenses and related restrictions); and the Company or its Subsidiaries are the exclusive owners of or have a valid license to use all trademarks and trade names used in connection with the operation or conduct of the business of the Company and its Subsidiaries, including the sale of any products or the provision of any services by the Company and its Subsidiaries. (d) The Company or its Subsidiaries own exclusively, and have good title to, all copyrighted works that are the Company's or its Subsidiaries' products or which the Company or its Subsidiaries otherwise expressly purport to own. (e) To the extent that any Intellectual Property has been developed or created by a third party for the Company or its Subsidiaries, the Company or its Subsidiaries have a written agreement with such third party with respect thereto and the Company or its Subsidiaries thereby either have obtained ownership of and are the exclusive owners of, or have obtained a license (sufficient for the conduct of its business as currently conducted and as proposed to be conducted) to, all such third party's Intellectual Property in such work, material or invention by operation of law or by valid assignment. (f) Neither the Company nor any of its Subsidiaries has transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was material Company Intellectual Property, to any third party. (g) The operation of the business of the Company and its Subsidiaries as such business currently is conducted, including the Company's and its Subsidiaries' design, development, manufacture, marketing and sale of the products or services of the Company and its Subsidiaries (including products currently under development), to the knowledge of the Company, has not and will not infringe or misappropriate the Intellectual Property of any third party or, to its knowledge, constitute unfair competition or trade practices under the laws of any jurisdiction. (h) Neither the Company nor any of its Subsidiaries has received notice from any third party that the operation of the business of the Company or its Subsidiaries or any act, product or service of the Company or its Subsidiaries, may infringe or misappropriate the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction. (i) To the knowledge of the Company, no person has or is materially infringing or misappropriating any Company Intellectual Property. -8- (j) The Company and its Subsidiaries have taken reasonable steps to protect the Company's and its Subsidiaries' rights in the Company's confidential information and trade secrets that it wishes to protect or any trade secrets or confidential information of third parties provided to the Company or its Subsidiaries. 3.13 Litigation, etc. There are no actions, suits, proceedings or investigations pending or, to the Company's knowledge, currently threatened against the Company or the Subsidiaries or their respective properties before any court, arbitrator or governmental agency (nor, to the Company's knowledge, is there any written threat thereof or any reasonable basis therefor), that if decided adversely to the Company would result in a Material Adverse Effect to the Company, or that in any manner challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated by the Agreements. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened against the Company (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 3.14 Compliance with Laws. Neither the Company nor any Subsidiary is in violation of, nor has violated or been threatened to be charged with or given notice of any violation of, nor to the knowledge of the Company, is under investigation with respect to any applicable law, in each case other than such violations that could not reasonably be expected to be material to the Company. 3.15 Material Contracts. Except as disclosed in the SEC Documents, neither the Company nor any Subsidiary is a party to or is bound by: (a) any employment or consulting agreement, contract or commitment with any officer or director or higher level employee or member of the Company's Board of Directors, other than those that are terminable by the Company or any Subsidiary on no more than thirty (30) days' notice without liability or financial obligation to the Company; (b) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by the Agreements or by a Change of Control Transaction (as defined in the Certificate of Designation) or the value of any of the benefits of which will be altered on the basis of any of the transactions contemplated by the Agreements or by a Change of Control Transaction; (c) any material agreement of indemnification or any guaranty other than (i) any agreement of indemnification entered into in connection with the sale or license of software products or services in the ordinary course of business, or (ii) any indemnification obligation of the Company or any Subsidiary to its officers or directors; -9- (d) any agreement, contract or commitment containing any covenant limiting in any material respect the right of the Company or any Subsidiary to engage in any line of business or to compete with any person or granting any exclusive distribution rights; (e) any agreement, contract or commitment currently in force relating to the disposition or acquisition by the Company or any Subsidiary after the date of this Agreement of a material amount of assets not in the ordinary course of business or pursuant to which the Company has any material ownership interest in any corporation, partnership, joint venture or other business enterprise other than the Company's Subsidiaries; (f) any dealer, distributor, joint marketing, original equipment manufacturer, reseller or development agreement currently in force under which the Company or any Subsidiary has continuing material obligations to jointly market any product, technology or service and which may not be canceled without penalty upon notice of ninety (90) days or less and, in the case of dealer, distributor or joint marketing agreements, which involve payments by or to the Company of $500,000 or more, or any material agreement pursuant to which the Company or any Subsidiary has continuing material obligations to jointly develop any intellectual property that will not be owned, in whole or in part, by the Company or its Subsidiaries; (g) any agreement, contract or commitment currently in force to provide source code to or to license or acquire source code from any third party for any product or technology other than source code escrow agreements or other similar arrangements entered into in the normal course of business; (h) any agreement, contract or commitment currently in force to engage any third party to manufacture or reproduce any Company product, service or technology or any agreement, contract or commitment currently in force to sell or distribute any Company products, including any parts or components thereof, service or technology except agreements with distributors or sales representative in the normal course of business cancelable without penalty upon notice of ninety (90) days or less; (i) any material mortgages, indentures, guarantees, loans or credit agreements or other agreements or instruments relating to the borrowing of money or extension of credit; (j) any settlement agreement entered into prior to the date of this Agreement; or (k) any other agreement, contract or commitment that includes receipts or expenditures of $500,000 or more individually. Except to the extent fully performed or terminated pursuant to its terms, each of the agreements, contracts, leases and commitments required to be disclosed pursuant to this section is a legal, valid and binding agreement of the Company or a Subsidiary, as the case may be, and is in full force and effect, and none of the Company, such Subsidiary or, to the knowledge of the Company, any other party thereto is in default or breach, in each case except for any such default or breach that could not reasonably be expected to be material to the Company, and, to the knowledge of the Company, no event or circumstance has occurred that, with the giving of notice or lapse of time or -10- both, would constitute any event of default thereunder, except for an event of default that could not reasonably be expected to be material to the Company. 3.16 Offering of Securities. Neither the Company nor any Person acting on the Company's behalf has taken or will take any action (including, without limitation, any offering of any securities of the Company under circumstances which would require, under the Securities Act, the integration of such offering with the offering and sale of the Shares and the Conversion Shares) which might subject the offering, issuance or sale of the Shares to the registration requirements of Section 5 of the Securities Act. 3.17 Environmental Compliance. (a) The Company does not own any real property. No notice, notification, demand, request for information, citation, summons, complaint or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending, or to the Company's knowledge, threatened by any governmental or other entity (i) with respect to any alleged violation by the Company or any of its Subsidiaries of any environmental law, (ii) with respect to any alleged failure by the Company or any of its Subsidiaries to have any material permit, certificate, license, approval, registration or authorization required under any environmental law in connection with the conduct of their businesses or (iii) with respect to any release, as defined in 42 U.S.C. 9601(22), of any hazardous substance that could reasonably be expected to be material to the Company. (b) No release, as defined in 42 U.S.C. 9601(22), of any hazardous substance has occurred at or on any property now or previously owned or leased by the Company or any of its Subsidiaries. (c) To the knowledge of the Company, there are no environmental liabilities that could reasonably be material to the Company. 3.18 Employment Matters; ERISA. (a) The Company has made available to the Purchasers copies of any employee benefit plan within the meaning of Section 3(3) of ERISA or any other material employment or employee arrangement, severance arrangement or employment agreement, which is maintained or otherwise contributed to by any member of the ERISA Group and covers any current or former employee of Company (collectively the "Benefit Arrangements") and, if applicable, related trust agreements and all amendments thereto and written interpretations thereof together with the most recent annual report (Form 5500 including, if applicable, schedule B thereto). Each material Benefit Arrangement that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified if so required and, to the knowledge of the Company, there has been no event since the date of such determination which would reasonably be expected to adversely affect such qualification. Each material Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by and all applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code, except to the extent that it would not have a Material Adverse Effect. -11- (b) Neither the Company nor any member of the ERISA Group maintains or contributes to or has maintained or contributed to any plan subject to Title IV of ERISA or any multiemployer plan within the meaning of Section 4001(a)(3) of ERISA. (c) The Company has no current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits for its former or current employees, except for benefit coverage mandated by applicable law or as required to avoid excise tax under Section 4980B of the Code. (d) No employee of the Company shall become entitled to any payments or accelerated vesting of any awards merely as a result of this transaction. (e) Other than as described in the SEC Documents and standard form employment offer letters and employment, confidential information and invention assignment agreements ("Employment Agreements") in the forms provided to counsel to the Purchasers, there are no employment or employment related agreements between the Company and any of its employees. All present and past employees of the Company and its Subsidiaries have entered into Employment Agreements with the Company, and none have taken any material exception to the provision or assignment of inventions. Other than as described in the SEC Documents, there are no severance arrangements of any kind in effect for any of the Company's current employees, nor are there any arrangements in effect relating to the increase or acceleration of any salary or benefits of any employee in the event of any sale of the Company or substantially all of its assets. 3.19 Taxes. (a) The Company and each of its Subsidiaries has filed in accordance with applicable law, all material tax returns, statements, reports and forms (collectively, "Returns") required to be filed with any taxing authority when due (taking into account any extension of a required filing date); (b) at the time filed, such returns were true, correct and complete in all material respects; (c) the Company and each of its Subsidiaries has timely paid all taxes shown as due and payable on the returns that have been filed; (d) the charges, accruals and reserves for taxes reflected in the most recent balance sheet (excluding any provision for deferred income taxes) are adequate under GAAP, consistently applied, to cover the tax liabilities accruing through the date thereof; (e) since the date of the most recent balance sheet included in the Financial Statements, neither the Company nor any of its Subsidiaries has engaged in any transaction, or taken any other action, other than in the ordinary course of business, which would reasonably be expected to result in a material tax on the Company or any of its Subsidiaries; (f) there is no action, suit, proceeding, investigation, audit or claim pending, or, to the knowledge of the Company threatened against or with respect to it or any of its Subsidiaries in respect of any tax; (g) neither the Company nor any of its Subsidiaries has any obligation under any tax sharing agreement, tax allocation agreement or tax indemnity agreement or any other agreement or arrangement in respect of any tax with any Person other than the Company or its Subsidiaries; (h) neither the Company nor any of its Subsidiaries has been a member of an affiliated, consolidated, combined or unitary group other than one of which the Company was the common parent; (i) proper and adequate amounts have been withheld by the Company and its Subsidiaries from their respective employees and other Persons for all periods in compliance in all material respects with the tax, social security and unemployment, excise and other withholding provisions of all federal, state, local and foreign laws; (j) there is no lien in respect of any material tax outstanding against the assets, properties or business of the Company or any of its Subsidiaries; and (k) the Company is not now, has never been and does not contemplate becoming a -12- "United States Real Property Holding Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the Treasury regulations thereunder. 3.20 Regulatory Matters. The Company has all necessary franchises, approvals, authorizations, permits, licenses, registrations, qualifications and similar rights obtained from any federal, state or local regulatory authority ("Authorizations") to conduct and operate the businesses of the Company, except any such Authorizations which are not material to the Company. The Authorizations are currently in full force and effect, are not in default, and are valid under all applicable rules and regulations according to their terms, except as are not material to the Company. The Company is in material compliance with the terms and conditions of the Authorizations, including requirements for notifications, filing, reporting, posting and maintenance of logs and records. 3.21 Property. The material properties held by the Company and its Subsidiaries conform to the description thereof in the Company's SEC Documents. The Company and its Subsidiaries have good and marketable title in fee simple to any real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are disclosed in the Company's SEC Documents; and all material real property and buildings held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. 3.22 Proxy Materials. If the Company seeks the approval of the Company's stockholders in connection with the issuance of securities contemplated hereby, the proxy or information statement of the Company to be filed with the Commission in connection with the related stockholders meeting (the "Proxy Statement") and any amendments or supplements thereto will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act. At the time the Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of the Company, and at the time such stockholders vote on approval of the issuance of securities hereunder, the Proxy Statement, as supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 3.22 will not apply to statements or omissions included in the Proxy Statement based upon information furnished in writing to the Company by any Purchaser or any affiliate thereof specifically for use therein. 3.23 State Takeover Statutes. The Board of Directors of the Company, at a meeting duly called (or for which notice was duly waived by all directors of the Company) and held on August 20, 2002, has approved the terms of this Agreement, the Certificate of Designation, the Amended and Restated Registration Rights Agreement, the Series B Preemptive Rights Agreement and the other documents contemplated by this Agreement, and the consummation of the transactions contemplated hereby and thereby (including without limitation the sale and issuance to the Purchasers of the Shares and Conversion Shares pursuant to this Agreement and such approval constitutes approval of such transactions by the Board of Directors of the Company under the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"), and constitutes all actions necessary to -13- ensure that the restrictions contained in Section 203 of the DGCL will not apply to the Purchasers in connection with or as a result of such transactions. To the Company's knowledge, no other state takeover statute is applicable to the transactions contemplated by this Agreement and the other documents contemplated hereby. 3.24 Broker's and Finder's Fees. The Company has not incurred, nor will it incur, directly or indirectly, nor will the Purchasers incur, directly or indirectly as a result of any action of the Company, any liability for brokerage or finder's fees or agent's commissions or any similar charges in connection with the Agreement or any transaction contemplated thereby. SECTION 4 Representations and Warranties of the Purchasers Each Purchaser hereby represents and warrants, severally and not jointly, to the Company with respect to its purchase of the Shares as follows: 4.1 Investment for Own Account. This Agreement is made by the Company with the Purchaser in reliance upon such Purchaser's representations and covenants made in this Section 4, which by its execution of this Agreement the Purchaser hereby confirms. The Purchaser represents that the Shares and the Conversion Shares to be received will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that it has no present intention of selling, granting any participation in or otherwise distributing the same. The Purchaser further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Shares or the Conversion Shares. 4.2 Accredited Investor. The Purchaser represents that it is an "Accredited Investor" within the meaning of Rule 501(a) of Regulation D, pursuant to the Securities Act. 4.3 Registration Exemption. The Purchaser understands and acknowledges that the offering of the Shares and the Conversion Shares pursuant to this Agreement will not be registered under the Securities Act on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt pursuant to Section 4(2) of the Securities Act or Regulation D thereunder, and that the Company's reliance on such exemption is predicated on the Purchasers' representations set forth herein. 4.4 Disposition of Shares. The Purchaser covenants that in no event will it make any disposition of any of the Shares or the Conversion Shares except in accordance with the provisions hereof and the provisions of the Registration Rights Agreement. 4.5 Experience; Risks. The Purchaser represents that it is experienced in evaluating investments in emerging high technology companies such as the Company, is able to fend for itself in transactions such as the one contemplated by this Agreement, has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its -14- prospective investment in the Company, and has the ability to bear the economic risks of the investment. 4.6 Transfer Restrictions. The Purchaser acknowledges and understands that the Shares and the Conversion Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available, and that, except as otherwise provided in the Amended and Restated Registration Rights Agreement, the Company is under no obligation to register the Shares or the Conversion Shares. 4.7 Rule 144. The Purchaser acknowledges that it is familiar with the terms of Rule 144 promulgated under the Act, which permits limited public resales of securities acquired in a non-public offering, subject to the satisfaction of certain conditions. The Purchaser understands that before the Shares, or any Common Stock issued upon conversion thereof, may be sold under Rule 144, the following conditions must be fulfilled, except as otherwise described below: (i) certain public information about the Company must be available, (ii) the sale must occur at least one year after the later of the date the Shares were sold by the Company or the date they were sold by an affiliate of the Company, (iii) the sale must be made in a broker's transaction and (iv) the number of Shares sold must not exceed certain volume limitations. If, however, the sale occurs at least two years after the Shares were sold by the Company or the date they were sold by an affiliate of the Company, and if the Purchaser is not an affiliate of the Company, the foregoing conditions will not apply. The Purchaser acknowledges that in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or compliance with another exemption from registration will be required for any disposition of its stock. The Purchaser understands that although Rule 144 is not exclusive, the SEC has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk. 4.8 Disclosure of Information. The Purchaser believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. The Purchaser further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Purchaser to rely thereon. SECTION 5 Additional Agreements 5.1 Public Announcements. (a) The Company and the Purchasers shall each receive the prior written consent from the Company and Warburg Pincus Private Equity VIII, L.P. ("Warburg") before issuing any press release or making any public statement with respect to this Agreement, the transactions -15- contemplated hereby or an Alternative Proposal (as defined below) and, except as may be required by applicable law or any stock exchange or Nasdaq Stock Market rule, will not issue any such press release or make any such public statement prior to obtaining such written consent. (b) The parties will prepare a joint announcement for release upon announcement of the transactions contemplated hereby. 5.2 Nasdaq Listing. The Company agrees to use its commercially reasonable efforts to (i) cause the Conversion Shares to be authorized for listing on the Nasdaq Stock Market upon official notice of issuance and (ii) maintain the listing of its Common Stock on the Nasdaq SmallCap Market or the Nasdaq National Market, unless otherwise approved by the a majority of the Board of Directors of the Company, which majority must include a majority of the directors elected by the holders of the Series A Preferred Stock pursuant to Section (4)(b) of Article IV of the Certificate of Incorporation and the Series B Preferred Stock pursuant to Section 4(b) of the Certificate of Designation. 5.3 Proxy Statement and Other Filings. The Company will include, in the definitive proxy statement (the "Proxy Statement") relating to its 2002 annual meeting of stockholders currently scheduled for November 2002 (the "Annual Meeting"), proposals to (i) approve the anti-dilution provisions with respect to the Series B Preferred Stock and (ii) amend the certificate of incorporation, as amended, of the Company to make such changes as are necessary or desirable to effect a reverse stock split of the Company's Common Stock for purposes of attempting to maintain the listing of the Company's Common Stock on the Nasdaq SmallCap Market (the "Proposals"). The Company will respond to any comments of the SEC and will cause the Proxy Statement to be mailed to its stockholders at the earliest practicable time. As promptly as practicable after the date of this Agreement, the Company will prepare and file a current report on Form 8-K including a pro forma balance sheet for purposes of maintaining the listing of the Company's Common Stock on the Nasdaq SmallCap Market and any other filings required under the Exchange Act, the Securities Act or any other federal or state laws relating to the Financing and the transactions contemplated by this Agreement (the "Other Filings"). The Company will notify the Purchasers promptly upon the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Proxy Statement or any Other Filing or for additional information and will supply the Purchasers with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Proxy Statement or any Other Filing. The Proxy Statement and any Other Filings will comply in all material respects with all applicable requirements of law and the rules and regulations promulgated thereunder. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement or any Other Filing, the Company will promptly inform the Purchasers of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of the Company such amendment or supplement. The Board of Directors of the Company shall recommend approval of the Proposals and the Company shall use its reasonable best efforts to obtain approval of the Proposals by the stockholders. In the event that the Company's stockholders do not approve the Proposals, upon request of Warburg, the Company will call and hold an additional meeting or meetings of stockholders in accordance with the provisions of this Section for purposes of obtaining such approvals, provided that the Company shall not be obligated -16- to hold more than one (1) such meeting in any three (3) month period for the Company to satisfy its obligations. 5.4 Conduct of the Company. From the date hereof until the Closing, except with the prior written consent of Warburg, the Company and its Subsidiaries shall conduct their businesses in the ordinary course consistent with past practice and shall use their commercially reasonable efforts to preserve intact their business organizations and relationships with third parties and to keep available the services of their present officers and employees. The Company will use all reasonable efforts in the ordinary conduct of its business to cause its representations and warranties under Section 3 hereof which are qualified as to materiality to continue to be true (as so qualified) as of the Closing Date and to cause such representations and warranties under Section 3 hereof which are not so qualified to continue to be true in all material respects as of the Closing Date (except for such representations and warranties which speak as of a specified date). Without limiting the generality of the foregoing, from the date hereof until the Closing without written consent of Warburg: (a) the Company will not permit, adopt or propose any change to its certificate of incorporation, as amended, or bylaws, as amended, except as contemplated by this Agreement; (b) the Company will not, and will not permit any of its Subsidiaries to, merge or consolidate with any other Person or acquire a material amount of stock or assets of any other Person; (c) the Company will not, and will not permit any of its Subsidiaries to, sell, lease, license, transfer or otherwise dispose of any material subsidiary or any material amount of assets, securities or property, tangible or intangible, except (i) pursuant to existing contracts or commitments and (ii) in the ordinary course consistent with past practice; and (d) the Company will not, and will not permit any of its Subsidiaries to, agree or commit to do any of the foregoing items (a) through (c). 5.5 No Solicitation. (a) Neither the Company nor any of its Subsidiaries shall, nor shall the Company or any Subsidiary authorize or permit any of its or their officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents or advisors to, directly or indirectly, (i) solicit, initiate or take any action to encourage the submission of any Alternative Proposal, (ii) enter into or participate in any discussions or negotiations with, furnish any non-public information relating to the Company or any Subsidiaries or afford access to the business, properties, assets, books or records of the Company or the Subsidiaries to, otherwise cooperate in any way with, or knowingly assist, participate in, or encourage any effort by any party that is seeking to make, or has made, an Alternative Proposal or (iii) grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company or any Subsidiary. (b) Notwithstanding the foregoing, the Board of Directors of the Company, directly or indirectly through advisors, agents or other intermediaries, may (i) engage in negotiations or discussions with any party that, subject to the Company's compliance with Section 5.5(a), has made a Superior -17- Proposal (as defined below) or, (ii) furnish to such party that has made a Superior Proposal nonpublic information relating to the Company or its Subsidiaries pursuant to a confidentiality agreement with terms no less favorable to Company than those contained in the Confidentiality Agreement dated as of August 13, 2001 between the Company and Warburg, (iii) following receipt of such Superior Proposal, take and disclose to its stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act or otherwise recommend the Superior Proposal and make disclosure to them, and/or (iv) take any non-appealable, final action ordered to be taken by the Company by any court of competent jurisdiction, but in each case referred to in the foregoing clauses (i) through (iii) only if the Board of Directors of the Company determines in good faith by a majority vote after consultation with outside legal counsel to the Company, that it must take such action to comply with its fiduciary duties under applicable law. (c) The Board of Directors of the Company shall not take any of the actions referred to in clauses (i) through (iii) of the preceding subsection unless the Company shall have delivered to Warburg a prior written notice advising Warburg that it intends to take such action, and the Company shall continue to advise Warburg after taking such action. In addition, the Company shall notify Warburg promptly (but in no event later than 24 hours) after receipt by the Company (or any of its advisors) of any unsolicited inquiry or Alternative Proposal, of any indication that a third party is considering making an Alternative Proposal or of any request for information relating to the Company or its Subsidiaries or for access to the business, properties, assets, books or records of the Company or its Subsidiaries by any party that may be considering making, or has made, an Alternative Proposal. The Company shall provide such notice orally and in writing and shall identify the party making, and the terms and conditions of, any such Alternative Proposal, indication or request. The Company shall keep Warburg fully informed, on a current basis, of the status and material details of any such Alternative Proposal, indication or request. In addition to the foregoing, the Company shall (i) provide Warburg with at least 48 hours prior notice (or such lesser notice as provided to the members of the Company's Board of Directors but in no event less than eight hours) of any meeting of the Company's Board of Directors at which the Company's Board of Directors is reasonably expected to consider a Superior Proposal and (ii) provide Warburg with at least three business days prior written notice of a meeting of the Company's Board of Directors at which the Company's Board of Directors is reasonably expected to recommend a Superior Proposal to its stockholders and together with such notice a description of the terms and conditions relating to such Superior Proposal. The Company shall, and shall cause its Subsidiaries and the advisors, employees and other agents of the Company and any of its Subsidiaries to, cease immediately and cause to be terminated any and all existing activities, discussions or negotiations, if any, with any party conducted prior to the date hereof with respect to any Alternative Proposal and shall use its best efforts, consistent with its rights under confidentiality agreements with such parties, to cause any such party (or its agents or advisors) in possession of confidential information about the Company that was furnished by or on behalf of the Company to return or destroy all such information. "Alternative Proposal" means, other than the transactions contemplated by this Agreement, any offer or proposal for, any indication of interest in, or any submission of inquiries from any party relating to (A) any acquisition or purchase, direct or indirect, of 10% or more of the consolidated assets of the Company and its Subsidiaries or over 10% of any class of equity or voting securities of the Company or any of its Subsidiaries, (B) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such party's beneficially owning 10% or more of any class of equity or voting securities of the Company or any of its Subsidiaries, or (C) a merger, -18- consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any of its Subsidiaries. "Superior Proposal" means any bona fide, unsolicited written Alternative Proposal for any of the following transactions (i) a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transactions involving Company pursuant to which the stockholders of Company immediately preceding such transaction hold less than 51% of the equity interest in the surviving or resulting entity of such transaction; (ii) a sale or other disposition by Company of assets representing in excess of 25% of the fair market value of Company's business immediately prior to such sale; or (iii) the acquisition by any person or group, directly or indirectly, of beneficial ownership or right to acquire beneficial ownership of shares representing in excess of 25% of the voting power of the then outstanding shares of capital stock of Company, in each case on terms that the Board of Directors of the Company determines in good faith by a majority vote, on the basis of the advice of a financial advisor of nationally recognized reputation and taking into account all the terms and conditions of the Alternative Proposal, including any break-up fees, expense reimbursement provisions and timing and conditions to consummation, are more favorable and provide greater value to Company's stockholders than as provided hereunder and for which financing, to the extent required, is then fully committed or reasonably determined to be available by the Board of Directors of the Company. 5.6 Reasonable Best Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, the Company and the Purchasers will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. The Company and the Purchasers agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement. SECTION 6 Conditions to the Closing of All Parties 6.1 Conditions to Obligations of Each Party to Effect the Financing. The respective obligations of each party to this Agreement to effect the Financing shall be subject to the satisfaction at or prior to the Closing Date of: (a) Compliance with Laws and Court Orders. No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the transactions contemplated hereby. (b) Litigation. There shall not have been instituted or pending any action or proceeding (or any investigation or other inquiry that might result in such action or proceeding) by any government or governmental authority or agency, domestic, foreign or supranational, before any court or governmental authority or agency, domestic, foreign or supranational, challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit -19- the consummation of the transactions contemplated hereby, seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated hereby. (c) Certificate of Designation. The Certificate of Designation shall have been filed with the Secretary of State of the State of Delaware. (d) Blue Sky. The Company shall have obtained all necessary state securities law permits and qualifications, or secured an exemption therefrom, required prior to offering and selling the Shares and the Conversion Shares by any state. (e) Registration Rights Agreement. The Company and the Purchasers shall have executed and delivered the Amended and Restated Registration Rights Agreement. (f) Preemptive Rights Agreement. The Company shall have executed and delivered the Series B Preemptive Rights Agreement. SECTION 7 Conditions to Closing of the Purchasers Each Purchaser's obligation to purchase Shares at the Closing is, at the option of such Purchaser, subject to the fulfillment on or prior to the Closing Date of the following conditions: 7.1 Representations and Warranties Correct. (i) The Company shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing ; (ii) the representations and warranties of the Company contained in this Agreement and in any certificate or other writing delivered by the Company pursuant hereto shall be true (disregarding each exception therein for materiality and Material Adverse Effect) at and as of the date hereof except for (A) those representations and warranties, that address matters only as of a particular date (which shall remain true only as of such date) and (B) such exceptions as would not individually or in the aggregate have a Material Adverse Effect on the Company; and (iii) such Purchaser shall have received a certificate signed by the Chief Executive Officer and Chief Financial Officer of Company to the foregoing effect. 7.2 Opinion of Company Counsel. Such Purchaser shall have received from Wilson Sonsini Goodrich & Rosati, Professional Corporation, legal counsel to the Company, an opinion addressed to it, dated the Closing Date, in substantially the form of Exhibit D. SECTION 8 Conditions to Closing of Company The Company's obligation to sell and issue the Shares issuable hereunder at the Closing is, at the option of the Company, subject to the fulfillment of the following conditions: -20- 8.1 Representations and Warranties Correct. The representations made by the Purchasers in Section 5 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date. 8.2 Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing Date shall have been performed or complied with. SECTION 9 Miscellaneous 9.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of Delaware, without giving effect to the conflicts of laws principals thereof. 9.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by the Purchasers and the closing of the transactions contemplated hereby. 9.3 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto; provided, however, that the rights of the Purchasers to purchase Shares shall not be assignable without the written consent of the Company. 9.4 Entire Agreement; Amendment. The Agreements and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged, or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought. 9.5 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon delivery to the party to be notified in person or by courier service or five days after deposit with the United States mail, by registered or certified mail, postage prepaid, addressed (a) if to a Purchasers, at such Purchasers' address set forth on the Schedule of Purchasers, or at such other address as such Purchasers shall have furnished to the Company in writing, or (b) if to the Company, to its address set forth on the first page of this Agreement and addressed to the attention of Christopher Boas, Esq., General Counsel, or at such other address as the Company shall have furnished to the Purchasers, with a copy to Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304, Attn: Katharine A. Martin, Esq., or if by facsimile, upon receipt of appropriate confirmation of receipt. 9.6 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any holder of any Shares, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach -21- or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any holder of any breach or default under this Agreement, or any waiver on the part of any holder of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative. 9.7 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING AVAILABLE. 9.8 Waiver of Conflict. Each party to this Agreement that has been or continues to be represented by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to the Company, hereby acknowledges that Rule 3-310 of the Rules of Professional Conduct promulgated by the State Bar of California requires an attorney to avoid representations in which the attorney has or had a relationship with another party interested in the representation without the informed written consent of all parties affected. By executing this Agreement, each such party gives his or its informed written consent to the representation of the Company by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, in connection with this Agreement and the transactions contemplated hereby. 9.9 Expenses. If the Financing and transactions contemplated by this Agreement are consummated, upon the request of Warburg, the Company shall pay, within five (5) business days of such request, all reasonable out-of-pocket fees and expenses of Warburg and its advisors incurred in connection with this Agreement and the transactions contemplated hereby incurred through the Closing Date; provided, however, in the event that the aggregate of all legal fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby incurred through the Closing Date exceed $20,000, the Company shall not be required to pay Warburg for the amount by which such legal fees and expenses exceed $20,000. If the Financing and transactions contemplated by this Agreement are not consummated, the parties will each pay their own fees and expenses. 9.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the Purchasers, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 9.11 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. -22- 9.12 Gender. The use of the neuter gender herein shall be deemed to include the masculine and the feminine gender, if the context so requires. 9.13 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling person, officers, directors, partners, agents or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Shares or the execution of or performance under any of the related documents. [Remainder of Page Intentionally Left Blank] -23- The foregoing Agreement is hereby executed as of the date first above written. "COMPANY" EVOLVE SOFTWARE, INC. a Delaware corporation By: ----------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- "PURCHASER" Warburg Pincus Private Equity VIII, L.P. By Warburg Pincus & Co., as General Partner By: ----------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- Series B Shares Purchased: -------------------------------- Total Purchase Price: ------------------------------------- SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT EX-8 4 aug2702_ex8.txt EXHIBIT 8 CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED STOCK OF EVOLVE SOFTWARE, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware I, the undersigned duly authorized officer of Evolve Software, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, and pursuant to Section 151 thereof, do hereby certify: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), the Board of Directors of the Corporation on August 20, 2002, adopted the following resolution creating a series of 625,000 shares of Series B Preferred Stock, par value $0.001 per share: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation ("Preferred Stock") be and it hereby is created, that the shares of such series shall be designated as Series B Preferred Stock (the "Series B Preferred Stock"), that the number of shares constituting such series shall be 625,000 and that the designation and amount thereof and the preferences and relative, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as set forth herein. For purposes hereof, (i) any series of Preferred Stock of the Corporation entitled to dividends, liquidation and redemption preference on a parity with the Series B Preferred Stock shall be referred to as "Parity Preferred Stock," (ii) any series of Preferred Stock ranking senior to the Series B Preferred Stock and Parity Preferred Stock with respect to dividends, liquidation preference or redemption shall be referred to as "Senior Stock," and (iii) the Common Stock of the Corporation ("Common Stock") and any series of Preferred Stock ranking junior to the Series B Preferred Stock and Parity Preferred Stock with respect to dividends, liquidation preference and redemption shall be referred to as "Junior Stock." The Series A Preferred Stock of the Corporation (the "Series A Preferred Stock") shall be Junior Stock with respect to liquidation for purposes hereof. As of the date of this Certificate of Designation there is not outstanding any Senior Stock. The rights, privileges and other terms of the Series B Preferred Stock shall be as follows: 1. Dividends. In the event that the Corporation shall declare a distribution on the Common Stock or the Series A Preferred Stock payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (including cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then in each such case the holders of Series B Preferred Stock shall be entitled to a proportionate share of any such distribution -1- as though such holders of Series B Preferred Stock were the holders of the number of shares of Common Stock into which their respective shares of Series B Preferred Stock are convertible pursuant to Section 3(a) hereof as of the record date fixed for the determination of the holders of Common Stock or Series A Preferred Stock entitled to receive such distribution; provided that if such distribution is made with respect to the Series A Preferred Stock, then the proportionate shares of such distribution attributable to shares of Series A Preferred Stock and Series B Preferred Stock shall be determined on an as-converted to Common Stock basis. 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary: (i) After setting apart or paying in full the preferential amounts due to any holders of Senior Stock, the holders of the Series B Preferred Stock and any Parity Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Junior Stock, by reason of their ownership thereof, an amount equal to their full liquidation preference, which in the case of the Series B Preferred Stock shall be $10.00 per share (as adjusted for any stock-splits or dividends in kind), which amount shall increase at a rate of 8.00% per annum, compounded quarterly, commencing on the date of issuance of each such share, plus any declared but unpaid dividends on such shares (the "Series B Liquidation Preference"). If, upon occurrence of such event the assets and funds thus distributed among the holders of the Series B Preferred Stock and any Parity Stock shall be insufficient to permit the payment to such holders of the full preferential amount, then after setting apart or paying in full the preferential amounts due to holders of Senior Stock the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series B Preferred Stock and Parity Stock in proportion to the number of shares and the respective liquidation preferences of Series B Preferred Stock and Parity Stock held by each such holder. After payment has been made to the holders of the Series B Preferred Stock and any Parity Stock of their respective Liquidation Preferences, the holders of the Junior Stock shall be entitled to receive the remaining assets of the Corporation as set forth in the Certificate of Incorporation or any certificate of designation defining the liquidation preference of any such Junior Stock, or otherwise in proportion to the number of shares of Junior Stock held by each such holder. (b) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, and to include, (i) the Corporation's sale of all or substantially all of its business, assets or property (including intellectual property) or (ii) any transaction or series of related transactions (other than in connection with the issuance of the Series B Preferred Stock) resulting in a reorganization, merger, or consolidation (whether or not the Corporation is the entity surviving such transaction) in which holders of all voting equity securities of the Corporation immediately prior to such transaction will hold (by reason of their holdings in the Corporation) less than 50% of the voting equity securities of the Corporation or other entity surviving such transaction (in each case, a "Change of Control Transaction"); provided however that -2- in the event of a Change of Control Transaction which occurs prior to the fifth anniversary of the issuance of any share of Series B Preferred Stock, the Series B Liquidation Preference associated with such share shall be computed as if such Change of Control Transaction occurred on the fifth anniversary of the issuance of such share; and, provided further, that in the event of a Change of Control Transaction, if the amount that would have been received by holders of Series B Preferred Stock had the full amount of the Series B Liquidation Preference per share (calculated in accordance with this paragraph) been converted into Common Stock prior to the Change of Control Transaction (the "As-Converted Amount") exceeds the amount which would have been received in respect of each share of Series B Preferred Stock absent such conversion, then each holder of Series B Preferred will be entitled to receive the As-Converted Amount of each share of Series B Preferred Stock. (c) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined by the Board of Directors in the good faith exercise of its reasonable business judgment. Any securities shall be valued as follows: (i) Securities not subject to restrictions on free marketability: (1) If traded on a securities exchange or through the Nasdaq National Market or the Nasdaq SmallCap Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 30-day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 30-day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as determined (x) by agreement between the Corporation and the holders of a majority of the outstanding shares of Series B Preferred Stock or (y) in the absence of such agreement, by the Board of Directors in the good faith exercise of its reasonable business judgment (after consultation with a mutually acceptable financial advisor in the event that such fair market value is expected in good faith by a majority of the Board of Directors, or a majority of the directors elected by the Series A Preferred Stock pursuant to Section (4)(b) of Article IV of the Certificate of Incorporation and the Series B Preferred Stock pursuant to Section 4(b) of this Certificate of Designation, to exceed $1,000,000). (ii) The method of valuation of securities subject to restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i)(1), (2) or (3) to reflect the approximate fair market value thereof, as determined (x) by agreement between the Corporation and the holders of a majority of the outstanding shares of Series B Preferred Stock or (y) in the absence of such agreement, by the Board of Directors in the good faith exercise of its reasonable business judgment (after consultation with a -3- mutually acceptable financial advisor in the event that such fair market value is expected in good faith by a majority of the Board of Directors, or a majority of the directors elected by the Series A Preferred Stock pursuant to Section (4)(b) of Article IV of the Certificate of Incorporation and the Series B Preferred Stock pursuant to Section 4(b) of this Certificate of Designation, to exceed $1,000,000). 3. Conversion. The holders of the Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert and Automatic Conversion. (i) Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series B Liquidation Preference of such share (computed as of the date of conversion), by the Series B Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The Series B Conversion Price shall initially be equal to the average closing sales price per share of Common Stock as reported on the Nasdaq SmallCap Market or the Nasdaq National Market over the five (5) trading days immediately prior to the Original Issue Date (as defined below). The Conversion Price shall be subject to adjustment as hereinafter provided. (ii) Each share of Series B Preferred Stock shall automatically be converted into shares of Common Stock at the then effective applicable Conversion Price at the earlier of (i) the delivery of notice of automatic conversion by Company to all holders of Series B Preferred Stock, provided that such notice may not be given (A) prior to the fifth anniversary of the first date of issuance of Series B Preferred Stock, and (B) unless the closing sales price of the Corporation's Common Stock during regular trading hours was $5.00 or more (as adjusted for stock-splits, stock dividends and similar events occurring after the date of the filing of this Certificate of Designation with the Secretary of State of the State of Delaware) for 30 consecutive trading days ending not more than ten (10) days prior to the date of such notice, or (ii) at the election of the holders of a majority of the outstanding shares of the Series B Preferred Stock. (b) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Series B Preferred Stock. In lieu of any fractional share to which a holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of the Common Stock as determined by the Board of Directors in accordance with Section 2(c) hereof. Before any holder of Series B 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 Preferred Stock and shall give written notice to the Corporation at such office that he elects to convert the same. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into a fractional share of Common Stock. Except as set forth in the following sentence, such conversion shall be -4- deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. In the event of an automatic conversion pursuant to Section 3(a)(ii), the outstanding shares of Series B Preferred Stock shall be converted automatically without any further action by the holder of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or the transfer agent for such Series B Preferred Stock; and the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such Series B Preferred stock are either delivered to the Corporation or the transfer agent for such Series B Preferred Stock as provided above, or the holder notifies the Corporation or the transfer agent for such Series B Preferred stock that such 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 with such certificates. The Corporation shall, as soon as practicable thereafter, issue and deliver to such address as the holder may direct, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. (c) Adjustments to Conversion Price for Diluting Issues. (i) Special Definitions. For purposes of this Section 3, the following definitions shall apply: (1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Series B Preferred Stock) or other securities convertible into or exchangeable for Common Stock. (3) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 3(c)(iii), deemed to be issued) by the Corporation after the first issuance of shares of Series B Preferred Stock (the "Original Issue Date") other than shares of Common Stock issued or issuable: (A) upon conversion of shares of Series B Preferred Stock, upon the issuance of Options, including exercise or conversion of Convertible Securities subject to such Options, issued or issuable pursuant to the terms of the agreement or agreements governing initial issuance and sale of Series A Preferred Stock, or upon exercise or conversion of Options or Convertible Securities outstanding as of the date hereof; (B) to officers, directors or employees of, or consultants to, the Corporation pursuant to a stock grant, option plan or purchase plan or other stock incentive program, including without limitation sales of shares to such persons pursuant to restricted stock purchase agreements (collectively, the "Plans") approved by the Board of Directors; -5- (C) as a dividend or distribution on the Series B Preferred Stock or in connection with any stock split, stock dividend or similar transaction; (D) in connection with (1) equipment lease financing transactions with institutions regularly engaged in equipment leasing or (2) bank lending, if such transactions are approved by the Board of Directors, and such issuance is not principally for the purpose of raising additional equity capital for the Corporation; provided however that the number of shares of Common Stock so excluded in any fiscal year of the Corporation shall not exceed 0.5% of the number of shares of Common Stock outstanding (determined as of the date of issuance of such shares of Common Stock), after giving effect to the conversion of all outstanding shares of Preferred Stock and other "in-the-money" (as such term is defined in Section 3(c)(iv) below) securities convertible into Common Stock unless such grants are approved by a majority of the directors of the Corporation elected by holders of Preferred Stock (the "Preferred Directors") present and voting; (E) securities issued to customers or joint venture partners or in connection with other strategic alliances approved by the Board of Directors including a majority of the Preferred Directors present and voting which involve the grant of licenses or localization, distribution, OEM, bundling, manufacturing or resale rights with respect to the Corporation's products or technology; and (F) securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets of the other corporation, or other reorganization approved by the Board of Directors including a majority of the Preferred Directors present and voting; and (G) by way of dividend or other distribution on shares of Common Stock or Preferred Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A), (B), (C), (D), (E), or (F) or on shares of Common Stock so excluded, provided that such issuance is made (x) pursuant to obligations of the Corporation established in connection with the original issuance of such securities or (y) to all holders of the Corporation's capital stock in proportion to the number of shares held. (ii) No Adjustment of Conversion Price: No adjustment in the Series B Conversion Price shall be made in respect of the issuance or deemed issuance (pursuant to Section 3(c)(iii) below) of Additional Shares of Common Stock unless the consideration per share (determined in accordance with paragraph 3(c)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is or would be less than the Series B Conversion Price in effect on the date of, and immediately prior to, such issue or deemed issue. No adjustment in the Series B Conversion Price shall be made pursuant to paragraph (iv) below as a result of any stock dividend or subdivision which causes an adjustment in the Conversion Price pursuant to Section 3(d) below. (iii) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any -6- Options or Convertible Securities which are excisable for or convertible into Additional Shares of Common Stock 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 in any case in which Additional Shares of Common Stock are deemed to be issued: (A) no further adjustment in the Series B 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; (B) 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 increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series B 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; and (C) no readjustment pursuant to clause (B) above shall have the effect of increasing the Series A Conversion Price to an amount which exceeds the lower of (i) such Conversion Price on the original adjustment date, or (ii) 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. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 3(c)(iii)) without consideration or for a consideration per share less than the Series B 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) which shall be determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the sum of (i) the number of shares of Common Stock issued and outstanding immediately prior to such issue, (ii) the number of shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to such issue, (iii) the number of shares of Common Stock issuable upon exercise of outstanding in-the-money Options and conversion of outstanding in-the-money Convertible Securities and (iv) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the -7- denominator of which shall be the sum of (1) the number of shares of Common Stock issued and outstanding immediately prior to such issue, (2) the number of shares of Common Stock issuable upon conversion of the Preferred Stock outstanding immediately prior to such issue, (3) the number of shares of Common Stock issuable upon exercise of outstanding in-the-money Options and conversion of outstanding in-the-money Convertible Securities and (4) the number of such Additional Shares of Common Stock so issued. "In-the-money" Options and Convertible Securities shall be deemed to include all securities exercisable for or convertible into shares of Common Stock with a fair market value equal to or greater than the fair market value of the consideration which must be paid or which must be foregone to effect such exercise or conversion. (v) Determination of Consideration. For purposes of this Section 3(c), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property. Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined by the Board of Directors in the good faith exercise of its reasonable business judgment; and (C) 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 (A) and (B) above, as determined by the Board of Directors in the good faith exercise of its reasonable business judgment. (2) 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 3(c)(iii), relating to Options and Convertible Securities, shall be determined by dividing (x) 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 -8- (y) the maximum number of shares of Common Stock (as set forth in the instrument 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) Notwithstanding anything in this Section 3(c) to the contrary, no adjustment to the Series B Conversion Price provided for in this Section 3(c) shall be given effect upon the conversion of any shares of Series B Preferred Stock unless, prior to the date of such conversion, the holders of a majority of the outstanding shares of the Common Stock and Series A Preferred Stock, voting together on an as-converted to Common Stock basis in accordance with the provisions of the Certificate of Incorporation, approve or ratify the provisions of this Section 3(c). (d) Adjustments for Stock Dividends, Subdivisions, Combinations, or Consolidations. In the event the Corporation shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification or otherwise, into a greater or lesser number of shares of Common Stock, the Series B Conversion Price in effect immediately prior to such subdivision or combination shall, concurrently with the effectiveness of such subdivision, combination or consolidation, be proportionately adjusted. (e) No Impairment. Unless approved in accordance with Section 5 hereof the Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Preferred Stock against impairment. (f) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge with any other corporation (other than a merger in which the Corporation is the surviving entity and the holders of the outstanding voting equity securities of the Corporation immediately prior to such merger hold more than fifty percent (50%) of -9- the voting power of the surviving entity immediately following such merger), or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of the Series B Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be given by first class mail, postage prepaid, addressed to the holders of Series B Preferred Stock at the address for each such holder as shown on the books of the Corporation and shall be deemed given when so mailed. (g) Recapitalization. If at any time or from time to time there shall be a merger, consolidation, recapitalization or similar transaction of the Corporation (other than a transaction treated as a liquidation for purposes of Section 2 or a subdivision or combination as set forth in Section 3(d)) provision shall be made so that the holders of the Series B Preferred Stock shall thereafter be entitled to receive upon conversion of the Series B Preferred Stock the number of shares of stock or other securities or property of the Corporation or any successor thereto to which a holder of Common Stock deliverable upon conversion of each share of such series would have been entitled on such transaction. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series B Preferred Stock after the such transaction to the end that the provisions of this Section 3 (including adjustment of the Series B Conversion Price then in effect and the number of shares purchasable upon conversion of the Series B Preferred Stock) shall be applicable after such transaction as nearly equivalent as may be practicable. (h) Adjustments for Other Distributions. In the event the Corporation at any time, or from time to time, makes or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of the Corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 3, then and in each such event provision shall be made so that the holders of the Series B Preferred Stock shall receive upon the date of such distribution, the amount of securities of the Corporation which they would have received had their Series B Preferred Stock, been converted into Common Stock on such date. (i) Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series B Conversion Price pursuant to this Section 3, the -10- Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series B 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 holder of the Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (1) such applicable adjustments and readjustments, (2) the applicable Series B Conversion Price at the time in effect, and (3) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holder's Preferred Stock. Any certificate sent to the holders of the Series B Preferred Stock pursuant to this Section 3(i) shall be signed by an officer of the Corporation. (j) Reservation of Shares Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (k) Issue and Transfer Taxes. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Series B Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Series B Preferred Stock to be converted and no such issue or delivery will be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. 4. Voting Rights and Directors. (a) Except (i) as otherwise required by law or (ii) as otherwise set forth herein or in the Certificate of Incorporation, the holders of Series B Preferred Stock shall be entitled to notice of any stockholders' meeting and to vote upon any matter submitted to the stockholders for a vote, and each holder of Series B Preferred Stock shall have one vote for each full share of Common Stock into which the Series B Preferred Stock would be convertible as of the Original Issue Date, subject to adjustment for stock dividends, subdivisions, combinations or consolidations pursuant to Section 3(d) hereof. (b) As long as any shares of Series B Preferred Stock remain outstanding, the holders of Series B Preferred Stock shall vote as a separate class to elect such number of directors of the Corporation (the "Series B Directors"), which, when added to the number of directors elected by the holders of Series A Preferred Stock pursuant to Section (4)(b) of Article IV of the Certificate of Incorporation (the "Series A Directors"), will be in as close a proportion as is -11- possible to the total number of directors of the Corporation as the proportion of the number of shares of Common Stock issuable upon the conversion of all shares of Series A Preferred Stock and Series B Preferred Stock is to total number of shares of Common Stock then outstanding (after giving effect to the conversion of all shares of Preferred Stock then outstanding), rounded down to the nearest whole number; provided, however, that the foregoing right shall be superseded in the event, to the extent, and for so long as the appointment of any such Series B Director would cause the Corporation to fail to comply with applicable laws or regulations or the rules of the Nasdaq Stock Market. Any such Series B Director may be removed during the term of office of such Series B Director, with or without cause, by the affirmative vote of the holders of Series B Preferred Stock, given either at a special meeting duly called for that purpose or pursuant to a written consent, and any vacancy thereby created may be filled by an affirmative vote represented at the meeting or pursuant to the written consent. All directors other than the Preferred Directors shall be elected by the holders of Common Stock, the holders of Series A Preferred Stock and the holders of Series B Preferred Stock, voting together as a single class, on an as-converted to Common Stock basis. (c) Any action which the holders of Series B Preferred Stock are authorized to take at a duly called annual or special meeting of stockholders may in lieu thereof be taken by means of a written consent of such holders. 5. Protective Provisions. In addition to any other rights provided by law, so long as at least 50% of the shares of Series B Preferred Stock issued by the Corporation remain outstanding, the Corporation and its subsidiaries shall not without first obtaining the affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, voting together as a single class, on an as-converted to Common Stock basis: (i) amend or repeal any provision of, or add any provision to, this Certificate of Designation; (ii) authorize or issue any shares of any class or series of Senior Stock or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of Senior Stock of the Corporation; (iii) issue any bonds, debentures or notes or incur similar debt obligations, other than trade debt in the ordinary course of business; (iv) consummate a Change of Control Transaction, unless the aggregate value received for, or realizable in respect of, all outstanding shares of Series B Preferred Stock, determined in accordance with Section 2(c) hereof, as a result of such sale or other transaction or series of transactions exceeds an amount equal to $10.00 per share (as adjusted for stock splits and dividends in kind) multiplied by the number of shares of Series B Preferred outstanding (the "Aggregate Cash Purchase Price"), plus an amount sufficient to result in an overall internal rate of return ("IRR") on the Aggregate Cash Purchase Price of 50%, taking into account for purposes of calculating such overall IRR any differences in the dates of issuance of such outstanding shares; -12- (v) pay any dividend on any shares of Junior Stock, or repurchase or redeem any such shares of Junior Stock except for repurchases of unvested shares of Junior Stock at cost from employees, directors, consultants and other service providers; (vi) repurchase any outstanding shares of capital stock of the Corporation, except for (i) repurchase of shares held by employees of the Corporation pursuant to repurchase agreements approved by the Board of Directors and (ii) redemption of shares of Preferred Stock; (vii) amend the Bylaws of the Corporation to increase the authorized number of directors of the Corporation to more than eight (8); or (viii) authorize or issue any shares of any class or series of Parity Preferred Stock or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of Parity Preferred Stock of the Corporation. 6. Status of Converted Stock. In the event any shares of Series B Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. 7. 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. 8. Preemptive Rights. The Corporation may, from time to time, enter into one or more agreements with any stockholder providing for the contractual grant of preemptive rights to purchase or subscribe for additional shares of capital stock of the Corporation, subject to the terms and conditions in such agreements; provided, however, that the remedy for breach of any provision of such agreements shall be limited to contractual remedies and, as such, shall not include a right of rescission with respect with respect to any private placement of the capital stock of the Corporation. -13- IN WITNESS WHEREOF, Evolve Software, Inc. has caused this Certificate of Designation to be executed by Linda Zecher, its President and Chief Executive Officer, this 20th day of August, 2002. EVOLVE SOFTWARE, INC. By: ----------------------------------------- Name: Linda Zecher Title: President and Chief Executive Officer EX-9 5 aug2702_ex9.txt EXHIBIT 9 SERIES B PREEMPTIVE RIGHTS AGREEMENT THIS SERIES B PREEMPTIVE RIGHTS AGREEMENT (this "Agreement") is made as of August 20, 2002 by and among Evolve Software, Inc., a Delaware corporation (the "Company"), and the entities listed on the signature pages hereto (the "Stockholders"). RECITALS A. The Company and each purchaser of Series B Preferred Stock of the Company (the "Series B Purchasers") have entered into that certain Series B Preferred Stock Purchase Agreement dated August 20, 2002 (the "Series B Purchase Agreement"), pursuant to which the Company has agreed to sell, and such purchasers have agreed to purchase up to an aggregate of 700,000 shares of Series B Preferred Stock of the Company (the "Series B Preferred Stock"). B. In order to induce the Series B Purchasers to enter into the Series B Purchase Agreement, the Company wishes to grant to the Series B Purchasers the rights set forth in this Agreement. AGREEMENT NOW, THEREFORE, the parties hereby agree as follows: 1. Preemptive Rights. The Company hereby grants to each Stockholder a right (the "Preemptive Right") to purchase all or any part of its Pro Rata Share of any New Securities (as hereinafter defined) that the Company may, from time to time, propose to sell and issue. For purposes of this Section 1, "Pro Rata Share" shall mean the ratio of (x) the sum of the number of shares of Common Stock of the Company (the "Common Stock") issued or issuable upon the conversion of all shares of Series A Preferred Stock of the Company (the "Series A Preferred Stock") and Series B Preferred Stock of the Company (together with the Series A Preferred Stock, the "Preferred Stock") held by such Stockholder plus the number of shares of Common Stock issued or issuable upon conversion of Preferred Stock issuable or issued upon conversion of outstanding warrants to purchase Series A Preferred Stock issued to such Stockholder by the Company pursuant to the Series A Purchase Agreement (as defined below) and held by such Stockholder, plus the number of shares of Common Stock issuable or issued upon the exercise of warrants to purchase Common Stock issued to such Stockholder by the Company pursuant to the Series A Purchase Agreement and held by such Stockholder, to (y) the sum of the total number of shares of Common Stock then outstanding plus the total number of shares of Common Stock issuable upon the conversion or exchange of the total number of shares of Preferred Stock and other securities convertible into or exchangeable or -1- exercisable for Common Stock (whether directly or indirectly) then outstanding. This Preemptive Right shall be subject to the following provisions: a. "New Securities" shall mean any capital stock of the Company, whether or not authorized on the date hereof; provided, however, that "New Securities" shall not include the following: (i) shares of capital stock of the Company issuable upon conversion or exercise of any currently outstanding securities or any New Securities issued in accordance with this Agreement; (ii) securities issuable pursuant to the Series B Purchase Agreement or upon the exercise or conversion of any security issued pursuant to the Series B Purchase Agreement or the Series A Purchase Agreement dated September 23, 2001 between the Company and certain of the Stockholders (the "Series A Purchase Agreement"); (iii) securities issued to officers, directors or employees of, or consultants to, the Company pursuant to a stock grant, option plan or purchase plan or other stock incentive program, including without limitation sales of shares to such persons pursuant to restricted stock purchase agreements approved by the Board of Directors of the Company; (iv) securities issued as a dividend or distribution on Preferred Stock or in connection with any stock split, stock dividend or similar transaction; (v) securities issued upon exercise or conversion of warrants to purchase shares of Common Stock issued in connection with (1) equipment lease financing transactions with institutions regularly engaged in equipment leasing or (2) bank lending, if such transactions are approved by the Board of Directors of the Company, and the issuance of such warrants is not principally for the purpose of raising additional equity capital for the Company; provided however that the number of shares of New Securities so excluded in any fiscal year of the Company shall not exceed 0.5% of the number of shares of Common Stock outstanding and the number of New Securities so excluded in the aggregate shall not exceed 1.5% of the number of shares of Common Stock outstanding, in each case determined as of the date of issuance of such New Securities, after giving effect to the conversion of all outstanding shares of Preferred Stock and other securities convertible into Common Stock, unless such grants are approved by a majority of the present and voting directors of the Company elected by the holders of Preferred Stock; (vi) securities issued to customers, vendors or joint venture partners or in connection with other strategic alliances approved by the Board of Directors which involve the grant of licenses or localization, distribution, OEM, bundling, manufacturing or resale rights with respect to the Company's products or technology; provided that the aggregate number of shares of Common Stock so issued subsequent to the date hereof shall not exceed 2,000,000 shares (as adjusted for stock splits, stock dividends and similar events); -2- (vii) securities issued in a firm-commitment underwritten public offering pursuant to a registration statement filed under the Securities Act of 1933, as amended, provided that the Company shall have used its best efforts to make a Pro Rata Share of such securities available to each Stockholder; (viii) securities issued pursuant to a business combination transaction or acquisition of technology or other assets of another business; and (ix) securities issued by way of dividend or other distribution on shares excluded from the definition of New Securities by the foregoing clauses (i), (ii), (iii), (iv), (v), (vi) (vii) and (viii), provided that such issuance is made (x) pursuant to obligations of the Company established in connection with the original issuance of such securities or (y) to all holders of the Company's outstanding capital stock in proportion to the number of shares held. b. Notice. In the event that the Company proposes to undertake an issuance of New Securities, it shall give each Stockholder written notice (the "Notice") of its intention, describing the type of New Securities, the price, and the material terms and conditions upon which the Company proposes to issue the same to any person. Such Stockholder shall have fifteen (15) business days after issuance of such notice to agree to purchase all or any portion of its Pro Rata Share of such New Securities at the price and upon the terms specified in the notice (which terms shall be no less favorable than those offered to the third party purchaser) by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. c. Sale by Company. In the event that any New Securities subject to the Preemptive Right are not purchased by a Stockholder within the period specified above, the Company shall have one hundred twenty (120) days thereafter to sell (or enter into an agreement pursuant to which the sale of New Securities that had been subject to the Preemptive Right shall be closed, if at all, within sixty (60) days from the date of said agreement) the New Securities with respect to which the rights of the Stockholders were not exercised at a price and upon terms and conditions, including manner of payment, no more favorable to the purchasers thereof than specified in the Notice. In the event the Company has not sold all offered New Securities within such one hundred twenty (120) day period (or sold and issued New Securities in accordance with the foregoing within sixty (60) days from the date of such agreement), the Company shall not thereafter issue or sell any New Securities without first offering a portion of such New Securities to the Stockholders in the manner provided above. d. Termination. Each Stockholder's rights pursuant to this Section 1 shall terminate and be without further effect upon such time as such Stockholder (together with its affiliates) holds less than 10% of the total number of shares of Common Stock, after giving effect to the conversion of all shares of Preferred Stock and other securities of the Company convertible into or exchangeable for Common Stock. -3- 2. Termination of Rights under Prior Preemptive Rights Agreement. Each Stockholder hereby agrees that this Agreement supersedes the Preemptive Rights Agreement dated October 9, 2001 by and among the Company and certain holders of Series A Preferred Stock of the Company (the "Prior Agreement") and each Stockholder hereby waives any and all of rights held by such Stockholder pursuant to the Prior Agreement. 3. Notices. Any notice required or permitted to be given to a party pursuant to the provisions of this Agreement shall be in writing and shall be effective upon personal delivery or on the first business day after deposit with a guaranteed overnight messenger service or on the fifth business day after deposit in the U.S. mail, registered or certified, with postage prepaid and properly addressed to the party to be notified or, if by facsimile, on the first business day after receipt of the appropriate confirmation of receipt. Mailed notices shall be addressed, and sent, (i) if to the Company, at 1400 65th Street, Suite 100, Emeryville, California 94608, Attention: General Counsel and (ii) if to a Purchaser, at such Purchaser's address as reflected on the signature pages hereto. 4. Severability. If for any reason any provision of this Agreement shall be determined to be invalid or inoperative, the validity and effect of the other provisions hereof shall not be effected thereby, provided that not such severability shall be effective if it causes a material detriment to any party. 5. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware. 6. Amendment. Any provision of this Agreement may be amended, waived or modified only upon the written consent of the (i) Company and (ii) the party to be charged with such amendment, waiver or modification. 7. Counterparts. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the parties, each of which shall be enforceable against the parties actually executing such parts, and all of which together shall constitute one instrument. 8. Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties regarding the subject matter hereof. -4- IN WITNESS WHEREOF, the undersigned or each of their respective duly authorized officers or representatives have executed this Agreement effective upon the date set forth above. "COMPANY" EVOLVE SOFTWARE, INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- "PURCHASER" Signature: --------------------------------- Name of Signer: ---------------------------- Name of Purchaser: ------------------------- Address: ----------------------------------- SIGNATURE PAGE TO SERIES B PREEMPTIVE RIGHTS AGREEMENT -----END PRIVACY-ENHANCED MESSAGE-----