-----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, RgxszIjcel1p/NkJukR2qoFrTyfMD+AXpxb1s5XsAqUBaPYhNRRbsmK+wJq4nOyE DniSxCPNyJ9G3DCIaHEHCw== 0000950168-97-000818.txt : 19970401 0000950168-97-000818.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950168-97-000818 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOMENTUM SOFTWARE CORP CENTRAL INDEX KEY: 0000887530 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 132618553 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-20216 FILM NUMBER: 97571151 BUSINESS ADDRESS: STREET 1: 401 SOUTH VAN BRUNT ST CITY: ENGLEWOOD STATE: NJ ZIP: 07631 BUSINESS PHONE: 2018710077 MAIL ADDRESS: STREET 1: 401 SOUTH VAN BRUNT ST CITY: ENGLEWOOD STATE: NJ ZIP: 07631 10-K405 1 MOMENTUM SOFTWARE 10K-405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File Number December 31, 1996 0-20216 MOMENTUM SOFTWARE CORPORATION (Exact name of registrant as specified in its charter) New York 13-2618553 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 777 Terrace Avenue Hasbrouck Heights, New Jersey 07604 (Address of principal executive office including zip code) 201-288-5373 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.001 per share --------------------------------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share --------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports) , and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] No price quotations were available for the Registrant's Common Stock as of a specified date within sixty days prior to the date hereof, and accordingly, the aggregate market value of the voting stock held by non-affiliates of the Registrant is indeterminate as of the date hereof. The Registrant had 4,405,525 shares of Common Stock outstanding as of March 19, 1997. Documents incorporated by reference: Not applicable. PART I Item 1. Business. (a) General Development of Business Momentum Software Corporation, a New York corporation ("Momentum" or the "Company"), is principally engaged through Momentum Software Corporation, a Delaware corporation ("MSC"), in the development and marketing of computer software technology (the "Technology") known as middleware, a layer of software residing between the network and the application designed to facilitate and accelerate development of distributed and portable applications across heterogeneous computing environments. In June 1990, with the approval of the shareholders of the Company, the Company transferred certain technology from its wholly-owned subsidiary, Momentum Holding Corporation, a Delaware corporation ("Momentum Holding"), to MSC (then a wholly-owned subsidiary of the Company) in accordance with the terms of a stock purchase agreement (the "Series A Stock Purchase Agreement"), by and among MSC, ABS Ventures III Limited Partnership, Brown Technology Associates Limited Partnership and Catalyst Ventures L.P. (the "Series A Investors"). The Series A Stock Purchase Agreement provided for the transfer of such technology to MSC in exchange for 875,000 shares of the common stock, par value $.01, of MSC. Pursuant to the terms of the Series A Stock Purchase Agreement, the Series A Investors purchased 1,000,000 shares of Series A Convertible Preferred Stock, par value $.10 of MSC (the "Series A Preferred Stock"), for the aggregate consideration of $1,000,000, which included cancellation of $50,000 of promissory notes. In June 1993, MSC entered into a stock and warrant purchase agreement (the "Series B Stock Purchase Agreement") by and among MSC, ABS Ventures III Limited Partnership, Catalyst Ventures L.P., Brantley Venture Partners II L.P. and Poly Ventures II, Limited Partnership (the "Series B Investors"). Pursuant to the terms of the Series B Stock Purchase Agreement, the Series B Investors purchased 2,558,139 shares of Series B Convertible Preferred Stock, par value $.10 per share of MSC (the "Series B Preferred Stock"), and warrants to purchase up to 833,333 shares of common stock, par value $.01 of MSC, at an exercise price of $1.075 per share, for the aggregate consideration of $2,749,999.43, which included cancellation of $650,000 of promissory notes. In September 1993, MSC acquired certain assets and liabilities of Horizon Strategies, Incorporated ("Horizon"). In consideration therefor, MSC issued 866,465 shares of Common Stock, par value $.01 of MSC to Horizon. In September 1994, MSC entered into a stock subscription agreement (the "Series C Preferred Stock Purchase Agreement") by and among MSC, ABS Ventures III Limited Partnership, Catalyst Ventures L.P., Brantley Venture Partners, L.P., Poly Ventures II, Limited Partnership, New York Life Insurance Company, Crescent International Holdings Limited, C. Michael Markbrieter, Robert F. Raucci, Lawrence D. Duckworth and Edelson Technology Venture Partners (the "Series C Investors"). Pursuant to the terms of the Series C Preferred Stock Purchase Agreement, the Series C Investors purchased 2,437,933 shares of Series C Convertible Preferred Stock, par value $.10 per share of MSC (the "Series C Preferred Stock"), for the aggregate consideration of $3,535,002.85, which included cancellation of $600,000 of promissory notes. Also in September 1994, MSC acquired certain assets and liabilities (the "ISM Technology") of Highland Systems Corporation, d/b/a ISM Corporation ("ISM"). In consideration therefor, MSC issued 325,000 shares of common stock of MSC at closing and approximately 75,172 additional shares of such stock, as contingent consideration based on product sales and implementation fees related to the ISM Technology and the Technology over the eighteen month period following the date of acquisition. 2 On June 19, 1996, MSC sold the ISM Technology, as existing at the date of sale, to EnvisionIt Software Corporation ("EnvisionIt"), the principals of which were principals of ISM. In consideration for such ISM Technology, EnvisionIt conveyed approximately 183,661 shares of common stock of MSC to MSC (which shares were deemed transferred to EnvisionIt by its principals), assumed existing liabilities with respect to the ISM Technology and granted MSC a five year option to purchase a 20% stake in EnvisionIt, for the following consideration: If exercised in year 1 though year 3, $500,000, Year 4 $750,000 and year 5 $1,000,000. In October 1996, MSC entered into a stock subscription agreement (the "Series D Preferred Stock Purchase Agreement") and stock warrant agreement (the " Series D Warrants") by and among MSC and the Series C investors. Pursuant to the terms of the Series D Preferred Stock Purchase Agreement, the Series C Investors purchased 947,692 shares of Series D Convertible Preferred Stock, par value $.10 per share of MSC (the "Series D Preferred Stock") and Series D Warrants to purchase up to 1,658,461 shares of common stock , par value of $.01 of MSC, at an exercise price of $.30 per share, for the aggregate consideration of $1,374,153. In connection with the issuance of the Series D Preferred Stock, pursuant to antidilution rights previously granted to the holders of Series A, Series B and Series C Preferred Stock, such holders received an additional 79,803 shares of Series A Preferred Stock, 203,443 shares of Series B Preferred Stock and 351,235 shares of Series C Preferred Stock. The Company currently owns 875,000 shares of the common stock of MSC. Assuming all of the shares of Series A, Series B, Series C and Series D Preferred Stock were converted into shares of common stock of MSC, the Company would own approximately 9.13% of the total number of shares of MSC common stock outstanding. In addition, 2,491,794 shares of common stock of MSC are reserved for issuance upon exercise of outstanding warrants and 2,463,341 shares of common stock of MSC are reserved for issuance upon exercise of options granted and to be granted to employees, consultants, directors and officers of MSC. In the event all of such warrants and options were exercised and all of the shares of Series A, Series B, Series C and Series D Preferred Stock were converted into common stock, the Company would own approximately 6.02% of the total number of outstanding shares of common stock of MSC. The Company has not generated any revenues in the current year, or in the prior two fiscal years, and all of its operations continue to be conducted through MSC. Depending upon its then current sales level, MSC may in the future require additional financing. No assurances can be given as to MSC's ability to procure such financing on terms deemed favorable by MSC. In the event MSC does not generate sufficient sales to satisfy current overhead expenses, MSC may be forced to curtail its then current level of operations. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company was incorporated under the laws of the State of New York on September 4, 1968, under the name of Servo-Trend, Inc. The Company was formerly engaged in the ownership and operation of vending machines, and it was inactive between 1976 and 1989. In March 1989, the name of the Company was changed to its present name. The Company's principal executive offices are located at 777 Terrace Avenue, Hasbrouck Heights, NJ 07604 (201-288-5373). (b) Financial Information About Industry Segments The Company through MSC engages in one business segment, the development and marketing of certain computer software Technology. See the Financial Statements included in this report following Item 14. (c) Narrative Description of Business The Company has no operations other than through MSC, which is principally engaged in the development and marketing of certain computer software Technology designed to facilitate and accelerate development of distributed and portable applications across heterogeneous computing environments. MSC has developed the product set known as X-IPC (Extended Inter-Process Communications Facilities) which augments the interprocess communications (IPC) facilities of UNIX, OS/2, Windows, VMS, and other operating systems. Interprocess communications is the software mechanism by which computer 3 programs communicate with each other. It is common for computers to run several programs simultaneously, thereby requiring inter-communications between programs to promote the exchange of data and information. MSC's software provides the mechanism for increased and efficient inter-communication, which enables concurrently executing processes or tasks to synchronize, communicate and share resources on stand-alone, multi-tasking computer operating systems or across a network of heterogeneous computers. The software is designed to augment interprocess communication required by multi-tasking operating systems and to enhance communication to facilitate performance. In addition, MSC's software enables programs written for a particular computer environment to operate in different environments and across multiple computer platforms (source code portability). The software is also designed as a superior tool to enhance productivity and efficiency through its user-friendly structure which decreases training time required of personnel who operate the computer terminal. Through the acquisition of Horizon, MSC acquired the product set and technology developed by Horizon formerly known as Message Express (MX), which facilitated and accelerated the development of distributed applications by employing a consistent interface across all platforms, and by transparently handling the differences and complexities created in communicating between different operating systems, hardware platforms and network protocols. MX provided guaranteed delivery in a deferred, asynchronous methodology, employing a highly simplified "4-verb api" (application program interface). MSC incorporated the features of MX into the Technology, creating a more versatile product set offering additional capabilities for client-server and distributed application development Marketing MSC markets the Technology to sophisticated software developers engaged in multi-tasking systems or involved with systems with multiple platforms. MSC's business strategy is to market the Technology to key strategic customers and to software vendors for resale to end-users. MSC believes the Technology addresses a need created by the heterogeneous networking of computers and the inadequacy of existing software to facilitate inter-communication between computer programs. MSC will continue to sell its products through its direct sales force, as well as maintain a presence at specific trade shows. Additionally, MSC is seeking strategic partnerships and is planning direct mail campaigns. In conjunction with licensing its software, MSC currently provides a maintenance agreement to purchasers at no additional cost for three months from the date of purchase. The maintenance agreement provides the user with support with respect to software applications and any upgrades of the software during such period that might be released. At the expiration of the three month period, the customer may renew the maintenance agreement for additional one-year periods for a fee. The software upgrades provided by MSC relate to modifications and enhancements which facilitate its use, based upon research and development and customer feedback. Proprietary Rights To protect its proprietary rights to the software, MSC affixes a copyright notice to each program. Although the copyright notice provides limited protection for computer software, the use of the copyright notice may not prevent others from selling software programs similar to MSC's programs. In addition, the licensing agreements under which MSC markets its software provide that the use of the software is limited to a particular computer. However, the use of these steps may not protect MSC from competition or unauthorized use of copies of the software, and MSC may not have the resources necessary to enforce its proprietary rights. Competition The computer software industry generally is subject to intense competition. MSC competes with numerous entities, most of which are substantially larger, have greater financial and other resources than MSC and the Company and market a diversified line of computer products. MSC believes that its ability to attract customers will be dependent upon the features of its software and the continued improvement of the Technology on which it is based. As of March 19, 1997, MSC believes that there are approximately 7 entities which 4 have products which may be deemed competitive with the Technology. MSC believes that its major competitors include PeerLogic, Inc., International Business Machines Corporation ("IBM"), and Digital Equipment Corporation ("DEC"). MSC's ability to compete and its competitive position are influenced, in part, by the market acceptance of MSC's software and the ability of MSC to upgrade the software based on technological changes in the industry, customer feedback and available financial resources to implement the changes. Research and Development MSC devotes significant funds for research and development activities related to the Technology and for acquisition of related technologies. In each of the last three years, MSC has expended between $1,000,000 and $1,500,000 for such activities. The amount of such funds expended for research and development will be limited by the amount of sales generated by MSC. Employees The Company, apart from MSC, did not employ any persons as of March 19, 1997 and functions solely through the efforts of its officers, Ely Eshel and Daniel Schwartz. As of March 19, 1997 MSC employed twenty-five full-time employees, including seven officers, five persons engaged in research and development activities, six persons engaged in sales and marketing, four administrative assistants and three individuals involved in engineering support and consulting activities. Item 2. Properties. The Company has no facilities other than those leased by MSC. MSC currently leases approximately 8,024 square feet of office space at 777 Terrace Avenue, Hasbrouck Heights , New Jersey, for six years from December 1, 1996 to November 30, 2002 at a yearly expense of $149,246 (including supplemental electric of $10,832/year) and approximately 3,867 square feet of office space at 377 Hoes Lane, Piscataway, New Jersey terminating on May 31, 1999 (a three-year lease), which has been sublet to a third party though the expiration of the lease. MSC also leases approximately 5,230 square feet of office space at 75 Second Avenue, Needham, Massachusetts terminating on October 31, 1997 (a three-year lease), which has been sublet to a third party through the expiration of the lease On November 1, 1996, MSC entered into an office lease at 8 Pembroke Street, Kingston, MA for approximately 750 square feet, on a month to month basis, at a yearly expense of $6,000. Item 3. Legal Proceedings. Neither the Company nor MSC is presently a party to any material litigation, nor to the knowledge of the Company is any material litigation threatened against the Company or MSC. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of the shareholders of the Company during the fourth quarter of the fiscal year ended December 31, 1996. 5 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. (a) Market Information. The Common Stock of the Company, par value $.001, is traded on the over-the-counter market under the symbol "MMSW". The following table sets forth the high and low bid quotations of the Company's Common Stock for the calendar periods indicated, as reported by brokers and dealers making a market in the Common Stock. These quotations represent prices between dealers, do not include retail mark-ups, mark-downs or commissions and do not necessarily represent actual transactions. As of the date hereof, there is no established public trading market for the Company's Common Stock. For the Quarter Ended: High Bid Low Bid 1996 March 31, 1996 Not Quoted Not Quoted June 30, 1996 Not Quoted Not Quoted September 30, 1996 Not Quoted Not Quoted December 31, 1996 Not Quoted Not Quoted 1995 March 31, 1995 Not Quoted Not Quoted June 30, 1995 Not Quoted Not Quoted September 30, 1995 Not Quoted Not Quoted December 31, 1995 Not Quoted Not Quoted (b) Holders. As of March 19, 1997 the Company had approximately 151 shareholders of record of its Common Stock. (c) Dividends. The Company has neither declared nor paid any cash dividends on its Common Stock since its inception. Other than the requirements of the Business Corporation Law of the State of New York that dividends be paid out of the capital surplus only, and that the declaration and payment of a dividend not render the Company insolvent, there are no restrictions on the Company's present or future ability to pay cash dividends. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." The payment of cash dividends, if any, in the future rests within the discretion of the Company's Board of Directors and will depend, among other things, upon earnings, capital requirements, financial condition as well as other relevant factors. It is the intention of Management that for at least the next year, all funds otherwise available for the payment of dividends will be retained for use in the development of the Company's business. 6 Item 6. Selected Financial Data The following financial data is derived from the Company's audited financial statements for the years ended December 31, 1996, 1995, 1994, 1993 and 1992. See "Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K."
For the Years Ended December 31, Condensed Consolidated Statement of Operations: 1996 1995 1994 1993 1992 Revenues $0 $0 $0 $0 $0 Net Income (Loss) ($78,804) ($68,533) ($70,264) ($63,479) ($93,890) Net Income (Loss) per share ($0.02) ($0.02) ($0.02) ($0.02) ($0.02) As of December 31, Condensed Consolidated Balance Sheet: 1996 1995 1994 1993 1992 Working Capital Deficit ($828,662) ($813,858) ($745,575) ($676,811) ($613,332) Total Assets $346 $904 $1,451 $607 $242 Total Liabilities $829,008 $814,762 $747,026 $677,418 $613,574 Stockholders' Deficit ($828,662) ($813,858) ($745,575) ($676,811) ($613,332)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources: As of December 31, 1996, the Company had a working capital deficit of $828,662, as compared to a working capital deficit of $813,858 as of December 31, 1995. The decrease in the Company's working capital is attributable to expenses incurred by the Company. As of the date hereof, the only operations engaged in by the Company are those operations being conducted by MSC. Apart from revenues generated by MSC and the ability of the Company to receive dividends as described below, the Company has no independent source of revenue. Although no formal plans exist, the Company would require additional financing in the short term to sustain any operations, apart from the operations of MSC. In addition, and depending upon whether the Company is then engaged in any operations apart from MSC, the Company will require additional financing to sustain its operations in the long-term. No assurance can be given that the Company will be able to procure such financing, or if available, that such financing would be on terms deemed favorable by the Company. The ability of MSC to declare and pay dividends to the Company is limited pursuant to the terms of the outstanding Series A, Series B, Series C and Series D Preferred Stock of MSC, of which the Company does not own any shares. The holders of the Series A Preferred Stock are entitled to an 8% annual dividend, the holders of the Series B Preferred Stock are entitled to a 10% annual dividend, the holders of the Series C Preferred Stock are entitled to an 8% annual dividend and the holders of the Series D Preferred Stock C are entitled to an 8% annual dividend. Upon the earlier of the initiation of an underwritten public offering of Common Stock by MSC or the redemption of the Series A, Series B, Series C and Series D Preferred Stock of MSC, any accrued but unpaid dividends shall be paid to the holders of record of the Series A, Series B, Series C and Series D Preferred Stock. As long as any shares of the Preferred Stock of MSC are outstanding, MSC may not declare, pay or set apart any dividends or make any other distributions in respect of its Common Stock to any party, including the Company. MSC is also required to purchase and redeem, upon the written request of the holders of 60% of the outstanding shares of 7 Series A, Series B, Series C and Series D Preferred Stock on August 30, 2001 and each annual period thereafter, up to all outstanding shares of Series A, Series B, Series C and Series D Preferred Stock in three equal annual installments. Shares of Series A Preferred Stock shall be redeemed at a price equal to $1.00 per share, as adjusted, plus accrued dividends, shares of Series B Preferred Stock shall be redeemed at price equal to $1.075 per share, as adjusted, plus accrued dividends, shares of Series C Preferred Stock shall be redeemed at price equal to $1.45 per share, as adjusted, plus accrued dividends, and shares of Series D Preferred Stock shall be redeemed at price equal to $1.45 per share, as adjusted, plus accrued dividends. MSC expects to fund its future operations from revenues generated by the sale of software products and related consulting activities, from cash on hand, and from additional debt and equity financing. As of December 31, 1996, MSC had no short term debt other than the current portion of installment obligations for equipment financing. MSC plans to devote substantially all of its available resources toward the marketing and sale of its products, and toward continued research and development of its products. Pursuant to the terms of the Stockholder's Agreement dated September 20, 1994, the stockholders of MSC, including the Company, have agreed to use their best efforts to vote their shares of outstanding capital stock of MSC to cause MSC's Board of Directors to consist of no more than nine (9) members, in the following manner: (i) two (2) persons designated by the Series A Preferred Stockholders for as long as at least 500,000 shares of Series A Preferred Stock (adjusted for Recapitalization Events) are issued and outstanding, (ii) two (2) persons designated by the Series B Preferred Stockholders for as long as at least 1,279,069 shares of Series B Preferred Stock (adjusted for Recapitalization Events) are issued and outstanding, (iii) one (1) person designated by the Series C Preferred Stockholders for as long as at least 1,034,482 shares of Series C Preferred Stock (adjusted for Recapitalization Events) are issued and outstanding, (iv) one (1) person designated by Horizon shareholders, (v) one (1) person designated by the majority of the holders of the Series A and Series B Preferred Stock and Common Stock voting as a single class, (vi) one (1) person designated by Ely Eshel, Daniel Schwartz and Sol Menche. See "Item 12 - Security Ownership of Certain Beneficial Owners and Management." As of December 31, 1996, the Company owed Messrs. Eshel, Menche and Schwartz an aggregate $536,442. See "Item 13 Certain Relationships and Related Transactions." The payment of principal and accrued interest to such persons is to be made upon demand by such individuals. The Company does not have the current ability to pay such principals the amounts owed and does not anticipate making payments to them with respect to such obligation during the next twelve months. Depending upon the Company's then current level of operations, any payments made to such principals could adversely affect the Company. As of December 31, 1996, the Company owed MSC $179,851 for amounts paid by MSC on behalf of the Company. This obligation bears interest at the rate of 8% per annum compounded quarterly, and is unsecured. No arrangements have been made to date as to the settlement of this balance. The Company is not currently in default with respect to any outstanding loan obligations. Results of Operations: Year Ended December 31, 1996 as compared to Year Ended December 31, 1995 The Company apart from MSC did not generate any revenues for the years ended December 31, 1996 and 1995. The Company incurred operating expenses, primarily consisting of legal, accounting and stock transfer fees, of $35,764 and interest expense of $43,040 for the year ended December 31, 1996 as compared to $30,176 and $38,357 for the prior year. Accordingly, the Company incurred a net loss of $78,804 for the year ended December 31, 1996 as compared to a net loss of $68,533 for the year ended December 31, 1995. 8 Year Ended December 31, 1995 as compared to Year Ended December 31, 1994 The Company apart from MSC did not generate any revenues for the years ended December 31, 1995 and 1994. The Company incurred operating expenses, primarily consisting of legal, accounting and stock transfer fees, of $30,176 and interest expense of $38,357 for the year ended December 31, 1995 as compared to $36,856 and $33,408 for the prior year. Accordingly, the Company incurred a net loss of $68,533 for the year ended December 31, 1995 as compared to a net loss of $70,264 for the year ended December 31, 1994. Item 8. Financial Statements and Supplementary Data. This information appears following Item 14 of this Report and is hereby incorporated herein by reference. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The Directors and Executive Officers of the Company are as follows:
Name Age Position with Company Ely Eshel 42 President, Chief Executive Officer and Director Daniel Schwartz 39 Secretary/Treasurer, Chief Financial Officer and Director Sol Menche 46 Director
ELY ESHEL has been the President and Chief Executive Officer of the Company since March 1991. Prior thereto, Mr. Eshel was the Chief Operating Officer, Vice President, Secretary and a Director of the Company from January 1988. From 1985 until 1988, Mr. Eshel served as the President and Chief Executive Officer of Epsilon Software Engineering Corporation, a privately owned software development company in Saddle Brook, New Jersey. In addition, Mr. Eshel is an Executive Vice President and Chief Technology Officer of MSC. Mr. Eshel received an Industry Recognition award from the Israel Data Processing Association. Mr. Eshel is currently a member of the Association of Computer Machinery. DANIEL SCHWARTZ has been the Treasurer, Chief Financial Officer and a Director of the Company since January, 1988. He has been the Secretary of the Company since March 1991. From 1984 until 1988, Mr. Schwartz served as Project Manager of Real Time Financial Systems Applications for Comhill Systems, Inc. ("Comhill"), a computer consulting firm. In addition, Mr. Schwartz is a Vice President of MSC. Mr. Schwartz is currently a member of the Association of Computer Machinery. SOL MENCHE is a Director of the Company and has served in such capacity since January 1988. He was the President and Chief Executive Officer of the Company from January 1988 until March 1991. In addition, since November, 1980, Mr. Menche has been the President and Chief Financial Officer of Comhill. Mr. Menche is currently a member of the Association of Computer Machinery. 9 All directors of the Company have been elected to serve until the next annual meeting of shareholders or until their successors have been elected and qualified. The officers of the Company are appointed annually by the Board of Directors and will continue to serve until their successors are duly elected and qualified. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such reports received by it, or written representations from certain reporting persons that no reports were required for those persons, the Company believes that, during the period from January 1, 1996 through December 31, 1996, all filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were complied with. Item 11. Executive Compensation. For the years ended December 31, 1996, 1995 and 1994, the Company did not pay any compensation to its officers and directors. For the fiscal year ended December 31, 1996, Ely Eshel in his capacity of Executive Vice President of MSC received annual compensation of $115,919 from MSC, and Daniel Schwartz, in his capacity of Vice President of MSC received annual compensation of $112,455 from MSC. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth certain information as of March 19, 1996, regarding the ownership by each person known to the Company to beneficially own 5% or more of the Company's outstanding Common Stock, $.001 par value, each director and all officers and directors as a group:
Name and Address Amount and Nature of Percent of Beneficial Owner Beneficial Ownership of Class ------------------------------------- ----------------------------- ----------- Ely Eshel 1,000,000 Shares 22.7% 602 Fairlawn Parkway Saddle Brook, New Jersey 07662 Daniel Schwartz 1,000,000 Shares 22.7% 144-10 69th Avenue Flushing, New York 11362 Sol Menche 1,000,000 Shares 22.7% 241 Viola Road Monsey, New York 10952 All Officers and Directors 3,000,000 Shares 68.1% as a Group (consisting of 3 persons) Snow Becker Krauss P.C. 556,000 Shares 12.6% 605 Third Avenue New York, New York 10158
10 Item 13. Certain Relationships and Related Transactions. Ely Eshel and Daniel Schwartz are employed by MSC. See "Item 11 - Executive Compensation" As of December 31, 1996, the Company owed Messrs. Eshel, Menche and Schwartz in the aggregate $536,442 for amounts paid or incurred by them on behalf of the Company. Of such amount, $159,000 represents consulting fees due such individuals for services performed on behalf of the Company prior to June 1990. The remaining balance of $377,442 due such individuals bears interest at the rate of 8% per annum. The Company does not currently pay any of its officers or directors. Accrued professional fees at December 31, 1996 include $94,368 payable to an accounting firm, a principal of which is Mr. Schwartz's father. This obligation is not interest bearing, and is unsecured. No arrangements have been made to date as to the settlement of this balance. As of December 31, 1996, the Company owed MSC $179,851 for amounts paid by MSC on behalf of the Company. This obligation began bearing interest on January 1, 1994 at the rate of 8% per annum compounded quarterly, and is unsecured. Interest expense of $13,473 for fiscal year 1996 is reflected in the December 31, 1996 balance. No arrangements have been made to date as to the settlement of this balance. 11 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K, (a) Documents filed as part of this Report. Page (1) Financial Statements: Report of Independent Public Accountants F-1 Consolidated Balance Sheet at December 31, 1996 and 1995 F-2 Consolidated Statement of Operations for the Years ended December 31, 1996, 1995 and 1994 F-3 Consolidated Statement of Changes in Stockholders' Deficit for the Years ended December 31, 1996, 1995, and 1994 F-4 Consolidated Statement of Cash Flows for the Years ended December 31, 1996, 1995 and 1994 F-5 Notes to the Consolidated Financial Statements F-6 (2) Financial Statement Schedules: All financial statement schedules are omitted since the required information is inapplicable or has been presented in the financial statements and related notes. (3) Exhibits filed as part of this Report: 2.1 Series A Preferred Stock Purchase Agreement dated June 11, 1990 by and among MSC, ABS Ventures III Limited Partnership, Brown Technology Associates Limited Partnership and Catalyst Ventures, L.P., and Exhibits thereto.(1) 2.2 Series B Preferred Stock and Warrant Purchase Agreement dated June 14, 1993 by and among MSC, ABS Ventures III Limited Partnership, Brantley Venture Partners II L.P., Catalyst Ventures, L.P., and Poly Ventures II, Limited Partnership.(2) 2.3 Asset Acquisition Agreement dated September 30, 1993 by and between MSC and Horizon.(3) 2.4 Series C Preferred Stock Subscription Agreement dated September 20, 1994 by and among MSC, ABS Ventures III Limited Partnership, Brantley Venture Partners II L.P., Catalyst Ventures L.P., Poly Ventures II, Limited Partnership, Lawrence D. Duckworth, C. Michael Markbreiter, Robert F. Raucci, Crescent International Holdings Limited, Edelson Technology Venture Partners and New York Life Insurance Company.(4) 2.5 Form of Series D Preferred Stock Subscription Agreement dated October 30, 1996 by and among MSC, ABS Ventures III Limited Partnership, Brantley Venture Partners II L.P., Catalyst Ventures L.P., Poly Ventures II, Limited Partnership, Lawrence D. Duckworth, C. Michael Markbreiter, Robert F. Raucci, Crescent International Holdings Limited, Edelson Technology Venture Partners and New York Life Insurance Company. 12 3.1 Certificate of Incorporation of the Company, as amended.(1) 3.2 Certificate of Amendment of the Restated and Amended Certificate of Incorporation of the Company, filed on October 30, 1996. 3.3 Certificate of Correction of Certificate of Amendment of the Restated and Amended Certificate of Incorporation of the Company, filed on January 23, 1997. 3.4 By-Laws of the Company.(1) 4.1 Specimen of Certificate of Common Stock of the Company.(5) 9.1 Stockholder's Agreement including voting agreement dated September 20, 1994 among the Company, MSC, Horizon Strategies, and the Preferred Stockholders of MSC.(4) 10.1 Asset Purchase Agreement dated June 19, 1996 among the Company, Visual Flow Incorporated, EnvisionIt Software Corporation, David Gusick and T. Dorsey Harrington. 21.1 Subsidiaries of the Company.(1) 27.1 Financial Data Schedule - ------------------- 1. Incorporated by reference to the Company's Registration Statement on Form 10. 2. Incorporated by reference to the Company's Current Report on Form 8-K, filed July 8, 1993. 3. Incorporated by reference to the Company's Current Report on Form 8-K, filed November 18, 1993. 4. Incorporated by reference to the Company's Current Report on Form 8-K, filed October 5, 1994. 5. Incorporated by reference to the Company's Annual Report on Form 10-K, for the fiscal year ended December 31, 1994. (b) Reports on Form 8-K. No Reports on Form 8-K were filed during the last quarter of 1996. 13 Report of Independent Accountants March 27, 1997 To the Board of Directors and Shareholders of Momentum Software Corporation (NY) In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Momentum Software Corporation (NY) and its wholly-owned subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Price Waterhouse LLP - F-1 - Momentum Software Corporation (NY) Consolidated Balance Sheet December 31, 1996 1995 Assets Current assets Cash $ 346 $ 904 $ 346 $ 904 Liabilities and Stockholders' Deficit Current Liabilities: Due to shareholders (including accrued interest of $149,622 and $120,054 at December 31, 1996 and 1995, respectively) $ 536,442 $ 506,874 Accrued professional fees 103,897 150,506 Other accrued expenses 8,818 11,708 Payable to affiliate 179,851 145,674 Total Current Liabilities 829,008 814,762 Stockholders' Deficit: Common stock, $.001 par value; 6,000,000 shares authorized; 4,405,525 and 4,149,698 shares issued and outstanding at December 31, 1996 and 1995, respectively 4,406 4,150 Additional paid-in capital 165,258 101,514 Accumulated deficit (998,326) (919,522) Total Stockholders' Deficit (828,662) (813,858) Total Liabilities & Stockholders' Deficit $ 346 $ 904 The accompanying notes are an integral part of these consolidated financial statements F-2 Momentum Software Corporation (NY) Consolidated Statement of Operations Year ended December 31, 1996 1995 1994 General and administrative expenses $ 35,764 $ 30,176 $ 36,856 Loss from operations (35,764) (30,176) (36,856) Interest Expense (43,040) (38,357) (33,408) Net loss for period (78,804) (68,533) (70,264) Net loss per share $ (0.02) $ (0.02) $ (0.02) Average number of common shares outstanding 4,307,419 4,149,698 3,899,699 The accompanying notes are an integral part of these consolidated financial statements F-3 Momentum Software Corporation (NY) Consolidated Statement of Changes in Stockholders' Deficit Balance at December 31, 1993 $3,800 $100,114 $(780,725) $(676,811) Common stock issued for services rendered 300 1,200 -- 1,500 Net loss -- -- (70,264) (70,264) Balance at December 31, 1994 4,100 101,314 (850,989) (745,575) Common stock issued for services rendered 50 200 -- 250 Net loss -- -- (68,533) (68,533) Balance at December 31, 1995 4,150 101,514 (919,522) (813,858) Common stock issued for services rendered 256 63,744 -- 64,000 Net loss -- -- (78,804) (78,804) Balance at December 31, 1996 $4,406 $165,258 $(998,326) $(828,662) The accompanying notes are an integral part of these consolidated financial statements F-4 Momentum Software Corporation (NY) Consolidated Statement of Cash Flows Increase (Decrease) in Cash Year ended December 31, 1996 1995 1994 Cash flows from operating activities: Net loss $(78,804) $(68,533) $(70,264) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Expenses associated with stock issuance for services 64,000 250 1,500 Increase (decrease) in cash flows due to changes in: Interest payable to shareholders 29,568 28,000 26,000 Accrued professional fees (46,609) 10,129 3,090 Other accrued expenses (2,890) 2,000 2,500 Payable to affiliate 34,177 27,607 38,018 Net cash provided by (used for) operating activities (558) (547) 844 Net increase (decrease) in cash (558) (547) 844 Cash at beginning of year 904 1,451 607 Cash at end of year $ 346 $ 904 $ 1,451 The accompanying notes are an integral part of these consolidated financial statements F-5 Momentum Software Corporation (NY) Notes to Consolidated Financial Statements 1. Summary of Operations The Company These financial statements include the accounts of Momentum Software Corporation , a New York corporation ("Momentum NY"), and those of its wholly-owned subsidiaries: Momentum Holding Corporation, a Delaware corporation ("Holding") and MES Holding Corporation, a Delaware corporation, ("MES Holding") collectively, the "Company". Momentum NY, Holding, and MES Holding are substantially inactive. At December 31, 1996, Momentum NY has a 9.13% voting interest in Momentum Software Corporation, a Delaware corporation ("Momentum DE") (Note 3). Momentum DE devotes its efforts to designing, engineering, enhancing and marketing software products that facilitate the development of portable and distributed applications in heterogeneous computer environments. Management's Plans As shown in the accompanying financial statements, at December 31, 1996, the Company had a stockholders' deficit and working capital deficiency of $828,662. Management has no formal plans regarding the Company's operations. Management does plan to continue to support the endeavors of Momentum DE. 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Momentum NY, Holding and MES Holding. All significant intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes The Company utilizes an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The year end for income tax purposes of Momentum NY, Holding and MES Holding is May 31. Each subsidiary files its own tax return. At December 31, 1996, the following estimated net operating loss carryforwards were available at each of the companies: Momentum NY $405,000 Holding 591,000 MES Holding -- The net operating loss carryforwards for Momentum NY and Holding expire in various years through 2011. - F-6 - Momentum Software Corporation (NY) Notes to Consolidated Financial Statements The net operating loss carryforwards as listed above represent at December 31, 1996 the gross deferred tax assets of approximately $166,000 for Momentum NY and $242,000 for Holding. A full valuation allowance has been provided against each deferred tax asset since the realization of the future benefits cannot be sufficiently assured as of December 31, 1996. 3. Investment In and Payable to Affiliate Effective June 11, 1990, Momentum DE issued 875,000 shares of common stock to Momentum NY in exchange for transfer of software technology by Holding to Momentum DE. The common stock issued to Momentum NY and the software technology received by Momentum DE were valued at $1.00. During 1996, Momentum DE issued 947,692 shares of Series D preferred stock and 19,125 shares of common stock. As a result of these issuances, the Company's voting interest in Momentum DE decreased from 10.73% at December 31, 1995 to 9.13% at December 31, 1996. The Company accounts for its investment in Momentum DE in accordance with the cost method. The carrying value of this investment was $0 at December 31, 1996. At December 31, 1996 and 1995, the payable to to affiliate of $179,851 and $145,674 respectively, represents amounts payable to momentum DE for professional fees paid by Momentum DE on behalf of Momentum NY, for amounts advanced by Momentum DE, for accrued interest. At December 31, 1996 and 1995, the payable to affiliate of $179,851 and $145,674, respectively, represents amounts payable to Momentum DE for professional fees paid by Momentum DE on behalf of Momentum NY, for amounts advanced by Momentum DE, and for accrued interest. 4. Related Party Transactions At December 31, 1996 and 1995, the Company has recorded $536,442 and $506,874, respectively, due to the three principal common stockholders of Momentum NY for amounts paid, or incurred, by them on behalf of the Company. Included in these amounts is $159,000 for consulting service fees due to these individuals for services rendered to the Company prior to 1990. These unsecured balances earn interest at 8%, except for the amounts due for prior consulting services. Depending upon future cash resources, the Company may satisfy these obligations through the issuance of additional shares of common stock of Momentum NY. Accrued professional fees at December 31, 1996 and 1995, include $94,368 payable to an accounting firm. A member of that accounting firm is related to a stockholder of Momentum NY. This obligation is not interest bearing and is unsecured. No arrangements have been made to date as to the settlement of this balance. 5. Common Stock Approximately 68.1% of the outstanding common stock of Momentum NY is held by three individuals. These individuals also participate in the Company as the President, the Secretary/Treasurer and a Board member. Two of these individuals are also officers of Momentum DE. - F-7 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOMENTUM SOFTWARE CORPORATION By: /s/ Ely Eshel Ely Eshel, President and Principal Executive Officer Dated: March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: By: /s/ Ely Eshel Ely Eshel, President, Principal Executive Officer and Director Dated: March 28, 1997 By: /s/ Daniel Schwartz Daniel Schwartz, Secretary, Treasurer, Principal Financial and Accounting Officer and Director Dated: March 28, 1997 By: Sol Menche, Director Dated: EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.5 Form of Series D Preferred Stock Subscription Agreement dated October 30, 1996 by and among MSC, ABS Ventures III Limited Partnership, Brantley Venture Partners II L.P., Catalyst Ventures L.P., Poly Ventures II, Limited Partnership, Lawrence D. Duckworth, C. Michael Markbreiter, Robert F. Raucci, Crescent International Holdings Limited, Edelson Technology Venture Partners and New York Life Insurance Company. 3.2 Certificate of Amendment of the Restated and Amended Certificate of Incorporation of the Company, filed on October 30, 1996. 3.3 Certificate of Correction of Certificate of Amendment of the Restated and Amended Certificate of Incorporation of the Company, filed on January 23, 1997. 10.1 Asset Purchase Agreement dated June 19, 1996 among the Company, Visual Flow Incorporated, EnvisionIt Software Corporation, David Gusick and T. Dorsey Harrington. 27.1 Financial Data Schedule EX-2 2 EXHIBIT 2.5 SUBSCRIPTION DOCUMENTS MOMENTUM SOFTWARE CORPORATION (A Delaware corporation) 258,621 Units with each Unit comprised of 4 Shares of Convertible Series D Preferred Stock and 7 Warrants with each Warrant exercisable into a Shares of Common Stock at $.30 (an aggregate of 1,034,484 Shares of Convertible Series D Preferred Stock and 1,810,347 Warrants exercisable into 1,810,347 Shares of Common Stock) IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. CERTAIN NOTICES UNDER STATE SECURITIES LAWS IT IS ANTICIPATED THAT THE SECURITIES WILL BE OFFERED FOR SALE IN SEVERAL STATES. THE SECURITIES LAWS OF CERTAIN OF THOSE STATES REQUIRE THAT CERTAIN CONDITIONS AND RESTRICTIONS RELATING TO THE OFFERING BE DISCLOSED. A DESCRIPTION OF THE RELEVANT CONDITIONS AND RESTRICTIONS IS SET FORTH BELOW. FOR NEW YORK OR NEW JERSEY RESIDENTS IF YOU ARE A NEW JERSEY OR NEW YORK RESIDENT AND YOU ACCEPT AN OFFER TO PURCHASE THESE SECURITIES PURSUANT TO THIS OFFERING, YOU ARE HEREBY ADVISED THAT THE SUBSCRIPTION DOCUMENTS HAVE NOT BEEN FILED WITH OR REVIEWED BY THE ATTORNEY GENERAL OF THE STATES OF NEW YORK OR NEW JERSEY PRIOR TO ITS ISSUANCE AND USE. NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW JERSEY NOR THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OF ADEQUACY OF THE OFFERING CIRCULAR AND THE SUBSCRIPTION DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. SUBSCRIPTION AGREEMENT To: Mr. Joseph Valley President/Chief Executive Officer Momentum Software Corporation 401 South Van Brunt Street Englewood, New Jersey 07631 1. The Board of Directors of Momentum Software Corporation, a Delaware corporation (the "Company") has authorized the offering and issuance (the "Offering") of 258,621 Units (an aggregate of 1,034,484 shares of Series D Preferred Stock and 1,810,347 Warrants exercisable into 1,810,347 shares of Common Stock) at an offering price per Unit of $5.80 ("Subscription Price"). Each Unit is comprised of 4 shares of Series D Preferred Stock and 7 Warrants, with each Warrant exercisable into one share of Common Stock. Each holder of Preferred Stock is being offered the right to subscribe for the number of Units set forth in Schedule A hereto. The acquisition of such Units would avoid a Preferred Stock Holder losing any of the anti-dilution protection currently provided in the Company's Restated and Amended Certificate of Incorporation and any Series B Warrant Agreement to which it is a party. To the extent a holder of Preferred Stock subscribes for less than all the amount set forth in Schedule "A" but more than 50%, it will lose a portion of its anti-dilution protection and to the extent the holder subscribes for 50% or less, it shall lose its entire dilution rights with respect thereto, except with respect to any Recapitalization event, as defined below. To the extent a holder of Preferred Stock subscribes for less than the amount set forth in Schedule A, those persons subscribing for more than the number set forth on Schedule A shall, based on their respective percentages set forth on Schedule A be entitled to acquire the Units not so subscribed for. Each offeree desiring to purchase Units ("Subscriber") must set forth the number of Units it desires to subscribe for on the signature page hereof. The Company may avail itself of multiple closings with respect to this Offering with the first closing expected to occur before October 30, 1996, unless extended by the Company in its sole discretion to a date not later than November 15, 1996 ("Initial Closing Date") and the last closing by November 15, 1996 (the "Final Closing Date"). In the event of multiple closings, the Company will neither amend the terms and conditions of the Offering after the Initial Closing Date nor grant subsequent Subscribers any additional rights. A minimum of 129,311 Units must be subscribed for in order to consummate an Initial Closing. The Initial Closing Date shall not occur prior to the expiration of the 30 day preemptive right ("Preemptive Right") period unless all the persons set forth on Schedule A have subscribed by said date or notified the Company in writing that it waives its Preemptive Rights to acquire Units. By executing this Subscription Agreement, such Subscriber waives the notice provisions with respect to the Preemptive Rights and, subject to compliance with the subscription for initially unsold Units set forth above, its Preemptive Right to subscribe for additional Units in excess of the number initially subscribed for. The Company reserves the right, in its sole discretion, to accept subscriptions in a lesser number than appearing on the signature page hereof, to the extent they exceed the number said Subscriber is entitled to subscribe for as set forth on Schedule A. The undersigned further acknowledges notwithstanding anything contained hereon to the contrary, that any Subscriber subscribing after the Initial Closing Date will be required to deliver to the Company its note in an amount equal to the accrued dividends deemed earned on the Series D Preferred Stock so subscribed for from the Initial Closing Date to the date of the acceptance of such subscription. The Note shall bear interest at a rate identical to the dividend rate on the Series D Preferred Stock and shall be payable upon the eof the payment of the first dividend on the Series D Preferred Stock or the liquidation of the Company. Upon each Closing, counsel for the Company, Snow Becker Krauss P.C., shall deliver to the Company and the persons whose Subscriptions are being accepted as at the Closing counsel's opinion in substantially the form attached hereto as Exhibit "A". The Shares are being offered on a best efforts basis, subject to the aforementioned 129,311 Unit minimum. This Offering is being made solely under Sections 4(2) and 4(6) of the Securities Act of 1933 (the "Securities Act") and Regulation D promulgated thereunder and solely to accredited investors. Subscriptions will be deposited on behalf of Subscribers in a special account at a bank maintained by the Company. If accepted, the checks tendered by the undersigned or the amount of money represented thereby, will be applied as discussed in Section 4(iv) hereof. Interest earned between the date of deposit and the Closing Date, if any, will be used by the Company to offset the costs of this Offering and will not be paid to Subscribers. Such funds shall be returned to Subscribers, without any interest earned on account of such Subscriber, in the event that the Offering is not consummated. The Company reserves the right to accept the cancellation by a Subscriber of Company indebtedness in lieu of such Subscriber tendering cash for the payment of all or a part of the Shares so acquired. The Company further reserves, subject to being required to accept subscriptions in the amount set forth on Schedule A hereto, the right not to accept all or part of any subscriptions for Units. 2. The undersigned agrees that this subscription is and shall be irrevocable (except as provided by law or the terms hereof), but his obligations hereunder will terminate if this subscription is not accepted by the Company. 3. The undersigned acknowledges and agrees that the Units, the Series D Preferred Stock and the shares of the Company's Common Stock issuable upon conversion of the Series D Preferred Stock (the "Conversion Shares") and the Warrants and the shares of the Company's Common Stock issuable upon the exercise of the Warrants (the "Exercise Shares") (the Conversion Shares and Exercise Shares sometimes hereinafter collectively referred to as the "Underlying Shares") have not been registered under the Securities Act of 1933, as amended, and accordingly, cannot be sold, transferred, hypothecated, assigned or otherwise disposed of, unless such Series D Preferred Stock, Warrants and/or Underlying Shares (collectively, the "Securities") are registered under the Securities Act of 1933, as amended, or if in the opinion of counsel, satisfactory to the Company, such sale, transfer, hypothecation, assignment or disposition is exempt from such registration requirements. The undersigned acknowledges and agrees that the transferability of the Securities will be further restricted under the terms of the Stockholders Agreement dated as of the date the undersigned's subscription is accepted (the "Stockholders Agreement"), a copy of which is attached hereto as Exhibit "B". 4. The undersigned has been furnished with and has carefully read this Subscription Agreement and the documents attached as Exhibits hereto (which Exhibits are comprised of Counsel's opinion, the Stockholders Agreement, Warrant Agreement, Registration Rights Agreement, Amended Certificate of Incorporation, Financial Statement and Capitalization Schedule), as well as the Company's Business Summary dated September 26, 1996 ("Business Plan"). The undersigned is aware that: (i) There are substantial risks involved in investing in the Company and no assurance can be given that the undersigned will not ultimately lose its entire investment in the Company; (ii) No Federal or state agency has passed upon the Series D Preferred Stock or the Warrants or made any finding or determination as to the fairness of this investment; (iii) The holders of Series D Preferred Stock have extensive voting rights as set forth in the Amended Certificate of Incorporation, as defined below, or as otherwise permitted by law. However, the holders of all series of Preferred Stock (the "Preferred Stock") will vote as one class where the consent of a certain percentage of the then outstanding shares of Preferred Stock is required. The holders of Series B, C and D Preferred Stock have the right with respect to one or more of such series to demand a maximum of three (3) years accumulated dividends be paid in Company Common Stock, valued at the Preferred Stock's respective conversion prices. Each holder of Preferred Stock (upon a majority vote in interest of the holders of Preferred Stock) may require the redemption of its respective shares of Preferred Stock on August 30, 2001 and, provided the required consent of holders of Preferred Stock is obtained in subsequent years, each anniversary thereafter. Redemption by less than all the holders of Preferred Stock may adversely effect holders of Preferred Stock not desiring to redeem. Such August 30, 2001 date was initially August 30, 1999 prior to the amendment of the Certificate of Incorporation creating the Series D Preferred Stock. Attached hereto as Exhibit "C" is the Company's Amended and Restated Certificate of Incorporation ("Amended Certificate of Incorporation" or "Amended Certificate") which sets forth the respective rights and obligations of all classes of the Company's capital stock. The Amended Certificate of Incorporation is to be filed with the Delaware Secretary of State prior to the acceptance of any subscription for Series D Preferred Stock. (iv) In the event one or more of the holders of Series A, Series B and/or Series C Preferred Stock will not acquire the full number of Units set forth on Schedule A, the Amended Certificate, as in effect as at the date hereof, provides that new classes of Preferred Stock shall be created with respect to those series of Preferred Stock in which all the holders of said series would not be entitled to the same dilution protection upon the consummation of a dilutive offering such as this Offering. The newly created series would have the same rights as the series originally owned by the Preferred Stockholder, except that the new series does not have any dilution protection other than to reflect stock splits, stock dividends, combinations of shares and the like with respect to the Common Stock ("Recapitalization Events"). The Amended Certificate set forth as Exhibit C contemplates that one or more of the holders of Series B and Series C Preferred Stock will not acquire the full number of Units set forth on Schedule A and as such creates two new series, Series B-1 Preferred Stock and Series C-1 Preferred Stock; (v) The Company's Board of Directors (X) have granted to certain employees of the Company, effective upon the Initial Closing, approximately 195,000 stock option (see Exhibit E) in order not to dilute their interest in the Company, on a fully-diluted basis, as a result of the change in the respective Preferred Stockholders conversion price caused by the Offering and (Y) intend to grant to certain employees of the Company, in the event of a Closing, either regular options or options based on the Company achieving minimum revenues and income before taxes in fiscal 1997 of $9 million and $1.1 million ("Performance Grants"), a maximum of approximately 344,250 options (vesting immediately) to acquire Common Stock. The purpose of the Performance Grants is to make said employee's fully diluted percentage holding in the Company the same as they held prior to the offering of the Series D Preferred Stock; (vi) The Company intends to use the proceeds of this Offering for general working capital and to the extent available, fund the Intranet product development and MOM product marketing as described in the Business Plan. Even though the Company currently believes if all the Units offered hereunder are sold, it will have sufficient capital to carry out its Business Plan, including funding the Intranet product development and MOM product marketing, no assurance can be given that the Company will not require additional capital in the future in order to accomplish the above goals. Additional funding may also be required if the Company elects to exercise its option to buy an interest in Envisionit Software Corporation ("Envisionit"), an entity which acquired substantially all the assets of Visual Flow, Inc., a wholly-owned subsidiary of the Company. The undersigned acknowledges receipt of the terms of said option. No assurance can be given that if financing is required, such financing will be available upon terms acceptable to the Company, or the required consent of the holders of the Preferred Stock, when required, will be obtained. Any such additional financing may be superior in right to the rights of the holders of the Series D Preferred Stock. Furthermore, the Company reserves the right, subject to any rights of the holders of the Preferred Stock, to amend its Business Plan; (vii) The Company has not retained an independent investment firm to render a "fairness" opinion with respect to the subscription price for the Units. One or more stockholders of the Company may challenge the fairness of such subscription prices. Each subscriber should consult its own counsel with respect to this issue; (viii) The Company may not be able to utilize its full net operating loss for Federal income taxes as a result of Section 382 of the Code. No representation is made as to the availability thereof; (ix) The Company has not paid any dividends since its incorporation and no assurance can be given that any will be paid in the future; (x) The Company will provide each Subscriber, or his designee, an opportunity to meet and confer with the Company and the principals of the Company regarding all aspects of the transactions contemplated herein and will afford such Subscriber the opportunity to obtain any additional information, to the extent that the Company possesses such information or can acquire it without unreasonable effort or expense. 5. The undersigned understands that there is no public market for the Preferred Stock and/or the Warrants, and it is not likely that any public market for such securities will develop, nor does a public market for the Underlying Shares currently exist. No representation is made as to the likelihood of any such market hereinafter developing. None of the Company's Common Stock is currently registered with the Securities and Exchange Commission and no such registration is currently pending or being prepared. In connection with the undersigned's subscription of Units, the undersigned must simultaneously execute, and upon acceptance of the subscription by the Company, be bound by the Registration Rights Agreement ("Registration Rights Agreement") dated as of the date the undersigned's subscription is accepted, a copy of which is attached hereto as Exhibit "D". The entering into the Registration Rights Agreement should not be construed as an obligation or current intent of the Company to file a Registration Statement with the Securities and Exchange Commission. 6. The undersigned represents and warrants to the Company that: (i) The undersigned, if an individual, has carefully reviewed the Subscription Agreement and the documents incorporated by reference herein, and understands the risks of, and other considerations relating to, a purchase of the Units; (ii) The undersigned, if an individual, has been furnished any materials relating to the Company and/or the offering of the Units which he has requested and has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any representations made by the Company hereunder or information provided by or statements made by the Company; (iii) The undersigned, if an individual, or his designees have not been furnished any offering literature other than this Subscription Agreement and the documents attached as Exhibits hereto and the documents specifically referred to herein, and the undersigned has relied only on the information contained herein and such Exhibits and the information furnished or made available to them by the Company, as described above; (iv) The undersigned, if an individual, is acquiring the Units for which it hereby subscribes for its own account, as principal, for investment and not with a view to the resale or distribution to others; (v) The undersigned, if a corporation, partnership, trust or other form of business entity, is authorized and otherwise duly qualified to purchase and hold Units; such entity has its principal place of business as set forth on the signature page hereof and such entity has not been formed for this specific purpose of acquiring the Units; (vi) The undersigned, if an individual, has adequate means of providing for his current needs and personal contingencies and has no need for liquidity in this investment; (vii) All the information which the undersigned, if an individual, has heretofore furnished the Company, or which is set forth in his Purchaser Questionnaire and elsewhere with respect to his financial position and business experience is correct and complete as of the date of this Agreement and, if there should be any material change in such information on or prior to the date of this Agreement, the undersigned will immediately furnish such revised or corrected information to the Company; and (viii) The undersigned, if a corporation, partnership, trust, or other form of business entity, is an "accredited investor" within the meaning of Rule 501 under the Securities Act and was not organized for the specific purpose of acquiring the Units and, if there should be any change in such status on or prior to the date of this Agreement, the undersigned will immediately notify the Company; (ix) The undersigned, if a corporation, partnership, trust, or other form of business entity has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company's stage of development so as to be able to evaluate the risks and merits of its investment in the Company and it is able financially to bear the risks thereof; (x) The undersigned, if a corporation, partnership, trust, or other form of business entity has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and has received and reviewed the Financial Statements; (xi) The undersigned, if a corporation, partnership, trust, or other form of business entity, has the authority to purchase the Units and said Units are being purchased by it are being acquired for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof; and (xii) The undersigned, if a corporation, partnership, trust, or other form of business entity, understands that (a) the Units, Series D Preferred Stock and the Conversion Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act or Section 4(6) thereof, (b) the Units, Series D Preferred Stock, Warrants and the Conversion Shares, must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (c) the Series D Preferred Stock, the Warrants and the Conversion Shares will bear a legend to such effect and (d) the Company will make a notation on its transfer books to such effect; and (xiii) The undersigned further agrees to be bound by all of the terms and conditions of the Offering set forth herein and in the Exhibits hereto. 7. The Company represents and warrants to the undersigned that except as set forth in the disclosure schedule attached as Schedule 7A ("Disclosure Schedule") (which Disclosure Schedule makes explicit reference to the particular representation or warranty as to which exception is taken, which in each case shall constitute the sole representation and warranty as which such exception shall apply) and the specific schedule referred to in the following subparts with respect to such subpart: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification and where the failure to so qualify would have a material adverse effect on the Company and its business. The Company has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, to execute, deliver and perform this Agreement, the Registration Rights Agreement in the form attached as Exhibit D (the "Registration Rights Agreement") and the Stockholders' Agreement in the form attached as Exhibit B (the "Stockholders' Agreement"), to issue, sell and deliver the Series D Preferred Stock, the Warrants and to issue and deliver the shares of Common Stock issuable upon conversion of the Series D Preferred Stock and the exercise of the Warrants (collectively, the "Conversion Shares"). (ii) The Company does not, except for its option to acquire stock in Envisionit, (i) own of record or beneficially, directly or indirectly, (A) any shares of capital stock or securities convertible into capital stock of any other corporation or (B) any participating interest in any partnership, joint venture or other non-corporate business enterprise or (ii) control, directly or indirectly, any other entity. (iii) (a) The execution and delivery by the Company of this Agreement, the Registration Rights Agreement and the Stockholders' Agreement, the performance by the Company of its obligations hereunder and thereunder, the issuance, sale and delivery of the Series D Preferred Stock, the issuance, sale and delivery of the Warrants and the issuance and delivery of the Conversion Shares have been duly authorized by all requisite corporate action and will not violate any provision of law, any order or any court or other agency of government, the Amended Certificate of Incorporation, or the Amended and Restated By-laws of the Company, or any provision of any indenture, agreement or other instrument to which the Company, any of its subsidiaries or any of their respective properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company; and (b) The Series D Preferred Stock has been duly authorized and, when issued at Closing, will be validly issued, fully paid and nonassessable with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company except as set forth in the Registration Rights Agreement and the Stockholders Agreement. The Conversion Shares have been duly reserved for issuance upon conversion of the Series D Preferred Stock and/or the exercise of the Warrants when so issued, will be duly authorized, validly issued, fully paid and nonassessable with no personal liability attaching to the ownership thereof and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company except as set forth in the Registration Rights Agreement and the Stockholders Agreement. Neither the issuance, sale or delivery of the Units, nor the issuance or delivery of the Conversion Shares is subject to any preemptive right of stockholders of the Company or to any right of first refusal or other right in favor of any person which has not been waived or otherwise satisfied. (iv) Each of this Agreement, the Registration Rights Agreement and the Stockholders' Agreement at Closing will have been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with their respective terms. (v) (a) At the Initial Closing, the authorized and outstanding capital stock of the Company and the number of subscriptions, warrants, options, convertible securities, and other such rights with respect thereto and the names of all such record owners of said stocks, securities and options are as set forth in the attached Schedule 7(v). The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company will be at the Initial Closing as set forth in the Amended Certificate of Incorporation, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable in accordance with all applicable laws. Except as set forth in the attached Schedule 7(v), (i) no person owns of record or is known to the Company to own beneficially any shares of Preferred Stock or Common Stock, (ii) no subscription, warrant, option, convertible security or other right (contingent or other) to purchase or otherwise acquire equity securities of the Company is authorized or outstanding and (iii) there is no commitment by the Company to issue shares, subscriptions, warrants, options, convertible securities or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset. Except as provided for in the Amended Certificate of Incorporation, or as set forth in the attached Schedule 7(v), the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except for the Stockholders' Agreement, at the Initial Closing there will be no voting trusts or agreements, stockholders' agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxies relating to any securities of the Company or any of its subsidiaries (whether or ny of its subsidiaries is a party thereto). All of the outstanding securities of the Company were issued in compliance with all applicable Federal and state securities laws; and (b) Attached hereto as Exhibit "E" is the Company's Capitalization Schedule as at August 31, 1996 (including options granted through such date) as well as a pro-forma Capitalization Schedule reflecting the sale of all the Units (collectively the "Capitalization Schedules"). No representation is made that additional shares of capital stock, options, warrants, convertible securities or the like will not be issued or granted after the Initial Closing. As set forth in the Disclosure Letter, the previous shareholders of Highland Systems Corporation d/b/a Industrial Software Machines, Corporation ("ISM") have notified the Company that they may be entitled to additional shares of Common Stock of the Company based on the agreement pursuant to which the Company previously acquired the assets of ISM ("ISM Acquisition"). (vi) The Company has furnished to the undersigned the (a) audited balance sheet of the Company as at December 31, 1994 and (b) the related statements of income, stockholders' equity and cash flows of the Company for the year ended December 31, 1994 and (c) the unaudited balance sheet of the Company as at December 31, 1995 (the "1995 Balance Sheet") and June 30, 1996 (the "June 30 Balance Sheet" which together with the 1995 Balance Sheet is referred to as the "Balance Sheets")) and (d) the related statement of income of the Company for the year ending December 31, 1995 and the six month period ending June 30, 1996 (all of which in (a), (b), (c) and (d) are collectively the "Financial Statements"), copies of which are attached hereto as Exhibit "F". All such Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied, (subject to, with respect to the Balance Sheets and the statement of income for the 12 month period ending December 31, 1995 and 6 month period ending June 30, 1996, customary adjustments made at the end of an accounting period, adjustments which may be required in order to properly reflect the deductibility of certain expenses in 1995 or 1996 (as discussed in the Disclosure Letter)). Furthermore, the aforementioned unaudited Financial Statements do not include footnotes as required by GAAP, which footnotes for said periods if currently prepared, would to the best knowledge of the Company, not contain disclosure relating to any item or matter which may or would have a material adverse effect on the Company. The Financial Statements also fairly and accurately present in all material respects the financial position of the Company at December 31, 1994, December 31, 1995 and June 30, 1996, respectively, and the results of its operations for the year ending December 31, 1994, December 31, 1995 and the 6 month period ending June 30, 1996, respectively. The Financial Statements have also been prepared in such a mannee of Visual Flow, Inc. in May, 1996 and the results of operation of the two operating subsidiaries. Since the date of the June 30 Balance Sheet, (i) there has been no change in the assets, liabilities (whether accrued, absolute or contingent) or financial condition of the Company from that reflected on the Balance Sheet, except as set forth in Schedule 7(v), changes in the ordinary course of business which in the aggregate have not been materially adverse and as contemplated by the Business Plan and (ii) none of the business, prospects, financial condition, operations, property or affairs of the Company has been materially adversely affected by any occurrence or development, in the aggregate, whether or not insured against, except any such events of which the Subscriber has knowledge. For purposes hereof, an aggregate material adverse change is a decrease in net worth aggregating in excess of $50,000. (vii) Except as set forth on Schedule 7(vii), since the date of the June 30 Balance Sheet, the Company has been operated in its ordinary and usual course of business and since such date, no events have occurred which are anticipated to have a material adverse effect on the Company. (viii) Other than as set forth in Schedule 7 (viii), there is no (a) action, suit, claim, proceeding or investigation pending or, to the best of the Company's knowledge, threatened against or affecting the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (b) arbitration proceeding relating to the Company pending under collective bargaining agreements or otherwise or (c) governmental inquiry pending or, to the best of the Company's knowledge, threatened against or affecting the Company (including, without limitation, any inquiry as to the qualification of the Company to hold or receive any license or permit), and there is no basis for any of the foregoing. The Company has not received any opinion or memorandum or legal advice from legal counsel to the effect that it is exposed, from a legal standpoint, to any liability or disadvantage which may be material to its business, prospects, financial condition, operations, property or affairs. The Company is not in default with respect to any order, writ, injunction or decree known to or served upon the Company of any court or of any Federal state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no action or suit by the Company pending or threatened against others. Other than as set forth in Schedule 7 (viii), the Company has complied with all laws, rules regulations and orders applicable to its business, operations, properties, assets, products and services, and the Company has all necessary permits, licenses and other authorizations required to conduct its business as conducted and as proposed to be conducted. There is no existing law, rule, regulation or order, and the Company after due inquiry is not aware of any proposed law, rule, regulation or order, whether Federal or state, which would prohibit or restrict the Company from, or otherwisersely affect the Company in, conducting its business in any jurisdiction in which it is not conducting business or in which it proposes to conduct business. (ix) (a) To the best of the Company's knowledge, no third party has claimed or has reason to claim that any person employed by or affiliated with the Company has (x) violated or may be violating any of the terms or conditions of his employment, non-competition or non-disclosure agreement with such third party, (y) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (z) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. No third party has requested information from the Company which suggests that such a claim might be contemplated. To the best of the Company's knowledge, no person employed by or affiliated with the Company has employed or proposes to employ any trade secret or any information or documentation proprietary to any former employer, and to the best of the Company's knowledge, no person employed by or affiliated with the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such employment or violation. (b) To the best of the Company's knowledge, none of the execution or delivery of this Agreement, the Registration Rights Agreement and the Stockholders' Agreement, or the carrying on of the business of the Company as officers, employees or agents by any officer, director or key employee of the Company, or the conduct or proposed conduct of the business of the Company, will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract covenant or instrument under which any such person is obligated. (x) Except as set forth on Schedule 7(x), the Company has good and marketable title to its properties and assets reflected on the Balance Sheet or acquired by it since the date of the Balance Sheet (other than properties and assets disposed of in the ordinary course of business since the date of the Balance Sheet), and all such properties and assets are free and clear of mortgages, pledges, security interests, liens, charges, claims, restrictions and other encumbrances, except for liens for or current taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations or proposed operations of the Company. The assets reflected on the Balance Sheet together with the proceeds of the Offering are to the best of the Company's knowledge sufficient for the Company to conduct business in the manner presently conducted and as contemplated in accordance with the Business Plan. (xi) Each lease or agreement to which the Company is a party under which it is a lessee of any property, real or personal, is a valid and subsisting agreement without any default of the Company thereunder and, to the best of the Company's knowledge, without any default thereunder of any other party thereto. No event has occurred and is continuing which , with due notice or lapse of time or both, would constitute a default or event of default by the Company under any such lease or agreement or, to the best of the Company's knowledge, by any other party thereto. Except to the extent the Company has subleased any property which is the subject of the lease, the Company's possession of such property has not been disturbed and, to the best of the Company's knowledge, no claim has been asserted against the Company adverse to its rights in such leasehold interests. (xii) Except as set forth in Schedule 7(xii), grants of options, additional shares of Common Stock which may be required to be paid as part of the ISM Acquisition as set forth in the Disclosure Letter, the disposition of Vision Flow and with respect to capital and debt financing, the Company has not since at least September 20, 1994, entered in any transaction with an affiliate (as such term is defined under the Securities Act of 1933) of the Company, and the Company is not a party to any transaction providing for additional payments by the Company. (xiii) The compensation table attached hereto as Exhibit "G" sets forth the current compensation payable to all the senior management employed by the Company as at the date hereof. (xiv) The Company has, to the best of its knowledge, adequate insurance to insure against all material risks. (xv) Except as set forth in Schedule 7(xv), the Company has filed all tax returns Federal, state, county and local, required to be filed by it, and the Company has paid all taxes due and owing with respect thereto as well as all other taxes, assessments and governmental charges which have become due or payable, including, without limitation, all taxes which the Company is obligated to withhold from amounts owing to employees, creditors and third parties. All such taxes with respect to which the Company has become obligated pursuant to elections made by the Company in accordance with generally accepted practice have been paid and adequate reserves have been established for all taxes accrued but not yet payable. The Federal and state income tax returns of the Company have never been audited by the Internal Revenue Service. No deficiency assessment with respect to or proposed adjustment of the Company's Federal, state, county or local taxes is pending or, to the best of the Company's knowledge, threatened. There is no tax lien, whether imposed by any Federal, state, county or local taxing authority, outstanding against the assets, properties or business of the Company. Neither the Company nor any of its stockholders has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Company be taxed as an S corporation or (b) consent pursuant to Section 341(f) of the Code, relating to collapsible corporations. Notwithstanding anything contained herein to the contrary, no representation is made whether the Company has previously experienced, or as a result of this Offering experience an ownership change as such term is defined in Section 382 of the Code, nor what the value of the Company would be in the event of such change for purposes of computing the availability of previously incurred Company losses. (xvi) The Company, to the best of its knowledge, is not a party to or otherwise bound by any written or oral contract or instrument or other restriction, individually or in the aggregate, which it, in good faith, believes would materially adversely affect the business, prospects, financial condition, operations, property or affairs of the Company. To the best of the Company's knowledge, it and each other party thereto have in all material respects performed all obligations required to be performed by them to date, have received no notice of default and are not in default (with due notice or lapse of time or both) under any material lease, agreement or contract now in effect to which the Company is a party or by which it or its property may be bound. The Company has no present expectation or intention of not fully performing all its obligations under each such lease, contract or other agreement, and the Company has no knowledge of any breach or anticipated breach of the other party to any contract or commitment to which the Company is a party. The Company is in full compliance with all of the terms and provisions of its Amended Certificate and By-laws, as amended. (xvii) (a) Except as set forth in Schedule 7(xvii) and resulting from the ISM Acquisition and the Visual Flow disposition, there has been no additions to or change since September 20, 1994 in the status of any patents, patent applications, trademarks, service marks, trade names and copyrights, and licenses and rights to the foregoing owned or held by the Company; (b) The Company owns and has the unrestricted right to use all trade secrets, including know-how, inventions, designs, processes, works of authorship, computer programs (with the exception of normal software purchased and sold as such) and technical data and information (collectively herein "intellectual property") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, to the best of the Company's knowledge, free and clear of and without violating any right, lien, or claim of others, including without limitation, former employers of its employees; provided, however, that the possibility exists that other persons or entities, completely independently of the Company or its employees or agents, could have developed trade secrets or items of technical information similar or identical to those of the Company; and (c) The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all the intellectual property. Each of the Company's employees and other persons who, either alone or in concert with others, developed, invented, discovered, derived, programmed or designed the intellectual property, or who has knowledge of or access to information about the intellectual property, have entered into a written agreement with the Company substantially in the form disclosed as Exhibit H to the Subscription Agreement with respect to the Company's Series C Preferred Stock ("Series C Subscription Agreement"), (i) providing that the intellectual property and other information are proprietary to the Company and are not be divulged or misused and (ii) transferring to the Company, without any further consideration being given therefor by the Company, all of such employee's or other person's right, title and interest in and to such intellectual property and other information and to all patents, trademarks, service markes, trade names, copyrights, licenses and rights with respect to such intellectual property and information. The Company is not aware that any of its employees or prospective employees who have signed such agreements are in violation thereof. (xviii) Except as set forth on Schedule 7(xviii), the Company does not have any outstanding loans or advances to any person and is not obligated to make any such loans or advances, except, in each case, for advances to employees of the Company in respect of reimbursable business expenses anticipated to be incurred by them in connection with their performance of services for the Company. (xix) The Company has not assumed, guaranteed, endorsed or otherwise become directly or contingently liable on any indebtedness of any other person (including, without limitation, liability by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in a debtor, or otherwise to assure a creditor against loss), except for guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business. (xx) No customer or supplier which was significant to the Company during the period January 1, 1995 through June 30, 1996 or which has been significant to the Company thereafter, has terminated, materially reduced or threatened to terminate or materially reduce its purchases from or provision of products or services to the Company, as the case may be. (xxi) Subject to the accuracy of the representations and warranties of the person subscribing pursuant to this Offering with respect to being accredited investors and holding the shares for investment, no registration or filing with, or consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement, the Registration Rights Agreement or the Stockholders' Agreement, the issuance, sale and delivery of the Units or the issuance and delivery of the Conversion Shares upon the conversion of the Series D Preferred or exercise of the Warrants other than (i) filings pursuant to state securities laws (all of which filings have been timely made by the Company) in connection with the sale of the Units and (ii) with respect to the Registration Rights Agreement, the registration of the shares covered thereby with the Commission and filings pursuant to state securities laws. (xxii) To the best of the Company's knowledge, neither this Agreement, nor any Schedule or Exhibit to this Agreement contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. To the best of the Company's knowledge, none of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. Currently, there is no fact which the Company has not disclosed to the undersigned and their counsel in writing and of which the Company is aware which the Company reasonably believes materially and adversely affects the business, prospects, financial condition, operations, property or affairs of the Company. As of the date hereof no facts have come to the attention of the Company which would, in its opinion, require the Company to materially revise or amplify the assumptions underlying such projections and other estimates or the conclusions derived therefrom. (xxiii) The Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. (xxiv) Set forth in Schedule 7(xxiv) is a list of the names of the officers of the Company, together with the title or job classification of each such person. (xxv) To the Company's best knowledge (without imputing to the Company the knowlege of the individual whose relationship may be in violation of this subparagraph (xxv)), other than those transactions and arrangements set forth on Schedule 7(xxv), no director, officer, employee or stockholder of the Company, or member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or any member of the family of any such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with the Company, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from or otherwise requiring payments to any such person or firm. (xxvi) No officer or key employee of the Company has advised the Company (orally or in writing) that he intends to terminate employment with the Company. The Company has complied in all material respects with all applicable laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other taxes, and with the Employee Retirement Income Security Act of 1974, as amended. 8. The Company covenants to the undersigned that: (i) The Company will provide each Subscriber prior to the acceptance of its subscription, or its designee, an opportunity to meet and confer with the Company and the principals of the Company regarding all aspects of the transactions contemplated herein and will afford such Subscriber the opportunity to obtain any additional information, to the extent that the Company possesses such information or can acquire it without unreasonable effort or expense. (ii) The Company shall maintain $1,000,000 of "key man" insurance policies, payable to the Company, on the life of the persons set forth on Schedule 8(ii) in addition to those policies required under the Series B Stockholder's Agreement. (iii) The Company will, upon a successful closing of this Offering, pay directly, or promptly reimburse no more than $5,000 to all subscribers for their reasonable out of pocket and legal costs incurred by it in connection with this transaction. Such subscribers shall determine how such funds should be allocated. (iv) Except to the extent inconsistent with (v) below, quarterly fiscal year information shall be provided per procedures required by the Board of Directors. Provided yearly will be the budget, strategic plan and audit and management letter certified by a "Big 6" accounting firm. (v) That so long as any Shares are outstanding, the Company shall furnish to each holder of Series D Preferred Stock, the information and notices set forth in sibparagraph (v) of Paragraph 8 of the Series C Subscription Agreement within the time frame set forth therein. (vi) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of effecting the conversion of the Series D Preferred and the Warrants and otherwise complying with the terms of this Agreement, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of the Series A Preferred and the Series B Preferred and the Series C Preferred and the series D Preferred or otherwise to comply with the terms of the Amended Certificate and the Stockholders Agreement and the representations, warranties and covenants of the Company hereunder. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the Series A Preferred and the Series B Preferred and the Series C Preferred and the Series D Preferred, as the case may be, or otherwise to comply with the terms of the Stockholders Agreement and the Company's representations, warranties and covenants hereunder, the Company will forthwith take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. The Company will use its best efforts to obtain any authorization, consent, approval or other action by or make any filing with any court or administrative body that may be required under applicable state securities laws in connection with the issuance of shares of Common Stock upon conversion of the Series D Preferred Stock and the exercise of the Warrants. (vii) The Company shall maintain its corporate existence, rights and franchises in full force and effect. (viii) That so long as any Shares are outstanding, the Company shall maintain and cause each of its subsidiaries, if any, to maintain as to their respective properties and business, with financially sound and reputable insurers, insurance against such casualties and contingencies including but not limited to fire and other risks insured against by extended coverage, product liability insurance and public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by the Company, which insurance shall be deemed by the Board of Directors of the Company to be sufficient; and maintain workers' compensation insurance and such other insurance as may be required by law. The Company shall also maintain in effect "key person" life insurance policies, payable to the Company, on the lives of Ely Eshel and Dan Schwartz (so long as each remains an employee of the Company), in the amount of $1,000,000 each. The Company shall not cause or permit any assignment or change in beneficiary and shall not borrow against any such policy. (ix) That so long as any Shares are outstanding, the Company shall permit and cause each of its subsidiaries, if any, to permit designated representatives of each of the holders of the Series A Preferred and the holders of Series B Preferred and the holders of Series B-1 Preferred Stock and the holders of Series C Preferred and the holders of Series C-1 Preferred Stock and the holders of Series D Preferred, at the expense of such stockholder group, to visit and inspect any of the properties of the Company and its subsidiaries, if any, examine their books and take copies and extracts therefrom, discuss the affairs, finances and accounts of the Company and its subsidiaries, if any, with their officers, employees and public accountants (and the Company hereby authorizes said accountants to discuss with the designees of the Series A Preferred holders, Series B and B-1 Preferred holders, Series C and C-1 Preferred holders and Series D Preferred holders such affairs, finances and accounts), and consult with and advise the management of the Company and its subsidiaries, if any, as to their affairs, finances and accounts, all at reasonable times and upon reasonable notice. The Company may condition said access to those persons who execute a reasonable and customary form of non-disclosure agreement. (x) That so long as any Shares are outstanding, neither the Company nor any of its subsidiaries shall become a party to any agreement which by its terms restricts the Company's performance of its representations, warranties and covenants hereunder, the Registration Rights Agreement, the Stockholders' Agreement or the Amended Certificate. (xi) That so long as any Shares are outstanding, except for transactions contemplated hereunder or as otherwise approved by the Board of Directors, neither the Company nor any of its subsidiaries shall enter into any transaction with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Company or any of its subsidiaries, when and if formed, member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or member of the family of any such person, is a director, officer, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, except for transactions on customary terms related to such person's employment. (xii) The Company shall use the proceeds from the sale of the Units as set forth herein and/or other such uses as may be authorized by the Board of Directors. (xiii) The covenants set forth in subparagraphs (xiii) and (xiv) of Paragraph 8 of the Series C Subscription Agreement are incorporated herein by reference, effective as at the date hereof. (xiv) That so long as any Shares are outstanding, the Company shall at all times cause its By-laws to provide that unless OTHERWISE REQUIRED by the laws of the State of Delaware, (i) any two directors and (ii) any holder or holders of at least 25% of the outstanding shares of Series A Preferred or the Series B and B-1 Preferred or the Series C and C-1 Preferred or the Series D Preferred shall have the right to call a meeting of the Board of Directors or stockholders. (xv) The covenants set forth in subparagraphs (xviii), (xx), (xxii), (xxiii) and (xxv) of Paragraph 8 of the Series C Subscription Agreement are incorporated herein by reference, effective as at the date hereof. (xvi) That so long as any Series D Preferred Shares are outstanding, the Company shall not permit any subsidiary hereafter formed to purchase or set aside any sums for the purchase of, or pay any dividend or make any distribution on, any shares of its stock, except for dividends or other distributions payable to the Company or another subsidiary. (xvii) That so long as any Units are outstanding, the Company shall, with respect to the representations and warranties made by the Company herein, indemnify, defend and hold the holders of the Units harmless against all liability, loss or damage, together with all reasonable costs and expenses related thereto (including legal and accounting fees and expenses) (collectively, "Damages"), arising from the untruth, inaccuracy or breach of any such representations, and warranties of the Company; provided however, that the holders of the Units shall only be entitled to indemnification hereunder if the aggregate of all Damages exceeds $100,000; provided further, that if the aggregate of all Damages exceeds $100,000, holders of the Series D Preferred and Warrants shall be entitled to indemnification for all Damages beginning with the first dollar of Damages suffered or incurred on a pro rata basis based on the number of Units held by each holder. Indemnification with respect to this Section 8(xxvi) shall be limited to the aggregate consideration paid by the holders of the Units for the Units; provided, however, that in any suit by one or more third parties which results in Damages, the holders of the Units shall be entitled to indemnification for all such Damages, without limitation. (xviii) The Company shall, as long as the Stockholders Agreement is in full force, require all employees and persons owning (on an as-if converted or exercised basis) 150,000 shares of Common Stock, at the time the respective employer actually owns 150,000 shares of Common Stock or elects to sell any shares of Common Stock, to become a party to the Stockholders Agreement. (xix) The Company shall simultaneously with the Initial Closing, enter into an agreement with the holders of the warrants granted to the holders of the Series B Preferred Stock to amend their anti-dilution rights, in substantially the form attached hereto as Exhibit H. 9. It is understood that all documents, records and books pertaining to this investment have been made available for inspection by the undersigned and his designees, and that all books and records of the Company will be available upon reasonable notice, for inspection by Subscribers during reasonable business hours at the Company's principal place of business. 10. This subscription is not transferable or assignable by the undersigned. 11. If the undersigned is more than one person, the obligations of the undersigned shall be joint and several and the representations and warranties herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators, successors and assigns. 12. This subscription, upon acceptance by the Company, shall be binding upon the heirs, executors, administrators, successors and assigns of the undersigned. 13. This Subscription Agreement shall be construed in accordance with and governed in all respects by the laws of the State of New York, without application of the principles of conflicts of laws. 14. The undersigned is delivering herewith for the Units subscribed for (i) a check, payable to the order of "Momentum Software Corporation" or has tendered such payment by wire transfer, as described above, in the amount of the Shares subscribed for; (ii) one copy of the Purchaser Statement; (iii) one copy of the Purchaser Questionnaire, completed, dated and signed by the Subscriber; (iv) two signed copies of this Subscription Agreement; (v) two signed copies of the Stockholders Agreement and (vi) two signed copies of the Registration Rights Agreement. 15. In accordance with Section 6 (viii) of this Subscription Agreement, the undersigned hereby furnishes the following information: A. The undersigned is: (a) A bank as defined in section 3(a)(2) of the Securities Act of 1933, as amended (the "Act") or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefits of its employees if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; Yes No (b) A private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940; Yes No (c) An organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; Yes No (d) A director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer; Yes No (e) A natural person whose individual net worth, or joint net worth with your spouse, at the time of your purchase exceeds $1,000,000; Yes No (f) A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; Yes No (g) A trust, with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person, as described in Rule 506(b)(2)(ii) of the Act; or Yes No (h) Any entity in which all of the equity owners are accredited investors. Yes No 16. All covenants, representations and warranties made hereunder, by the Company and the undersigned, respectively, shall survive the acceptance of the subscriptions and the Closing and shall be deemed, if not otherwise provided by law, to be deemed to be a binding agreement among the Company and the undersigned. Amount of check enclosed: $ . (or wire transfer) Number of Units Subscribed For . Dated: , 1996 Signature of Investor (Name of Investor - Please Print) EX-3 3 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF THE RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF MOMENTUM SOFTWARE CORPORATION Adopted in accordance with Section 242 of the General Corporation Law of Delaware MOMENTUM SOFTWARE CORPORATION, a Delaware corporation (the "Corporation"), acting pursuant to Section 242 of the General Corporation Law of Delaware, does hereby certify as follows: FIRST: The Restated and Amended Certificate of Incorporation of the Corporation is hereby amended by deleting Article IV thereof in its entirety and by substituting in lieu thereof the following new Article IV: FOURTH: The total number of shares of all classes of stock which the Corporation is authorized to issue is 24,713,329 and shall be divided into the following classes of stock as follows: (i) 1,000,000 shares of Series A Preferred Stock, par value $.10 per share (the "Series A Preferred Stock"); (ii) 2,251,789 shares of Series B Preferred Stock, par value $.10 per share (the "Series B Preferred Stock"); (iii) 306,350 shares of Series B-1 Preferred Stock, par value $.10 per share (the "Series B-1 Preferred Stock"); (iv) 2,550,116 shares of Series C Preferred Stock, par value $.10 per share (the "Series C Preferred Stock"); (v) 70,574 shares of Series C-1 Preferred Stock, par value $.10 per share (the "Series C-1 Preferred Stock"); (vi) 1,034,500 shares of Series D Preferred Stock, par value $.10 per share (the "Series D Preferred Stock"); and (v) 17,500,000 shares of Common Stock, par value $.01 per share (the "Common Stock"). The Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and the Series D Preferred Stock are sometimes referred to hereinafter collectively as the "Preferred Stock". The designations and powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class are as follows: A. Preferred Stock 1. Relative Seniority. The Series A Preferred Stock and the Series B Preferred Stock and the Series B-1 Preferred Stock and the Series C Preferred Stock and the Series C-1 Preferred Stock and the Series D Preferred Stock shall rank on a parity with each other and shall rank senior to the Common Stock as to dividends and distributions upon liquidation, dissolution, or winding up of the Corporation. 2. Voting. (a) General. Except as may be otherwise provided in these terms of the Preferred Stock or by law, the Series A Preferred Stock and the Series B Preferred Stock and the Series B-1 Preferred Stock and the Series C Preferred Stock and the Series C-1 Preferred Stock and the Series D Preferred Stock shall vote together with all other classes (including the Common Stock) and series of stock of the Corporation as a single class on all actions to be taken by the stockholders of the Corporation. Each share of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock shall entitle the holder thereof to such number of votes per share on each such action as shall equal the number of shares of Common Stock (including fractions of a share) into which each share of such Preferred Stock is then convertible. (b) Board Seats. The holders of the Series A Preferred Stock, voting as a separate class, shall be entitled to elect two (2) directors of the Corporation (the "Series A Designees") for as long as at least 500,000 shares of Series A Preferred Stock, as adjusted for Recapitalization Events, as defined in Section 3(a) hereof, are authorized, issued and outstanding. The holders of the Series B Preferred Stock and the Series B-1 Preferred Stock, voting collectively as a separate class, shall be entitled to elect two (2) directors of the Corporation (the "Series B Designees") for as long as at least: an aggregate of 1,279,069 shares of Series B Preferred Stock and Series B-1 Preferred Stock, as adjusted for Recapitalization Events, are authorized issued and outstanding. The holders of the Series C Preferred Stock and the Series C-1 Preferred Stock, voting collectively as a separate class, shall be entitled to elect one (1) director of the Corporation ("Series C Designee") for as long as at least an aggregate of 1,034,482 shares of Series C Preferred Stock and Series C-1 Preferred Stock, as adjusted for Recapitalization Events, are authorized, issued and outstanding. The holders of the Preferred Stock and the Common Stock, voting together as a single class, shall be entitled to elect the number of directors of the Corporation equal to the difference between nine (9) and the sum of the Series A, B and C Designees, so elected. At any meeting (or in a written consent in lieu thereof) held for the purpose of electing directors, the presence in person or by proxy (or the written consent) of the holders of a majority of the shares of Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock, or Series C Preferred Stock and Series C-1 Preferred Stock (as the case may be) then outstanding shall constitute a quorum of such series for the election of directors to be elected solely by the holders of such series or jointly by the holders of such series, the Series D Preferred Stock and the Common Stock. A vacancy in any directorship elected by the holders of the Series A Preferred Stock, Series B and B-1 Preferred Stock or the Series C and C-1 Preferred Stock (as the case may be) shall be filled only by vote or written consent of the holders of such class and a vacancy in the directorship elected jointly by the holders of the Preferred Stock and the Common Stock shall be filled only by vote or written consent of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock and Common Stock as provided above. 3. Dividend Rights. (a) The holders of record of outstanding shares of Series A Preferred Stock shall be entitled from the date of original issuance thereof to receive a dividend at the annual rate per share of Eight Cents ($.08), the holders of record of outstanding shares of Series B Preferred Stock and Series B-1 Preferred Stock shall be entitled to receive from the date of original issuance thereof a dividend at the annual rate per share of Ten and Three-Quarter Cents ($.1075), the holders of record of outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock shall be entitled to receive from the date of original issuance thereof, a dividend at the annual rate per share of Eleven and 60/100 Cents ($.1160) and the holders of record of outstanding shares of Series D Preferred Stock shall be entitled to receive from the respective date of original issuance thereof, a dividend at the annual rate per share of Eleven and 60/100 Cents ($.1160), in each case as adjusted for stock splits, stock dividends, recapitalizations, reclassifications, and similar events (together hereinafter referred to as "Recapitalization Events"). The original issuance date of Series B-1 Preferred Stock shall be the same as the original issuance date of the Series B Preferred Stock and the original issuance date of Series C-1 Preferred Stock shall be the same as the original issuance date of the Series C Preferred Stock. Such dividends shall be cumulative and shall accrue whether or not they have been declared and whether or not there are profits, surplus, or other funds legally available for the payment of dividends. 2 If not otherwise declared and paid by the Board of Directors, at the earlier of (i) the redemption of the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and/or the Series D Preferred Stock, (ii) the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and the sale of Common Stock for the account of the Corporation to the public, or (iii) the liquidation, sale of substantially all the assets of, consolidation or merger of the Corporation, and accrued but undeclared or unpaid dividends shall be paid to, the holders of record of outstanding shares of Series A Preferred Stock Series, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock; provided, subject to the immediately following proviso, that upon the occurrence of the event specified in clause (ii) of this Section 3(a) dividends on all of the Preferred Stock may be paid, at the Corporation's election, in additional shares of Common Stock valued at the initial public offering price to the public and further provided, that upon the declaration by the Board of Directors of a dividend on the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and the Series D Preferred Stock, or the occurrence of any of the events specified in clauses (i), (ii) or (iii) of this Section 3(a), holders of Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and the Series D Preferred Stock may elect to receive such dividends to the extent declared or, upon the occurrence of any of the events specified in clauses (i), (ii), or (iii) of this section 3(a), to the extent accrued, in cash or in additional shares of Common Stock valued at the respective Series B, Series B-1, Series C or Series C-1 Conversion Price then in effect and with respect to Series D Preferred Stock, valued at $.72, as reduced to reflect any issuances of Additional Shares of Common Stock, as defined herein, at a consideration below $.72, which new dividend conversion price will be the initial Series D Conversion Price from time to time, determined in accordance with Section 5(d)(vii) hereof, assuming for such computation purposes only, that the initial Series D Conversion Price is $.72, provided that the holder of a Series B, Series B-1, Series C, Series C-1 or Series D Preferred Stock cannot elect to receive with respect to any share of Series B, Series B-1, Series C, Series C-1 or Series D Preferred Stock more than three (3) years of accrued dividends in additional shares of Common Stock. Except to the extent specifically provided above, all dividends per outstanding share on the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and the Series D Preferred Stock shall be declared and paid pro rata (a) such that the ratio of dividends being declared and paid per outstanding share of Series A Preferred Stock to dividends being declared and paid per outstanding share of Series B Preferred Stock to dividends being declared and paid per outstanding share of Series B-1 Preferred Stock to dividends being declared and paid per share of outstanding Series C Preferred Stock to dividends being declared and paid per share of outstanding Series C-1 Preferred Stock to dividends being declared and paid per share of outstanding Series D Preferred Stock is the same as the ratio of amounts of accrued and unpaid dividends due per outstanding share at the dividend declaration date with respect to Series A Preferred Stock to the Series B Preferred Stock to the Series B-1 Preferred Stock to the Series C Preferred Stock to the Series C-1 Preferred Stock to the Series D Preferred Stock, and (b) as among the holders of each Series based on the number of shares of such Series owned by each such holder. As to dividends payable in cash, should the Corporation not have sufficient funds legally available for paying the full dividends specified herein for the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, then the entire funds of the Corporation legally available for such distribution shall be distributed ratably among the holders of Preferred Stock (based on the amount of accrued dividends owing to each holder of Preferred Stock). (b) So long as any shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series 3 C-1 Preferred Stock or Series D Preferred Stock are outstanding, the Corporation shall not declare, pay or set apart any dividend on, declare, make or set apart any other distribution of any kind in respect of, or purchase, redeem or otherwise acquire, the Common Stock or any other class or series of capital stock ranking, as to dividends or liquidation, junior to the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, under any circumstances, without the prior written approval of at least sixty percent (60%) of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock, voting together as a single class, and then, only if, on the date of such declaration, in the case of a dividend, or on the date of such distribution, in the case of a distribution, all of the following are met: (i) all dividends or distribution, on the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock which have accrued for all past dividend periods and the then current dividend period have been paid in full or a sum sufficient for the payment thereof irrevocably set apart in trust for the holders of the Preferred Stock; (ii) all redemptions of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock then or theretofore due shall have been made; and (iii) the Corporation shall not be in default under any of the terms of this Restated and Amended Certificate of Incorporation; provided, however, that nothing hereinabove shall prevent the Corporation from exercising any rights it may have to purchase Common Stock from any employee, consultant, officer or director of the Corporation upon termination of their employment with the Corporation. 4. Liquidation. (a) Preferred Stock. Upon any liquidation, dissolution or winding up of the Corporation, the holders of shares of Preferred Stock shall then be entitled before any distribution or payment is made with respect to the Common Stock, to be paid an amount equal to: (i) With respect to each holder of shares of Series A Preferred Stock, the higher of: (x) $1.00 per share of Series A Preferred Stock it owns, as adjusted for Recapitalization Events, ("Original Series A Issue Price") plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available; or (y) such amount per share of Series A Preferred Stock as would have been payable to such person had each share been converted to Common Stock immediately prior to such liquidation, dissolution or winding up of the Corporation. (ii) With respect to each holder of shares of Series B Preferred or Series B-1 Preferred Stock, the higher of: (x) $1.075 per share of Series B Preferred Stock and Series B-1 Preferred Stock it owns, as adjusted for Recapitalization Events, ("Original Series B Issue Price" or "Original Series B-1 Issue Price") plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available; or (y) such amount per share of Series B Preferred Stock or Series B-1 Preferred Stock, respectively, as would have been payable to such person had each share been converted to 4 Common Stock immediately prior to such liquidation, dissolution or winding up of the Corporation. (iii) With respect to each holder of shares of Series C Preferred Stock or Series C-1 Preferred Stock, the higher of: (x) $1.45 per share of Series C Preferred Stock or Series C-1 Preferred Stock it owns, as adjusted for Recapitalization Events, ("Original Series C Issue Price" or "Original Series C-1 Issue Price") plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available; or (y) such amount per share of Series C Preferred Stock or Series C-1 Preferred Stock, respectively, as would have been payable to such person had each share been converted to Common Stock immediately prior to such liquidation, dissolution or winding up of the Corporation. (iv) With respect to each holder of shares of Series D Preferred Stock, the higher of: (x) $1.45 per share of Series D Preferred Stock it owns, as adjusted for Recapitalization Events, ("Original Series D Issue Price") plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available; or (y) such amount per share of Series D Preferred Stock as would have been payable to such person had each share been converted to Common Stock immediately prior to such liquidation, dissolution or winding up of the Corporation. If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment in full to the holders of Preferred Stock of the amounts set forth in (i)(x), (ii)(x), (iii)(x) and (iv)(x) of this subsection 4(a), then the entire assets and funds of the Corporation shall be first distributed among the holders of the Preferred Stock such that the ratio of assets and funds distributed per share of Series A Preferred Stock to assets and funds distributed per share of Series B Preferred Stock to assets and funds distributed per share of Series B-1 Preferred Stock to assets and funds distributed per share of Series C Preferred Stock to assets and funds distributed per share of Series C-1 Preferred Stock to assets and funds distributed per share of Series D Preferred Stock is the same as the ratio of the Series A Original Issue Price to the Series B Original Issue Price to the Series B-1 Original Issue Price to the Series C Original Issue Price to the Series C-1 Original Issue Price to the Series D Original Issue Price, until the holders of the Preferred Stock have been distributed an amount equal to the sum of the amounts set forth in (i)(x), (ii)(x), (iii)(x) and (iv)(x) of this subsection 4(a), exclusive of the accrued but unpaid dividends referred to therein, with the balance, ratably (based on the amount of accrued but unpaid dividends owed each) among the holders of Preferred Stock. (b) Remaining Distributions. After distribution of the amounts set forth in (i), (ii), (iii) and (iv) of subsection 4(a), then the remaining assets of the Corporation available for distribution, if any, to the stockholders of the Corporation shall be distributed as follows: (i) first to each holder of shares of Series B, Series B-1, Series C, Series C-1 and Series D Preferred Stock, an amount equal to (X) in the case of the Series B and B-1 Preferred 5 Stock owned by each such stockholder, the excess of the sum of the Original Series B Issue Price, multiplied by the number of Series B and/or B-1 Preferred Stock then owned by such person and an amount equal to the equivalent of a 15% per annum (determined on a non-compounded basis) return on such outstanding Series B and/or B-1 Preferred Stock from time to time (valued at the Original Series B Issue Price per share) over the aggregate amounts received by such Series B and/or B-1 Preferred Stockholder with respect to such stock by reason of a dividend or distribution, including the distributions and dividends referred to in subsection 4(a) above and (Y) in the case of the Series C and C-1 Preferred Stock owned by each such stockholder, the excess of the sum of the Original Series C Issue Price multiplied by the number of Series C and/or Series C-1 Preferred Stock owned by such person and an amount equal to the equivalent of a 15% per annum (determined on a non-compounded basis from the date of authorization thereof) return on such outstanding Series C and/or C-1 Preferred Stock from time to time (valued at the Original Series C Issue Price) over the aggregate amounts received by such Series C and/or C-1 Preferred Stockholder with respect to such stock by reason of dividend or distribution, including the distributions and dividends referred to in subsection 4(a) above and (Z) in the case of the Series D Preferred Stock owned by each such stockholder, the excess of the sum of the Original Series D Issue Price multiplied by the number of Series D Preferred Stock owned by such person and an amount equal to the equivalent of a 15% per annum (determined on a non-compounded basis from the date of authorization thereof) return on such outstanding Series D Preferred Stock from time to time (valued at the Original Series D Issue Price) over the aggregate amounts received by such Series D Preferred Stockholder with respect to such stock by reason of dividend or distribution, including the distributions and dividends referred to in subsection 4(a) above and (ii) the balance to the holders of Common Stock pro rata on the basis of their respective holdings. In the event there is insufficient funds to pay the amounts set forth in (X) and (Y) and (Z) above to the holders of the Series B and B-1 and C and C-1 and D Preferred Stock, the entire remaining balance shall be distributed pro rata based on the amount owed pursuant to (X) and (Y) and (Z) above to each holder of Series B, B-1, C, C-1 and D Preferred Stock. (c) Notice. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said payments shall be made, shall be given by mail, postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the payment date stated therein, to the holders of record of Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. 5. Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be convertible (i) automatically upon the consummation of a firmly underwritten public offering of shares of the Corporation's Common Stock on Form S-1 or any successor form, which results in aggregate net proceeds to the Corporation of not less than $10,000,000 at a per share price of at least 200% of the Series C Conversion Price (as defined below) then in effect, (ii) automatically upon the sale or transfer of substantially all the assets or the outstanding Common Stock of the Corporation, or the consolidation or merger of the Corporation into or with any other entity or entities, which results in the holder of each share of Preferred Stock receiving consideration with an aggregate value per share of Preferred Stock (determined in accordance with the provisions of Section 5(d)(vii) hereof), of at least two and 95/100 (2.95) times the Original Series C Issue Price, (iii) automatically upon the sale or transfer of substantially all the assets or the outstanding Common Stock of the Corporation, or the consolidation or merger of the Corporation into or with any other entity or entities, which results in the holder of each share of Preferred Stock receiving consideration with an aggregate value per share of Preferred Stock (determined in accordance with the provisions of Section 5(d)(vii) hereof), the Corporation obtains the consent of sixty percent (60%) in interest of the holders of Series C Preferred Stock and either the consent of Olayan Investor Group or New York Life Insurance Company to such transaction, (iv) automatically upon the sale or 6 transfer of substantially all the assets or the outstanding Common Stock of the Corporation, or the consolidation or merger of the Corporation into or with any other entity which has a trading market value at the consummation of the transaction of at least $75,000,000 as determined after fully taking into effect the consummation of the transaction, and which results in the holder of each share of Preferred Stock receiving consideration with an aggregate value per share of Preferred Stock for cash consideration or securities registered under the Securities Act of 1933, as amended, which may be freely traded without restriction on a national stock exchange or in the over-the-counter market, of a corporation (subject to an agreement provided as part of such transaction that, such securities not be sold without the consent of the public corporation issuing such stock or securities for a period of not more than 180 days following the consummation of the transaction), of at least two times the Original Series C Issue Price, or (v) at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing, for holders of Series A Preferred Stock, $1.00, for holders of Series B and B-1 Preferred Stock, $1.075, for holders of Series C and C-1 and D Preferred Stock, $1.45, by the respective conversion price in effect at the time of conversion. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Preferred Stock without the payment of additional consideration by the holder thereof after the Corporation's sale of all the authorized Series D Preferred Stock and warrants issued in connection therewith shall initially be $.92609 for holders of Series A Preferred Stock (the "Series A Conversion Price"), $.98143 for holders of Series B Preferred Stock (the "Series B Conversion Price"), $1.075 for holders of Series B-1 Preferred Stock (the "Series B-1 Conversion Price") and $1.25808 for holders of Series C Preferred Stock (the "Series C Conversion Price"), $1.45 for holders of Series C-1 Preferred Stock (the "Series C-1 Conversion Price") and $1.45 for holders of Series D Preferred Stock (the "Series D Conversion Price"). Such initial Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, and Series D Conversion Price and the rate at which shares of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. As set forth above, no additional consideration is to be paid by the holder of Preferred Stock upon the conversion thereof and reference to Conversion Price is used solely for purposes of determining the conversion ratio at which the Preferred Stock may be converted into Common Stock. (b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. The determination of fractional shares shall be made on the basis of the total number of shares of each series of Preferred Stock the holder at the time of conversion is converting divided by the respective Conversion Prices. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of the Common Stock determined by the Board of Directors in good faith. (c) Mechanics of Conversion. (i) Subject to (ii) below, in order for a holder of Preferred Stock to convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock, at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Preferred Stock represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominee in which such holder wishes the cerporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date ("Conversion Date"). The Corporation shall, as soon as practicable after the Conversion Date (and in any event within ten business days after the Conversion Date), issue and deliver at such office to 7 such holder of Preferred Stock, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. (ii) In order for the Corporation to automatically cause the conversion of the Preferred Stock upon the happening of an event set forth in subsection (a) (i), (ii), (iii) or (iv) of Section 5 above, the Corporation must give written notice to the holders of the Preferred Stock within ten (10) business days after the event which triggered the automatic conversion. The Conversion Date for purposes of an automatic redemption is the date of the event which triggered such conversion. Upon such triggering event, the Preferred Stock shall have been deemed surrendered for conversion. In order for the holder of Preferred Stock to receive certificates for shares of Common Stock, the holder of Preferred Stock must surrender its Preferred Stock certificate to the Corporation or the Transfer Agent. Any dividends declared on Common Stock will not be payable to the holders of automatically converted Preferred Stock until they are tendered for exchange to the Corporation or Transfer Agent. (iii) The Corporation shall, at all times when Preferred Stock shall be outstanding, reserve and keing the conversion of Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. (iv) All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Such conversion shall be deemed to have been made at the close of business on the Conversion Date, and the person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. (d) Adjustments to Conversion Price for Diluting Issues: (i) Special Definitions. For purposes of this Section 5(d), the following definitions shall apply: (A) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which Shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, or Series D Preferred Stock, as the case may be were first issued. The Original Issue Date of Series B-1 Preferred Stock and Series C-1 Preferred Stock shall be the same dates as the Original Issue Date for the Series B and Series C Preferred stock, respectively. (C) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock including, but not limited to convertible debentures and convertible preferred stock, but excluding Options. (D) "Additional Shares of Common Stock" shall mean all shares of 8 Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be issued) by the Corporation after the Original Issue Date for the Series D Preferred Stock, other than shares of Common Stock issued or issuable: (I) upon conversion of shares of Series A, B, B-1, C, C-1 or D Preferred Stock; (II) by reason of a dividend (other than a dividend to the extent the holder of Series B Preferred Stock elects pursuant to Section 3(a) hereof to receive payment of such dividend in additional shares of Common Stock), stock split, split-up or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clause (I), this clause (II) or the following clauses III or IV; or (III) (X) the initial grant after the Original Issuance Date of the Series D Preferred Stock of up to 344,250 options pursuant to a performance plan of the Corporation ("Performance Plan") and up to 1,143,489 options under stock option plans of the Corporation adopted by the Board of Directors of the Corporation on or prior to September 30, 1996 (which number includes the estimated 195,000 options to be granted effective upon the issuance of the Series D Preferred Stock to employees of the Corporation currently owning options in order to avoid dilution as a result of the reduction in the Series A, B and C Conversion Price as a result of the issuance of the Series D Preferred Stock) (such plans other than the Performance Plan, the "Plan"), (Y) the regrant of options granted under the Plan which expire or lapse before such options are exercised, and (Z) upon exercise of options granted to employees or consultants of the Corporation pursuant to any Plan and the Performance Plan, including up to 105,568 shares of Common Stock upon exercise of options granted to Jeffrey Arnold to purchase 105,568 shares of Common Stock, all as appropriately adjusted to reflect a Recapitalization Event. (ii) No Adjustment of Conversion Price. No adjustment in the number of shares of Common Stock into which the Preferred Stock is convertible shall be made pursuant to Section 5(d)(iv), Section 5(d)(v), Section 5(d)(vi), Section 5(d)(vii) or Section 5(d)(viii) by adjustment in the applicable Conversion Price thereof unless the consideration per share (determined pursuant to Section 5(d)(ix)) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares. (iii) Issue of Securities Deemed Issue of Additional Shares of Common Stock. For purposes of this Section 5(d), if the Corporation at any time or frvertible Securities not otherwise specifically excluded from the definition of 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 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 9 upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities), shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 5(d)(ix) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be; provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) No further adjustment in the Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price or Series D 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 in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price and Series D 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; (C) No readjustment pursuant to clause (B) above shall have the effect of increasing the Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price or Series D Conversion Price to an amount which exceeds the Series A Conversion Price or Series B Conversion Price or Series B-1 Conversion Price or Series C Conversion Price or Series C-1 Conversion Price or Series D Conversion Price on the original adjustment date; (D) Notwithstanding clause (B) above, but subject to clause (c) above, upon the expiration or termination of any unexercised Option, the Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price and Series D Conversion Price shall be readjusted only upon the earlier to occur of: (a) the next adjustment of the Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price or Series D Conversion Price required pursuant to this Restated and Amended Certificate of Incorporation or (b) immediately prior to the conversion of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock, or Series D Preferred Stock; and 10 (E) In the event of any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Option or Convertible Security, including, but not limited to, an increase resulting from the anti-dilution provisions thereof (other than an increase resulting solely from an adjustment pursuant to this Section 5(d)), the Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price or Series D Conversion Price and Series C Conversion Price then in effect shall forthwith be readjusted to such conversion price as would have been obtained and the adjustment (if any) which was made upon the issuance of such Option or Convertible Security not exercised or converted prior to such increase be made upon the basis of such increased number of shares, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise or conversion of any such Option or Convertible Security. (iv) Adjustment of Series A Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original Issue Date for the Series A Preferred Stock issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to section 5(d)(iii) but excluding shares issued as a dividend or distribution as provided in Section 5(f) or upon a stock split or combination as provided in Section 5(e)), without consideration or for a consideration per share less than the Series A Conversion Price on the date of and immediately prior to such issue, then and in such event, such Series A Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into which the Series A Preferred Stock is convertible, to a price (calculated to the nearest cent) determined by multiplying the Series A Conversion Price by a fraction (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of Series A, B, B-1, C, C-1 or D Preferred Stock or other Convertible Securities plus (2) 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 the Series A Conversion Price, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D Preferred Stock or any other Convertible Securities), plus (2) the number of such Additional Shares of Common Stock so issued; provided that immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 5(d)(iii) and the Series A Conversion Price has been appropriately reduced pursuant to this Section 5(d)(iv), then such Additional Shares of Common Stock shall be deemed to be outstanding for all subsequent applications of this Section 5(d)(iv), until such time, if ever, as the Options which resulted in the issuance of Additional Shares of Common Stock pursuant to Section 5(d)(iii) expire or terminate. (v) Adjustment of Series B Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original Issue Date for the Series B Preferred Stock issue Additional Shares of Common Stock (including additional Shares of Common Stock deemed to be issued pursuant to Section 5(d)(iii), but excluding shares issued as a dividend or distribution as provided in Section 5(f) or upon a stock split or combination as provided in Section 5(e)), without consideration or for a consideration per share less than the applicable Series B Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series B Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Series B Conversion Price by a fraction (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D Preferred Stock or other Convertible Securities, plus (2) 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 the Series B Conversion Price, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D 11 Preferred Stock or Convertible Securities), plus (2) the number of such Additional Shares of Common Stock so issued; provided, that, immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 5(d)(iii) and the Series B Conversion Price has been appropriately reduced pursuant to this Section 5(d)(v), then such Additional Shares of Common Stock shall be deemed to be outstanding for all subsequent applications of this Section 5(d)(v), until such time, if ever, as the Options which resulted in the issuance of Additional Shares of Common Stock pursuant to Section 5(d)(iii) expire or terminate. (vi) Adjustment of Series C Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at anytime after the Original Issue Date for the Series C Preferred Stock issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to section 5(d)(iii) but excluding shares issued as a dividend or distribution as provided in Section 5(f) or upon a stock split or combination as provided in Section 5(e)), without consideration or for a consideration per share less than the Series C Conversion Price on the date of and immediately prior to such issue, then and in such event, such Series C Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into which the Series C Preferred Stock is convertible, to a price (calculated to the nearest cent) determined by multiplying the Series C Conversion Price by a fraction (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D Preferred Stock or other Convertible Securities), plus (2) 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 the Series C Conversion Price, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D Preferred Stock or other (Convertible Securities), plus (2) the number of such Additional Shares of Common Stock so issued; provided that immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 5(d)(iii) and the Series C Conversion Price has been appropriately reduced pursuant to this Section 5(d)(vi), then such Additional Shares of Common Stock shall be deemed to be outstanding for all subsequent applications of this Section 5(d)(vi), then such Additional Shares of Common Stock shall be deemed to be outstanding for all subsequent applications of this Section 5(d)(vi), until such time, if ever, as the Options which resulted in the issuance of Additional Shares of Common Stock pursuant to Section 5(d)(iii) expire or terminate. (vii) Adjustment of Series D Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at anytime after the Original Issue Date for the Series D Preferred Stock issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to section 5(d)(iii) but excluding shares issued as a dividend or distribution as provided in Section 5(f) or upon a stock split or combination as provided in Section 5(e)), without consideration or for a consideration per share less than the Series D Conversion Price on the date of and immediately prior to such issue, then and in such event, such Series D Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into which the Series D Preferred Stock is convertible, to a price (calculated to the nearest cent) determined by multiplying the Series D Conversion Price by a fraction (x) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D Preferred Stock or other Convertible Securities), plus (2) 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 the Series D Conversion Price, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue (including 12 shares of Common Stock issuable upon conversion of any outstanding Series A, B, B-1, C, C-1 or D Preferred Stock or other (Convertible Securities), plus (2) the number of such Additional Shares of Common Stock so issued; provided that immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 5(d)(iii) and the Series C Conversion Price has been appropriately reduced pursuant to this Section 5(d)(vii), then such Additional Shares of Common Stock shall be deemed to be outstanding for all subsequent applications of this Section 5(d)(vii), then such Additional Shares of Common Stock shall be deemed to be outstanding for all subsequent applications of this Section 5(d)(vii), until such time, if ever, as the Options which resulted in the issuance of Additional Shares of Common Stock pursuant to Section 5(d)(iii) expire or terminate. (viii) Adjustment of Series B-1 and C-1 Conversion Price Upon Issuance of Additional Shares of Common Stock. The Series B-1 and Series C-1 Conversion Price shall not be adjusted in the event the Corporation shall at anytime after the Original Issue Date for the Series D Preferred Stock issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to section 5(d)(iii) but excluding shares issued as a dividend or distribution as provided in Section 5(f) or upon a stock split or combination as provided in Section 5(e)), without consideration or for a consideration per share less than the Series B-1 and/or C-1 Conversion Price on the date of and immediately prior to such issue, (ix) Determination of Consideration. For purposes of this Section 5, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock or otherwise shall be computed as follows: (A)Cash and Property: Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5(d)(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 upof shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options 13 or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities and the conversion or exchange of such Convertible Securities. (e) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time effect subdivision of the outstanding Common Stock, the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, the Series C Conversion Price, the Series C-1 Conversion Price and the Series D Conversion Price then in effect immediately before the subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time combine the outstanding shares of Common Stock, the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, the Series C Conversion Price, the Series C-1 Conversion Price and the Series D Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this Paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (f) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, the Series C Conversion Price, the Series C-1 Conversion Price and the Series D Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, the Series C Conversion Price, the Series C-1 Conversion Price and the Series D Conversion Price then in effect be a fraction: (1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, the Series C Conversion Price, the Series C-1 Conversion Price and the Series D Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, the Series C Conversion Price, the Series C-1 Conversion Price and the Series D Conversion Price shall be adjusted pursuant to this Paragraph as of the time of actual payment of such dividends or distributions. (g) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the actual conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period, under this subsection with 14 respect to the rights of the holders of the Preferred Stock. (h) Adjustment for Reclassification. Exchange or Substitution. If the Common Stock issuable upon the conversion of the Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for below), then and in each such event the holder of each such share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Preferred Stock were convertible immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (i) Adjustment for Merger or Reorganization etc. In case of any consolidation or merger of the Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation, each share of Preferred Stock shall thereafter be convertible for the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such class of Preferred Stock would have been entitled upon such consolidation, merger or sale, provided, however, that the recovery of holders of Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock upon any such consolidation, merger or sale shall in no event be less than the equivalent in value (without giving effect to any discount for blockage, securities law restrictions or any other similar restriction) of the following amounts: (X) As to the holders of Series B and B-1 Preferred Stock the excess of the sum of $1.075 (as adjusted for Recapitalization Events) multiplied by the respective number of shares of Series B and B-1 Preferred Stock outstanding and an amount equal to the equivalent of a 15% per annum (determined on a non-compounded basis) return on the outstanding respective Series B and B-1 Preferred Stock from time to time (valued at $1.075 per share, as adjusted for Recapitalization Events) over the aggregate amounts received by the Series B and B-1 Preferred Stockholders, respectively, with respect to such stock by reason of a dividend or distribution, including the distributions and dividends referred to in subsection 4(a) hereof and (Y) as to the holders of Series C and C-1 and D Preferred Stock the excess of the sum of $1.45 (as adjusted for Recapitalization Events) multiplied by the respective number of shares of Series C and C-1 and D Preferred Stock outstanding and an amount equal to the equivalent of a 15% per annum (determined on a non-compounded basis) return on the respective outstanding Series C and C-1 and D Preferred Stock from time to time (valued at $1.45 per share, as adjusted for Recapitalization Events) over the respective amounts received by the Series C and C-1 and D Preferred Stockholders, respectively, with respect to such stock by reason of dividend or distribution, including the distributions and dividends referred to in subsection 4(a) hereof. Notwithstanding the above, in the event the total consideration received in connection with such merger, consolidation, or sale exceeds the sum of (X) and (Y) above and the amount which the holders of the Series A Preferred Stock is entitled on the liquidation of the Corporation pursuant to subsection 4(a)(i)(x) above, such merger, consolidation or sale shall be deemed a liquidation, dissolution or winding-up of the Corporation within the meaning of the provisions of subsection 4 above. In the case of any such merger, consolidation or sale, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 5 set forth with respect to the rights and interest thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 5 (including provisions with respect to changes in and other adjustments of the Series A Conversion Price, the Series B Conversion Price, the Series B-1 Conversion Price, Series C Conversion Price, the Series C-1 Conversion Price and Series D Conversion Price) shall thereafter be 15 applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of such Preferred Stock. (j) No Impairment. The Corporation will not, by Amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the term, 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 5 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 Preferred Stock against impairment. (k) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms thereof and furnish to each holder of 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 Preferred Stock, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price, Series B Conversion Price, the Series B-1 Conversion Price, Series C Conversion Price, the Series C-1 Conversion Price or Series D Conversion Price, as the case may be, then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which then would be received upon the conversion of such Preferred Stock. (1) Notice of Record Date. In the event: (i) that the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereof) or of any consolidation or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Preferred Stock, and shall cause to be mailed to the holders of the Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least fifteen days prior to the record date specified in (A) below or thirty days before the date specified in (B) below, a notice stating (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or 16 (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. (m) Notwithstanding anything contained in subsection (d) of Section 5 to the contrary, the holder of any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock shall not be entitled to the benefits of subsections (d) (iv), (v), (vi), (vii) of Section 5 if such holder has failed to participate in any particular offering by the Corporation of shares of any class or series of its capital stock, however designated (or other securities, whether debt or equity, convertible into or exchangeable for any class or series of capital stock, or any warrants, options, subscriptions or other purchase rights with respect thereto), which would otherwise result in an adjustment to the Conversion Price for Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be, pursuant to subsections (d)(iv), (v), (vi) and (vii) of Section 5 (a "Dilutive Offering"), by acquiring (by itself or together with any affiliated persons or entities) in such Dilutive Offering more than 50% of such number of shares offered as shall equal the product of the number of shares as the Corporation actually determines to offer in the Dilutive Offering to all holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, with respect to such shares of Preferred Stock as to which the offering is a Dilutive Offering, as determined by the Board of Directors in its sole discretion, multiplied by a fraction: (a) the numerator of which is the number of shares of Series Ad by such holder at the time of such Dilutive Offering as to which such offering by the Corporation shall constitute a Dilutive Offering, and (b) the denominator of which is the total number of shares of Series A, B, C and D Preferred Stock then outstanding as to which such offering by the Corporation shall constitute a Dilutive Offering (the "Pro Rata Share"). If any holder of Preferred Stock shall fail to purchase more than 50% of its Pro Rata Share (by itself or together with any affiliated persons or entities) of any Dilutive Offering, then such holder's rights under subsections (d) (iv), (v), (vi) and (vii) of Section 5 shall terminate with respect to all of such holder's Preferred Stock owned immediately prior to the Dilutive Offering and shall no longer be of any force and effect with respect to any dilution resulting from the Dilutive Offering and an event referred to in Section 5(d)(iii). If any holder of Preferred Stock shall purchase more than 50% but less than all of its Pro Rata Share of any Dilutive Offering, than such holder's rights under subsections (d) (iv), (v), (vi) and (vii) of Section 5 shall terminate and shall no longer be of any force and effect only with respect to the portion of its Pro Rata Share not so purchased. The Corporation shall take all necessary actions to designate new series of Preferred Stock on any occasion that any holder of Preferred Stock shall fail to purchase its Pro Rata Share of any Dilutive Offering. Each share of such holder's Preferred Stock to which it is no longer entitled to dilution protection under Subsections (d)(iv), (v), (vii) and (vi) shall be immediately converted into one share of such newly-created series of Preferred Stock; provided, however, that the provisions of subsections (d)(iv), (v), (vi) and (vii) of Section 5 hereof shall no longer apply with respect to such newly-created series of Preferred Stock; and provided further, however, that the Conversion Price for such newly-created series of Preferred Stock shall be the Converfect for the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as the case may be, in effect immediately prior to such Dilutive Offering. Such new series of Preferred Stock shall otherwise be identical in all respects to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as the case may be. Except as otherwise required by 17 law, any newly-created series of Preferred Stock shall vote together as a class with the Preferred Stock or series of Preferred Stock which it owns originally as a member on all matters submitted to the stockholders for a vote or a written consent. (n) Notwithstanding anything contained herein in subsection (d) of Section 5 to the contrary, the applicable Series A Conversion Price, Series B Conversion Price, Series B-1 Conversion Price, Series C Conversion Price, Series C-1 Conversion Price, or Series D Conversion Price, as the case may be, shall not be so reduced at such time if the amount of such reduction would be an amount less than $.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $.01 or more. 6. Optional Redemption. (a) Right of Redemption. Subject to subsection (c) of this Section 6, on August 30, 2001 and each anniversary thereof, such date being hereinafter referred to as the "Redemption Declaration Date"), and so long as any shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock shall be outstanding, the Corporation shall (unless otherwise prevented by law) redeem, subject to the limitations set forth herein and the receipt of the written consent of sixty (60%) percent of the outstanding shares of Preferred Stock, all shares of Preferred Stock which a holder or holders of Preferred Stock elects to have redeemed by delivering to the Corporation a written notice to such effect at least 45, but not more than 60, days prior to July 31, 2001, or any anniversary thereafter. In addition, the Corporation shall notify al] holders of Preferred Stock at least 40 days prior to the applicable July 31 as to the number of shares of Preferred Stock which holders of Preferred Stock have elected to have redeemed at such date and the names of the redeeming stockholders. The holders of Preferred Stock shall then have until the respective July 30th to deliver written notice of its desire to redeem. The shares of Preferred Stock elected as at the respective Redemption Declaration Date to be redeemed (the "Optional Redeemable Shares") shall be so redeemed by the Corporation in three equal annual installments (each, a "Redemption Occurrence Date"), upon surrender by the holders of one-third of the number of its Optional Redeemable Shares; provided, that at any time prior to any Redemption Occurrence Date, any holder of Optional Redeemable Shares may elect, upon 30 days notice to the Corporation, to rescind the redemption option with respect to all of its unredeemed Optional Redeemable Shares. If the Corporation is not able to redeem all of the shares of the Preferred Stock requested by each such holder to be redeemed, the Corporation shall redeem on the Redemption Occurrence Date the maximum number of shares of Preferred Stock which the Corporation is able to redeem (allocated pro rata among holders in accordance with the number of shares which each such holder is requesting to be redeemed on the Redemption Occurrence Date). The Preferred Stock shallari passu for purposes of this Section 6(a) based upon the respective number of shares of Common Stock into which a share of such series of Preferred Stock is then convertible. Any shortfall shall be redeemed at such earlier time as the Corporation is able to do so. (b) Redemption Price. The amount per share at which the shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock are to be redeemed pursuant to this Section 6 on their respective Redemption Occurrence Dates by the Corporation shall be an amount equal to (i) with respect to holders of shares of Series A Preferred Stock, $1.00 per share of Series A Preferred Stock, as adjusted for Recapitalization Events, plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available; (ii) with respect to holders of shares of Series B and B-1 Preferred Stock, $1.075 per share of Series B and B-1 Preferred 18 Stock plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available; and (iii) with respect to holders of Series C and C-1 and D Preferred Stock, $1.45 per share, as adjusted for Recapitalization Events, of Series C and C-1 and D Preferred Stock plus an amount equal to all accrued but unpaid dividends thereon, computed to the date payment thereof is made available. The total sum payable per share of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock on any Redemption Occurrence Date is hereinafter referred to as the "Redemption Price", and any payment to be made is hereinafter referred to as the "Redemption Payment." (c) Redemption Priority. Notice of the Redemption Occurrence Date, other than a Redemption Occurrence Date which is the Redemption Declaration Date, and the redemption option exercisable in connection therewith pursuant to this Section 6 shall be sent by first-class mail, postage prepaid, to the holders of record of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock entitled to exercise the redemption option at their respective addresses as the same shall appear on the books of the Corporation. Such notice shall be mailed not less than 20 nor more than 60 days in advance of the applicable Redemption Occurrence Date other than where a Redemption Occurrence Date is the Redemption Declaration Date, in which case no notice need to be given by the Corporation. At any time on or after the Redemption Occurrence Date, the holders of record of shares of Series A Preferred Stock and Series B Preferred Stock and Series B-1 Preferred Stock and Series C Preferred Stock and Series C-1 Preferred Stock and Series D Preferred Stock to be redeemed on such Redemption Occurrence Date in accordance with this Section 6 shall be entitled to receive the applicable Redemption Price upon actual delivery to the Corporation or its agents of the certificates representing the shares entitled to be redeemed. If upon any redemption the assets of the Corporation available for redemption shall be insufficient to pay the holders of the shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock the full amounts to which they are entitled, the holders of the shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock requesting redemption shall share as set forth in subsection 6(a) above. (d) Right of Conversion. Anything contained in this Section 6 to the contrary notwithstanding, the holders of shares of Series, A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock requested by such holders as herein provided to be redeemed pursuant to this Section 6 shall have the right, exercisable at any time up to the close of business on the Redemption Occurrence Date (unless default shall be made by the Corporation in the payment of the Redemption Price as herein provided, in which event such right shall be exercisable until such default is cured), upon written notice delivered to the Corporation, to convert all of any part of such shares to be redeemed as herein provided into shares of Common Stock pursuant to Section 5 hereof. If, and to the extent, any shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock so entitled to redemption are converted into shares of Common Stock by the holders thereof prior to the close of business on the Redemption Occurrence Date, the total number of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock otherwise to be redeemed on such date shall be reduced by the number of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock and Series C Preferred Stock so converted. (e) Cancellation of Redeemed Stock. So long as any shares of Preferred 19 Stock are outstanding, any shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock redeemed pursuant to this Section 6 or otherwise acquired by the Corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce accordingly the number of authorized shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or Series D Preferred Stock. 7. Restrictions. (a) Rights Granted Holders of Series A Preferred Stock Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock. So long as shares of Series A Preferred Stock or shares of Series B Preferred Stock or Series B-1 Preferred Stock or Series C Preferred Stock or Series C-1 Preferred Stock or Series D Preferred Stock remain outstanding, in addition to any other rights provided by law, without first obtaining the affirmative vote or written consent of the holders of not less than 60% of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock voting together as a single class (assuming for such purpose that the number of shares of Preferred Stock so owned is the number of Shares of Common Stock into which the respective shares of Preferred Stock would then be converted at their then respective Conversion Price), the Corporation shall not: (i) Amend or repeal any provision of, or add any provision to, the Corporation's Restated and Amended Certificate of Incorporation or the Corporation's Amended and Restated By Laws; (ii) Authorize or issue shares of any additional class or classes or series of capital stock or authorize or issue shares of stock of any class or any bonds, debentures, notes, warrants, rights, options or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of the Corporation, other than securities issued (A) upon conversion of any of the Series A Preferred Stock, the Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock or the Series D Preferred Stock (B) as a stock dividend or upon any subdivision of shares of Common Stock, provided that the securities issued pursuant to such stock dividend or subdivision are limited to additional shares of Common Stock, (C) pursuant to subscriptions, warrants, options, convertible securities, or other rights which are outstanding on September 30, 1996, (D) solely in consideration for the acquisition (whether by merger or otherwise) by the Corporation or any of its subsidiaries of all or substantially all of the stock or assets of any other entity, (E) pursuant to a firm commitment underwritten public offering of shares of the Corporation's Common Stock on Form S-1 or successor form, which results in aggregate net proceeds to the Corporation of not less than $10,000,000 at a per share price of at least 200% of the Series C Conversion Price (as defined below), (F) as grants of options under the Plan after the Original Issuance Date of the Series D Preferred Stock and options granted under the Performance Plan and upon the exercise of options under the Plan and/or Performance Plan and (G) upon the exercise by Jeffrey Arnold of 20 his option to purchase 105,568 shares of Common Stock; provided, however, that the exceptions set forth in clauses B and D shall only apply in cases where each of the directors elected by the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock have voted in favor of the action set forth in those clauses. (iii) Recapitalize or reclassify any shares of Capital Stock; (iv) Merge or consolidate into or with any other corporation; (v) Sell all or substantially all of the Corporation's assets (tangible or intangible), or sell, pledge, license or otherwise dispose of assets of the Corporation for consideration of more than $200,000 (other than the sale or disposition of assets or the grant of licenses granted in the ordinary course of business) other than as permitted in connection with the incurrence of indebtedness pursuant to Section 7(a)(xi) hereof; (vi) Increase the number of directors of the Corporation to more than nine (9); (vii) Voluntarily liquidate, dissolve or wind up the Corporation; (viii) Repurchase or redeem any shares of any class of capital stock or pay dividends or other distributions with respect to any class of capital stock, except as such repurchase, redemption, dividend or distribution is expressly contemplated or provided for in this Certificate: (ix) Make any fundamental change in the Corporation's business; (x) Acquire other business entities or make investments therein in excess of 5% of the smaller of the total of the Corporation's assets or the value of the Corporation's capital stock whether by equity investment, loan or otherwise; (xi) Incur debt exclusive of trade accounts payable, which may be outstanding at any time during the taxable year in excess of 5% of the previous year's operating expenses, except short-term borrowings for general working capital or to fund materials and labor to fill bona fide purchase orders; (xii) Engage in any transactions, including any contract, agreement or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from or otherwise require payments to any director, officer, employee or stockholder of the Corporation or member of the family of any such person, or any corporation, partnership, trust or other entity in which such person or any member of the 21 family of such person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof (other than services provided to the Corporation by such persons solely as a director, officer or employee); or (xiii) Change the Corporation's fiscal year. (b) Rights Granted Holders of All Classes of Stock. The Corporation shall not, without first obtaining the affirmative vote or written consent of not less than sixty percent (60%) of the outstanding shares of Common Stock (assuming conversion of all the Preferred Stock) for purposes of both determining outstanding shares of Common Stock and computing the persons affirmatively voting or waiving their written consent; (i) merge, consolidate, sell, lease, exchange or dispose of all or substantially all its property and assets unless the Corporation is the surviving corporation following such merger or consolidation; and (ii) amend or repeal any provision of, or add any provision to the Corporation's Restated and Amended Certificate of Incorporation. 8. Amendments. No provision of these terms of the Series A Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least 66-2/3% of the then outstanding shares of Series A Preferred Stock. No provision of these terms of the Series B and B-1 Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least 55% of the then aggregate outstanding shares of Series B and B-1 Preferred Stock. No provision of these terms of the Series C and C-1 Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least 66 2/3% of the then outstanding shares of Series C and C-1 Preferred Stock. No provision of these terms of the Series D Preferred Stock may be amended, modified or waived without the written consent or affirmative vote of the holders of at least 66 2/3% of the then outstanding shares of Series D Preferred Stock provided that only the consent of more than 50% of the holders of outstanding shares of Preferred Stock is required in order to create a class of preferred stock of the Corporation having priority higher than the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock. Notwithstanding the above, no amendment may be approved which, to the best knowledge of the holders of the respective series of Preferred Stock, adversely impacts only a minority holder of such series. B. Common Stock 1. Relative Seniority. The Common Stock shall rank junior to the Preferred Stock in respect of the rights to receive dividends and participate in distributions in the event of any liquidation, dissolution or winding up of the Corporation. 2. Dividends. Subject to the rights of holders of Preferred Stock, the holders of the Common Stock shall be entitled to receive dividends when and as declared by the Board of Directors out of any funds legally available for the payment thereof. Dividends shall be payable to holders of record of the Common Stock at the close of business on such date as shall be fixed for the dividend, which record date shall not be less than 10 nor more than 30 days preceding such date of declaration. 3. Voting Rights. Subject to the provisions of applicable law and subsection 2 of section A of this Article IV, the Common Stock shall vote, together with all other classes and series of stock of the Corporation entitled to vote, as a single class on all actions to be taken by the stockholders of the 22 Corporation. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held. 4. Liquidation Rights. Holders of Common Stock shall be entitled to the liquidation rights set forth in subsection 4 of Section A of this Article IV. SECOND: This amendment to the Certificate of Incorporation of the Corporation has been duly adopted at a meeting of the Board of Directors of the Corporation in accordance with the provisions of Sections 242 of the General Corporation Law of the State of Delaware and by the holders of a majority of each class of outstanding stock entitled to vote thereon as a class by written consente of Delaware, and written notice has been given to stockholders not consenting thereto in accordance with Section 228 of the General Corporation Law of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by its President and attested to by its Assistant Secretary this 30th day of October, 1996. MOMENTUM SOFTWARE CORPORATION By: /s/ Joseph Valley Name: Joseph Valley Title: President/CEO ATTEST: /s/ Randy Marcus Name: Randy Marcus Title: Ass't Secretary 23 EX-3 4 EXHIBIT 3.3 CERTIFICATE OF CORRECTION OF CERTIFICATE OF AMENDMENT OF THE RESTATED AND AMENDED CERTIFICATE OF INCORPORATION OF MOMENTUM SOFTWARE CORPORATION It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is MOMENTUM SOFTWARE CORPORATION. 2. The Certificate of Amendment of the Restated and Amended Certificate of Incorporation of the Corporation ("Amended Certificate"), which was filed by the Secretary of State of Delaware on October 30, 1996, is hereby corrected. 3. The inaccuracy to be corrected in said instrument is as follows: Article FOURTH of the Amended Certificate inaccurately stated the individual number of authorized shares of Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, even though the authorized aggregate number of Series B and Series B-1 Preferred Stock remained unchanged and the authorized aggregate number of Series C and Series C-1 Preferred Stock remained unchanged. The designation of a Series B-1 and Series C-1 Preferred Stock was required pursuant to Section 5(m) of Article FOURTH of the Amended Certificate as constituted prior to the filing of the Amended Certificate on October 30, 1996. 4. The portion of the Amended Certificate in corrected form is as follows: FOURTH: The total number of shares of all classes of stock which the Corporation is authorized to issue is 24,713,329 and shall be divided into the following classes of stock as follows: (i) 1,000,000 shares of Series A Preferred Stock, par value $.10 per share (the "Series A Preferred Stock"); (ii) 2,133,775 shares of Series B Preferred Stock, par value $.10 per share (the "Series B Preferred Stock"); (iii) 424,364 shares of Series B-1 Preferred Stock, par value $.10 per share (the "Series B-1 Preferred Stock"); (iv) 2,542,036 shares of Series C Preferred Stock, par value $.10 per share (the "Series C Preferred Stock"); (v) 78,654 shares of Series C-1 Preferred Stock, par value $.10 per share (the "Series C-1 Preferred Stock"); (vi) 1,034,500 shares of Series D Preferred Stock, par value $.10 per share (the "Series D Preferred Stock"); and (v) 17,500,000 shares of Common Stock, par value $.01 per share (the "Common Stock"). The Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and the Series D Preferred Stock are sometimes referred to hereinafter collectively as the "Preferred Stock". IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by its President and attested to by its Assistant Secretary this 23rd day of January, 1997. MOMENTUM SOFTWARE CORPORATION By: /s/ Joseph Valley Name: Joseph Valley Title: President/CEO ATTEST: /s/ Randy Marcus Name: Randy Marcus Title: Ass't Secretary 2 EX-10 5 EXHIBIT 10.1 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated June 19, 1996, by and among Momentum Software Corporation, a Delaware corporation ("Momentum"), and Visual Flow, Inc., a Delaware corporation ("Visual Flow"), and David L. Gusick ("Gusick"), T. Dorsey Harrington ("Harrington"), and EnvisionIt Software Corporation, a New Jersey corporation ("Purchaser"). W I T N E S S E T H: WHEREAS, Gusick and Harrington were shareholders of ISM Corporation ("ISM"), a software company; and pursuant to an Acquisition Agreement among Momentum, ISM and certain shareholders of ISM, dated September 1994 (the "ISM Agreement"), ISM sold all of its assets to Momentum in consideration for, among other things, shares of capital stock of Momentum; and on or about January 1, 1996, Momentum contributed substantially all of the ISM assets to Momentum's wholly-owned subsidiary, Visual Flow; WHEREAS, prior to the date hereof, Gusick and Harrington have run Visual Flow, which has engaged in the business of creating, marketing, selling, distributing, revising and customizing integration software for integrating manufacturing software applications and providing consulting services directly relating to the sales of such software (the "Business"); and WHEREAS, Visual Flow desires to sell and transfer to the Purchaser, and the Purchaser desires to purchase and assume from Visual Flow, certain of the assets and liabilities relating to the Business, all as more specifically provided herein; NOW, THEREFORE, in consideration of the mutual covenants contained herein, and intending to be legally bound, the parties hereto agree as follows: ARTICLE I Certain Definitions Section 1.1. Certain Definitions. As used in this Agreement, the following terms have the respective meanings set forth below. "Affiliate" means, with respect to any Person, any other Person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlled" and "controlling" have meanings correlative thereto. "Associated With" a Person that is engaged in the Business means (i) becoming an Affiliate of, (ii) owning (directly or indirectly) any portion of, or (iii) serving as a director, trustee, member, officer, consultant, partner, agent, independent contractor or employee of: any Person or other entity engaged in the Business. "Business Day" means a day, other than a Saturday or Sunday, on which commercial banks in New Jersey are open for the general transaction of business. "Confidential Information" consists of all information, knowledge or data relating specifically to the Business and not otherwise used by Momentum in the ordinary course of its businesses other than that conducted by Visual Flow, including, without limitation, customer and supplier lists, formulae, trade know-how, source code, software, processes, secrets, consultant and independent contractor contracts, pricing information, marketing plans, product development plans, business acquisition plans and all other information relating to the operation of the Business not in the public domain or otherwise available publicly. Information which enters the public domain or is available publicly loses its confidential status hereunder so long as neither Visual Flow nor its Affiliates directly or indirectly cause such information to enter the public domain. "Excluded Liabilities" means any and all liabilities or obligations of Visual Flow or its Affiliates, of any kind or nature, whether or not relating to the Business or the Purchased Assets, and whether known or unknown, absolute, accrued, contingent or otherwise, or whether due or to become due, arising out of events or transactions or facts occurring on, prior to, or after the date hereof, other than Assumed Liabilities; provided that the liability to Cytech for XIPC use or support shall be an Excluded Liability. "Governmental Authority" means any national, federal, state, provincial, county, municipal or local government, foreign or domestic, or the government of any political subdivision of any of the foregoing, or any entity, authority, agency, ministry or other similar body exercising executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity established to perform any of such functions. "Person" means an individual, partnership, corporation, limited liability company, sole proprietorship, joint venture, mutual company, joint stock company, unincorporated organization or association, trust or joint venture or a Governmental Authority. ARTICLE II Purchase and Sale of Assets; Assumption of Liabilities; Additional Covenants Section 2.1. Purchase and Sale of Assets. Upon the terms and subject to the conditions of this Agreement and on the basis of the representations, warranties and agreements contained herein, Visual Flow hereby sells, assigns, transfers, conveys and delivers to the Purchaser all of Visual Flow's right, title and interest in and to the assets listed on Schedule 1 annexed hereto (the "Purchased Assets") and the Purchaser hereby purchases such Purchased Assets from Visual Flow; provided that the Purchased Assets do not include any right, title or interest in or to or (for future sales only) to use XIPC; provided further that the Purchased Assets include the right to continue using XIPC for and to service and support Visual Flow's installed base of customers and only in the Visual Flow applications currently installed or licensed; provided further that should the Purchaser seek a license to use or resell XIPC, Momentum shall sell such license to the Purchaser for consideration and on terms that are no less favorable than the then current licensing fees and terms in effect for XIPC. Section 2.2. Purchase Price. In consideration for the Purchased Assets, the Purchaser hereby conveys to Visual Flow and Momentum the GH Shares and the Momentum Option, and the Purchaser hereby assumes the Assumed Liabilities. NOTWITHSTANDING THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THE PURCHASER IS NOT ASSUMING, NOR SHALL IT IN ANY MANNER BECOME LIABLE FOR, ANY OTHER LIABILITIES OR OBLIGATIONS OF ANY KIND OR NATURE WHATSOEVER OF VISUAL FLOW OR ITS AFFILIATES, OTHER THAN THE ASSUMED LIABILITIES OR FROM BREACH OF THIS AGREEMENT. "GH Shares" means (as of the date hereof) (i) all shares of the capital stock of Momentum ("Momentum Stock") that are owned by Gusick or by Harrington, (ii) the right to receive shares of Momentum Stock, which right was granted to Gusick and to Harrington pursuant to the ISM Agreement, and (iii) any options held by Gusick or Harrington to purchase or otherwise acquire shares of Momentum Stock. "Assumed Liabilities" means the $7,500 payable by Visual Flow to Bayer West Virginia, all performance obligations, liabilities arising from breach of contract, and product support liabilities directly incurred under customer support contracts or software sales contracts existing as of the date hereof, or 2 existing directly as a result of prior activities of ISM, the Visual Flow division of Momentum, and/or Visual Flow. The Assumed Liabilities also include obligations incurred by Gusick and Harrington on behalf of Visual Flow, or obligations incurred by Lee Zhong and Mike Weber as employees of Visual Flow, acting in the ordinary course of Visual Flow's business, and any deferred compensation obligations of Visual Flow to Gusick and Harrington. Section 2.3. Momentum Option. The Purchaser hereby grants to Momentum, the option to purchase shares of the capital stock of the Purchaser (the "Momentum Option") as follows: (a) At any time after the date hereof and prior to the second Anniversary Date (unless and until the Momentum Option is terminated earlier), Momentum shall have the option to (i) purchase from the Purchaser a 20% stake in the Purchaser (an "Exercise for Stock"), (ii) upon the occurrence of a Sale of Business Event, receive proceeds (a "SOBE Exercise"), or (iii) perform a GH Exercise. (b) The Momentum Option is not partially exercisable, rather it can only be exercised in full. Momentum may, in accordance with the procedures set forth below, extend the Momentum Option for three consecutive Agreement Years commencing at 5:00 p.m. on the second, third and fourth Anniversary Dates, respectively, as provided herein; however once lapsed or surrendered, the Momentum Option may not be extended. Furthermore, in order to exercise or extend the Momentum Option, Momentum must give to the Purchaser (i) written notice of Momentum's intent to exercise or extend, as the case may be, and (ii) payment in full in cash: (X) for extensions, $100,000 per one year extension or (Y) for exercises, of the amount specified in the table below. For extensions or exercises of the Momentum Option, such notice and payment must be actually received by the Purchaser no later than 5:00 p.m. New York City time on the expiration date (or, if earlier, the termination date) of the Momentum Option. The following table sets forth the exercise price due if the Momentum Option is exercised during the Agreement Year(s) listed in the right hand column: Date of Exercise Option Exercise Price Agreement Years 1 through 3 $500,000 Agreement Year 4 $750,000 Agreement Year 5 $1,000,000 (c) The type of exercise of the Momentum Option described in this subparagraph (c) shall be referred to as a "GH Exercise." In the event that Gusick and Harrington enter into a Deal to sell in aggregate 50% or more of their combined holdings of the then outstanding capital stock of the Purchaser, they must provide to Momentum at least 20 days written notice thereof prior to the consummation of the Deal, provided however, that such notice period shall be reduced to 10 days if the closing of such Deal is scheduled for less than 20 days from the date on which such potential business arrangement became a Deal. Momentum shall have the right to elect to sell an amount of the capital stock of the Purchaser issuable upon exercise of the Momentum Option that is proportionate to the amount of capital stock of the Purchaser being sold by Gusick and Harrington, in aggregate. For instance, if there were 800 shares of the capital stock of the Purchaser outstanding and Gusick and/or Harrington owned 600 of those shares and entered into an agreement to sell 300 of their shares, they would notify Momentum of such sale; Momentum would then be entitled to exercise its option for 200 shares, 100 of which it could sell in such sale. Momentum would have to do a full Exercise for Stock prior to the consummation of such sale in order to do a GH Exercise; provided that Momentum can rescind its exercise if such Deal is not consummated. (d) The Momentum Option shall terminate upon the occurrence of a Sale of Business Event in the following manner. Within 10 Business Days after entering into a Deal that it believes will qualify as a Sale of Business Event, the Purchaser shall notify Momentum in writing of such Deal ("Deal Notice"). Momentum shall then have the lesser of (x) until 5:00 p.m. New York City time on 3 the Consummation Date of such Sale of Business Event (but not less than 10 days from the receipt of such notification), or (y) 30 calendar days, to decide and give written notice to the Purchaser of whether Momentum shall do a SOBE Exercise or an Exercise for Stock. If (i) the Sale of Business Event is not consummated during the Agreement Year in which the Purchaser gave the Deal Notice, (ii) that Deal Notice was given in Agreement Years 2, 3 or 4, and (iii) Momentum responded with written notice that it sought to do a SOBE Exercise, then Momentum will be permitted a one year extension without payment of the extension fee (for that year) referred to in subparagraph (b) above (the "Free Ride Year"); provided that by the earlier of (1) 30 days prior to the Consummation Date, or (2) the third day after Momentum has been notified of a tentative offering price range (if the Sale of Business Event is a public offering), Momentum must notify the Purchaser in writing whether it still intends to do a SOBE Exercise or an Exercise for Stock (in light of the price change that takes effect on the first day of the Free Ride Year); provided further that, if Momentum switches from a SOBE Exercise to an Exercise for Stock, it must pay to the Purchaser the $100,000 extension fee at or before the time that Momentum must give the second notice referenced in the preceding proviso; provided further that if, pursuant to a good faith belief that the Sale of Business Event will not be consummated, the Purchaser has notified Momentum in writing of such occurrence, Momentum shall have 10 Business Days to decide whether to pay the $100,000 extension fee (to keep the Momentum Option alive for the remainder of the Free Ride Year) or surrender the Momentum Option. There shall be no more than one Free Ride Year per Deal Notice. On or prior to 5:00 p.m. New York City time on the Consummation Date of such Sale of Business Event, Momentum shall have exercised (in one of the manners provided in subsection (a) above) or else surrendered the Momentum Option. If the Momentum Option shall not have been exercised in accordance with the provisions hereof by the Consummation Date, it shall automatically terminate irrevocably and Momentum shall have no further rights thereunder. The exercise price of the Momentum Option shall be the exercise price in effect (pursuant to subsection (b) hereof) on the Consummation Date of such Sale of Business Event. (e) During the life of the Momentum Option, the Purchaser shall provide to the permitted holders of the Momentum Option reasonable access to financial information about the Purchaser and the right to meet with the Purchaser's board to discuss in reasonable detail potential Sale of Business Events, as reasonably requested by such holders; provided that, during the 60 day period prior to expiration of the Momentum Option (or each extension thereof, if any), the Purchaser shall provide reasonable assistance to enable Momentum to conduct a due diligence inquiry of the Purchaser; provided that all of the information obtained by such due diligence inquiry shall be deemed Confidential Information hereunder and shall only be used by the permitted holders of the Momentum Option for purposes of evaluating whether or not to exercise the Momentum Option. Notwithstanding anything contained herein to the contrary, in the event that Momentum or any transferee of Momentum who is a permitted transferee engages, directly or indirectly, in the Business at any time during the life of the Momentum Option: (i) Momentum and/or such permitted transferees shall not be entitled to receive or review any Confidential Information of the Purchaser; provided however that such permitted holder of the Momentum Option shall be entitled to review financial information with customer and supplier names, specific contract terms, etc. redacted, and to discuss with the Purchaser's board the general financial condition of the Purchaser and (ii) neither Momentum nor any permitted transferee of Momentum shall, directly or indirectly, solicit or interfere with the Person whose offer resulted in a Sale of Business Event prior to the consummation or the time at which, in the Purchaser's reasonable judgment, such transaction has been abandoned or terminated. (f) Without limiting the general provisions of Section 7.4, Momentum shall not assign the Momentum Option without the Purchaser's prior written consent; provided that, 20 calendar days prior to a Change of Control in Momentum (such period shall be reduced to 10 days if such Change in Control is 4 scheduled to be consummated prior to the 20th day) at a time when person(s) controlling Momentum (or the entity acquiring all or substantially all of the assets of Momentum -- whether in one or more transactions) engage, directly or indirectly, in the Business, Momentum shall notify the Purchaser in writing of such event and, upon consummation of that event Momentum shall distribute the Momentum Option to the then holders of Momentum's Preferred Stock who are (x) not directly engaged in the Business and who do not own more than 25% of any class of outstanding securities of any entity which, directly or indirectly, engages in the Business and (y) were holders of the Preferred Stock of Momentum as of the date hereof, such distribution shall be in such proportion and for such consideration as Momentum may determine. Such holders ("permitted transferees") of Momentum's Preferred Stock receiving a portion of the Momentum Option shall agree that the action of the holders of more than 50% of the Momentum Option shall bind all of such holders; provided that, if Momentum is precluded by Delaware corporate law from distributing the Momentum Option solely to holders of Momentum's preferred stock, then such distribution shall be made to such holders of the capital stock of Momentum as Delaware corporate law requires. A holder of the Momentum Option may transfer all or a portion of its interest to another holder of a portion of such Momentum Option. The holders or permitted transferees of the Momentum Option must and can only act as one group. (g) for purposes of this Agreement, the following terms shall mean as follows: "Agreement Year" means a year commencing on an Anniversary Date and ending on the day preceding the next Anniversary Date. "Anniversary Date" means the anniversary of the date hereof. "Change of Control" means the holders of Momentum's voting capital stock at the date hereof (i) owning in the aggregate at any time thereafter fifty percent (50%) or less of the outstanding voting stock of Momentum or (ii) not having the right to elect a majority of Momentum's Board of Directors. "Deal" means a bona fide transaction that, in the commercially reasonable judgment of Gusick and Harrington, is a firm arrangement that is more likely than not to actually be consummated (in substantially the manner provided for). "Exercise for Stock" means that Momentum pays the then current exercise price for the Momentum Option in exchange for 20% of the shares of the common and preferred stock of the Purchaser that would be outstanding immediately after giving effect to the exercise of the Momentum Option, and the right to automatically receive, (on an as exercised or as converted basis) for no additional cash consideration, a number of shares of the stock of the Purchaser such that Momentum would have 20% of the capital stock of the Purchaser outstanding after giving effect to Momentum's exercise and to the exercise or conversion of all of the options, warrants and convertible securities of the Purchaser outstanding on the date on which Momentum exercised the Momentum Option; provided that, in light of the reservation for issuance by the Purchaser of 150,000 shares to be issued pursuant to a qualified and/or nonqualified employee stock plan (collectively, with a successor thereto or replacement thereof, the "ESP"), and Momentum's acknowledgment of the Purchaser's need to obtain qualified employees, Momentum shall exclude from the calculation of 20% any options issued or granted under the ESP other than those issued or granted to Gusick and Harrington; provided further that, such ESP options shall vest over no less than a four year period. For example, if on the date on which Momentum exercised for stock the Momentum Option, the outstanding shares and options of the Purchaser were as follows: 400 shares, non-ESP options for an additional 400 shares, and ESP options for 70 shares (none of which were granted to Gusick or Harrington), then Momentum would receive 100 shares and the right to receive an additional 100 shares as (and only if) such non-ESP options are exercised. However, Momentum cannot at any time, through the exercise of such options, obtain more than 20% of any class of the outstanding capital stock of the Purchaser. The Purchaser shall not be required to issue fractional shares 5 upon exercise of the Momentum Option, instead, the number shall be rounded down to the next nearest whole number. Following an Exercise for Stock, the Purchaser shall be prohibited from issuing to Momentum, Gusick, Harrington or any Affiliate of any of the foregoing, any options exercisable at below the fair market value determined as of the date of grant; the Purchaser may, however, subject to the first part of this sentence, grant such options to any employees eligible to receive grants under the ESP. "Sale of Business Event" means the consummation by the Purchaser (the date of which is hereinafter referred to as the "Consummation Date") of (a) any public offering of the securities of the Purchaser, (b) any consolidation, merger or sale of the securities of the Purchaser such that the holders of the Purchaser's capital stock immediately before such consolidation, merger or sale will in the aggregate own less than 25% of the outstanding voting stock of the Purchaser (or any continuing or surviving corporation) immediately after such consolidation, merger or sale or (c) any bona fide sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Purchaser's assets to an entity other than an Affiliate of the Purchaser. "SOBE Exercise" means, upon receipt of Deal Notice, Momentum can elect to receive proceeds from such event (without payment by Momentum therefor) as follows: if the Sale of Business Event values the Purchaser (or, in the case of an asset sale, all of the Purchaser's assets) (excluding minority, illiquidity or other discounts and control or other premiums) as follows, then Momentum shall receive the following portion of the actual proceeds from such Sale of Business Event (which, for purposes of a consolidation or merger shall be the valuation of Purchaser as an entity immediately prior to the consummation of the transaction): Valuation Formula for determining Momentum's Stake $300,000 or less Momentum shall receive a 20 day right of first refusal on the sale, but if it does not exercise such right, the Momentum Option shall terminate on the Consummation Date and Momentum shall not receive any proceeds from such Sale of Business Event more than $300,000 and less than $2.5 million 10% of the proceeds of the Sale of Business Event $2.5 million or more 10% of the first $2.5 million of the proceeds of the Sale of Business Event, 3.35 of the remaining proceeds To illustrate the above, if IBM buys 90% of the stock of the Purchaser for $1.3 million in cash and $500,000 in IBM stock, that deal values the Purchaser as a $2 million company and the holders of the Momentum Option would receive 10% of the actual proceeds, or $130,000 in cash and $50,000 worth of IBM stock. Section 2.4. Allocation of the Purchase Price. The Purchase Price shall be allocated as set forth in the Form 8594s attached hereto. ARTICLE III Representations and Warranties of Visual Flow and Momentum Visual Flow and Momentum jointly and severally represent and warrant to each of the Purchaser, Gusick and Harrington as follows: Section 3.1. Organization and Qualification of Visual Flow. Visual Flow is a corporation duly organized, validly existing and in good standing under the laws of the State in which it was incorporated, with full power and authority, corporate and other, to own or lease its property and assets and to carry on the Business as conducted up through March 31, 1996, is duly qualified to do 6 business as a foreign corporation and is in good standing in each jurisdiction in which it is required to be so qualified. The Business is conducted solely through Visual Flow, which does not, directly or indirectly, own any subsidiaries. Section 3.2. Authorization. To the best of their knowledge, Visual Flow and Momentum have full power and authority, corporate and other, to execute and deliver this Agreement, the instruments of transfer and to perform their obligations hereunder and thereunder, all of which have been duly authorized by all requisite corporate action. Each of this Agreement and such instruments of transfer has been or, at the time of delivery will be, duly authorized, executed and delivered by each of Momentum and Visual Flow and constitutes or, at the time of delivery will constitute, a valid and binding agreement of each of them, enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (the "Bankruptcy Exception"). Section 3.3. Non-contravention. To the best of their knowledge, neither the execution and delivery of this Agreement, the instruments of transfer nor the performance by Momentum and Visual Flow of their obligations hereunder and thereunder will: (i) contravene any provision contained in Visual Flow's or Momentum's Certificate of Incorporation or by-laws, (ii) violate or result in a breach (with or without the lapse of time, the giving of notice or both) of or constitute a default under (A) any contract, agreement, commitment, indenture, mortgage, lease, pledge, note, license, permit or other instrument or obligation or (B) any judgment, order, decree, law, rule or regulation or other restriction of any Governmental Authority, in each case to which Visual Flow or Momentum is a party or by which they are bound or to which any of their assets or properties are subject, (iii) result in the creation or imposition of any lien, claim, charge, mortgage, pledge, security interest, equity, restriction or other encumbrance (collectively, "Encumbrances") on any of Visual Flow's or Momentum's assets or properties, or (iv) result in the acceleration of, or permit any Person to accelerate or declare due and payable prior to its stated maturity, any Assumed Liability. Section 3.4. No Consents. To the best of their knowledge, no notice to, filing with, or authorization, registration, consent or approval of any Governmental Authority or other Person is necessary for the execution, delivery or performance of this Agreement, the instruments of transfer or the consummation of the transactions contemplated hereby or thereby by Momentum or Visual Flow. Section 3.5. The Purchased Assets. To the best of knowledge of Visual Flow and Momentum: (i) no third party (including any Affiliate of Visual Flow) owns or has any interest by lease, license or otherwise in any of the Purchased Assets and (ii) the documents of transfer to be executed and delivered by Visual Flow and Momentum on the date hereof are sufficient to convey good and marketable title to the Purchased Assets to the Purchaser, free and clear of all Encumbrances, other than the Assumed Liabilities. Section 3.6. Personal Property. To the best of its knowledge, Visual Flow has good and marketable title to (or valid leasehold or contractual interests in) all personal property comprising the Purchased Assets, free and clear of any Encumbrances. Section 3.7. Governmental Authorizations. To the best knowledge of Visual Flow and Momentum: (i) the Business has been operated in compliance with all applicable laws, rules, regulations, codes, ordinances, orders, policies and guidelines of all Governmental Authorities, including but not limited to, those related to: fire, safety, labeling of products, pricing, sales or distribution of products, antitrust, trade regulation, trade practices, sanitation, land use, employment or employment practices, energy and similar laws, (ii) Visual Flow and Momentum have all permits, licenses, approvals, certificates and other authorizations, and have made all notifications, registrations, certifications and filings with all Governmental Authorities, necessary or advisable for the 7 operation of the Business as currently conducted by Visual Flow, (iii) there is no action, case or proceeding pending or threatened by any Governmental Authority with respect to (A) any alleged violation by Visual Flow or its Affiliates of any law, rule, regulation, code, ordinance, order, policy or guideline of any Governmental Authority, or (B) any alleged failure by Visual Flow or its Affiliates to have any permit, license, approval, certification or other authorization required in connection with the operation of the Business, (iv) neither Visual Flow, Momentum nor any of their Affiliates have received any notice of any violation of such laws or that the products manufactured or sold by the Business are not in compliance with, or do not meet the standards of, all applicable laws, (v) Schedule 3.7 sets forth a true and complete list of all permits, licenses, approvals, certificates, registrations and other authorizations relating to the Business (the "Authorizations"), such Authorizations are in full force and effect and neither of them have received notification of the suspension or cancellation of any Authorization, and (vii) Momentum and Visual Flow have no grounds to believe that any of the Authorizations listed on Schedule 3.7 are not transferable to the Purchaser. Section 3.8. Litigation. To the best knowledge of Visual Flow and Momentum, there are no lawsuits, actions, proceedings, claims, orders or investigations by or before any Governmental Authority pending or threatened against Visual Flow or Momentum or any of their Affiliates relating to the Business, the Purchased Assets, the Assumed Liabilities or any product alleged to have been manufactured or sold by the Business or seeking to enjoin the transactions contemplated hereby and there are no facts or circumstances known to Visual Flow or Momentum, to their best knowledge, that could result in a claim for damages or equitable relief which, if decided adversely, could reasonably be expected to, individually or in the aggregate, result in a material adverse change in or effect on the condition, financial or otherwise, or the assets, liabilities, Proprietary Rights, earnings, business affairs or business prospects of Visual Flow or the Purchased Assets. Section 3.9. Taxes. To the best knowledge of Visual Flow and Momentum, all federal, state, county, local, foreign and any other taxes (including all income, withholding and employment taxes), assessments (including interest and penalties), fees and other governmental charges with respect to the employees, properties, assets, income or franchises of Visual Flow relating to or affecting the Business or the Purchased Assets have been paid or duly provided for and all required filings relating thereto have been duly filed. There are no tax liens on any of the Purchased Assets. Section 3.10. Insurance. Schedule 3.10 sets forth a true and correct list of all insurance policies or binders maintained by Momentum and Visual Flow during the period from September 1994 until the date hereof relating to the Business or the Purchased Assets showing, as to each policy or binder, the carrier, policy number, expiration dates, deductibles and a general description of the type of coverage provided. Such policies and binders are, and at all times prior to the consummation of the transactions contemplated hereby, have been in full force and effect. To the best of their knowledge, at all times prior to the consummation of the transactions contemplated hereby, Visual Flow and Momentum have maintained appropriate and adequate insurance policies covering the Purchased Assets and all aspects of the Business. Section 3.11. Accounts Receivable. To the best knowledge of Visual Flow and Momentum, Schedule 3.11 sets forth a true and complete listing of all Accounts Receivable of Visual Flow, all of which have arisen in the ordinary and regular course of business, represent bona fide transactions with third parties and are not subject to any counterclaims or offsets (except for those for which adequate reserves have been established in accordance with GAAP), have been billed and are due within 90 days of the date created. Section 3.12. Contracts. (a) There are no contracts, agreements, leases, commitments, instruments, plans, permits or licenses, whether written or oral, with respect to the Business to which Visual Flow (or, if pertinent, 8 Momentum) is a party or is otherwise bound on or prior to April 1, 1996, that in any way restrict or prohibit Visual Flow from freely engaging in the Business in any geographic area, or is outstanding and involves the payment by Visual Flow of more than $20,000 in the aggregate during any 12 month period, other than any such agreement which Gusick and/or Harrington entered into on behalf of Visual Flow. (b) To the best knowledge of Visual Flow and Momentum: (i) all of the Contracts (as defined on Schedule I) which are hereby assigned to the Purchaser hereunder are fully assignable to the Purchaser by Visual Flow and Momentum without the consent of any third party, or (ii) all consents of third parties required for the assignment of such Contracts to the Purchaser have been obtained, and (iii) none of the other parties to any such Contracts intends to terminate or materially alter the provisions of such Contracts either as a result of transactions contemplated hereby or otherwise. (c) To the best of their knowledge, neither Visual Flow nor Momentum is in, nor have either of them given or received notice of, any default or claimed, purported or alleged default, or facts that, with notice or lapse of time, or both, would constitute a default (or give rise to a termination right) on the part of any party in the performance of any obligation to be performed under any of the Contracts; provided that the parties are aware of the $7,500 liability to Bayer West Virginia. (d) To the best knowledge of Visual Flow and Momentum: (i) true and complete copies of all written Contracts, including any amendments thereto, have been delivered to the Purchaser, and (ii) such documents constitute the legal, valid and binding obligation of Visual Flow (or, if applicable, Momentum) and each other party purportedly obligated thereunder. Section 3.13. Intentionally omitted. Section 3.14. Brokers. No Person is or will be entitled to a broker's, finder's, investment banker's, financial adviser's or similar fee ("Broker's Fee") from Visual Flow or Momentum in connection with this Agreement or any of the transactions contemplated hereby. Section 3.15. Full Disclosure. No representation or warranty made by Visual Flow or Momentum in this Agreement, any Schedule, any Exhibit or any certificate delivered, or to be delivered, by or on behalf of Visual Flow or Momentum pursuant hereto contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. Section 3.16. Retention of Products. To their best knowledge, in good faith, Visual Flow and Momentum have either returned to the Purchaser, deleted from any disk or computer under the control of Visual Flow, Momentum or any of their Affiliates, or otherwise destroyed or discarded: any and all copies of (and has not reverse engineered or attempted to reverse engineer) any product made, designed or marketed by Visual Flow (including, without limitation, any and all source code, software, product installations and other products), or the marketing and instruction literature relating thereto. ARTICLE IV Representations and Warranties of the Purchaser Each of the Purchaser, Gusick and Harrington, represents and warrants to each of Visual Flow and Momentum as follows: Section 4.1. Organization and Qualification of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State in which it was incorporated, with full power and authority, corporate and other, to own or lease its property and assets and to 9 carry on its business as presently conducted, is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which it is required to be so qualified. The Purchaser does not, directly or indirectly, own any subsidiaries. Section 4.2. Authorization. Each of the Purchaser, Gusick and Harrington, has full power and authority to execute and deliver this Agreement, the instruments of transfer and to perform their respective obligations hereunder and thereunder, all of which have been duly authorized by all requisite action. Each of this Agreement and, the instruments of transfer has been or, at the time of delivery will be, duly authorized, executed and delivered by the Purchaser, Gusick and Harrington and constitutes or, at the time of delivery will constitute, a valid and binding agreement of each of them, enforceable against each of them in accordance with its terms, subject to the Bankruptcy Exception. Section 4.3. Non-contravention. Neither the Purchaser's Certificate of Incorporation or by-laws nor any agreement, instrument, law, rule, regulation, order, decree or judgment of any Governmental Authority or other restriction to which the Purchaser, Gusick or Harrington is subject, should reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement and the instruments of transfer. Section 4.4. No Consents. Except for consents required in connection with the Purchaser's assumption of the Assumed Liabilities, no notice to, filing with, or authorization, registration, consent or approval of any Governmental Authority or other Person is necessary for the execution, delivery or performance of this Agreement, the instruments of transfer or the consummation of the transactions contemplated hereby and thereby by the Purchaser. Section 4.5. Brokers. No Person is or will be entitled to a Broker's Fee from the Purchaser in connection with this Agreement or any of the transactions contemplated hereby. Section 4.6. The GH Shares. Prior to entering into this Agreement, the Purchaser had obtained all right, title and interest in and to the GH Shares, free and clear of all liens and encumbrances. Gusick and Harrington have not exercised any of their options to purchase any shares of Momentum Stock. Section 4.7. Full Disclosure. No representation or warranty made by the Purchaser, Gusick or Harrington in this Agreement, any Schedule, any Exhibit or any certificate delivered, or to be delivered, by or on behalf of the Purchaser, Gusick or Harrington, pursuant hereto contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. Section 4.8. No Inaccuracies. To their best knowledge, Gusick and Harrington do not know of anything that would make any of the representations and warranties made by Momentum and Visual Flow in this Agreement untrue, incomplete or incorrect in any material respect. To the extent Gusick and Harrington, had, as of the date hereof, any such knowledge, Momentum and Visual Flow shall not be liable for breach of that particular representation or representation. Section 4.9. New Business. Except for those things known by Momentum (without imputing to Momentum things known by Gusick and Harrington), to the best knowledge of Gusick and Harrington: (i) from September 1994 through March 31, 1996 (the effective date of the termination of their employment by Momentum and Visual Flow), Gusick and Harrington had solicited business for Visual Flow, and had not attempted to divert business away from Visual Flow, (ii) there were no accounts receivable of Visual Flow that Gusick and Harrington had sought to delay billing on to a date after March 31, 1996 (other than in the ordinary course of business), (iii) prior to April 1, 1996, Gusick and Harrington did not delay the entry by Visual Flow into any material contracts to a date after March 31, 1996 (other than in the ordinary course of business), (iv) between January 1, 1996 and March 31, 1996, there have not been any material improvements to the 10 technology constituting the Business, and (v) Gusick and Harrington did not agree on behalf of Visual Flow or Momentum to any compensation and/or severance arrangements for any Visual Flow employee. ARTICLE V Covenants and Agreements Section 5.1. Transfer and Property Taxes. (a) Momentum and Visual Flow shall pay any transfer, sales, purchase, use or similar tax under the laws of any Governmental Authority arising out of or resulting from the purchase of the Purchased Assets and the assumption of the Assumed Liabilities. Momentum and Visual Flow shall prepare and file the required tax returns and other required documents with respect to the taxes and fees required to be paid by it pursuant to the preceding sentence and shall promptly provide the Purchaser with evidence of the payment of such taxes and fees. (b) Momentum and Visual Flow shall (i) prepare and file all tax returns reporting the income attributable to the Purchased Assets or the operation of the Business for all periods ending prior to or on the date hereof (the "Closing Date"), (ii) prepare and file all income tax returns reporting the income of Visual Flow arising on the Closing Date from the sale to the Purchaser of the Purchased Assets and the assumption by the Purchaser of the Assumed Liabilities, (iii) be responsible for the conduct of all tax examinations relating to the tax returns referred to in (i) and (ii) above, and (iv) pay all taxes attributable to the Purchased Assets or the operation of the Business due with respect to the tax returns referred to in (i) and (ii) above. The Purchaser shall prepare and file all tax returns reporting the income attributable to the ownership of the Purchased Assets and the operation of the Business for all periods beginning after the Closing Date and shall be liable for and pay all taxes due in respect of such tax returns. Section 5.2. Change of Name. Upon signing this Agreement, Visual Flow has changed its name to a new name bearing no resemblance to its present name and not containing the words "Visual Flow" or any combination or variation thereof or name similar thereto. Momentum and Visual Flow shall not use any such names or any name similar thereto or which is reasonably believed by the Purchaser to be confused with any such names or the Business. Visual Flow has delivered to the Purchaser a duly adopted and executed Certificate of Amendment to Visual Flow's Certificate of Incorporation effectuating such name change, in form and substance satisfactory to the Purchaser, which Visual Flow has filed with the Secretary of State of Delaware at Momentum's sole cost and expense. Momentum and Visual Flow consent to the use by the Purchaser, Gusick and Harrington of the corporate name and any assumed names, fictitious names, trade names or other similar names of Visual Flow, each of which is and shall be included in the Purchased Assets. Section 5.3. Confidentiality. In light of the facts that: (i) Momentum and Visual Flow have had access to the products, proprietary information and trade secrets used by Visual Flow in the Business, (ii) Visual Flow is currently or has recently marketed the business throughout the entire United States, Europe, the Middle East and Asia, (iii) the Business is a software business which can be conducted from (or marketed to customers) anywhere in the world and (iv) most of Visual Flow's customers are multinational companies with offices throughout the world, Momentum and Visual Flow agree that: (a) Each of Momentum, Visual Flow and any Affiliate of either or both of them shall not at any time after the Closing Date, directly or indirectly, use for its own benefit or divulge or convey to any third party, any Confidential Information relating to the Business. (b) Momentum and Visual Flow shall not retain any copies of any copies of (and shall not reverse engineer or attempt to reverse engineer) any product made, designed or marketed by Visual Flow (including, without limitation, any and all source code, software, product installations and other products), or the 11 marketing and instruction literature relating thereto. (c) Momentum and Visual Flow acknowledge that (i) the restrictions contained in this entire Section 5.3 and the provisions requiring the transfer of the Momentum Option and those dealing with competition and confidentiality Momentum in Section 2.3 (collectively, the "Confidentiality Provisions") are reasonable and necessary to protect the legitimate interests of the Purchaser, (ii) any breach by Momentum or Visual Flow of the Confidentiality Provisions will result in immediate and irreparable injury to the Purchaser, Gusick and Harrington, (iii) in addition to all remedies available at law, the Purchaser, Gusick and Harrington, shall be entitled to equitable relief, including injunctive relief, and an equitable accounting of all earnings, profits or other benefits arising from such breach and shall be entitled to receive such other damages, direct or consequential, as may be appropriate, and (iv) the Purchaser, Gusick and Harrington shall not be required to post any bond or other security in connection with any proceeding to enforce the Confidentiality Provisions. Without limiting the generality of Section 7.4, the Confidentiality Provisions shall inure to the benefit of any subsequent transferee of the Business or any substantial portion thereof, whether or not this Agreement is assigned to such transferee and shall bind the successors, transferees and assigns of Visual Flow and Momentum (other than the Purchaser, Gusick and Harrington). Section 5.4. Best Efforts; Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby. In the event that at any time after this Agreement has become effective, any further action is necessary to carry out its purposes, Momentum, Visual Flow or the proper directors or officers of thereof or, Gusick, Harrington or the Purchaser, as the case may be, shall take all such action without any further consideration therefor. Section 5.5. Gusick Resignation. Gusick hereby tenders and Momentum hereby acknowledges receipt of and accepts Gusick's resignation from Momentum's Board Directors, effective upon execution of this Agreement by all of the parties hereto. The parties hereto also acknowledge that the employment by Momentum and Visual Flow of Gusick and Harrington terminated on March 31, 1996 and that Momentum and Visual Flow are not liable for any severance or any other deferred compensation to Gusick and Harrington. Section 5.6. Seller's Documents. Momentum and Visual Flow hereby deliver to the Purchaser all instruments of assignment, transfer and conveyance identified herein and such other closing documents as requested by the Purchaser, including the following: (i) such instruments of sale, transfer, assignment, conveyance and delivery (including without limitation the Bill of Sale set forth as Exhibit B and the Assignment and Assumption Agreement set forth as Exhibit C), as are required in order to transfer to the Purchaser good and marketable title to the Purchased Assets, free and clear of all Encumbrances except as provided herein; (ii) a certificate of the President of each of Momentum and Visual Flow, dated the date hereof, as to the incumbency of any officer of such entity executing this Agreement, the instruments of transfer, and also certifying that the Certificate of Incorporation and the by-laws of Momentum are both in full force and effect and have not been amended, restated or altered in any other way prior to the closing of this transaction, and covering such other matters as the Purchaser has reasonably requested; (iii) a certified copy of (1) the Certificate of Incorporation and by-laws of Visual Flow and all amendments thereto and (2) the resolutions of the 12 Boards of Directors of each of Momentum and Visual Flow authorizing the execution, delivery and consummation of this Agreement, the instruments of transfer and the transactions contemplated hereby and thereby; and (iv) such other documents or instruments as the Purchaser has reasonably requested to effect the transactions contemplated hereby. Section 5.7. Purchaser's Documents. The Purchaser hereby delivers to Momentum and Visual Flow such closing documents as Momentum and Visual Flow have reasonably requested, including the following: (i) the Assignment and Assumption Agreement executed by the Purchaser and dated the date hereof; (ii) a certificate of the President of the Purchaser, dated the date hereof, as to the incumbency of any officer thereof executing this Agreement, the instruments of transfer, and covering such other matters as Momentum and Visual Flow have reasonably requested; (iii) a certified copy of (1) the Purchaser's Certificate of Incorporation and by-laws and all amendments thereto and (2) the resolutions of the Purchaser's Board of Directors authorizing the execution, delivery and consummation of this Agreement, the instruments of transfer and the transactions contemplated hereby and thereby; and (iv) such other documents or instruments as Momentum and Visual Flow have reasonably requested to effect the transactions contemplated hereby. ARTICLE VI Survival of Representations and Warranties; Indemnification Section 6.1. Survival of Representations and Warranties. Except as set forth below, the representations and warranties provided for in this Agreement shall survive the Closing for five years from the Closing Date for the benefit of the parties hereto and their successors and assigns. The representations and warranties provided for in Sections 3.2, 3.4, 3.7, 3.9 and 3.13 shall survive the Closing and remain in full force and effect forever. The survival period of each representation or warranty as provided in this Section 6.1 is hereinafter referred to as the "Survival Period." Section 6.2. Indemnification. (a) Momentum and Visual Flow jointly and severally shall indemnify and hold harmless Gusick, Harrington, the Purchaser, their Affiliates, officers, directors, employees, agents and representatives, and any Person claiming by or through any of them, against and in respect of any and all claims, costs, expenses, damages, liabilities, losses or deficiencies (including, without limitation, counsel's fees and other costs and expenses incident to any suit, action or proceeding) (the "Damages"), directly or indirectly, arising out of, resulting from or incurred in connection with (i) any inaccuracy in any representation or the breach of any warranty made by Momentum or Visual Flow in this Agreement for the applicable Survival Period and (ii) any Excluded Liability. Except as specifically provided herein, the indemnification obligations of Momentum and Visual Flow set forth in this Section 6.2(a) shall continue in full force and effect forever. (b) The Purchaser shall indemnify and hold harmless Momentum and Visual Flow, its Affiliates, officers, directors, employees, agents and representatives, and any Person claiming by or through any of them, against and in respect of any and all damages arising out of, resulting from or incurred in connection with (i) any inaccuracy in any representation or the breach of any warranty made by the Purchaser in this Agreement for the applicable Survival Period and (ii) any Assumed Liability. Except as specifically provided herein, the Purchaser's indemnification obligations set forth in this Section 6.2(b) 13 shall continue in full force and effect forever. (c) Any Person providing indemnification pursuant to the provisions of this Section 6.2 is hereinafter referred to as an "Indemnifying Party" and any Person entitled to be indemnified pursuant to the provisions of this Section 6.2 is hereinafter referred to as an "Indemnified Party." Any Indemnified Party who is or is threatened to be made a party to any action or proceeding, whether civil or criminal, shall provide prompt written notice of such action or proceeding to the Indemnifying Party. The Indemnifying Party shall pay the reasonable counsel fees and court costs of the Indemnified Party. ARTICLE VII Miscellaneous Section 7.1. Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be delivered personally, by facsimile or sent by certified, registered or express air mail, postage prepaid, and shall be deemed given when so delivered personally, or by facsimile, or if mailed, five days after the date of mailing, as follows: If to the Purchaser: EnvisionIt Software Corporation 242 Old New Brunswick Road Suite 440 Piscataway, New Jersey 08855 Telephone: (908) 981 8193 Facsimile: (908) 981 8043 Attention: David Gusick and T. Dorsey Harrington With a copy to: Lowenstein, Sandler, Kohl, Fisher & Boylan 65 Livingston Avenue Roseland, New Jersey 07068 Telephone: (201) 992-8700 Facsimile: (201) 992-5820 Attention: Robert G. Minion, Esq. If to Momentum and/or Visual Flow: Momentum Software Corporation 401 South Van Brunt Street Englewood, New Jersey 07631 Telephone: (201) 871-0077 Facsimile: (201) 871-0807 Attention: Joseph Valley With a copy to: Snow Becker Krauss P.C. 605 Third Avenue New York, New York 10158-0125 Telephone: (212) 687-3860 Facsimile: (212) 949-7052 Attention: H. David Berkowitz, Esq. or to such other address as any party hereto shall notify the other parties hereto (as provided above) from time to time. Section 7.2. Governing Law; Consent to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New Jersey, without reference to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New Jersey and the United States District Court for the District of New Jersey for the purpose of any suit, action, proceeding or judgment relating to or arising, directly or indirectly, out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere 14 in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Section 7.3. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original agreement, but all of which together shall constitute one and the same instrument. Section 7.4. Assignment; Successors and Assigns; No Third Party Rights. Except as otherwise provided herein, this Agreement may not be assigned by operation of law or otherwise, and any attempted assignment shall be null and void. The Purchaser may assign all of its rights under this Agreement to any Affiliate; provided such Affiliate assumes all of the obligations of the Purchaser hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives. This Agreement shall be for the sole benefit of the parties to this Agreement and their respective successors, assigns and legal representatives and is not intended, nor shall be construed, to give any Person, other than the parties hereto and their respective successors, assigns and legal representatives, any legal or equitable right, remedy or claim hereunder. Section 7.5. Titles and Headings. The headings and table of contents in this Agreement are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement. Section 7.6. Entire Agreement. This Agreement, including the Schedules and Exhibits attached thereto, constitutes the entire agreement among the parties with respect to the matters covered hereby and supersedes all previous written, oral or implied understandings among them with respect to such matters. Section 7.7. Amendment, Modification and Waiver. This Agreement may only be amended or modified in writing signed by the party against whom enforcement of such amendment or modification is sought. Any of the terms or conditions of this Agreement may be waived at any time by the party or parties entitled to the benefit thereof, but only by a writing signed by the party or parties waiving such terms or conditions. Section 7.8. Severability. The invalidity of any portion hereof shall not affect the validity, force or effect of the remaining portions hereof. If it is ever held that any restriction hereunder is too broad to permit enforcement of such restriction to its fullest extent, such restriction shall be enforced to the maximum extent permitted by law. Section 7.9. No Strict Construction. Each of the Purchaser, Gusick, Harrington, Visual Flow and Momentum acknowledge that this Agreement has been prepared jointly by the parties hereto, and shall not be strictly construed against either party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. MOMENTUM SOFTWARE CORPORATION By: /s/ Joseph M. Valley, Jr. Name: Joseph M. Valley, Jr. Title: CEO & President 15 VISUAL FLOW, INC. By: /s/ Joseph M. Valley, Jr. Name: Joseph M. Valley, Jr. Title: President ENVISIONIT SOFTWARE CORPORATION By: /s/ David L. Gusick Name: David L. Gusick Title: CEO /s/ David L. Gusick David L. Gusick /s/ T. Dorsey Harrington T. Dorsey Harrington 16 EX-27 6 EXHIBIT 27
5 YEAR DEC-31-1996 DEC-31-1996 346 0 0 0 0 346 0 0 346 828,008 0 0 0 4,406 (833,068) 346 0 0 0 35,764 0 0 43,040 (78,804) 0 0 0 0 0 (78,804) 0 0
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