-----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, MtEQm7KbrqS3F6VtkSi5HV7LEUB0Jmjtx1uU+QMsjPI9P76LgXRONLlqGVnJMXA9 UkvyojO4e2JrRJeSZmso5w== 0001012870-99-003068.txt : 19990906 0001012870-99-003068.hdr.sgml : 19990906 ACCESSION NUMBER: 0001012870-99-003068 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990903 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERWOVEN INC CENTRAL INDEX KEY: 0001042431 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943221352 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-83779 FILM NUMBER: 99705686 BUSINESS ADDRESS: STREET 1: 1195 W FREMONT AVE STREET 2: STE 2000 CITY: SUNNYVALE STATE: CA ZIP: 94087 BUSINESS PHONE: 4087742000 MAIL ADDRESS: STREET 1: 1195 W FREMONT AVE STREET 2: STE 2000 CITY: SUNNYVALE STATE: CA ZIP: 94087 S-1/A 1 FORM S-1 AMENDMENT NO. 1 As filed with the Securities and Exchange Commission on September 3, 1999 Registration No. 333-83779 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under the Securities Act of 1933 --------------- INTERWOVEN, INC. (Exact name of Registrant as specified in its charter) Delaware 7372 94-3221352 (State or other (Primary standard (I.R.S. employer jurisdiction of industrial classification identification no.) incorporation or code number) organization) Interwoven, Inc. 1195 West Fremont Avenue, Suite 2000 Sunnyvale, California 94087 (408) 774-2000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------- David M. Allen Chief Financial Officer Interwoven, Inc. 1195 West Fremont Avenue, Suite 2000 Sunnyvale, California 94087 (408) 774-2000 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: Matthew P. Quilter, Esq. Mark A. Bertelsen, Esq. Horace L. Nash, Esq. Jose F. Macias, Esq. Darren L. Nunn, Esq. Jon C. Avina, Esq. William L. Hughes, Esq. WILSON SONSINI GOODRICH & ROSATI FENWICK & WEST LLP Professional Corporation Two Palo Alto Square 650 Page Mill Road Palo Alto, California 94306 Palo Alto, California 94304 (650) 494-0600 (650) 493-9300 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------
Proposed Maximum Proposed Aggregate Amount of Title of Each Class Of Amount To Be Maximum Offering Registration Securities To Be Registered Price Per Unit Price(1) Fee(2) Registered ------------ -------------- ---------------- ------------ - ---------------------------------------------------------------------------------- Common Stock, $.001 par value per share....... 3,450,000 $12.00 $41,400,000 $11,510 - ---------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(c) under the Securities Act of 1933. (2) $13,900 has been previously paid by the Registrant in connection with the filing of the Registration Statement on July 27, 1999. --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting offers to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999 3,000,000 Shares [LOGO OF INTERWOVEN APPEARS HERE] Common Stock --------- Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $10.00 and $12.00 per share. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "IWOV." The underwriters have an option to purchase a maximum of 450,000 additional shares to cover over-allotments of shares. Investing in our common stock involves risks. See "Risk Factors" on page 6.
Underwriting Price to Discounts and Proceeds to Public Commissions Interwoven ---------- ------------- ---------- Per Share................................. $ $ $ Total..................................... $ $ $
Delivery of the shares of common stock will be made on or about , 1999. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston BancBoston Robertson Stephens Dain Rauscher Wessels a division of Dain Rauscher Incorporated The date of this prospectus is , 1999. ---------------- TABLE OF CONTENTS
Page ---- Prospectus Summary.................. 3 Risk Factors........................ 6 Special Note Regarding Forward- Looking Statements................. 14 Use of Proceeds..................... 15 Dividend Policy..................... 15 Capitalization...................... 16 Dilution............................ 17 Selected Financial Data............. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 19 Business............................ 29
Page ---- Management....................... 43 Related Party Transactions....... 54 Principal Stockholders........... 56 Description of Capital Stock..... 58 Shares Eligible for Future Sale.. 62 Underwriting..................... 64 Notice to Canadian Residents..... 66 Legal Matters.................... 67 Experts.......................... 67 Where You Can Find Additional Information..................... 67 Index to Financial Statements.... F-1
---------------- You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. ---------------- Interwoven(R), TeamSite(R), OpenDeploy(TM) and SmartContext(TM) are our trademarks. This prospectus also contains trademarks of other companies and organizations. ---------------- Unless otherwise indicated, all information contained in this prospectus assumes: . that the underwriters will not exercise their over-allotment option; . the completion of a 2-for-3 reverse stock split immediately prior to consummation of this offering; . the conversion of each outstanding share of our preferred stock into two-thirds of a share of common stock, except for Series B Preferred Stock, each share of which shall be converted into 0.702205 shares of common stock; . no exercise of outstanding warrants to purchase shares of our preferred stock prior to the consummation of this offering; and . our reincorporation from California to Delaware prior to consummation of this offering. ---------------- Dealer Prospectus Delivery Obligation Until , 1999 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. [front cover gatefold] A flow diagram representing the platform for eBusiness. The left side of the diagram contains a graphic representation of web software positioning, from contributors to applications. The right side of the diagram contains a graphic representation of the web workflow process. On the left of the gatefold, icons on the far left labeled Web Contributors consist of boxes (from top to bottom) labeled "Technical Contributors" and "Business Contributors." The next row to the right consists of icons labeled "Executable Code," "Database Assets," "Rich HTML, XML," "Templates" and "Text." Arrows lead from here to the next box which is labeled "Interwoven." This box consists of two columns one labeled "TeamSite" and under that is "Parallel Development," "Quality Assurance," "Versioning" and "Work Flow." The next column in the Interwoven box is labeled "OpenDeploy" and under that is "Transactional Deployment," "Encryption," "Replication" and "Syndication." From the box labeled Interwoven, arrows lead to the next row of icons labeled "eBusiness Applications." Under this heading are icons labeled "Knowledge Management," "Supply Chain Managment," E-Commerce" and "Customer Relationship Management." On the right of the gatefold, a flow chart consisting of three columns of icons represents the web workflow process. The far left column is labeled "Work Area" and under that are two icons. Arrows labeled "Multiple User Approval" lead to the middle row which is labeled "Staging Area." This column has an arrow labeled "Final" which leads to the far right column with one icon labeled "Edition." PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus; it does not contain all the information you should consider before buying shares in this offering. You should read the entire prospectus carefully before making a decision whether to purchase our common stock. Interwoven Interwoven is a leading provider of software products and services that help businesses and other organizations manage the information that makes up the content of their web sites. In the Internet industry, this is often referred to as "web content management." We have designed our software products to help companies rapidly and efficiently develop, maintain and extend large web sites that are essential to their businesses. Our principal product, TeamSite, incorporates widely accepted Internet industry standards and is designed with an open architecture that allows it to support a wide variety of Internet software products, including web authoring tools and web application servers. Using TeamSite, our customers can manage web content, control the versions of their web sites, manage web site contribution and content approval processes, and develop Internet applications. TeamSite allows large numbers of contributors across an enterprise to add web content in a carefully-managed process. In addition, our OpenDeploy product allows customers to automate the distribution of web content across multiple web sites. As leading companies demonstrate success on the Internet, business leaders are seeking to capitalize on new business opportunities, reach a broader customer base and reduce overall operating costs by moving their businesses to the Internet. The use of the Internet to conduct business is frequently referred to as "Internet commerce" or "eBusiness." Companies are making significant investments to develop and deploy these eBusiness initiatives. International Data Corporation, or IDC, estimates that spending on software applications and services for Internet commerce will grow from $7.8 billion in 1998 to $53.8 billion in 2002. The competitive online environment is driving companies to deploy complex web sites that offer enhanced user experiences. These web sites can contain hundreds of thousands of content-rich web pages, and this content has been increasing in volume and complexity. In addition, today's web sites must be updated frequently by numerous contributors throughout an enterprise. Web teams find it difficult to manage the increasing complexity, volume and variability of this content. At the same time, the large number of web authoring tools and web application servers have contributed to the increasing technological complexity involved in developing and maintaining web sites. These trends have created a need for content management software that can accommodate the increasing volume of web content, leverage existing investments in computers, software and associated information technology infrastructure, and allow more contributors to add content to a web site. IDC estimates that one of the markets in which we participate, which they refer to as the web development life-cycle management software market, will grow from $76.4 million in 1998 to $1.6 billion in 2003. Interwoven's content management software assists customers in accelerating their time-to-web--the rate at which they can deploy new content on their web sites--by enabling them to develop multiple eBusiness applications simultaneously. It lowers web operating costs by reducing a customer's dependence on highly-paid web professionals and reducing the time required to test and approve new content for a web site or eBusiness application. The scalability of our products also allows customers to manage hundreds of thousands of web files and enables hundreds of employees throughout the enterprise to contribute web content. In addition, our software's architecture is non-proprietary and based on recognized industry standards, so it enables businesses to take advantage of existing investments in technology and web content and, at the same time, to integrate new technologies and applications easily. 3 We market and sell our software products and services primarily through a direct sales force in North America. To date, we have licensed our software products to over 85 customers, including AltaVista, AT&T/TCI, BellSouth, Best Buy, Cisco Systems, FedEx, Gap, General Electric, the U.S. Department of Education, USWeb/CKS, Viacom/Nickelodeon and Yahoo!/GeoCities, although we have incurred losses to date resulting in an accumulated deficit of approximately $16.5 million at June 30, 1999. We were incorporated in California in March 1995 and intend to reincorporate in Delaware immediately prior to the completion of this offering. Our principal executive offices are located at 1195 West Fremont Avenue, Suite 2000, Sunnyvale, California 94087 and our telephone number is (408) 774-2000. Our World Wide Web address is www.interwoven.com. The information on our web site is not part of this prospectus. The Offering Common stock offered................................ 3,000,000 shares Common stock to be outstanding after this offering.. 21,642,241 shares Use of proceeds..................................... For general corporate purposes, including working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. IWOV
The number of shares of our common stock to be outstanding immediately after this offering is based on the number of shares outstanding as of June 30, 1999, but does not include: . 944,980 shares issuable upon exercise of options outstanding at June 30, 1999 under our stock option plans and 3,684,034 shares available for future issuance under those plans; . 300,000 shares available for future issuance under our employee stock purchase plan; . 72,071 shares issuable upon exercise of outstanding warrants; and . 39,096 shares issuable upon exercise of warrants issued after July 1, 1999. 4 Summary Financial Data (in thousands, except per share amounts)
Years Ended December Six Months 31, Ended June 30, ------------------------- ---------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- Statement of Operations Data: Revenues.......................... $ -- $ 168 $ 4,003 $ 886 $ 5,004 Gross profit...................... -- 73 2,670 536 3,456 Total operating expenses.......... 520 2,933 9,165 3,011 9,838 Loss from operations.............. (520) (2,860) (6,495) (2,475) (6,382) Net loss.......................... (510) (2,948) (6,344) (2,418) (6,228) Net loss per share: Basic and diluted............... $ (0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66) Weighted average shares--basic and diluted.................... 2,282 2,356 2,633 2,404 3,435 Pro forma net loss per share: Basic and diluted............... $ (0.74) $ (0.44) Weighted average shares--basic and diluted.................... 8,530 14,000
As of June 30, 1999 --------------------- Actual As Adjusted -------- ----------- Balance Sheet Data: Cash and cash equivalents............................... $ 25,203 $54,703 Working capital......................................... 22,634 52,134 Total assets............................................ 29,948 59,448 Long-term debt and capital lease obligations, less current portion........................................ 1,000 1,000 Manditorily redeemable convertible preferred stock...... 45,276 -- Total stockholders' equity (deficit).................... (21,155) 53,621
See Note 1 of Notes to Financial Statements for a description of the method that we used to compute our basic and diluted net loss per share and pro forma basic and diluted net loss per share. The adjusted balance sheet data gives effect to the sale of the shares of common stock that we are offering under this prospectus at an assumed initial public offering price of $11.00 per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS You should carefully consider the risks described below before buying shares in this offering. The risks and uncertainties described below are not the only risks we face. These risks are the ones we consider to be significant to your decision whether to invest in our common stock at this time. We might be wrong. There may be risks that you in particular view differently than we do, and there are other risks and uncertainties that are not presently known to us or that we currently deem immaterial, but that may in fact impair our business operations. If any of the following risks actually occur, our business, results of operations and financial condition could be seriously harmed, the trading price of our common stock could decline and you may lose all or part of your investment. Our operating history is limited, so it will be difficult for you to evaluate our business in making an investment decision. We were incorporated in March 1995 and have a limited operating history. We are still in the early stages of our development, which makes the evaluation of our business operations and our prospects difficult. We shipped our first product in May 1997. Since that time, we have derived substantially all of our revenues from licensing our TeamSite product and related services. Before buying our common stock, you should consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets, particularly those companies whose businesses depend on the Internet. These risks and difficulties, as they apply to us in particular, include: . potential fluctuations in operating results and uncertain growth rates; . limited market acceptance of our products; . concentration of our revenues in a single product; . our dependence on a small number of orders for most of our revenue; . our need to expand our direct sales forces and indirect sales channels; . our need to manage rapidly expanding operations; and . our need to attract and train qualified personnel. If we do not increase our license revenues significantly, we will fail to achieve profitability. We have incurred net losses in each quarter since our inception, and we expect our net losses to increase. We incurred net losses of approximately $510,000 in 1996, $2.9 million in 1997, $6.3 million in 1998 and $6.2 million for the six months ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit of approximately $16.5 million. To compete effectively, we plan to continue to invest aggressively to expand our sales and marketing, research and development, and professional services organizations. As a result, if we are to achieve profitability we will need to increase our revenues significantly, particularly our license revenues. We cannot predict when we will become profitable, if at all. Our operating results fluctuate widely and are difficult to predict, so we may fail to satisfy the expectations of investors or market analysts and our stock price may decline. Our quarterly operating results have fluctuated significantly in the past, and we expect them to continue to fluctuate unpredictably in the future. It is possible that in some future periods our results of operations may not meet or exceed the expectations of public market analysts and investors. If this occurs, the price of our common stock is likely to decline. 6 Our quarterly results depend on a small number of large orders, so the loss of any single large order could harm those results and cause our stock price to drop. Each quarter, we derive a significant portion of our license revenues from a small number of relatively large orders. For example, in the first and second quarters of 1999, our top five customers accounted for 41% and 30%, respectively, of the total revenue in those quarters. We expect that we will continue to depend upon a small number of large orders for a significant portion of our license revenues. As a result, our operating results could suffer if any large orders are delayed or cancelled in any future period. We face significant competition, which could make it difficult to acquire and retain customers and inhibit any future growth. We expect the competition in the market in which we operate to persist and intensify in the future. Competitive pressures may seriously harm our business and results of operations if they inhibit our future growth, or require us to hold down or reduce prices, or increase our operating costs. Our competitors include: . potential customers that utilize in-house development efforts; . developers of software that directly addresses the need for web content management, such as Vignette. In addition, we face potential competition from companies--for example, Microsoft and IBM--that may decide in the future to enter our market. Many of our existing and potential competitors have longer operating histories greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. Many of these companies can also leverage extensive customer bases and adopt aggressive pricing policies to gain market share. Potential competitors may bundle their products in a manner that discourages users from purchasing our products. Barriers to entering the web content management software market are relatively low. The market for our products is new and customers may not accept our products. The market for web content management software in which we sell is new and rapidly evolving. While we have licensed our products to over 85 customers, we expect that we will continue to need intensive marketing and sales efforts to educate prospective clients about the uses and benefits of our products and services. Potential customers that have invested substantial resources in other methods of conducting business over the Internet may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems. Any of these factors could inhibit the growth of the market, and market acceptance of our products and services in particular. We cannot be certain that a viable market for our products will emerge, or if it does emerge, that it will be sustainable. Our lengthy sales cycle makes it particularly difficult for us to forecast revenue, requires us to incur high costs of sales, and aggravates the variability of quarterly fluctuations. Because our software products impact a large number of departments within an enterprise and are implemented in conjunction with strategic business initiatives, our customers typically commit significant time and resources to comparing and evaluating our products, internal solutions and other commercially available applications. These evaluations require us to expend substantial time, effort and money educating the customers about the value of our products and services. The time between initial contact with a potential customer and the ultimate sale, which we refer to as our sales cycle, typically ranges between three and nine months depending largely on the customer. To shorten our sales cycle, we must establish a large number of referenceable customers. Failure to do so will make it less likely that we can reduce sales and marketing expenses. In addition, as a result of our lengthy sales cycle, we have only a limited ability to forecast the timing and size of specific sales. This makes it more difficult to predict quarterly financial performance, or to achieve it, and any delay in completing sales in a particular quarter could harm our business and cause our operating results to vary significantly. 7 We rely heavily on sales of one product, so if it does not achieve market acceptance we are likely to experience larger losses. Since 1997, we have generated substantially all of our revenues from licenses of, and services related to, our TeamSite product. We believe that revenues generated from TeamSite will continue to account for a large portion of our revenues for the foreseeable future. A decline in the price of TeamSite, or our inability to increase license sales of TeamSite, would seriously harm our business and operating results more seriously than it would if we had several different products and services to sell. In addition, our future financial performance will depend upon successfully developing and selling enhanced versions of TeamSite and the products. If we fail to deliver product enhancements or new products that customers want it will be more difficult for us to succeed. We depend on our direct sales force to sell our products, so future growth will be constrained by our ability to hire and train new sales personnel. We sell our products primarily through our direct sales force, and we expect to continue to do so in the future. Our ability to sell more products is limited by our ability to hire and train direct sales personnel, and we believe that there is significant competition for direct sales personnel with the advanced sales skills and technical knowledge that we need. Some of our competitors may have greater resources to hire personnel with that skill and knowledge. If we are not able to hire experienced and competent sales personnel, our business would be harmed. Furthermore, because we depend on our direct sales force, any turnover in our sales force can significantly harm our operating results. Sales force turnover tends to slow sales efforts until replacement personnel can be recruited and trained to become productive. See "--We must attract and retain qualified personnel, which is particularly difficult for us because we compete with other Internet-related software companies and are located in the San Francisco Bay area where competition for personnel is extremely intense." If we do not develop our indirect sales channel, we will be less likely to increase our revenues. To date, we have sold our products principally through our direct sales organization. By relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales channels. For example, domestic and international resellers may be able to reach new customers more quickly or more effectively than our direct sales force. Our ability to achieve revenue growth and to increase worldwide sales in the future will depend in large part upon our success in expanding and maintaining relationships with existing system integrators and Internet professional services firms and establishing relationships with additional firms. Although we are currently investing and plan to continue to invest significant resources to develop these relationships, we may not be able to build an indirect channel that will be able to market our products effectively and will be qualified to provide timely and cost-effective customer support and services. In addition, we may not be able to manage conflicts across our various sales channels, and our focus on increasing sales through our indirect channel may divert management resources and attention from direct sales. If we do not improve our operational systems on a timely basis, we will be more likely to fail to manage our growth properly. We have expanded our operations rapidly in recent years. We intend to continue to expand our operational systems for the foreseeable future to pursue existing and potential market opportunities. This rapid growth places a significant demand on management and operational resources. In order to manage our growth, we need to implement and improve our operational systems, procedures and controls on a timely basis. If we fail to implement and improve these systems in a timely manner, our business will be seriously harmed. Difficulties in introducing new products and upgrades in a timely manner will make market acceptance of our products less likely. The market for our products is characterized by rapid technological change, frequent new product introductions and Internet-related technology enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. We expect to add new content management functionality to our product offerings by internal development, and possibly by acquisition. Content management technology is 8 more complex than most software, and new products or product enhancements can require long development and testing periods. Any delays in developing and releasing new products could harm our business. New products or upgrades may not be released according to schedule or may contain defects when released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products or customer claims against us, any of which could harm our business. If we do not develop, license or acquire new software products, or deliver enhancements to existing products on a timely and cost- effective basis, our business will be harmed. Our products might not be compatible with all major platforms, which could limit our revenues. Our products currently operate on the Microsoft Windows NT and Sun Solaris operating systems. In addition, our products are required to interoperate with leading web content authoring tools and web application servers. We must continually modify and enhance our products to keep pace with changes in these applications and operating systems. If our products were to be incompatible with a popular new operating system or Internet business application, our business would be harmed. In addition, uncertainties related to the timing and nature of new product announcements, introductions or modifications by vendors of operating systems, browsers, back-office applications, and other Internet- related applications, could also harm our business. Risks associated with international operations are new to us, so we may find it more difficult to expand overseas. To date, we have derived all of our revenues from sales to North American customers. We plan to expand our international operations in the future. There are many barriers to competing successfully in the international arena, including: . costs of customizing products for foreign countries; . restrictions on the use of software encryption technology; . dependence on local vendors; . compliance with multiple, conflicting and changing governmental laws and regulations; . longer sales cycles; and . import and export restrictions and tariffs. As a result of these competitive barriers, we cannot assure you that we will be able to market, sell and deliver our products and services in international markets. It is important for us to establish and maintain strategic relationships. To offer products and services to a larger customer base our direct sales force depends on strategic partnerships and marketing alliances to obtain customer leads, referrals and distribution. If we are unable to maintain our existing strategic relationships or fail to enter into additional strategic relationships, we will have to devote substantially more resources to the sale and marketing of our products and services. We would also lose anticipated customer introductions and co-marketing benefits. Our success depends in part on the success of our strategic partners and their ability to market our products and services successfully. In addition, our strategic partners may not regard us as significant for their own businesses. Therefore, they could reduce their commitment to us or terminate their respective relationships with us, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our products and services. Even if we succeed in establishing these relationships, they may not result in additional customers or revenues. We must attract and retain qualified personnel, which is particularly difficult for us because we compete with other Internet-related software companies and are located in the San Francisco Bay area where competition for personnel is extremely intense. Our success depends on our ability to attract and retain qualified, experienced employees. We compete for experienced engineering, sales and consulting personnel with Internet professional services firms, software vendors, consulting and professional services companies. It is also particularly difficult to recruit and retain 9 personnel in the San Francisco Bay area, where we are located. In addition, our customers generally purchase consulting and implementation services. While we have recently established relationships with some third-party service providers, we continue to be the primary provider of these services. It is difficult and expensive to recruit, train and retain qualified personnel to perform these services, and we may from time to time have inadequate levels of staffing to perform these services. As a result, our growth could be limited due to our lack of capacity to provide those services, or we could experience deterioration in service levels or decreased customer satisfaction, any of which would harm our business. If our services revenues do not grow substantially, our total revenues are unlikely to increase. Our services revenues represent a significant component of our total revenues--21% of total revenues for 1998 and 35% of total revenues for the six months ended June 30, 1999. We anticipate that services revenues will continue to represent a significant percentage of total revenues in the future. To a large extent, the level of services revenues depends upon our ability to license products which generate follow-on services revenue. Additionally, services revenues growth depends on ongoing renewals of maintenance and service contracts. Moreover, if third-party organizations such as systems integrators become proficient in installing or servicing our products, our services revenues could decline. Our ability to increase services revenues will depend in large part on our ability to increase the capacity of our professional services organization, including our ability to recruit, train and retain a sufficient number of qualified personnel. We might not be able to protect and enforce our intellectual property rights, a loss of which could harm our business. We depend upon our proprietary technology, and rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect it. We currently do not have any issued United States or foreign patents, but we have applied for one U.S. patent. It is possible that a patent will not issue from our currently pending patent application or any future patent application we may file. We have also restricted customer access to our source code and required all employees to enter into confidentiality and invention assignment agreements. Despite our efforts to protect our proprietary technology, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights as effectively as the laws of the United States, and we expect that it will become more difficult to monitor use of our products as we increase our international presence. In addition, third parties may claim that our products infringe theirs. Our failure to deliver defect-free software could result in greater losses and harmful publicity. Our software products are complex and have in the past and may in the future contain defects or failures that may be detected at any point in the product's life. We have discovered software defects in the past in some of our products after their release and we may experience delays or lost revenue to correct those defects in the future. Despite our testing, defects and errors may still be found in new or existing products, and may result in delayed or lost revenues, loss of market share, failure to achieve acceptance, reduced customer satisfaction, diversion of development resources and damage to our reputation. As has occurred in the past, new releases of products or product enhancements may require us to provide additional services under our maintenance contracts to ensure proper installation and implementation. Moreover, third parties may develop and spread computer viruses that may damage the functionality of our software products. Any damage to or interruption in the performance of our software could also harm our business. Defects or errors in our products may result in product liability claims. Because customers rely on our products for business critical processes, defects or errors in our products or services might result in tort or warranty claims. It is possible that the limitation of liability provisions in our contracts will not be effective as a result of existing or future federal, state or local laws or ordinances or unfavorable judicial decisions. We have not experienced any product liability claims like this to date, but we 10 could in the future. Further, although we maintain errors and omissions insurance, this insurance coverage may not be adequate to cover us. A successful product liability claim could harm our business. Even defending a product liability suit, regardless of its merits, could harm our business because it entails substantial expense and diverts the time and attention of key management personnel. Year 2000 concerns by our customers could cause them to defer purchases of our products. We may experience reduced sales of products as customers and potential customers put a priority on correcting their own Year 2000 problems or avoiding new ones and therefore defer purchases of our products until later in 2000. As a result, the demand for our products may be particularly volatile and unpredictable for the remainder of 1999 and early 2000. Year 2000 problems with our products may increase our costs. Our products are generally integrated into enterprise computer systems involving sophisticated hardware and complex software products, which may not be Year 2000 compliant. We may in the future be subject to claims based on Year 2000 problems in other parties' products, Year 2000 problems alleged to be found in our products, Year 2000-related issues arising from the integration of multiple products within an overall system, or other similar claims. We also need to ensure Year 2000 compliance of our own internal computer and other systems, to continue testing our software products, to audit the Year 2000 compliance status of our suppliers and business partners, and to conduct a legal audit. We have not conducted a comprehensive Year 2000 investigation of our internal systems and do not intend to do so. The total cost of Year 2000 compliance may be material and may harm our business. Acquisitions may harm our business by being more difficult than expected to integrate or by diverting management's attention. In July 1999, we acquired Lexington Software Associates, Inc., a software consulting company, to help support our existing customer base and to help attract and retain new customers. We may be unable to integrate this company into ours successfully, and our business may not benefit as expected. As part of our business strategy, we may seek to acquire or invest in additional businesses, products or technologies that we feel could complement or expand our business. If we identify an appropriate acquisition opportunity, we might be unable to negotiate the terms of that acquisition successfully, finance it, or integrate it into our existing business and operations. We may also be unable to select, manage or absorb any future acquisitions successfully. Further, the negotiation of potential acquisitions, as well as the integration of an acquired business, would divert management time and other resources. We may have to use a substantial portion of our available cash, including proceeds of this offering, to consummate an acquisition. On the other hand, if we consummate acquisitions through an exchange of our securities, our stockholders could suffer significant dilution. In addition, we cannot assure you that any particular acquisition, even if successfully completed, will ultimately benefit our business. If widespread Internet adoption does not continue, or if the Internet cannot accommodate continued growth, our business will be harmed because it depends on growth in the use of the Internet. Acceptance of our products depends upon continued adoption of the Internet for commerce. As is typical in the case of an emerging industry characterized by rapidly changing technology, evolving industry standards and frequent new product and service introductions, demand for and acceptance of recently introduced products and services are subject to a high level of uncertainty. To the extent that businesses do not consider the Internet a viable commercial medium, our customer base may not grow. In addition, critical issues concerning the commercial use of the Internet remain unresolved and may affect the growth of Internet use. The adoption of the Internet for commerce, communications and access to content, particularly by those who have historically relied upon alternative methods, generally requires understanding and accepting new ways of conducting business and exchanging information. In particular, companies that have already invested substantial resources 11 in other means of conducting commerce and exchanging information may be particularly reluctant or slow to adopt a new, Internet-based strategy that may render their existing infrastructure obsolete. If the use of the Internet fails to develop or develops more slowly than expected, our business may be seriously harmed. To the extent that there is an increase in Internet use, an increase in frequency of use or an increase in the required bandwidth of users, the Internet infrastructure may not be able to support the demands placed upon it. In addition, the Internet could lose its viability as a commercial medium due to delays in development or adoption of new standards or protocols required to handle increased levels of Internet activity. Changes in, or insufficient availability of, telecommunications or similar services to support the Internet also could result in slower response times and could adversely impact use of the Internet generally. If use of the Internet does not continue to grow or grows more slowly than expected, or if the Internet infrastructure, standards, protocols or complementary products, services or facilities do not effectively support any growth that may occur, our business would be seriously harmed. There is substantial risk that future regulations could be enacted that either directly restrict our business or indirectly impact our business by limiting the growth of Internet commerce. As Internet commerce evolves, we expect that federal, state or foreign agencies will adopt new legislation or regulations covering issues such as user privacy, pricing, content and quality of products and services. If enacted, these laws, rules or regulations could indirectly harm us to the extent that they impact our customers and potential customers. We cannot predict if or how any future legislation or regulations would impact our business. Although many of these regulations may not apply to our business directly, we expect that laws regulating or affecting commerce on the Internet could indirectly harm our business. Our existing stockholders control a majority of our stock. Immediately after the closing of this offering, approximately 48% of our outstanding capital stock will be owned by our directors and executive officers or their affiliated entities. As a result, these stockholders, acting together, would be able to control all matters requiring approval by the stockholders, including the election of all directors and approval of significant corporate transactions. We have various mechanisms in place to discourage takeover attempts, which might tend to suppress our stock price. Provisions of our certificate of incorporation and bylaws that may discourage, delay or prevent a change in control include: . we are authorized to issue "blank check" preferred stock, which could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; . we provide for the election of only one-third of our directors at each annual meeting of stockholder, which slows turnover on the board of directors; . we limit who may call special meetings of stockholders; . we prohibit stockholder action by written consent, so all stockholder actions must be taken at a meeting of our stockholders; and . we require advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, Section 203 of the Delaware General Corporations Law and our stock incentive plans may discourage, delay or prevent a change in control of us. See "Description of Capital Stock--Anti-Takeover Provisions." 12 Purchasers in this offering will incur immediate and substantial dilution. The initial public offering price of our common stock will be substantially higher than the book value per share of the outstanding common stock. As a result, if we were liquidated for book value immediately following this offering, each stockholder purchasing in this offering would receive less than they paid for their common stock. To the extent that outstanding options to purchase our common stock are exercised, or options or warrants reserved for issuance are issued and exercised, each stockholder purchasing in this offering will experience further substantial dilution. Our stock price could be affected by more shares becoming available for sale. If our stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could fall. Based on shares outstanding as of June 30, 1999, upon completion of this offering, we will have 21,642,241 shares of common stock outstanding. Other than the 3,000,000 shares of common stock sold in this offering, no shares will be eligible for sale in the public market immediately. The limited number of shares available for resale may affect the liquidity of the market for those shares. Our stockholders are subject to agreements with the underwriters or us that restrict their ability to transfer their stock for 180 days from the date of this prospectus. After these agreements expire, an additional 15,690,149 shares will be eligible for sale in the public market. If many of these shares are sold when they become available for resale, the market price of our common stock may decline. For a detailed discussion of the shares eligible for future sale, please see "Shares Eligible for Future Sale." 13 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward- looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this prospectus involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These factors include those listed under "Risk Factors" and elsewhere in this prospectus. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. 14 USE OF PROCEEDS We estimate that we will receive net proceeds of approximately $29.5 million from the sale of 3,000,000 shares of our common stock ($34.1 million if the underwriters exercise their over-allotment option in full) at an assumed initial public offering price of $11.00 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. The primary purposes of this offering are to obtain additional working capital, create a public market for our common stock, facilitate our future access to public capital markets and provide liquidity to existing stockholders. We intend to use the net proceeds of this offering primarily for additional working capital and other general corporate purposes, including increased research and development expenditures, sales and marketing expenditures, and general and administrative expenditures. We have not yet determined our expected use of these proceeds, but we currently estimate that we will incur at least $30 million in operating expenses during the next 12 months to expand our investments in research and development, sales and marketing, and general and administrative operations. These operating expenses will be partially offset by the degree to which we continue to derive revenues and related gross margin from the licensing of our software products and delivery of services. The amounts and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. We may also use a portion of the net proceeds to acquire additional businesses, products and technologies, to lease additional facilities, or to establish joint ventures that we believe will complement our current or future business. However, we have no specific plans, agreements or commitments to do so and are not currently engaged in any negotiations for any acquisition or joint venture. We will retain broad discretion in the allocation of the net proceeds of this offering. Pending the uses described above, we will invest the net proceeds of this offering in short-term to medium-term interest-bearing, investment-grade securities. We cannot predict whether the proceeds will be invested to yield a favorable return. We believe that our available cash, together with the net proceeds of this offering, will be sufficient to meet our capital requirements for at least the next 12 months. DIVIDEND POLICY We have never declared or paid cash dividends on our common stock or other securities, and we do not anticipate paying a cash dividend in the foreseeable future. Our lines of credit currently prohibit the payment of dividends. 15 CAPITALIZATION The following table sets forth the following information, as of June 30, 1999: . our actual capitalization; . our pro forma capitalization after giving effect to the conversion of all outstanding shares of preferred stock into shares of common stock upon the closing of this offering; and . our pro forma as adjusted capitalization to give effect to the sale of 3,000,000 shares of common stock offered hereby at an assumed initial public offering price of $11.00 per share, less the estimated underwriting discounts and commissions and estimated offering expenses.
June 30, 1999 ------------------------------- Pro Pro Forma Actual Forma As Adjusted -------- -------- ----------- (in thousands, except share data) Debt and leases, current and long-term......... $ 1,511 $ 1,511 $ 1,511 Mandatorily redeemable convertible preferred stock, 18,763,092 shares authorized, 18,455,184 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted...................................... 45,276 -- -- Stockholders' equity (deficit): Preferred stock, $0.001 par value, no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted........................... -- -- -- Common stock, $0.001 par value, 26,666,666 shares authorized, 6,230,590 shares issued and outstanding, actual; 75,000,000 shares authorized, 18,642,241 shares issued and outstanding, pro forma; 21,642,241 shares issued and outstanding, pro forma as adjusted.................................... 6 19 22 Additional paid-in capital................... 1,707 46,970 76,467 Notes receivable for purchase of common stock....................................... (202) (202) (202) Deferred stock-based compensation............ (6,130) (6,130) (6,130) Accumulated deficit.......................... (16,536) (16,536) (16,536) -------- -------- -------- Total stockholders' equity (deficit)....... (21,155) 24,121 53,621 -------- -------- -------- Total capitalization..................... $ 25,632 $ 25,632 $ 55,132 ======== ======== ========
The table excludes: . 944,980 shares issuable upon exercise of options outstanding at June 30, 1999 under our stock option plans and 3,684,034 shares available for future issuance under those plans; . 300,000 shares available for future issuance under our employee stock purchase plan; . 72,071 shares issuable upon exercise of outstanding warrants; . 249,667 shares issuable upon exercise of outstanding options issued after June 30, 1999; and . 39,096 shares issuable upon exercise of outstanding warrants issued after July 1, 1999. 16 DILUTION The pro forma net intangible book value of our common stock as of June 30, 1999, after giving effect to the conversion of all outstanding shares of preferred stock into common stock, was $24.1 million, or approximately $1.29 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Assuming our sale of 3,000,000 shares of common stock offered at an assumed initial public offering price of $11.00 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of June 30, 1999 would have been $53.6 million, or $2.48 per share. This represents an immediate increase in pro forma net tangible book value of $1.19 per share to existing stockholders and an immediate dilution in net tangible book value of $8.52 per share to new investors. Investors participating in this offering will incur immediate, substantial dilution. The following table illustrates the per share dilution: Assumed initial public offering price per share................... $11.00 Pro forma net tangible book value per share as of June 30, 1999........................................................... $1.29 Increase in pro forma net tangible book value per share attributable to new investors.................................. $1.19 ----- Pro forma net tangible book value per share after offering........ $ 2.48 ------ Dilution per share to new investors............................... $ 8.52 ======
The following table summarizes, on a pro forma basis, as of June 30, 1999, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by the new investors purchasing shares in this offering. We have assumed an initial public offering price of $11.00 per share, and we have not deducted estimated underwriting discounts and commissions and estimated offering expenses in our calculations.
Shares Purchased Total Consideration Average ------------------ ------------------- Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- --------- Existing stockholders.......... 18,642,241 86.1% $39,382,600 54.4% $ 2.11 New investors.................. 3,000,000 13.9 33,000,000 45.6 11.00 ---------- ----- ----------- ----- ------ Total........................ 21,642,241 100.0% $72,382,600 100.0% $ 3.34 ========== ===== =========== ===== ======
This discussion of dilution, and the table quantifying it, assume no exercise of any outstanding stock options. The exercise of stock options outstanding under our stock option plans having an exercise price less than the offering price would increase the dilutive effect to new investors. If the underwriters exercise their over-allotment in full, the following will occur: . the number of shares of common stock held by existing stockholders will decrease to approximately 84.4% of the total number of shares of our common stock outstanding; and . the number of shares held by new investors will increase to 3,450,000, or approximately 15.6% of the total number of our common stock outstanding after this offering. 17 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with, and is qualified by reference to, the Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial data included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 1996, 1997 and 1998 and the balance sheet data at December 31, 1997 and 1998, are derived from and are qualified by reference to audited financial statements included elsewhere in this prospectus. The balance sheet data at December 31, 1996 is derived from audited financial statements not included in this prospectus. The statement of operations data for the six months ended June 30, 1998 and 1999, and the balance sheet data at June 30, 1999 are derived from unaudited financial statements included elsewhere in this prospectus and, in the our opinion, include all adjustments consisting solely of normal recurring accruals which are necessary to present fairly the data for those periods. Historical results are not necessarily indicative of future results and the results, for interim periods are not necessarily indicative of results to be expected for the entire year.
Year Ended Six Months December 31, Ended June 30, ------------------------ ---------------- 1996 1997 1998 1998 1999 ------ ------- ------- ------- ------- (in thousands, except per share data) Statement of Operations Data: Revenues: License .......................... $ -- $ 84 $ 3,176 $ 624 $ 3,258 Services ......................... -- 84 827 262 1,746 ------ ------- ------- ------- ------- Total revenues.................... -- 168 4,003 886 5,004 ------ ------- ------- ------- ------- Cost of revenues: License........................... -- -- 59 -- 119 Services.......................... -- 95 1,274 350 1,429 ------ ------- ------- ------- ------- Total cost of revenues............ -- 95 1,333 350 1,548 ------ ------- ------- ------- ------- Gross profit....................... -- 73 2,670 536 3,456 Operating expenses: Research and development.......... 328 884 1,797 735 1,701 Sales and marketing............... 101 1,519 4,817 1,357 5,225 General and administrative........ 91 530 1,739 572 1,244 Amortization of deferred stock- based compensation............... -- -- 812 347 1,668 ------ ------- ------- ------- ------- Total operating expenses.......... 520 2,933 9,165 3,011 9,838 ------ ------- ------- ------- ------- Loss from operations............... (520) (2,860) (6,495) (2,475) (6,382) Interest income (expense), net..... 10 (88) 151 57 154 ------ ------- ------- ------- ------- Net loss........................... $ (510) $(2,948) $(6,344) $(2,418) $(6,228) ====== ======= ======= ======= ======= Net loss per share: Basic and diluted................. $(0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66) Weighted average shares--basic and diluted.......................... 2,282 2,356 2,633 2,404 3,435 Pro forma net loss per share: Basic and diluted................. $ (0.74) $ (0.44) Weighted average shares--basic and diluted.......................... 8,530 14,000
December 31, --------------------- June 30, 1996 1997 1998 1999 ---- ------ ------- -------- (in thousands) Balance Sheet Data: Cash and cash equivalents..................... $ 17 $1,019 $ 9,022 $25,203 Working capital............................... (208) 792 8,844 22,634 Total assets.................................. 92 1,384 13,908 29,948 Long-term debt and capital lease obligations, less current portion ........................ -- 87 1,257 1,000 Mandatorily redeemable convertible preferred stock........................................ 385 4,627 20,464 45,276 Total stockholders' deficit................... (525) (3,734) (10,752) (21,155)
See Note 1 of Notes to Financial Statements for a discussion regarding computation and presentation of pro forma basic and diluted net loss per share and shares used in computing pro forma basic and diluted net loss per share. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our Financial Statements and Notes appearing elsewhere in this prospectus. OVERVIEW Interwoven was incorporated in March 1995 to provide software products and services for web content management. Designed specifically for the web, our products allow large teams of people across an enterprise to contribute and edit web content on a collaborative basis, reducing the time-to-web for critical eBusiness initiatives. From March 1995 through March 1997, we were a development stage company conducting research and development for our initial products. In May 1997, we shipped the first version of our principal product, TeamSite. We have subsequently developed and released enhanced versions of TeamSite and have introduced related products. As of June 30, 1999, we had sold our products and services to over 75 customers. We market and sell our products primarily through a direct sales force and augment our sales efforts through relationships with systems integrators and other strategic partners. We are headquartered in Sunnyvale, California and maintain additional offices in the metropolitan areas of Atlanta, Boston, Chicago, Los Angeles, Seattle and Washington, D.C. Our revenues to date have been derived exclusively from accounts in North America. In May 1999, we opened an office in the United Kingdom. We derive revenues from the license of our software products and from services we provide to our customers. To date, we have derived virtually all of our license revenues from licenses of TeamSite. License revenues are recognized when persuasive evidence of an agreement exists, the product has been delivered, no significant post-delivery obligations remain, the license fee is fixed or determinable and collection of the fee is probable. Services revenues consist of professional services and maintenance fees. Professional services primarily consist of software installation and integration, business process consulting and training. We generally bill our professional services customers on a time and materials basis and recognize revenues as the services are performed. Maintenance agreements are typically priced based on a percentage of the product license fee, and typically have a one-year term that is renewable annually. Services provided to customers under maintenance agreements include technical product support and an unspecified number of product upgrades as released by us during the term of a maintenance agreement. Revenues from maintenance support agreements are recognized ratably over the term of the agreement. Since inception, we have incurred substantial costs to develop our technology and products, to recruit and train personnel for our engineering, sales and marketing and services organizations, and to establish an administrative organization. As a result, we have incurred net losses in each quarter since inception and, as of June 30, 1999, had an accumulated deficit of $16.5 million. We anticipate that our cost of services revenues and operating expenses will increase substantially in future quarters as we grow our services organization to support an increased level and expanded number of services offered, increase our sales and marketing operations, develop new distribution channels, fund greater levels of research and development, and improve operational and financial systems. Accordingly, we expect to incur additional losses for the foreseeable future as we continue to expand our operations. In addition, our limited operating history makes the prediction of future results of operations difficult and, accordingly, there can be no assurance that we will achieve or sustain profitability. On July 1, 1999, we acquired Lexington Software Associates, Inc. As a result of this acquisition, we have substantially increased our professional services organization. The Lexington Software acquisition added 18 employees to the 118 employees we had as of June 30, 1999. See Note 9 of Notes to Financial Statements. 19 Results of Operations The following table lists, for the periods indicated, each line as a percentage of total revenues:
Years Ended Six Months Ended December 31, June 30, ---------------- ------------------- 1997 1998 1998 1999 ------- ------ -------- -------- Revenues: License.............................. 50% 79% 70% 65% Services............................. 50 21 30 35 ------- ----- -------- -------- Total revenues..................... 100 100 100 100 ------- ----- -------- -------- Cost of revenues: License.............................. -- 1 -- 2 Services............................. 57 32 40 29 ------- ----- -------- -------- Total cost of revenues............. 57 33 40 31 ------- ----- -------- -------- Gross profit........................... 43 67 60 69 ------- ----- -------- -------- Operating expenses: Research and development............. 526 45 83 34 Sales and marketing.................. 904 120 153 104 General and administrative........... 315 43 65 25 Amortization of deferred stock-based compensation........................ -- 20 39 33 ------- ----- -------- -------- Total operating expenses........... 1,745 228 340 196 ------- ----- -------- -------- Loss from operations................... (1,702) (161) (280) (127) Interest income (expense), net......... (52) 4 6 3 ------- ----- -------- -------- Net loss............................... (1,754)% (157)% (274)% (124)% ======= ===== ======== ========
Six Months Ended June 30, 1998 and 1999 Revenues Total revenues increased 456% from $900,000 for the six months ended June 30, 1998 to $5.0 million for the six months ended June 30, 1999. This increase was attributable to greater market acceptance of our products and services after their introduction in 1997 and an increase in the number of sales and marketing staff, resulting in an increased number of customers. License. License revenues increased 429% from $624,000 for the six months ended June 30, 1998 to $3.3 million for the six months ended June 30, 1999. License revenues represented 70% and 65% of total revenues, respectively, in those periods. The increase in license revenues reflects a 260% growth in customers and a 66% increase in the average contract license fee per customer. Services. Services revenues increased 549% from $262,000 for the six months ended June 30, 1998 to $1.7 million for the six months ended June 30, 1999. Services revenues represented 30% and 35% of total revenues, respectively, in those periods. The increase in services revenues reflected an increase in both professional services and maintenance fees generated from an expanded number of customers who licensed our products. Cost of Revenues License. Cost of license revenues includes expenses incurred to manufacture, package and distribute software products and related documentation, as well as costs of licensing third-party software sold in conjunction with our software products. Cost of license revenues was not significant for the six months ended June 30, 1998 and increased to $119,000 for the six months ended June 30, 1999. Cost of license revenues 20 represented 4% of license revenues in the six months ended June 30, 1999. The increase in cost of license revenues reflects increased sales of third-party products sold in conjunction with our software products. Cost of license revenues may fluctuate from period to period as we sell higher or lower numbers of third-party products. Services. Cost of services revenues consists primarily of salary and related costs of our professional services, training, maintenance and support staffs, as well as subcontractor expenses. Cost of services revenues increased 300% from $350,000 for the six months ended June 30, 1998 to $1.4 million for the six months ended June 30, 1999. Cost of services revenues represented 134% and 82% of services revenues, respectively, in those periods. This increase in dollar amounts was directly attributable to an increase in the number of in- house and subcontracted staff used to provide services to our expanded customer base. We expect our cost of services revenues to increase in dollar amounts as a result of the increased staffing of our professional services organization due to our acquisition of Lexington Software and through our continued expansion of our services staff and consulting organizations. Since services revenues have substantially lower margins than license revenues, this expansion would reduce our gross margins if our license revenues were not to increase significantly. We expect cost of services revenues as a percentage of services revenues to vary from period to period depending on the mix of services we provide, whether the services are performed by our in-house staff or subcontractors, and the overall utilization rates of professional services staff. Gross Profit Gross profit increased 553% from $536,000 for the six months ended June 30, 1998 to $3.5 million for the six months ended June 30, 1999. Gross profit represented 60% and 69% of total revenues, respectively, in those periods. This increase in dollar amounts reflects increased license and services revenues from a growing customer base. We expect gross profit as a percentage of total revenues to fluctuate from period to period as a result of changes in the relative proportion of license and services revenues. Operating Expenses Research and Development. Research and development expenses consist primarily of personnel and related costs to support product development. Research and development expenses increased 131% from $735,000 for the six months ended June 30, 1998 to $1.7 million for the six months ended June 30, 1999, representing 83% and 34% of total revenues, respectively, in those periods. This increase in dollar amounts was due to increases in the number of product development personnel. We believe that continued investment in research and development is critical to our strategic objectives, and we expect that the dollar amounts of research and development expenses will increase in future periods. To date, all software development costs have been expensed in the period incurred. Sales and Marketing. Sales and marketing expenses consist primarily of salaries and related costs for sales and marketing personnel, sales commissions, travel and marketing programs. Sales and marketing expenses increased 271% from $1.4 million for the six months ended June 30, 1998 to $5.2 million for the six months ended June 30, 1999, representing 153% and 104% of total revenues, respectively, in those periods. This increase in dollar amounts reflects increases in the number of our sales and marketing personnel costs of $1.6 million, higher sales commissions and bonuses of $1.0 million and increased marketing related costs of $200,000. We expect to continue to invest heavily in sales and marketing in order to expand our customer base and increase brand awareness. We also anticipate that the percentage of total revenues represented by sales and marketing expenses will fluctuate from period to period primarily depending on when we hire new sales personnel, the timing of new marketing programs and the levels of revenues in each period. General and Administrative. General and administrative expenses consist primarily of salaries and related costs for accounting, human resources, legal and other administrative functions, as well as provisions for doubtful accounts. General and administrative expenses increased 110% from $572,000 for the six months 21 ended June 30, 1998 to $1.2 million for the six months ended June 30, 1999, representing 65% and 25% of total revenues, respectively. This increase in dollar amounts was due to additional staffing of these functions to support expanded operations during this same period. We expect general and administrative expenses to increase in dollar amounts in 1999 as we add personnel to support expanding operations, incur additional costs related to the growth of our business, and assume the reporting requirements of a public company. Amortization of Deferred Stock-Based Compensation. In 1998 and the first six months of 1999, we recorded deferred stock-based compensation of $1.9 million and $6.7 million in connection with stock options granted during 1998 and 1999, respectively. These amounts represent the difference between the exercise price of stock options granted during those periods and the deemed fair value of our common stock at the time of the grants. Amortization of deferred stock-based compensation was $347,000 and $1.7 million for the six months ended June 30, 1998 and 1999, respectively. We expect per quarter amortization related to these options of approximately $1.0 million during the remainder of 1999, between $500,000 and $750,000 during 2000, between $270,000 and $400,000 during 2001, between $100,000 and $185,000 during 2002 and $50,000 in the quarter ended March 31, 2003. Interest Income (Expense), Net Interest income, net, increased from $57,000 for the six months ended June 30, 1998 to $154,000 for the six months ended June 30, 1999 due to higher average cash balances. Income Taxes As of June 30, 1999, we had approximately $10.8 million of federal and $1.7 million of state net operating loss carryforwards available to reduce future taxable income, expiring in 2015 and 2010 for federal and state tax purposes, respectively. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited. Events which cause limitation in the amount of net operating losses that we may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. We have provided a full valuation allowance on the deferred tax asset because of the uncertainty regarding its realization. Our accounting for deferred taxes under Statement of Financial Accounting Standards No. 109 involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In concluding that a full valuation allowance was required, management primarily considered factors such as our history of operating losses and expected future losses and the nature of our deferred tax assets. See Note 5 of Notes to Financial Statements. Years Ended December 31, 1996, 1997 and 1998 Revenues We had no revenues in 1996. Total revenues increased from $168,000 in 1997 to $4.0 million in 1998. This increase was attributable to greater market acceptance of our software products after their introduction in 1997 and an increase in the number of sales and marketing staff, resulting in an increased number of customers. License. License revenues increased from $84,000 in 1997 to $3.2 million in 1998. License revenues represented 50% and 79% of total revenues, respectively, in those periods. The increase in license revenues reflects growth from the low level of revenue in 1997, our first year in which we licensed our products. Services. Services revenues increased from $84,000 in 1997 to $827,000 in 1998. Services revenues represented 50% and 21% of total revenues, respectively, in those periods. The increase in services revenues reflects an increase in both professional services and maintenance fees generated from an expanded number of customers who licensed our products. 22 Cost of Revenues License. We had no cost of license revenues in 1996 or 1997. Cost of license revenues in 1998 was $59,000 and represented 2% of license revenues in 1998. The increase in cost of license revenues reflects increased sales of third- party products sold in conjunction with our software products. Services. We had no cost of services revenues in 1996. Cost of services revenues increased from $95,000 in 1997 to $1.3 million in 1998. Cost of services revenues represented 113% and 154% of services revenues, respectively, in those periods. This increase was due to an increase in the number of in- house and subcontracted staff used to provide services to our expanded customer base. Gross Profit Gross profit increased from $73,000 in 1997 to $2.7 million in 1998, representing 43% and 67% of total revenues, respectively, in those periods. This increase reflected increased license and services revenues from a growing customer base. Operating Expenses Research and Development. Research and development expenses increased from $328,000 in 1996 to $884,000 in 1997 and $1.8 million in 1998. Research and development expenses represented 526% and 45% of total revenues in 1997 and 1998, respectively. This increase in dollar amounts was due to increases in the number of product development personnel. Sales and Marketing. Sales and marketing expenses increased from $101,000 in 1996 to $1.5 million in 1997 and $4.8 million in 1998. Sales and marketing expenses represented 904% and 120% of total revenues in 1997 and 1998, respectively. The increase in dollar amounts from 1996 to 1997 reflects increases in sales and marketing personnel costs of $900,000 and increased marketing related costs of $100,000. The increase in dollar amounts from 1997 to 1998 reflects increases in sale and marketing personnel costs of $1.4 million, higher sales commissions and bonuses of $900,000 and increased marketing related costs of $200,000. General and Administrative. General and administrative expenses increased from $91,000 in 1996 to $530,000 in 1997 and $1.7 million in 1998, representing 315% and 43% of total revenues in 1997 and 1998, respectively. This increase in dollar amounts reflects additional staffing of these functions to support expanded operations during this same period. Amortization of Deferred Stock-Based Compensation. In 1998 we recorded deferred stock-based compensation of $1.9 million, $812,000 of which was amortized in 1998. Interest Income (Expense), Net Interest income, net, decreased from $10,000 in 1996 to a net interest expense of $88,000 in 1997 and increased to a net interest income of $151,000 in 1998. The decrease from 1996 to 1997 reflected increased interest expense on promissory notes issued in conjunction with the sale of our preferred stock. The increase from 1997 to 1998 was due to increased interest income earned from cash balances on hand as a result of sales of our preferred stock in March, October, November and December 1998, partially offset by increased interest expense. 23 Quarterly Results of Operations The following tables set forth our unaudited statements of operations data in dollars and as a percentage of total revenues for each of our last six quarters. This data has been derived from unaudited financial statements that have been prepared on the same basis as our annual audited financial statements and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information. These unaudited quarterly results should be read in conjunction with the annual audited financial statements and notes thereto appearing elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of the results for any future period.
Three Months Ended ---------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, 1998 1998 1998 1998 1999 1999 --------- -------- --------- -------- --------- -------- (in thousands) Statement of Operations Data: Revenues: License............... $ 187 $ 437 $ 946 $ 1,606 $ 1,360 $ 1,898 Services.............. 44 218 277 288 742 1,004 ----- ------- ------- ------- ------- ------- Total revenues....... 231 655 1,223 1,894 2,102 2,902 ----- ------- ------- ------- ------- ------- Cost of revenues: License............... -- -- 19 40 15 104 Services.............. 75 275 441 483 549 880 ----- ------- ------- ------- ------- ------- Total cost of revenues............ 75 275 460 523 564 984 ----- ------- ------- ------- ------- ------- Gross profit......... 156 380 763 1,371 1,538 1,918 ----- ------- ------- ------- ------- ------- Operating expenses: Research and development.......... 282 453 492 570 779 922 Sales and marketing... 473 884 1,603 1,857 2,287 2,938 General and administrative....... 185 387 563 604 598 646 Amortization of deferred stock-based compensation......... 151 196 217 248 640 1,028 ----- ------- ------- ------- ------- ------- Total operating expenses............ 1,091 1,920 2,875 3,279 4,304 5,534 ----- ------- ------- ------- ------- ------- Loss from operations.... (935) (1,540) (2,112) (1,908) (2,766) (3,616) Interest income, net.... 4 53 32 62 65 89 Net loss................ $(931) $(1,487) $(2,080) $(1,846) $(2,701) $(3,527) ===== ======= ======= ======= ======= =======
Three Months Ended -------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, 1998 1998 1998 1998 1999 1999 --------- -------- --------- -------- --------- -------- As a Percentage of Total Revenues: Revenues: License............... 81% 67% 77% 85% 65% 65% Services.............. 19 33 23 15 35 35 ---- ---- ---- ---- ---- ---- Total revenues....... 100 100 100 100 100 100 ---- ---- ---- ---- ---- ---- Cost of revenues: License............... -- -- 2 2 1 4 Services.............. 32 42 36 26 26 30 ---- ---- ---- ---- ---- ---- Total cost of revenues............ 32 42 38 28 27 34 ---- ---- ---- ---- ---- ---- Gross profit......... 68 58 62 72 73 66 ---- ---- ---- ---- ---- ---- Operating expenses: Research and development.......... 122 69 40 30 37 32 Sales and marketing... 205 135 131 98 109 101 General and administrative....... 80 59 46 32 28 22 Amortization of deferred stock-based compensation......... 65 30 18 13 30 35 ---- ---- ---- ---- ---- ---- Total operating expenses............ 472 293 235 173 204 190 ---- ---- ---- ---- ---- ---- Loss from operations.... (404) (235) (173) (101) (131) (124) Interest income, net.... 2 8 3 3 3 3 Net loss................ (402)% (227)% (170)% ( 98)% (128)% (121)% ==== ==== ==== ==== ==== ====
24 Our license and services revenues have grown in each of the six quarters in the period ended June 30, 1999, except that our license revenues declined in the three month period ended March 31, 1999 from that in the three month period ended December 31, 1998. This decline reflected the unusually high revenues in the prior period, due in part to a few large license sales in that period. In addition, many companies that license enterprise-scale software products to large customers experience seasonal declines in the first fiscal quarter following the end of their fiscal year. Because of our limited operating history, we do not know whether this pattern was responsible for the declines in the three months ended March 31, 1999, or whether it will apply to future quarterly results. As a general matter, we depend on sales to a relatively few large customers. As a result, our revenues are subject to period-to-period fluctuations reflecting the impact of a few large sales. Increased services revenues beginning in the three month period ended March 31, 1999 reflect an increase in both professional services and maintenance fees generated from an expanded number of customers which had licensed our products in prior periods, and an increase in the number of professional services staff and a higher effective staff utilization rate. As a result of our limited operating history and the emerging nature of the market for web content management software and services in which we compete, it is difficult for us to forecast our revenues or earnings accurately. It is possible that in some future periods our results of operations may not meet or exceed the expectations of public market analysts and investors. If this occurs, the price of our common stock is likely to decline. Factors that have caused our results to fluctuate in the past, and are likely to cause fluctuations in the future, include: . the size of customer orders and the timing of product and service deliveries; . variability in the mix of products and services sold; . our ability to retain our current customers and attract new customers; . the amount and timing of operating costs relating to expansion of our business, including our planned international expansion; . the announcement or introduction of new products or services by us or our competitors; . our ability to attract and retain personnel, particularly management, engineering and sales personnel and technical consultants; . our ability to upgrade and develop our systems and infrastructure to accommodate our growth; and . costs related to acquisition of technologies or businesses. In addition, our products are typically shipped when orders are received, so license backlog at the beginning of any quarter in the past has represented only a small portion of expected license revenues for that quarter. Moreover, we typically recognize a substantial percentage of revenues in the last month of the quarter, frequently in the last week or even the last days of the quarter. As a result, at the beginning of a quarter we have no assurance about the levels of sales in that quarter, and the delay or cancellation of any large orders can result in a significant shortfall from anticipated revenues. These factors make license revenues in any quarter difficult to forecast. Since our expenses are relatively fixed in the near term, any shortfall from anticipated revenues, could result in significant variations in operating results from quarter to quarter and harm to our business. As a result of these and other factors, we believe that period-to-period comparisons of our results of operations may not be meaningful and should not be relied upon as indicators of our future performance. 25 Liquidity and Capital Resources Since inception, we have funded our operations through private sales of equity securities. We raised a total of $37.0 million, net of offering costs, from the issuance of preferred stock. At June 30, 1999, our sources of liquidity consisted of $25.2 million in cash and cash equivalents and $22.6 million in working capital. We have a $3.0 million line of credit and a $1.5 million equipment line of credit with Silicon Valley Bank, each of which bear interest at the bank's prime rate, which was 7.75% at June 30, 1999, plus 0.25%. At June 30, 1999, the line of credit was unused and $1.5 million was outstanding under the equipment line of credit. The lines of credit are secured by all of our tangible and intangible assets, and contain financial covenants including revenue performance levels and minimum levels of working capital. We intend to maintain both lines of credit. We are currently in compliance with all related financial covenants and restrictions. Net cash used in operating activities was $2.7 million in 1997 and $6.0 million in 1998. Net cash used in operating activities in 1997 and 1998 reflected net losses and, to a lesser extent, accounts receivable, offset in part by increases in accrued liabilities. Net cash used in operating activities was $2.2 million in the six months ended June 30, 1999. Net cash used in operating activities reflected increasing net losses offset in part by reductions in accounts receivable and increases in accounts payable. From inception, our investing activities have consisted primarily of purchases of property and equipment, principally computer hardware and software for our growing number of employees. Capital expenditures, including those under capital leases, totaled $176,000, $1.7 million and $561,000 in 1997, 1998 and the six months ended June 30, 1999, respectively. We expect that capital expenditures will increase with our anticipated growth in operations, infrastructure and personnel. As of June 30, 1999 we had no material capital expenditure commitments, other than the acquisition of Lexington Software Associates, Inc. discussed in Note 9 to our Notes to Financial Statements. We do not expect to incur significant costs to make our products or internal information systems Year 2000 compliant because we believe these products and information systems are designed to function properly through and beyond year 2000. Net cash provided by financing activities in 1997, 1998 and the first six months of 1999 was $3.9 million, $15.8 million and $18.9 million, respectively. Net cash provided by financing activities reflected primarily the proceeds of issuances of preferred stock in each of these periods, and, in 1998, included proceeds from a bank line of credit. We believe that the net proceeds of this offering, together with cash and cash equivalents, and funds available under existing credit facilities, will be sufficient to meet our working capital requirements for at least the next 12 months. Thereafter, we may require additional funds to support our working capital requirements or for other purposes and may seek to raise additional funds through public or private equity financing or from other sources. There can be no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our products, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, financial condition and operating results. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"). SFAS 133 is effective for all fiscal quarters beginning with the quarter ending June 30, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. We will adopt SFAS No. 133 in the quarter ending June 30, 2000 and do not expect its adoption to have an impact on our results of operations, financial position or cash flows. 26 Qualitative and Quantitative Disclosures About Market Risk We develop products in the United States and market our products in North America, and, to a lesser extent in Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since all of our revenue is currently denominated in U.S. Dollars, a strengthening of the Dollar could make our products less competitive in foreign markets. Our interest income and expense is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our financial investments are short-term. Due to the short-term nature of our financial investments, we believe that there is not a material risk exposure. Year 2000 Compliance The Year 2000 issue refers generally to the problems that some software may have in determining the correct century for the year. For example, software with date-sensitive functions that is not Year 2000 compliant may not be able to distinguish whether "00" means 1900 or 2000, which may result in system failures or erroneous results. We have conducted a Year 2000 readiness review for the current and prior versions of our products. The review includes: . assessment; . implementation, including remediation, upgrading and replacement of non- compliant product versions; . validation testing; and . contingency planning. We have completed all phases of our plan, except for contingency planning, with respect to the current and prior versions of all of our products. As a result, the current and prior versions of each of our products are Year 2000 compliant when configured and used in accordance with the related documentation, and provided that the underlying operating system of the host machine and any other software used with or in the host machine or our products are also Year 2000 compliant. We define "Year 2000 compliant" as the ability to: . correctly handle date information needed for the December 31, 1999 to January 1, 2000 date change; . function according to the product documentation provided for this date change, without changes in operation resulting from the advent of a new century, assuming correct configuration; . where appropriate, respond to two-digit date input in a way that resolves the ambiguity as to century in a disclosed, defined, and predetermined manner; . store and provide output of date information in ways that are unambiguous as to century if the date elements in interfaces and data storage specify the century; and . recognize year 2000 as a leap year. We have not tested our products on all platforms or all versions of operating systems that our products currently support. We are testing licensed software, shareware and freeware obtained from third parties that is incorporated into our products or sold in conjunction with our products, and have assurances from our vendors that this licensed software is Year 2000 compliant. Despite our testing, our products may contain undetected errors or defects associated with Year 2000 date functions. Known or unknown errors or defects in our products could result in: . delay or loss of revenue; . diversion of development resources; 27 . damage to our reputation; . increased service and warranty costs; or . liability from our customers. Accordingly, errors or defects in our products could seriously harm our business. Some commentators have predicted significant litigation regarding Year 2000 compliance issues, and we are aware of lawsuits against other software vendors. Because of the unprecedented nature of this litigation, it is uncertain whether or to what extent we will be affected by it. Our internal systems include both our computer and network systems and other systems. We have initiated an assessment of our most important computer and network systems and expect to complete the assessment by December 1999. We have not yet begun to assess the Year 2000 compliance of our other systems, but we expect to complete this assessment by December 1999. To the extent that we are not able to assess the technology provided by third-party vendors, we are seeking assurances from them that their systems are Year 2000 compliant. Although we are not currently aware of any material operational issues or costs associated with preparing these systems for the Year 2000, we may experience unanticipated problems and costs caused by undetected errors or defects in the technology used in these systems. We currently have only limited information concerning the Year 2000 compliance status of our customers. As is the case with other similarly situated software companies, if our current or future customers fail to achieve Year 2000 compliance or if they divert technology expenditures, especially technology expenditures that were reserved for enterprise software, to address Year 2000 compliance problems, our business could be harmed. We have funded our Year 2000 plan from available cash and have not separately accounted for these costs in the past. To date, these costs have not been material. We expect to incur additional costs related to the Year 2000 plan for: . administrative personnel to manage the project; . outside contractor assistance; . technical support for our products; and . product engineering and customer satisfaction. We may experience material problems and costs with Year 2000 compliance that could harm our business. We have not yet developed a contingency plan to address situations that may result if we are unable to achieve Year 2000 readiness of our critical operations and do not anticipate the need to do so. The cost of developing and implementing a plan may itself be material. Finally, we are also subject to external forces that might generally affect industry and commerce, such as utility or transportation company Year 2000 compliance failures and related service interruptions. 28 BUSINESS Overview Interwoven is a leading provider of software products and services that help businesses and other organizations manage the information that makes up the content of their web sites. In the Internet industry this is often referred to as "web content management." Our flagship software product, TeamSite, is designed to help customers develop, maintain and extend large web sites that are essential to their businesses. TeamSite incorporates widely accepted Internet industry standards and is designed with an open architecture that allows it to support a wide variety of web authoring tools and web application servers. Using TeamSite, our customers can manage web content, control the versions of their web sites, manage web site contribution and content approval processes, and develop eBusiness applications. TeamSite allows large numbers of contributors across an enterprise to add web content in a carefully-managed process. In addition, our OpenDeploy product allows customers to automate the distribution of web content across multiple web sites. By using our products, businesses can accelerate their time-to-web, lower web operating costs, establish a differentiated presence on the web and attract and retain customers. Currently, we have licensed our software products to over 85 customers operating in a broad range of industries. Our customers include AltaVista, AT&T/TCI, BellSouth, Best Buy, Cisco Systems, FedEx, Gap, General Electric, the U.S. Department of Education, USWeb/CKS, Viacom/Nickelodeon and Yahoo!/GeoCities. Industry Background The use of the Internet to communicate and conduct business is increasing rapidly. Companies are accelerating their movement to the Internet to capitalize on new business opportunities, reach broader consumer audiences and reduce operational costs. Forrester Research estimates that the business-to- consumer Internet commerce market in the U.S. will grow from $7.8 billion in 1998 to $108.0 billion in 2003. In addition, Forrester Research estimates that the business-to-business Internet commerce market in the U.S. will grow from $43.1 billion in 1998 to $1.3 trillion in 2003. Migrating to the Web. As leading companies demonstrate revenue growth and achieve competitive advantage by using the Internet, chief executives and other senior corporate decision makers are realizing that eBusiness initiatives are critical for the success of their businesses. As a result, many companies are developing eBusiness applications to enable them to market and sell products and services to consumers online, offer web-based customer self-service programs, implement business-to-business supply chain management solutions, and migrate other operational functions online. IDC estimates that spending on software applications and services for Internet commerce will grow from $7.8 billion in 1998 to $53.8 billion in 2002. Moving Online Successfully. To compete online and to capitalize on Internet revenue opportunities, businesses must rapidly build a differentiated presence on the web and must continuously maintain and extend that presence. Since first-mover advantage is amplified on the web, companies must deploy high quality eBusiness applications quickly to create an online brand and establish a loyal base of customers. Accelerating the time required to develop and deploy eBusiness applications, or time-to-web, is essential to attracting customers and generating revenue opportunities. In addition, to retain customers, a company must differentiate its web site from competing sites by offering rich, accurate and relevant content. Once customers discover value in a web site, they may be less likely to visit competing web sites. Web site reliability is also important, since customers are only a click away from competitors' sites and may lose patience with an incomplete or non-functioning web site. Moreover, poor quality web sites can easily damage a business' online brand. Evolving Web Sites. As a result of this competitive environment and the available online business opportunities, web sites have rapidly evolved from simple online corporate brochures to complex online storefronts. Early web sites contained relatively limited content, consisting primarily of static text and simple graphics. This content was infrequently updated and web sites required only a few developers to build and maintain them. Today, companies are seeking to differentiate their online presence and to become leaders on the Internet by transforming their businesses through sophisticated eBusinesses applications featuring content-rich web sites. In many cases, the content on these web sites must be updated on a daily or hourly basis 29 to meet consumer expectations and to exploit emerging business opportunities. For example, a large online retailer may need to showcase tens of thousands of products through the use of graphic images and product descriptions. All of this information must be continuously refreshed as products are introduced or discontinued and as descriptive product information is revised. As the volume of web content has grown and sophisticated eBusiness applications have emerged, the responsibility for the development and management of web content has shifted from a few developers in small web teams to many contributors working in different departments across the enterprise. Furthermore, the large number of web authoring tools and web application servers required by these applications have contributed to the increasing technological complexity involved in developing these web sites. Managing Web Content. Web content, such as high-resolution graphics, audio segments, video clips, hyperlinked text and executable software, is the basis for every web page and most eBusiness applications. IDC estimates that the number of web pages will grow from 925 million in 1998 to 13.1 billion in 2003. In addition, complex eBusiness initiatives may contain hundreds of thousands of web pages. This dramatic growth in content has created a strong need for solutions to content management problems. These solutions must be highly automated to accommodate the volume, complexity and variability of this web content. In addition, these solutions must leverage existing investments in information technology, be highly scalable, and enable participation by increasing numbers of content contributors. IDC estimates that one of the markets in which we participate, which IDC refers to as the "web development life-cycle management software" market, will grow from $76.4 million in 1998 to $1.6 billion in 2003. Market Opportunity. Until recently, businesses have attempted to satisfy their web content management needs largely through in-house solutions. In-house solutions can be expensive and difficult to maintain, which can increase the risk of delaying the launch of important eBusiness initiatives. For example, in-house solutions may need to be extensively re-engineered each time a new web authoring tool or eBusiness application is introduced. Other businesses have used third-party solutions, typically turning to either workgroup software or web publishing software. Workgroup software is generally designed to enable small groups of developers to manage relatively simple web sites. They generally do not scale to support large numbers of contributors or the increasing complexity and volume of web content. Using workgroup software may impair a company's ability to deliver up-to-date and accurate web content. Web publishing software is generally designed only to collect and display information on a web site, and because it is often proprietary, does not accommodate many popular web authoring tools or web application servers. In addition, other third-party solutions do not allow large numbers of contributors to add content to a web site, do not allow web teams to work on applications simultaneously, and do not integrate new web technologies easily, thereby slowing the deployment of eBusiness initiatives. With the proliferation of eBusiness initiatives, the need has emerged for a common infrastructure, or "platform," that can enable large and diverse groups of content contributors, accommodate popular web authoring tools, and integrate to leading web application servers. An open architecture for such a platform enables customers to leverage their existing investments in information technology and facilitates rapid adoption of new web technologies and standards. 30 The Interwoven Solution Interwoven is a leading provider of web content management software that serves as a platform from which our customers may develop multiple eBusiness applications. Our software products are specifically designed to help our customers rapidly and efficiently build, maintain and extend large web sites and eBusiness initiatives that are essential to their businesses. [graphic representing web software positioning (p. 31)] A multi-layer graphical representation of web software positioning from development to delivery. The top layer consists of four boxes. The box on the far left reads "Customer Relationship Management." The next box to the right reads "Electronic Commerce." The next box to the right reads "Knowledge Management." The next box to the right reads "Global Supply Chain." The layer immediately below the top layer reads "Web Application Servers." The next layer down contains the Interwoven logo and reads "Deploy," "QA" and "Develop" and a description to the left of the layer reads "Content Management." The next layer down reads "Web Authoring Tools." The bottom layer consists of three boxes. The box on the far left reads "Non-Technical Contributors." The next box to the right reads "Business Contributors." The next box to the right reads "Technical Contributors." Our products offer customers the following primary benefits: Accelerate eBusiness Revenue Opportunities. Our products enable customers to migrate their businesses to the web rapidly, thereby increasing their ability to generate more revenues and compete more effectively. Today, the volume and complexity of web content and the number of eBusiness applications continue to grow so rapidly that it can be difficult for businesses to meet their web site development schedules. Our products enable customers to develop and deploy multiple eBusiness applications simultaneously. This approach allows companies to complete their eBusiness initiatives more rapidly. In addition, our products allow content contributors to perform quality assurance functions on content modifications, which significantly reduces testing time. Reduce Cost of Web Operations. Complex web sites can consist of up to hundreds of thousands of pages containing both static and dynamic content supplied by departments throughout the enterprise. As a result, these sites can be expensive to deploy and manage. Our products lower the costs of web operations primarily by reducing the dependency on specialized web development personnel and by improving operating efficiency through automation of workflow processes, such as task assignment, routing, and approval. Automated workflow processes can reduce the time required to assemble, test and validate new web content. In addition, our products support evolving web standards and our open architecture is compatible with third-party web authoring tools and web application servers. As a result, businesses can productively leverage their existing information technology infrastructure. 31 Create Highly Differentiated Web Sites. To attract and retain online customers, today's leading web sites continuously enhance their users' online experience. Businesses seek to achieve this by introducing new web technologies and refreshing content frequently. The open architecture of our products facilitates rapid integration of new web technologies and simultaneous development of multiple eBusiness applications, such as global supply chain management, customer relationship management, knowledge management and e- commerce applications. In addition, our products are highly scalable, permitting the collaborative efforts of hundreds of contributors to be coordinated as the need arises. Improve Web Site Quality. Protecting brand and image online has become critical for companies doing business on the Internet. Non-functioning or poor quality sites can significantly harm a business' online brand. With TeamSite, companies can create reliable, high-quality web sites. TeamSite enables our customers to conduct comprehensive testing of the entire web site as it is built, updated or extended. In addition, TeamSite promotes individual accountability, and faster and more accurate authoring, by enabling all web developers and content contributors to control their own portion of the quality assurance and test process. This improves a site's overall quality. By using sophisticated workflow processes to maintain quality control, TeamSite also ensures that no unauthorized or unapproved content or application is deployed to the customer's site. The Interwoven Strategy Our goal is to establish our software as the platform of choice for web content management across the enterprise. To achieve this goal, we intend to pursue the following key strategies: Extend Our Position as a Leading Provider of Content Management Software Products. We intend to extend our leadership in content management solutions by continuing to offer a comprehensive, easy-to-use software products. Our feature-rich products address our customers' complete eBusiness life-cycle needs as they build, maintain and extend their web sites. We intend to expand our leadership position by introducing enhanced web content management products that assist our customers in accelerating their eBusiness initiatives, and aggressively increasing our sales and marketing efforts. Become the Preferred Web Development Platform for Industry-Leading Internet Technology Vendors. We intend to increase demand for our products among the customers of industry-leading Internet technology vendors. We intend to do so by providing a robust web development platform to complement their own eBusiness production applications. Unlike existing closed-architecture, or proprietary products, our products are designed to integrate easily with the products of industry-leading technology providers. This is attractive to Internet technology vendors because it expands their markets and eliminates costly integration and customization. We intend to continue to strengthen our existing relationships with vendors such as Allaire, ATG, BroadVision, IBM, InterWorld, Microsoft and Netscape. We also intend to enter into additional relationships with other leading technology providers, including additional reseller relationships. We believe our products can become widely adopted as a standard web development platform across Internet technology vendors. Expand Relationships with Systems Integrators and Internet Professional Services Firms. We have begun establishing relationships with leading systems integrators, such as Andersen Consulting, and Internet professional services firms, such as USWeb/CKS. These firms provide consulting services to assist their clients in designing and developing eBusiness applications. Our existing relationships with the leading systems integrators and Internet professional services firms have allowed us to expand our market reach and increase our access to senior decision makers. These firms have significant influence on a customer's technology selection, and their recommendations represent significant endorsements. We intend to continue to expand and build additional relationships with key systems integrators and Internet professional services firms. Extend our Technology Leadership Through Adherence to Industry Standards. Our products integrate easily and cost-effectively with web authoring tools and web application servers offered by other Internet technology vendors. In addition, our products have been designed to meet the demanding openness and scalability required of Internet software products. Our open architecture supports web authoring tools and web application servers that adhere to industry standards. The scalability of our products allows customers to manage hundreds of thousands of computer files that contain web content and enables hundreds of employees throughout the enterprise to contribute web content. We intend to continue to invest significantly in research 32 and development to increase the functionality of our products while adopting industry standards. We also intend to continue to participate actively in the promotion of industry standards, such as XML. Increase International Sales. As the Internet adoption rate accelerates overseas, we believe that significant international market demand will exist for content management solutions, especially in Europe and Asia. We intend to devote significant resources to penetrate international markets. To that end, we have begun expanding our overseas direct and indirect sales channels and our international marketing presence. We have recently opened an office in the United Kingdom, and intend to open offices in Asia during the next twelve months. Products and Services Our product line consists of TeamSite, our web content management product, and OpenDeploy, our web content replication and syndication product. We generally license our products on a per-server and per-user basis and occasionally on an enterprise or site license basis. We also provide services, including professional services, maintenance and support. The following table highlights the features of our products: Product Description Server Platforms
TeamSite 3.1 Server-based content management . Sun Solaris application . Windows NT . allows numerous developers and contributors to add content to a web site . interoperates with leading web authoring tools and web application servers . SmartContext Editing allows direct edits to web site content through a simple browser interface . supports simultaneous eBusiness application development and deployment . offers real-time testing capability and sophisticated workflow processes . offers comprehensive file versioning and whole-site versioning - -------------------------------------------------------------------------------- TeamSite Server-based content templating . Sun Solaris Templating application . Windows NT . allows content contribution using standard templates . promotes participation from non- technical contributors . allows contribution through standard web browsers . optional software module licensed with TeamSite - -------------------------------------------------------------------------------- TeamSite Reporting and auditing application . Sun Solaris Global . allows administrators to monitor system . Windows NT Report activity Center . delivers sophisticated reporting and auditing functionality . optional software module licensed with TeamSite - -------------------------------------------------------------------------------- OpenDeploy 3.0 Content replication and distribution . Sun Solaris application . Windows NT . transfers content among multiple web . IBM AIX servers simultaneously . Silicon . enables automated scheduling of web Graphics IRIX site updates . ensures conformity of web site roll-out . offers secure and transactional content deployment over the Internet - -------------------------------------------------------------------------------- 33 TeamSite -- Content Management Our flagship product, TeamSite, is a software product that is designed to develop, maintain and extend large web sites. Web Content Management. TeamSite is designed to version, manage and control all web content. It supports parallel, distributed content contribution across the enterprise. TeamSite allows large numbers of contributors across an enterprise to add web content in a carefully-managed process. TeamSite is compatible with leading web authoring tools and web application servers, allowing businesses to leverage existing investments in information technology systems, content and expertise. This enables a faster time-to-web for eBusiness initiatives. TeamSite captures and stores the history of all modifications to the web content. These content histories, or versions, are managed and tracked for individual web files and for whole web sites. Workflow. TeamSite is designed for a diverse group of users, including non-technical and technical users, participating in building and contributing content to the web site operations. To facilitate the management of these web content contributors, TeamSite automates workflow processes such as task assignment, resource scheduling, content routing, content approval and web site release. Web Application Development. TeamSite provides programmers with a software development system that accommodates their choice of software development tools. TeamSite's computer file versioning features allow programmers to track software code modifications. Using TeamSite, programmers can reduce the time required to build, install and test the developed software code by working in a copy of the running web site. The architecture of TeamSite enables businesses to implement it without making significant changes to their existing web content or systems architecture, resulting in rapid implementation. Additionally, TeamSite's open architecture allows customers to use their preferred web content authoring software, web application servers and other web-based technologies. TeamSite currently operates on Sun Solaris and Microsoft Windows NT operating systems. TeamSite was first shipped in May 1997. We first shipped the current version of TeamSite, TeamSite 3.1, in May 1999. We also license optional software modules with TeamSite that extend its functionality. TeamSite Templating allows web content to be contributed using customer-defined templates, thereby eliminating the need for contributors to be familiar with HTML or client-side applications. TeamSite Global Report Center enables TeamSite administrators to generate reports on web operations activity. OpenDeploy -- Content Replication and Syndication Our OpenDeploy software product transfers web content from development to production web servers. OpenDeploy automates the process of synchronizing web sites through the precise distribution of content across distributed networks of web production servers. By automating the process of distributing web content frequently to multiple web servers, business can maximize web site availability and minimize web site access time. Customers using OpenDeploy can also automate the scheduled deployment of content. We believe that OpenDeploy provides the most effective method for distribution and integration of dynamic content across web sites. OpenDeploy is typically licensed with TeamSite by our customers, but it may be used on a stand-alone basis. OpenDeploy encrypts content for secure transfer over TCP/IP. The version of OpenDeploy shipped within the United States uses 128-bit SSL encryption. Due to U.S. export regulations, the international version does not utilize encryption. OpenDeploy operates on Sun Solaris, Microsoft Windows NT, IBM AIX and Silicon Graphics IRIX operating systems. We first shipped OpenDeploy in January 1998. The current version of OpenDeploy 3.0, was first shipped in May 1999. Interwoven Services Our services organization consists of 41 professional employees who utilize a comprehensive methodology to deliver our web content management products to our customers. These services professionals may configure 34 each solution they deliver to meet the specific needs of the customer. We sell our services in conjunction with licenses of our software products and include: .needs analysis and web operations strategy; .software installation and configuration support; .project management; .workflow mapping; .content and web site release management; and .education and training. In addition to professional services, we offer various levels of product maintenance to our customers. Maintenance services are typically subject to an annual, renewable contract and are typically priced as a percentage of product license fees. Customers under maintenance contracts receive technical product support and product upgrades as they are released throughout the life of the maintenance contracts. Technology We believe that our technology offers our customers and partners a highly- scalable web content management solution that is implemented through an open architecture that incorporates widely accepted Internet industry standards and supports a wide variety of web-based software applications. Our products are specifically designed for the web. Our customers typically use our technology as the platform to manage their enterprise-wide web content operations. Content Management Process. The following graph illustrates how TeamSite manages content: [flow diagram representing web workflow process (p. 35)] A flow chart consisting of several icons representing the web workflow process. The column of icons on the far left consists of (from top to bottom) an icon of cascading pages labeled "Text, graphics, audio;" an icon of cascading pages labeled "Templates;" an icon of cascading pages labeled "Executable code & scripts;" and a cylindrical icon labeled "Database." Arrows lead from this column of icons to two circular icons to the right labeled "Work Areas." Arrows lead from here through a user approval area to a large rectangular icon of cascading pages labeled "Staging Area." An arrow leads from here through a final approval area to another large rectangular icon of cascading pages labeled "Edition." Three arrows lead to the right from this icon to a column of cylindrical icons labeled "E-Commerce," "Intranet" and "syndicated Extranet." Collaboration Through Work Areas, Staging Areas and Editions. TeamSite provides a virtual work area for each contributor. A virtual work area is a local, desktop web site representation that appears to a contributor as a complete, fully-functioning web site. This provides web developers and contributors the ability to see changes instantaneously in the development environment as they would appear in the actual production site. 35 This approach improves quality by promoting individual accountability, allowing web developers to discover costly bugs and helping web contributors prevent deployment of inaccurate content to the production site. Users submit revised content from work areas to a common staging area, a pre-production version of the web site which consolidates web site changes. After the consolidated changes in the staging area are approved, the next edition of the production site can be authorized and deployed. This content management process makes site-level rollbacks, site recovery and site audits possible. Content Versioning. TeamSite captures the history of modifications to web content within each contributors' work area as well as the content within the common staging area. Our comprehensive content versioning technology allows customers to record and manage all web content modifications and capture complete histories of all web files. TeamSite Global Report can then be used to audit and report on historical changes made to a company's web files and site. Whole-Site Versioning. An extension of our techniques for content versioning allows TeamSite to capture editions of the entire web site. As the content for an edition of an entire web site is approved, a full version of this site can be captured and recorded providing a complete history of whole site editions. This provides customers with an effective way to review and roll back to previous editions of their web sites as necessary for audit, disaster recovery and compliance requirements. Concurrent Development. TeamSite supports multiple contributors working on a single project, and multiple teams working on many projects simultaneously, by utilizing a technique we refer to as branching. A development branch typically consists of many work areas connected to one staging area. Branches, for example, might represent a company's intranet and extranet sites. When required, the content within these independent branches can be synchronized. Templating Our TeamSite Templating module enables non-technical content contributors to add content through customer-specific style templates, allowing a preferred look and feel to be leveraged where desired. Product Features Open Architecture. Our architecture incorporates widely accepted Internet industry standards and supports a wide variety of web-based software applications to integrate into our customers' heterogeneous environments. As a result, TeamSite also integrates with commercially available content web authoring tools and web application servers that adhere to industry standards. This allows our customers' content contributors to use their favorite web authoring software. For example, a graphics designer may use Adobe Photoshop, a layout expert may use Macromedia Dreamweaver, and a non-technical contributor may use Microsoft Office 2000, to add content to a site. In addition, TeamSite's browser interface has been developed primarily in Java and JavaScript. Project Management and Workflow. TeamSite allows customers to manage web development tasks through automated workflow processes, such as task assignment, resource scheduling, routing and approval. This enables TeamSite users to build, enforce and automate the business processes necessary to maintain high-quality web sites. Ease of Use. Our SmartContext Editing feature provides non-technical users with a simple and efficient interface for contributing content as they browse through the web site. With SmartContext Editing, non-technical contributors are only required to be familiar with a web browser. For web sites with many content contributors, TeamSite offers an easy to use, sophisticated, technique for tracking multiple content changes and merging them into a single file. Deployment and Content Syndication. OpenDeploy allows customers to deploy content to numerous web sites through a single transaction to ensure consistent site roll-outs. In addition, it can be used to deploy and run 36 application programs automatically as well as to replicate content from relational databases. OpenDeploy can also be used in an encrypted mode for the secure deployment of content over the Internet. Scalability, Performance and Availability Scalability and Performance. TeamSite uses a multi-threaded approach to promote faster server performance through parallel software code execution. It also uses C++ and object-oriented programming to promote scalability and performance. In addition, OpenDeploy can distribute content to a single or to multiple production web servers simultaneously. This content replication functionality meets the requirements for the most demanding web sites that are often located on geographically dispersed servers. Availability. Our design also promotes reliability and availability by allowing customers to employ their normal data backup and recovery tools. In addition, critical data is duplicated, providing the necessary redundancy for data recovery to minimize the potential for data loss. Industry Standards Open to All Files, Tools and Applications. Unlike proprietary, closed implementations, our products have been developed to accommodate industry leading Internet technologies, such as XML and Java, and other evolving industry standards. The TeamSite server presents its content through popular file management systems such as Unix Network File System and Microsoft Windows Network File System. eXtensible Markup Language. XML provides customers the ability to integrate new applications and data with other XML-compliant technologies and legacy applications. Together with companies such as Microsoft and IBM, we are a sponsoring member of OASIS, an industry association promoting XML standards. Our products use and support XML, and promote XML for data and content exchange. 37 Customers Our products and services are marketed and sold to a diverse group of customers operating in a broad range of industries. Our customers include both established companies migrating their operations online and new companies formed specifically to deliver products and services over the Internet. These customers typically consider the web and their web operations to be critical to their future success. As of August 31, 1999, over 85 companies had licensed our products. In 1998, Cisco Systems accounted for 13% of our total revenues. The following table is a representative list of our customers. Each of these customers had purchased more than $50,000 in licenses and services from us. In August 1999 we entered into an enterprise license agreement with General Electric.
Technology Consulting Services Media/Entertainment ---------- ------------------- ------------------- AIM Technology Dahlin, Smith & White CondeNet AltaVista DynaMind Discovery Online Ascend/Lucent iXL Educational Testing Service Cisco Systems MacLaren McCan Hungry Minds Documentum USWeb/CKS Los Angeles Times Doublebill.com M-Path Electronic Arts Retail MyPlay Hitachi ------ Netflicks.com How 2 HQ Best Buy Quokka Sports MicroAge Gap Sega NCR Walgreens Viacom/Nickelodeon Network Associates whynotu.com Nortel Networks Financial Services Novell ------------------ Industrial/Transportation Sun Microsystems AG Edwards ------------------------- TechRepublic BancBoston Boeing Tivoli BancTec Clorox Xerox Barclays Global FedEx Yahoo!/GeoCities E*Trade General Electric Ford Motor Credit United Airlines Telecommunications/Utilities John Hancock W.W. Grainger ---------------------------- First American Financial Yellow Services Alltel Corporation AT&T/TCI Minnesota Life BellSouth Interpath Salt River Project Health Telia ------ Blue Cross California Government Kaiser ---------- PacificCare U.S. Department of Education U.S. Postal Service
Customer Case Studies The following case studies exemplify eBusiness initiatives that have utilized our products: Educational Testing Service. Educational Testing Service, the world's largest private educational measurement organization, annually administers almost 11 million tests in 180 countries worldwide. Since 1996, ETS has been using the Internet to provide a cost-effective, self-service source of updated information for its international customer base. ETS has moved much of its traditional business to the web in order to reduce operating costs and improve customer service. Its multiple web sites provide information on admission 38 to colleges and universities, test registration and preparation, financial aid planning and services, to hundreds of thousands of students, parents and educators each year. Educational Testing Service uses TeamSite to support its online business initiatives, such as online registration for exams, free online practice exams and preparatory information, as well as direct sales of its products. Nortel Networks. Nortel Networks, with 1998 revenues of $17.6 billion and 75,000 employees worldwide, is a leader in voice and data networking equipment. Nortel has been using TeamSite for over 18 months to manage and control globally dispersed content contributors for six different web sites. Nortel's customers include public and private enterprises and institutions, Internet service providers, local, long-distance, cellular and PCS communications companies, cable television carriers, and utilities. Nortel uses TeamSite to deploy content to its corporate web site, e-commerce systems, and a dynamic personalized customer portal. The content for these sites is developed and managed by Nortel Networks marketing teams, service teams, and external agencies but is centrally controlled and supported through TeamSite. The staff required to manage this initiative is kept to a minimum by leveraging TeamSite's ability to distribute web publishing responsibilities to many contributors. Nortel also uses TeamSite to control and support the web operations of its international divisions. Today, web contributors from four continents participate in the development of six multilingual web sites for Nortel, which translates content into many languages including Chinese, Japanese, French, Spanish and others. AltaVista. AltaVista is a leading media and commerce network that integrates unique technology, products and services. AltaVista seeks to deliver best-of- breed results by integrating content and functionality from both within the AltaVista network and through external partners. AltaVista has chosen Interwoven TeamSite as its global content management platform. Since its foundation four years ago, AltaVista has provided its loyal base of web users a broad range of Internet services. As part of its infrastructure requirement, AltaVista required a robust scalable platform to support its dynamic environment. AltaVista chose TeamSite as its content management platform. Demonstrating its ease of implementation, AltaVista installed and implemented TeamSite in less than one week. TechRepublic. TechRepublic offers a free web service that provides career insight, community interaction and customized information to information technology executives and strategists, network administrators, support training and other enterprise computing professionals. Its web site provides ready access to critical information through personalized news, analysis and original content written by expert contributors. TechRepublic selected TeamSite to develop and manage its rapidly changing web site. Since TechRepublic offers articles and information which must be published and frequently updated by contributors who work remotely. This content is routed through a series of editors for revision and approval before the content is finally deployed to the site. With near-constant updates, TechRepublic required a content management solution with robust workflow functionality and easy remote access. TeamSite provides TechRepublic with an ideal solution to its workflow problem because it allows timely central approval and publishing control of the content assigned to outside contributors. TeamSite also uses our OpenDeploy to provide secure, rules-based web content replication across multiple servers and distribution over the Internet. Technology Vendors and Service Providers Technology Vendors To ensure that our products are well integrated with related web technologies, we work with vendors of web authoring tools and web application servers. Web authoring tools, such as Macromedia's Dreamweaver, Microsoft's Office 2000 and Adobe's Photoshop, provide the content that we manage. Web application servers, such as Allaire's ColdFusion, ATG's Dynamo, BroadVision's One-to-One Commerce, IBM's Net.Commerce 39 and Microsoft's SiteServer, distribute the content managed by our software over the Internet. We have developed specific product interfaces for some of these companies, such as software and service modules for BroadVision and ATG, and some companies refer customers to us or resell our products. BroadVision, for example, resells our products. Service Providers We work with leading systems integrators, including Andersen Consulting, Cambridge Technology Partners, Computer Sciences Corporation, EDS, Ernst & Young and KPMG, and Internet professional services firms, including iXL, Ogilvy Interactive and USWeb/CKS. Our prospective customers frequently retain the services of these firms for the delivery and implementation of eBusiness applications, and these firms may recommend a content management solution as part of the eBusiness application they deliver. USWeb/CKS, for example, resells our products. We intend to devote significant resources to develop these relationships further. Sales and Marketing To date, we have sold our products and services primarily through our direct sales force in North America and Europe. As of June 30, 1999, we had 30 professionals in our direct sales force, of which 27 were located in the United States and 3 were in Europe. We intend to increase the size of our direct sales force and establish additional sales offices domestically and internationally. In May 1999, we opened our first international sales office in the United Kingdom to support the management of direct and indirect sales channels in Europe. We are also aggressively developing our indirect sales channel by expanding our relationships with leading Internet technology vendors, Internet professional services firms and systems integrators that recommend and, when appropriate, resell our products. For example, BroadVision and USWeb/CKS currently resell our products. We believe that demand is increasing for content management solutions such as those we sell. We may not be able to expand our sales and marketing staff, either domestically or internationally, to take advantage of any increase in demand for those solutions. Our failure to expand our sales and marketing organization or other distribution channels could materially adversely affect our business. See "Risk Factors--We must attract and retain qualified personnel, which is particularly difficult for us because we compete with other Internet-related software companies and are located in the San Francisco Bay area where competition for personnel is extremely intense." Research and Development We invest significantly in research and development to enhance our current products, and develop new products. Our research and development expenses were $884,000 in 1997, $1.8 million in 1998 and $1.7 million for the six months ended June 30, 1999. We expect that we will increase our product development expenditures substantially in the future. As of June 30, 1999, approximately 25 employees were engaged in research and development activities and we plan to continue to hire additional engineers to further our research and development activities. Our business could be harmed if we were not able to hire and retain the required number of engineers. See "Risk Factors--We must attract and retain qualified personnel, which is particularly difficult for us because we compete with other Internet-related software companies and are located in the San Francisco Bay area where competition for personnel is extremely intense." We may fail to complete our product development efforts within our anticipated schedules, and even if completed, the products developed may not have the features necessary to make them successful in the marketplace. Future delays or problems in the development or marketing of product enhancements or new products could harm our business. See "Risk Factors--Difficulties in introducing new products and upgrades in a timely manner will make market acceptance of our products less likely." 40 Competition The market for content management solutions is rapidly emerging and is characterized by intense competition. We expect existing competition and competition from new market entrants to increase dramatically. A growing number of companies are vying to provide web content management solutions. In this market, new products are frequently introduced and existing products are often enhanced. In addition, new companies, or alliances among existing companies, may be formed that may rapidly achieve a significant market position. Potential customers may have developed in-house solutions which might make it more difficult for us to sell products to them. We compete with third-party content management solution providers, primarily Vignette, and, to a lesser extent, with workgroup solutions, and content publishing application providers. We may face increased competition from these providers in the future. Other potential competitors include client/server software vendors which are developing or extending existing products which address our market. In addition, although we currently partner with a number of companies that provide complementary products such as web tools, enterprise document repositories and web servers, they may introduce competitive products in the future. Other large software companies, such as Microsoft and IBM, may also introduce competitive products. Many of our existing and potential competitors have greater technical, marketing and financial resources than we do. We believe that competitive factors in the web content management industry include: . the quality, scalability and reliability of software; . functionality that enables a broad base of contributors to add and modify web content; . interoperability with all leading web authoring tools and web application servers based on industry standards; . ability to provide advanced workflow functionality; . the ability to leverage existing information technology infrastructure; and . adherence to emerging industry standards, including XML. We believe our products compete favorably on each of these factors. Proprietary Rights and Licensing Our success depends upon our ability to maintain the proprietary aspects of our technology and operate without infringing the proprietary rights of others. We rely on a combination of patent, trademark, trade secret and copyright law, and contractual restrictions, to protect the proprietary aspects of our technology. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. We currently do not have any issued United States or foreign patents, but we have applied for one U.S. patent. It is possible that a patent will not issue from our currently pending patent application. These legal protections afford only limited protection for our technology. Our license agreements impose restrictions on our customers' ability to utilize our software. We also seek to protect our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements with us and by restricting access to our source code. There can be no assurance that all employees or consultants have signed or could sign these agreements. Due to rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new product developments and enhancements to existing products are equally as important as the various legal protections of our technology to establishing and maintaining a technology leadership position. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and while we are unable to determine the extent to which piracy of our software exists, software piracy can be expected to be a persistent problem. Litigation may be necessary in the future to enforce 41 our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. However, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Any resulting litigation could result in substantial costs and diversion of resources and could seriously harm our business, operating results and financial condition. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology. Any failure by us to meaningfully protect our property could seriously harm our business, operating results and financial condition. To date, we have not been notified that our products infringe the proprietary rights of third parties, but there can be no assurance that third parties will not claim infringement by us with respect to our current or future products. We expect that developers of web-based commerce software products will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and as the functionality of products in different segments of the software industry increasingly overlaps. Any claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. A successful infringement claim against us and our inability to license the infringed technology or develop or license technology with comparable functionality could seriously harm our business, financial condition and operating results. See "Risk Factors--We might not be able to protect and enforce our intellectual property rights, loss of which could harm our business." Employees As of August 31, 1999, we had a total of 159 employees, including 69 in sales and marketing, 31 in research and development, 41 in professional services and 18 in administration and finance. Of these employees, 156 were located in the United States and 3 were located in the United Kingdom. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. Our future operating results depend in significant part on the continued service of our key technical, sales and senior management personnel. Other than as described in "Management--Employment and Severance Agreements," none of these individuals is bound by an employment agreement. Our future success also depends on our continuing ability to attract and retain highly qualified technical, sales and senior management personnel. Competition for these personnel is intense, and we may not be able to retain our key technical, sales and senior management personnel or attract these personnel in the future. We have experienced difficulty in recruiting qualified technical, sales and senior management personnel, and we expect to experience these difficulties in the future. If we are unable to hire and retain qualified personnel in the future, this inability could seriously harm our business. Facilities Our principal office occupies approximately 27,500 square feet in Sunnyvale, California, under a lease that expires in May 2003. In addition, we also lease sales and service offices in the metropolitan areas of Atlanta, Boston, Chicago, London, Los Angeles, Seattle and Washington, D.C. In July, we moved our services organization to expanded facilities located in approximately 12,600 square feet in Sunnyvale, California. Our lease for this facility expires in December 2000. We believe that our existing facilities will not be adequate for our current needs. We are currently in the process of locating additional office space for expansion or relocation of our principal offices. There can be no assurance that suitable additional or alternative space will be available in the future on commercially reasonable terms. Legal Proceedings We are not a party to any material legal proceedings. We could become involved in litigation from time to time relating to claims arising out of our ordinary course of business. 42 MANAGEMENT Executive Officers and Directors The following table presents information regarding our executive officers and directors as of June 30, 1999.
Name Age Position - ---- --- -------- Martin W. Brauns............ 39 President, Chief Executive Officer and Director Peng T. Ong................. 36 Chairman of the Board and Vice President of Professional Services David M. Allen.............. 41 Vice President and Chief Financial Officer Michael A. Backlund......... 45 Vice President of Sales Jeffrey E. Engelmann........ 37 Vice President of Business Development Jack S. Jia................. 36 Vice President of Engineering Jozef Ruck.................. 47 Vice President of Marketing Kathryn C. Gould............ 49 Director Mark W. Saul................ 38 Director Mark C. Thompson............ 41 Director Ronald E.F. Codd............ 43 Director
Martin W. Brauns has served as our President, Chief Executive Officer and member of the Board of Directors since March 1998. Before joining Interwoven, Mr. Brauns served as President and Chief Operating Officer of Sqribe Technologies, Inc., a software company from July 1997 to November 1997. From March 1996 to June 1997, Mr. Brauns served in a number of positions, including most recently as Vice President of North American Sales, at Informix Software, Inc., a software company. From 1992 to January 1996, Mr. Brauns served as Vice President of Worldwide Sales of Adaptec Inc., a hardware and software manufacturer. Mr. Brauns holds a Bachelor of Science in international business and a Master of Business Administration from San Jose State University. Peng T. Ong is our founder, Chairman of our Board of Directors and Vice President of Professional Services. Prior to founding Interwoven, Mr. Ong was a founder of Electric Classifieds, Inc., an Internet classifieds company, and its Chief Architect from March 1994 to May 1995. From 1994 to December 1995, he served as a consultant to Illustra Information Technologies, Inc., a software company. Mr. Ong holds a Bachelor of Science in electrical engineering from the University of Texas at Austin and a Master of Science in computer science from the University of Illinois at Urbana-Champaign. David M. Allen has served as our Vice President and Chief Financial Officer since joining Interwoven in March 1999. Before joining Interwoven, Mr. Allen served as Vice President and Chief Financial Officer of Object Systems Integrators, Inc., a telecommunications network management company, from July 1996 to March 1999. From 1985 to July 1996, he served in a number of positions, including most recently as Vice President and Chief Financial Officer, at Telecommunications Techniques Corporation, a communications test equipment manufacturing company. Mr. Allen holds a Bachelor of Science in accounting from the University of Maryland. Michael A. Backlund has served as our Vice President of Worldwide Sales since joining Interwoven in May 1998. From January 1997 to May 1998, Mr. Backlund served in a number of positions at Computer Associates International, a software company, including most recently as Vice President of Divisional Sales. Prior to joining Interwoven, he was a founder of CMS Communications, Inc., a telecommunications equipment company, and served in a number of capacities from August 1986 to December 1996, including most recently as Vice President of Sales and Marketing. Mr. Backlund holds a Bachelor of Arts and a Master of Arts in economics from the University of Southern California. Jeffrey E. Engelmann has served as our Vice President of Business Development since joining Interwoven in January 1999. Before joining Interwoven, Mr. Engelmann served as Executive Operations Officer of the Internet division of IBM. From 1991 to December 1997, he served in a number of development, consulting and 43 sales positions within IBM, including most recently as Business Unit Executive of eBusiness Solution Sales. Mr. Engelmann holds a Bachelor of Science in chemical engineering and an Bachelor of Arts in computer science from the University of Wisconsin at Madison. Jack S. Jia has served in a variety of positions, including most recently as our Vice President of Engineering, since joining Interwoven in January 1997. Prior to joining Interwoven, Mr. Jia was a founder of V-Max America, Inc., a computer distribution company, and served as the Chief Executive Officer from June 1993 to October 1998. From May 1995 to January 1997, he served as a Project Manager at Silicon Graphics, Inc., a computer systems company, and from January 1993 to May 1995, he served in a number of senior engineering positions at Sun Microsystems, Inc., a computer systems company. Mr. Jia holds a Bachelor of Science in electrical engineering and a Master of Science in computer science from the Northern Jiao-Tong University, Beijing, a Master of Science in electrical engineering from Polytechnic University of New York, and a Master of Business Administration from Santa Clara University. Jozef Ruck has served as our Vice President of Marketing since joining Interwoven in March 1999. From April 1997 to April 1999, Mr. Ruck served in a number of positions at Genesys Telecommunications Laboratories, a call center software company, including most recently as Vice President of Customer Marketing. From September 1994 to March 1997, he served in a number of positions, including most recently as Western Region Sales Director, at Network Appliance, Inc., a data storage company. Mr. Ruck holds a Bachelor of Science in mechanical engineering from Oregon State University and a Master of Business Administration from Santa Clara University. Kathryn C. Gould has been one of our directors since March 1998. She is a founder of Foundation Capital, a venture capital firm, and has been a member since December 1995. Since 1989, Ms. Gould has been a general partner of Merrill, Pickard, Anderson & Eyre, a venture capital firm. Ms. Gould also serves as a director of Documentum, Inc., a publicly held web-based software application developer. Ms. Gould holds a Bachelor of Science in physics from the University of Toronto and a Master of Business Administration from the University of Chicago. Mark W. Saul has been one of our directors since July 1997. Since June 1996, Mr. Saul has served as President and Chief Executive Officer and Chairman of the Board of Acuity Corporation, a web-based customer interaction solutions company. From May 1995 to May 1996, Mr. Saul was Vice President of Marketing for Network Appliance, Inc. From March 1994 to May 1995, he served as Vice President of World Wide Field Operations of Minerva Systems, Inc., a video technology company. Mr. Saul holds a Bachelor of Arts in history and a Bachelor of Science in engineering from Stanford University and a Master of Business Administration from the Harvard Business School. Mark C. Thompson has been one of our directors since July 1999. Since 1988, Mr. Thompson has served in a number of positions with Charles Schwab since 1988, a financial services center, including most recently Senior Vice President and Executive Producer of Schwab.com. Mr. Thompson holds a Bachelor of Arts in international relations, and a Master of Arts in new media from Stanford University. Ronald E.F. Codd has been one of our directors since July 1999. Mr. Codd has served as President, Chief Executive Officer and a director of Momentum Business Applications, Inc., a publicly held software company, since January 1999. From 1991 to December 1998, he served as Senior Vice President, Finance and Administration, Chief Financial Officer and Secretary of PeopleSoft, Inc., an enterprise software developer. Mr. Codd also serves on the board of directors of Adept Technology, Inc., a robotics manufacturer, Information Advantage, Inc., a enterprise software developer and marketer, and Intraware, Inc., a provider of business-to-business e-commerce services. Mr. Codd holds a Bachelor of Science in accounting from the University of California at Berkeley and a Master of Management from the J.L. Kellogg Graduate School of Management (Northwestern University). There are no family relationships among any of our directors or officers. 44 Board Composition We currently have six directors. Our amended and restated certificate of incorporation, which will become effective upon the closing of this offering, states that our board of directors will be divided into three classes: Class I, the term for which will expire at the annual meeting of stockholders to be held in 2000, Class II, the term for which will expire at the annual meeting of stockholders to be held in 2001, and Class III, the term for which will expire at the annual meeting of stockholders to be held in 2002. At each annual meeting of stockholders after the initial classification, the successors to directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following election. The Class I directors are Messrs. Brauns and Saul; the Class II directors are Mr. Peng and Ms. Gould; and the Class III directors will be Messrs. Thompson and Codd. In addition, our bylaws, as they will be effective upon the closing of this offering, provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. This classification of the board of directors may have the effect of delaying or preventing a change in control. See "Description of Capital Stock-- Anti-Takeover Provisions." Board Committees Our board of directors has a compensation committee and an audit committee. Compensation Committee. The current members of our compensation committee are Mr. Saul and Ms. Gould. The compensation committee reviews and makes recommendations to our board concerning salaries and incentive compensation for our officers and employees. The compensation committee also administers our stock plans. Audit Committee. The current members of our audit committee are Messrs. Codd and Thompson. Our audit committee reviews and monitors our financial statements and accounting practices, makes recommendations to our board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by our independent auditors. Compensation Committee Interlocks and Insider Participation Before April 1, 1998, our board of directors did not have a compensation committee and all compensation decisions were made by the full board of directors. In April 1998, the Company formed a compensation committee consisting of Mr. Brauns, Ms. Gould and Eileen Richardson, a former director. No compensation decisions were made by this committee in 1998; rather, all compensation decisions were made by the full board of directors. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has an interlocking relationship existed in the past. Director Compensation Our directors receive no cash compensation for their services as directors but are reimbursed for their reasonable expenses in attending board and board committee meetings. Each eligible director who is not our employee and who is a member of the board on the completion of this offering will be granted an option to purchase 10,000 shares of common stock under our 1999 Equity Incentive Plan, unless that director has previously received an option grant before the effective date of this offering. Each eligible director who is not our employee and who first becomes a member of our board on or after the completion of this offering will be granted an option to purchase 20,000 shares of common stock under our 1999 Equity Incentive Plan. Mr. Codd and Mr. Thompson were each granted an option to purchase 20,000 shares of Common Stock under our 1998 Stock Option Plan in July 1999. Ms. Gould and Mr. Saul will 45 each be granted an option to purchase 10,000 shares of Common Stock under the 1999 Equity Incentive Plan on the effective date of this offering. Immediately following each annual meeting of our stockholders, each eligible director will automatically be granted an additional option to purchase 10,000 shares under the plan if the director has served continuously as a member of the board for at least one year. The options will have 10-year terms and will terminate three months following the date the director ceases to be one of our directors or consultants or 12 months following that date if the termination is due to death or disability. All options granted under the plan will be fully vested and immediately exercisable as of the date of grant. Executive Compensation The following table presents compensation information for 1998 paid to or accrued by each person serving as our chief executive officer in 1998 and each of our four other most highly compensated executive officers whose salary and bonus for 1998 was more than $100,000. The restricted stock value is calculated based upon a $0.39 per share purchase price and assuming that the estimated fair market value on the date of grant is equal to an assumed initial public offering price of $11.00 per share. Summary Compensation Table
Long Term Annual Compensation Compensation Awards ------------------------------ ---------------------- Other Securities Name and Principal Annual Restricted Underlying Positions Salary Bonus Compensation Stock Award Options - ------------------ -------- -------- ------------ ----------- ---------- Martin W. Brauns......... $206,119 $100,000 $320 $14,146,663 -- President and Chief Executive Officer Steven Farber............ 93,060 -- -- -- -- President and Chief Executive Officer John Chang............... 134,186 67,167 960 -- 46,666 Vice President of Marketing Peng T. Ong.............. 114,315 125,000 -- -- -- Chairman and Vice President of Professional Services Michael A. Backlund...... 80,826 65,450 -- -- 156,666 Vice President of Sales Jack S. Jia.............. 104,988 55,000 960 -- 96,666 Vice President of Engineering
Mr. Farber's employment with us terminated as of August 1, 1998. Mr. Chang's employment with us terminated as of March 31, 1999. The amounts listed under the column captioned "Other Annual Compensation" represent payments in lieu of health insurance premiums paid by us. Option Grants in 1998 The following table presents the grants of stock options under our 1996 Stock Option Plan and 1998 Stock Option Plan during 1998 to each person serving as our chief executive officer and each of the persons listed in the Summary Compensation Table. All options granted under the 1996 plan and 1998 plan are immediately exercisable and are either incentive stock options or nonqualified stock options. We have a right to repurchase the shares issued upon exercise of these options at the original purchase price if they are unvested at the time the grantee terminates employment with us. This repurchase right generally lapses as to 25% of the shares on the first anniversary of the date of grant and the remainder expire ratably over a 36-month period thereafter. We have also granted nonqualified stock options that do not contain a repurchase right or contain repurchase terms that are negotiated between the optionee and us. Options expire 10 years from the first date of employment. Options were granted at an exercise price equal to the fair market value of our common stock, as determined by our board, on the date of grant. In 1998, we granted to our employees and consultants options to purchase a total of 824,425 shares of our common stock. 46 The 5% and 10% assumed annual rates of stock price appreciation are required by the rules of the Securities and Exchange Commission and do not represent our estimate or projection of future common stock prices. The potential realizable values at 0%, 5% and 10% appreciation are calculated by assuming that the estimated fair market value on the date of grant, based upon an assumed initial public offering price of $11.00 per share, appreciates at the indicated rate for the entire term of the options and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price.
Individual Grants --------------------------------------------- Potential Realizable Value at Assumed Number of Percent of Annual Rates of Stock Securities Total Options Price Appreciation Underlying Granted to Exercise for Option Term Options Employees Price Expiration -------------------------------- Name Granted in 1998 Per Share Date 0% 5% 10% - ---- ---------- ------------- --------- ---------- ---------- ---------- ---------- Martin W. Brauns........ -- -- % $ -- -- $ -- $ -- $ -- Steven Farber........... -- -- -- -- -- -- -- John Chang.............. 46,666 5.7 0.18 3/5/08 504,926 827,754 1,323,036 Peng T. Ong............. -- -- -- -- -- -- -- Michael A. Backlund..... 156,666 19.0 0.21 5/26/08 1,690,426 2,774,217 4,436,964 Jack S. Jia............. 23,333 2.8 0.18 3/5/08 252,436 413,877 661,518 13,333 1.6 0.18 5/7/08 144,263 236,499 378,006 60,000 7.3 0.21 10/15/08 647,400 1,062,470 1,699,270
47 Aggregate Option Exercises in 1998 and Option Values at December 31, 1998 The following table presents the number of shares acquired and the value realized upon exercise of stock options during 1998 and the number of shares of common stock subject to "exercisable" and "unexercisable" stock options held as of December 31, 1998 by each of the persons listed in the Summary Compensation Table. Also presented are values of "in-the-money" options, which represent the positive difference between the exercise price of each outstanding stock option and an assumed initial public offering price of $11.00 per share. Each of these options was exercisable immediately upon grant, subject to our right to repurchase the option shares at the exercise price upon termination of the optionee's employment. The repurchase right generally expires as to 25% of the shares on the first anniversary of the date of grant and the remainder expires ratably over a 36-month period thereafter. The numbers in the columns entitled "Value Realized" and "Value of Unexercised In-the-Money Options at December 31, 1998" are based on an assumed initial public offering price of $11.00 per share and net of the exercise price payable for these shares.
Number of Securities Value of Unexercised Number of Underlying Unexercised In-the-Money Options at Shares Options at December 31, 1998 December 31, 1998 Acquired on Value ------------------------------- ------------------------- Name Exercise Realized Exercisable(1) Unexercisable(1) Exercisable Unexercisable - ---- ----------- ---------- -------------- ---------------- ----------- ------------- Martin W. Brauns........ -- $ -- -- -- $ -- $ -- Steven Farber........... 130,666 1,415,166 -- -- -- -- John Chang.............. -- -- 55,000 111,666 600,050 1,214,077 Peng T. Ong............. -- -- -- -- -- -- Michael A. Backlund..... -- -- -- 156,666 -- 1,690,426 Jack S. Jia............. -- -- 28,750 127,916 313,663 1,385,064
- --------------------- (1) Options granted under our stock option plans are generally exercisable immediately but the shares acquired upon exercise are subject to lapsing rights of repurchase at the exercise price. The heading "exercisable" refers to shares as to which our right of repurchase has lapsed. The heading "unexercisable" refers to shares that we still have the right to repurchase upon termination of the optionee's employment. Employee Benefit Plans 1996 Stock Option Plan. As of August 31, 1999, options to purchase 22,332 shares of common stock were outstanding under the 1996 Stock Option Plan and options to purchase 610,994 shares had been exercised, but remain subject to our repurchase right. No additional options may be granted under this plan. Options granted under the stock option plan are subject to terms substantially similar to those described below with respect to options granted under the 1999 Equity Incentive Plan. 1998 Stock Option Plan. As of August 31, 1999, options to purchase 1,017,555 shares of common stock were outstanding under the 1998 Stock Option Plan, options to purchase 451,273 shares remained available for issuance and options to purchase 1,189,508 shares had been exercised, but remain subject to our repurchase right. No additional options may be granted under this plan. Options granted under the stock option plan are subject to terms substantially similar to those described below with respect to options granted under the 1999 Equity Incentive Plan. 1999 Equity Incentive Plan. On July 22, 1999, the board adopted the 1999 Equity Incentive Plan and reserved 2,900,000 shares of common stock to be issued under this plan. In addition, shares under the 1996 Stock Option Plan and the 1998 Stock Option Plan not issued or subject to outstanding grants on the date of this prospectus and any shares issued under these plans that are forfeited or repurchased by us or that are issuable upon exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for grant and issuance under the equity incentive plan. Shares will again be available for grant and issuance under the equity incentive plan that: . are subject to issuance upon exercise of an option granted under the equity incentive plan that cease to be subject to the option for any reason other than exercise of the option; 48 . have been issued upon the exercise of an option granted under the equity incentive plan that are subsequently forfeited or repurchased by us at the original purchase price; . are subject to an award granted pursuant to a restricted stock purchase agreement under the equity incentive plan that are subsequently forfeited or repurchased by us at the original issue price; or . are subject to stock bonuses granted under the equity incentive plan that terminates without shares being issued. This plan will become effective on the consummation of this offering and will terminate on July 21, 2009, unless it is terminated earlier by our board. The plan will authorize the award of options, restricted stock awards and stock bonuses. No person will be eligible to receive more than 1,000,000 shares in any calendar year under the plan other than a new employee who will be eligible to receive no more than 1,500,000 shares in the calendar year in which the employee commences employment. The plan will be administered by our compensation committee, all of the members of which are "non-employee directors" under applicable federal securities laws and "outside directors" as defined under applicable federal tax laws. The compensation committee will have the authority to construe and interpret the plan, grant awards and make all other determinations necessary or advisable for the administration of the plan. Also, our non-employee directors are entitled to receive automatic annual grants of fully vested options to purchase shares of our common stock, as described under "Management--Director Compensation." The plan will provide for the grant of both incentive stock options that qualify under Section 422 of the Internal Revenue Code and nonqualified stock options. Incentive stock options may be granted only to our employees or employees of our parent or subsidiary, if any. All other awards other than incentive stock options may be granted to employees, officers, directors, consultants, independent contractors and advisors of ours or of our parent or subsidiary, if any, provided the consultants, independent contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of that value. The exercise price of nonqualified stock options must be at least equal to 85% of the fair market value of our common stock on the date of grant. Options may be exercisable only as they vest or may be immediately exercisable with the shares issued subject to our right of repurchase that lapses as the shares vest. In general, options will vest over a four-year period. The maximum term of options granted under the plan is 10 years. Awards granted under the plan may not be transferred in any manner other than by will or by the laws of descent and distribution. They may be exercised during the lifetime of the optionee only by the optionee. The compensation committee could determine otherwise and provide for these provisions in the award agreement, but only with respect to awards that are not incentive stock options. Options granted under the plan generally may be exercised for a period of time after the termination of the optionee's service to us or to our parent or subsidiary, if any. Options will generally terminate immediately upon termination of employment for cause. The purchase price for restricted stock will be determined by our compensation committee. Stock bonuses may be issued for past services or may be awarded upon the completion of certain services or performance goals. If we are dissolved or liquidated or have a "change in control" transaction, outstanding awards may be assumed or substituted by the successor corporation, if any. In the discretion of the compensation committee the vesting of these awards may accelerate upon one of these transactions. 1999 Employee Stock Purchase Plan. The board has adopted the 1999 Employee Stock Purchase Plan and has reserved 300,000 shares for issuance under this plan. This plan will become effective one business day 49 after consummation of this offering. On each January 1, the aggregate number of shares reserved for issuance under this plan will increase automatically by a number of shares equal to 1% of our outstanding shares on December 31 of the preceding year. The aggregate number of shares reserved for issuance under the plan may not exceed 3,000,000 shares. The plan will be administered by our compensation committee, which will have the authority to construe and interpret the plan. Employees generally will be eligible to participate in the plan if they are employed ten days before the beginning of an offering period and they are customarily employed by us, or our parent or any subsidiaries that we designate, for more than 20 hours per week and more than five months in a calendar year and are not, and would not become as a result of being granted an option under the plan, 5% stockholders of us or our designated parent or subsidiaries. Under the plan, eligible employees will be permitted to acquire shares of our common stock through payroll deductions. Eligible employees may select a rate of payroll deduction between 2% and 10% of their compensation and are subject to maximum purchase limitations. Participation in the plan will end automatically upon termination of employment for any reason. Each offering period under the plan will be for two years and consist of four six-month purchase periods. The first offering period is expected to begin on the first business day on which price quotations for our common stock are available on the Nasdaq National Market. Offering periods and purchase periods will begin on February 1 and August 1 of each year. However, because the first day on which price quotations for our common stock will be available on the Nasdaq National Market may not be February 1 or August 1, the length of the first offering period may be more or less than two years, and the length of the first purchase period may be more or less than six months. The plan will provide that, in the event of our proposed dissolution or liquidation, each offering period that commenced prior to the closing of the proposed event shall continue for the duration of the offering period, provided that the compensation committee may fix a different date for termination of the plan. The purchase price for our common stock purchased under the plan is 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or the last day of the applicable purchase period. The compensation committee will have the power to change the duration of offering periods without stockholder approval, if the change is announced at least 15 days prior to the beginning of the affected offering period. The plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. Rights granted under the plan will not be transferable by a participant other than by will or the laws of descent and distribution. The plan will terminate on July 21, 2009, unless it is terminated earlier under the terms of the plan. The board will have the authority to amend, terminate or extend the term of the plan, except that no action may adversely affect any outstanding shares previously purchased under the plan. Except for the automatic annual increase of shares described above, stockholder approval is required to increase the number of shares that may be issued or to change the terms of eligibility under the plan. The board may make amendments to the plan as it determines to be advisable if the financial accounting treatment for the plan is different from the financial accounting treatment in effect on the date the plan was adopted by the board. 401(k) Plan. We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan. All employees are generally eligible to participate and may enter the plan as of the first day of each calendar month. Participants may make pre-tax contributions to the plan of up to 15% of their eligible earnings, subject to a statutorily prescribed annual limit. Each participant is fully vested in his or her contributions and the investment earnings. Contributions to the plan by the participants or by us, and the income earned on these contributions, are generally not taxable to the participants until withdrawn. Contributions by us, if any, are generally deductible by us when made. Participant and company contributions 50 are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. Employment and Severance Agreements Mr. Brauns, our President and Chief Executive Officer, entered into an employment agreement with us in February 1998. This agreement establishes Mr. Brauns' annual base salary of $250,000 and eligibility for benefits and bonuses tied to our revenues. This agreement also provides for his election to the Board of Directors as a condition of employment. This agreement continues until it is terminated upon written notice by Mr. Brauns or by us. If his employment is terminated by us for cause or if he voluntarily elects to terminate his employment, we must pay his salary and other benefits through the date of his termination. If his employment is terminated by us without cause or if he terminates his employment under some circumstances, we must pay his benefits through the date of his termination and his salary for up to 12 additional months after this date, unless Mr. Brauns is employed full-time by another employer. Under this agreement, Mr. Brauns agreed to purchase 1,333,333 shares of common stock at an exercise price of $0.18 per share. The shares purchased by Mr. Brauns are subject to our right to repurchase the shares upon termination of his employment. Our repurchase right expires ratably over a 48 month period. Our repurchase right also expires as to all of the shares in the event that we merge or consolidate with another entity or sell all or substantially all of our assets. In connection with this stock purchase, we agreed to loan Mr. Brauns the entire purchase price. This loan has been repaid in full. See "Related Party Transactions--Loans to Executive Officers." Mr. Ong's offer letter, dated February 29, 1996, provided for an annual salary of $48,000 commencing on March 1, 1996. Mr. Ong's employment is at will and may be terminated at any time, with or without formal cause. Mr. Allen's offer letter, dated February 12, 1999, provides for an initial annual salary of $140,000 commencing on March 3, 1999 and eligibility for an incentive bonus of $35,000. The offer letter also provides for reimbursement for relocation expenses. Mr. Allen received options to purchase 186,666 shares of our common stock at an exercise price of $0.39 per share under the 1998 Stock Option Plan, of which options to purchase 46,667 shares vest on March 3, 2000 and the remainder will vest ratably over a 36-month period thereafter. Half of the unvested portion of these options will vest if we sell the company. Mr. Allen's employment is at will and may be terminated at any time, with or without formal cause. Mr. Backlund's offer letter, dated May 1, 1998, provides for an initial annual salary of $135,000 commencing on May 26, 1999 and eligibility for an incentive bonus of up to $100,000. The offer letter also provides for reimbursement for relocation expenses. Mr. Backlund received options to purchase 156,666 shares of our common stock at an exercise price of $0.21 per share under the 1996 Stock Option Plan, of which options to purchase 39,166 shares vested on May 26, 1999 and the remainder will vest ratably over a 36- month period thereafter. On January 28, 1999, Mr. Backlund received options to purchase an additional 66,666 shares of our common stock at the price of $0.39 per share as a result of meeting revenue objectives in 1998 and in lieu of a portion of his cash bonus earned in 1998. Mr. Backlund's employment is at will and may be terminated at any time, with or without formal cause. Mr. Engelmann's offer letter, dated December 11, 1998, provides for an initial annual salary of $130,000 commencing on January 18, 1999 and eligibility for an incentive bonus of up to $40,000. The offer letter also provides for reimbursement for relocation expenses. Pursuant to the offer letter, Mr. Engelmann purchased 183,333 shares of our common stock at the price of $0.39 per share. The shares purchased by Mr. Engelmann are subject to our right to repurchase all of the shares of common stock upon termination of his employment. Our right to repurchase his shares at the original purchase price upon termination lapses with respect to 45,833 shares on January 18, 2000, and expires ratably as to the remaining shares over a 36-month period. The 51 repurchase right will expire as to half of the shares of common stock subject to repurchase at any given time if we are acquired. If we terminate Mr. Engelmann's employment without cause, we must pay him an amount equal to two months base salary. Pursuant to the offer letter, on January 28, 1999, Mr. Engelmann purchased an additional 86,666 shares of our common stock at the price of $0.39 per share, subject to attainment of individual and corporate objectives, and subject to the same repurchase rights as described above. We loaned Mr. Engelmann $105,300 pursuant to a partial recourse secured promissory note representing the purchase price for his shares, due in five years or earlier in the event of our initial public offering, acquisition or Mr. Engelmann's termination of employment, and bearing interest at the rate of 6% per year. Mr. Engelmann's employment is at will and may be terminated at any time, with or without formal cause. Mr. Jia's offer letter, dated January 6, 1997, provides for an initial annual salary of $70,000 commencing January 27, 1997. Mr. Jia received options to purchase 60,000 shares of our common stock at an exercise price of $0.09 per share under the 1996 Stock Option Plan, of which options to purchase 15,000 shares vested on January 28, 1998 and the remainder will vest ratably over a 36 month period thereafter. Mr. Jia's employment is at will and may be terminated at any time, with or without formal cause. Mr. Ruck's offer letter, dated February 18, 1999, provides for an initial annual salary of $140,000 commencing March 15, 1999 and eligibility for an incentive bonus of up to $60,000. Pursuant to the offer letter, Mr. Ruck purchased 213,333 shares of our common stock at the price of $0.39 per share. The shares purchased by Mr. Ruck are subject to our right to repurchase all of the shares of common stock upon termination of his employment. Our right to repurchase his shares upon termination lapses with respect to 53,333 on March 15, 2000, and expires ratably as to the remaining shares over a 36-month period. If we terminate Mr. Ruck's employment without cause, within his first year of employment, our right to repurchase his common stock will be equal to the shares granted less 4,444 shares for each full month of employment for Mr. Ruck after March 15, 1999. On March 18, 1999, Mr. Ruck purchased an additional 33,333 shares of our common stock at the price of $0.39 per share, subject to the attainment of individual and corporate objectives, and subject to the same repurchase rights as described above. Also, pursuant to his offer letter, we loaned Mr. Ruck $96,200 pursuant to a partial recourse secured promissory note representing the purchase price for his shares, due in five years or earlier in the event of our initial public offering, acquisition, or Mr. Ruck's termination of employment, and bearing interest at the rate of 6% per year. The loan will be recourse with respect to interest and a combination, as determined by mutual agreement between the parties, of recourse and non-recourse for the principal. Mr. Ruck's employment is at will and may be terminated at any time, with or without formal cause. Mr. Chang's offer letter, dated January 20, 1997, provides for an initial annual salary of $125,000 commencing February 3, 1997 and eligibility for incentive bonus of up to $125,000. Mr. Chang received options to purchase 120,000 shares of our common stock at an exercise price of $0.09 per share under the 1996 Stock Option Plan, of which 30,000 shares vested upon February 10, 1998 and the remainder will vest ratably over a 36-month period thereafter. On April 13, 1998, we granted to Mr. Chang options to purchase an additional 46,667 shares of our common stock, subject to the attainment of individual and corporate objectives. Mr. Chang entered into a Confidential Separation Agreement and Release with us in November 1998. This agreement establishes the terms and conditions of the termination of his employment with us. Under the agreement, Mr. Chang's employment was terminated as of March 31, 1999. In addition, the agreement provides that we pay Mr. Chang $11,500 per month, plus a bonus of $64,167. Mr. Chang's options to purchase common stock continued to vest through March 31, 1999. Mr. Farber's offer letter, dated June 14, 1997, provides for an initial annual salary of $120,000. Mr. Farber received options to purchase 320,000 shares of our common stock at an exercise price of $0.18 per share under the 1996 Stock Option Plan, of which 80,000 shares vested on June 16, 1998 and the remainder will vest ratably over a 36-month period thereafter. 52 Mr. Farber entered into a Confidential Separation Agreement and Release with us in February 1998. This agreement establishes the terms and conditions of the termination of his employment with us. Under the agreement, Mr. Farber's employment terminated as of August 1, 1998. In addition, the agreement provides that we pay Mr. Farber $76,071. All 196,000 of Mr. Farber's options to purchase common stock completely vested as of August 1998. Indemnification of Directors and Executive Officers and Limitation of Liability Our certificate of incorporation includes a provision that eliminates the personal liability of our directors for monetary damages resulting from breach of fiduciary duty as a director, except for liability: . for any breach of the director's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . under section 174 of the Delaware General Corporation Law regarding unlawful dividends and stock purchases; or . for any transaction from which the director derived an improper personal benefit. These provisions are permitted under Delaware law. Our bylaws provide that: . we must indemnify our directors and executive officers to the fullest extent permitted by Delaware law, subject to very limited exceptions; . we may indemnify our other employees and agents to the same extent that we indemnify our directors and executive officers, unless otherwise required by law, our certificate of incorporation, bylaws or agreements; and . we must advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to very limited exceptions. Prior to the completion of this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification provided in our certificate of incorporation and bylaws and to provide additional procedural protections. Presently, there is no pending litigation or proceeding involving any of our directors, executive officers or employees for which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. We have liability insurance for our directors and officers. 53 RELATED PARTY TRANSACTIONS Other than the employment and severance agreements described in "Management," and the transactions described below, since we were formed there has not been nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: . in which the amount involved exceeded or will exceed $60,000; and . in which any director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. Preferred Stock Financings All of the share and per share purchase price numbers set forth in the following paragraph represent actual shares sold and reflect the 2-for-3 reverse stock split of our common stock to be effected immediately prior to the closing of this offering. In March and June 1996, we sold an aggregate of 1,199,998 shares of Series A Preferred Stock at a purchase price of $0.30 per share. In May and June 1997, we sold an aggregate of 2,134,548 shares of Series B Preferred Stock at a purchase price of $1.9293 per share. In March 1998, we sold an aggregate of 4,161,082 shares of Series C Preferred Stock at a purchase price of $1.6186 per share, and warrants to purchase 612,079 shares of Series C Preferred Stock at an exercise price of $1.9293 per share. In October, November and December 1998, we sold an aggregate of 2,494,142 shares of Series D Preferred Stock at a purchase price of $2.80668 per share. In June 1999, we sold an aggregate of 2,263,136 shares of Series E Preferred Stock at a purchase price of $8.49 per share. Purchasers of our preferred and common stock include, among others, the following executive officers, directors and holders of more than 5% of our outstanding stock. All of the share numbers in the following table reflect the conversion of each outstanding share of Series A Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock into two-thirds of a share of common stock and the conversion of each outstanding share of Series B Preferred Stock into 0.7022705 of a share of common stock.
Shares of Preferred Stock ------------------------------------------- Series Series Series A Series B Series C D E ------- --------- --------- ------- ------- Stockholder ----------- Kathryn C. Gould Entities associated with Foundation Capital.......... -- -- 2,480,419 613,896 146,666 Entities associated with JK&B Capital....................... -- 1,310,408 650,153 485,233 132,861 Entities associated with Draper Fisher Jurvetson............. 333,333 167,030 277,410 202,632 1,313 Entities associated with Accel Partners...................... -- -- 1,063,038 263,098 72,039 Peng T. Ong.................... 66,666 -- -- -- -- Mark W. Saul................... 83,333 13,919 -- -- --
Ms. Gould, one of our directors, is a member of Foundation Capital and may be deemed to own beneficially the shares held by entities associated with Foundation Capital. Mr. Ong disposed of his shares of Series A Preferred Stock in 1997. 54 Warrants On January 9, 1997, in connection with a bridge financing, we issued warrants to purchase shares of our Series B Preferred Stock with an exercise price of $1.92932 per share to the following executive officers, directors and holders of more than 5% of our outstanding stock:
Number of shares Warrant holder subject to warrant Expiration date -------------- ------------------ --------------- Mark W. Saul............................. 3,412 January 9, 2002 Entities associated with Draper Fisher Jurvetson............................... 40,950 January 9, 2002
The number of shares of Series B Preferred Stock represented in this table has been adjusted to reflect conversion to common stock. Each outstanding share of Series B Preferred Stock is convertible into 1.0534057 shares of common stock. These warrants have not been exercised but will expire upon the closing of this offering. In March 1998, in connection with the Series C Preferred Stock financing, we issued warrants to purchase shares of our Series C Preferred Stock with an exercise price of $1.92932 per share to the following executive officers, directors and holders of more than 5% of our outstanding stock. In October 1998, all warrants to purchase Series C Preferred Stock were exercised by their respective holders in connection with the Series D Preferred Stock financing.
Number of shares Warrant holder subject to warrant -------------- ------------------ Entities associated with Foundation Capital.............. 318,075 Entities associated with Accel Partners.................. 136,317 Entities associated with JK&B Capital.................... 83,371 Entities associated with Draper Fisher Jurvetson......... 35,573
Loans to Executive Officers Martin W. Brauns. In March 1998, we loaned $240,000 to Mr. Brauns, our President and Chief Executive Officer, secured by a promissory note and stock pledge agreement, in connection with his purchase of 1,333,333 shares of our common stock. The note accrued interest at a rate of 6% per year and has been paid in full. Jeffrey E. Engelmann. In April 1999, we loaned an aggregate of $105,300 to Mr. Engelmann, our Vice President of Business Development, secured by two promissory notes and a stock pledge agreement, in connection with his purchase of 270,000 shares of our common stock. The notes accrue interest at a rate of 6% per year and are each due and payable on or before April 19, 2004. Interest is payable annually. In the event of an initial public offering of our common stock the principal sum of each note will become due and payable in monthly installments over the remaining term of our right to repurchase the shares. If Mr. Engelmann breaches his obligations under the notes we may enforce our right to payment of 25% of the principal and any accrued interest out of any of Mr. Engelmann's assets, but may enforce our right to payment of the balance due under the notes only out of the stock subject to the stock pledge agreement. As of August 31, 1999, $107,617 remained outstanding under the notes. Jozef Ruck. In April 1999, we loaned an aggregate of $96,200 to Mr. Ruck, our Vice President of Marketing, secured by two promissory notes and a stock pledge agreement, in connection with his purchase of 246,666 shares of our common stock. The notes accrue interest at a rate of 6% per year and are each due and payable on or before April 2004. Interest is payable annually. In the event of an initial public offering of our common stock the principal sum of each note will become due and payable in monthly installments over the remaining term of our right to repurchase the shares. If Mr. Ruck breaches his obligations under the notes we may enforce our right to payment of 25% of the principal and any accrued interest out of any of Mr. Ruck's assets, but may enforce our right to payment of the balance due under the notes only out of the stock subject to the stock pledge agreement. As of August 31, 1999, $98,284 remained outstanding under the notes. 55 PRINCIPAL STOCKHOLDERS The following table presents information as to the beneficial ownership of our common stock as of August 31, 1999 and as adjusted to reflect the sale of the common stock in this offering by: . each stockholder known by us to be the beneficial owner of more than 5% of our common stock; . each of our directors; . each executive officer listed in the Summary Compensation Table; and . all executive officers and directors as a group.
Percentage of Shares Number of Outstanding Shares ----------------- Beneficially Before After Name of Beneficial Owner Owned Offering Offering ------------------------ ------------ -------- -------- Kathryn C. Gould (1)........................................ 3,240,981 17.0% 14.7% Foundation Capital entities 70 Willow Road, Suite 200 Menlo Park, CA 94025 JK&B Capital entities (2)................................... 2,578,655 13.6 11.7 205 North Michigan Avenue, Suite 808 Chicago, IL 60601 Peng T. Ong................................................. 1,933,333 10.2 8.8 Martin W. Brauns (3)........................................ 1,419,436 7.5 6.4 Accel Partners entities (4)................................. 1,398,175 7.4 6.4 428 University Avenue Palo Alto, CA 94301 Draper Fisher Jurvetson entities (5)........................ 1,022,668 5.4 4.6 400 Seaport Court, Suite 250 Redwood City, CA 94063 Michael A. Backlund (6)..................................... 223,332 1.2 1.0 Steven Farber............................................... 186,634 1.0 * Jack S. Jia (7)............................................. 173,332 * * Mark W. Saul (8)............................................ 123,997 * * John Chang.................................................. 74,166 * * Mark C. Thompson ........................................... 20,000 * * Ronald E.F. Codd ........................................... 20,000 * * All eleven directors and executive officers as a group (9) ........................................................... 7,867,744 41.4% 35.7%
- --------------------- (1) Includes 2,878,855 shares held by Foundation Capital II, L.P., 91,960 shares held by Foundation Capital II Entrepreneurs Fund, L.L.C., and 270,166 shares held by Foundation Capital II Principals Fund, L.L.C. Ms. Gould is a managing member of Foundation Management II, L.L.C., the general partner of each of these entities. The managing members of Foundation Management II, L.L.C. are deemed to beneficially own the shares held by each of the Foundation Capital entities and share voting and investment power of the shares. The managing members of Foundation Management II, L.L.C. disclaim beneficial ownership of the shares, except to the extent of their direct pecuniary interest in the shares. 56 (2) Includes 1,800,630 shares held by JK&B Capital, L.P. and 778,026 shares held by JK&B Capital II, L.P. (3) Includes 1,002,770 shares of common stock subject to our repurchase right. (4) Includes 1,097,568 shares held by Accel V L.P., 145,410 shares held by Accel Internet/Strategic Technology Fund, L.P., 57,325 shares held by Accel Keiretsu V L.P., 67,112 held by Accel Investors "97 L.P. and 30,760 held by Ellmore C. Patterson Partners. (5) Includes 1,022,668 shares held by Draper Fisher Associates Fund III, L.P. and 62,382 shares held by Draper Fisher Partners, LLC and 40,950 shares issuable upon the exercise of warrants to purchase shares of Series B Preferred Stock held by both entities. (6) Includes 180,901 shares of common stock subject to our repurchase right. (7) Includes 125,900 shares of common stock subject to our repurchase right. (8) Includes 3,412 shares issuable upon the exercise of warrants to purchase shares of Series B Preferred Stock held by Mr. Saul. (9) Includes 1,912,903 shares of common stock subject to our repurchase right. Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unless indicated above, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of common stock subject to options and warrants that are currently exercisable or exercisable within 60 days of August 31, 1999 are deemed to be outstanding and to be beneficially owned by the person holding the options or warrants for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless indicated above, the address for each listed stockholder is c/o Interwoven, Inc., 1195 West Fremont Avenue, Suite 2000, Sunnyvale, California 94087. The number of shares of common stock outstanding after this offering includes shares of common stock being offered and does not include the shares which are subject to the underwriters' over-allotment option. The percentage of common stock outstanding as of August 31, 1999 is based on 22,009,054 shares of common stock outstanding on that date, assuming that all outstanding preferred stock has been converted into common stock. 57 DESCRIPTION OF CAPITAL STOCK Immediately following the closing of this offering, our authorized capital stock will consist of 75,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par value per share. Immediately before the closing of this offering, we will reincorporate in the state of Delaware. Following the closing of this offering, we intend to amend and restate our certificate of incorporation. Our certificate of incorporation, bylaws and third amended and restated investors' rights agreement, described below, are included as exhibits to the registration statement of which this prospectus forms a part. Common Stock As of August 31, 1999, there were 19,009,054 shares of common stock outstanding held by 173 shareholders of record, including 12,542,610 shares that will be issued upon conversion of all outstanding preferred stock and the exercise and subsequent conversion to common stock of warrants to purchase Series B Preferred Stock upon the closing of this offering. Dividend Rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board may from time to time determine. Voting Rights. Each common stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. No preemptive or similar rights. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Right to receive liquidation distributions. Upon a liquidation, dissolution or winding-up of Interwoven, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding preferred stock and payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. Preferred Stock Upon the closing of this offering, each outstanding share of preferred stock will be converted into shares of common stock. See Note 6 of Notes to Financial Statements for a description of this preferred stock. Following this offering, we will be authorized, subject to the limits imposed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or restrictions. The board can also increase or decrease the number of shares of any series, but not below the number of shares of a given series then outstanding, without any further vote or action by the stockholders. The board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. We have no current plan to issue any shares of preferred stock. 58 Warrants As of August 31, 1999, we had outstanding the following warrants to purchase our stock:
Total number of shares Subject Exercise price Type of stock to Warrants per share Expiration date - ------------- --------------- -------------- ---------------------------------- Series B Preferred Stock.................. 65,519 $1.9293 upon consummation of this offering Series B Preferred Stock.................. 6,552 1.9293 September 2004
In July 1999, we issued warrants to purchase a total of 11,770 shares of Series E Preferred Stock in connection with our acquisition of Lexington Software Associates, Inc. The warrants are exercisable at a purchase price of $8.49 per share after January 1, 2000 and until July 1, 2006. All holders of warrants to purchase Series E Preferred Stock are afforded registration rights pursuant to the Third Amended and Restated Investors Rights Agreement. Registration Rights The holders of approximately 12,420,390 shares of common stock have the right to require us to register their shares with the Securities and Exchange Commission so that those shares may be publicly resold or to include their shares in any registration statement we file. Right to demand registration At any time six months after this offering, these stockholders can request that we file a registration statement so they can publicly sell their shares. The underwriters of any underwritten offering will have the right to limit the number of shares to be included in a registration statement. Who may make a demand. At any time six months after the closing of this offering, any holder of shares of common stock issued upon conversion of Series B Preferred Stock immediately prior to this offering, any number of holders who together hold an aggregate of at least 954,633 shares of common stock issued upon conversion of Series C Preferred Stock immediately prior to this offering, any number of holders who together hold an aggregate of at least 498,829 shares of common stock issued upon conversion of Series D Preferred Stock immediately prior to this offering, any number of holders who together hold an aggregate of at least 452,628 shares of common stock issued upon conversion of Series E Preferred Stock immediately prior to this offering, or the holders of at least 40% of the shares having registration rights, including some holders of Series A Preferred Stock, have the right to demand that we file a registration statement on a form other than Form S-3, so long as the amount of securities to be sold in that registration exceeds $5,000,000. If we are eligible to file a registration statement on Form S-3, the same holders of the registration rights described above will have the right to demand that we file a registration statement on Form S-3, so long as the amount of securities to be sold in that registration exceeds $1,000,000. Number of times holders can make demands. We will only be required to file one registration statement on a form other than Form S-3 for each of two registrations. If we are eligible to file a registration statement on Form S-3, we are not required to file more than one registration statement during any 12 month period. Postponement. We may postpone the filing of a registration statement for up to 90 days once in a 12 month period if we determine that the filing would be seriously detrimental to us or our stockholders. Piggyback registration rights If we register any securities for public sale, the same stockholders with registration rights described above will have the right to include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit the number of shares to be included in a registration statement. 59 Expenses of registration We will pay all of the expenses relating to any demand or piggyback registration. However, we will not pay for any expenses of any demand registration if the request is subsequently withdrawn by the holders of a majority of the shares having registration rights, subject to very limited exceptions. Expiration of registration rights The registration rights described above will expire five years after this offering is completed. The registration rights will terminate earlier with respect to a particular stockholder if that holder owns less than 1% of our outstanding securities or can resell all of its securities in a three month period under Rule 144 of the Securities Act and we are subject to the reporting requirements of the Securities Exchange Act of 1934. Anti-Takeover Provisions The provisions of Delaware law, our certificate of incorporation and our bylaws described below may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. Delaware Law We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents certain Delaware corporations from engaging, under limited circumstances, in a "business combination," which includes a merger or sale of more than 10% of the corporation's assets, with any "interested stockholder," or a stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of stockholders, for three years following the date that the stockholder became an "interested stockholder" unless: . the transaction is approved by the board prior to the date the "interested stockholder" attained that status; . upon the closing of the transaction that resulted in the stockholder's becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or . on or subsequent to the date the "business combination" is approved by the board and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the "interested stockholder." A Delaware corporation may "opt out" of this provision with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. However, we have not "opted out" of this provision. Section 203 could prohibit or delay mergers or other takeover or change-in-control attempts and, accordingly, may discourage attempts to acquire us. Charter and Bylaw Provisions Our amended and restated certificate of incorporation, to be filed upon the closing of this offering, states that our board of directors is divided into three classes. The directors in each class will serve for a three-year term, with our stockholders electing one class each year. For more information on the classification of our board, please see "Management--Board Composition." This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors. Our bylaws provide that any action required or permitted to be taken by our stockholders at an annual meeting or a special meeting of the stockholders may only be taken if it is properly brought before the meeting. 60 Our stockholders may not take any action by written consent instead of by a meeting. Our certificate of incorporation provides that our board of directors may issue preferred stock with voting or other rights without stockholder action. Our bylaws and certificate of incorporation provide that special meetings of the stockholders may only be called by our board, the chairman of our board, our chief executive officer or our president. Our bylaws provide that we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. These provisions may have the effect of preventing changes in our management. Indemnification of Directors and Executive Officers and Limitation of Liability Our certificate of incorporation limits the liability of directors to the fullest extent permitted by Delaware law. In addition, our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We intend to enter into separate indemnification agreements with our directors and executive officers that provide them with indemnification protection in the event the certificate of incorporation is subsequently amended. Our certificate of incorporation and bylaws provide that we will indemnify our directors and executive officers against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. These provisions may have the effect of preventing changes in the management. Transfer Agent and Registrar The Transfer Agent and Registrar for our common stock is ChaseMellon Shareholder Services, L.L.C., Ridgefield Park, New Jersey. Listing We have applied for our common stock to be quoted on The Nasdaq Stock Market's National Market under the symbol "IWOV." 61 SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding warrants or options, in the public market after this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities. Furthermore, as described below, no shares currently outstanding will be available for sale immediately after this offering due to limited contractual restrictions on resale. Sales of substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon completion of this offering, based on shares outstanding at June 30, 1999, we will have outstanding 21,642,241 shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Of these shares, the 3,000,000 shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our "affiliates." The remaining shares will become eligible for public sale as follows:
Approximate Number of Shares Eligible for Future Date Sale Comment ---- ----------- ------- Date of this prospectus 0 Freely tradable shares 181 days after the date of 15,690,149 Underwriters' lock-up released. this prospectus These shares may be sold under Rules 144, 144(k) or 701 One year after the date of 2,484,404 These shares may be sold under Rules this prospectus 144 or 701 At various times thereafter 539,759 These shares may be sold under Rules 144 or 701
Lock-Up Agreements All of our officers and directors and substantially all of our stockholders have signed lock-up agreements under which they agreed not to sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock without the prior written consent of Credit Suisse First Boston for a period of 180 days after the date of this prospectus. Credit Suisse First Boston may choose to release some of these shares from these restrictions prior to the expiration of this 180-day period, though it has no current intention to do so. Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three- month period a number of shares that does not exceed the greater of: . 1% of the number of shares of common stock then outstanding, which will equal approximately 216,422 shares immediately after this offering; or . the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. 62 Rule 144(k) Under Rule 144(k), a person who has not been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, these shares may be sold immediately upon the completion of this offering. Rule 701 Any of our employees, officers, directors or consultants who purchased his or her shares under a written compensatory plan or contract may be entitled to sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. However, all shares issued under Rule 701 are subject to lock-up agreements and will only become eligible for sale when the 180-day lock-up agreements expire. Registration Rights Upon completion of this offering, the holders of 12,420,390 shares of common stock, or their transferees, will be entitled to rights with respect to the registration of those shares under the Securities Act. For a discussion of these rights please see "Description of Capital Stock--Registration Rights." After these shares are registered, they will be freely tradable without restriction under the Securities Act. Stock Options Immediately after this offering, we intend to file a registration statement under the Securities Act covering 3,200,000 shares of common stock reserved for issuance under our stock option and employee stock purchase plans. As of August 31, 1999, options to purchase 1,039,887 shares of common stock were issued and outstanding. Upon the expiration of the lock-up agreements described above, no shares of common stock will be subject to vested options, based on options outstanding as of August 31, 1999. This registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under this registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock up agreements expire. Warrants As of August 31, 1999, we had outstanding warrants to purchase 111,167 shares of common stock. When these warrants are exercised and the exercise price is paid in cash the shares must be held for one year before they can be sold under Rule 144. Warrants to purchase up to 111,167 shares of common stock contain "net exercise provisions." These provisions allow a holder to exercise the warrant for a lesser number of shares of common stock in lieu of paying cash. The number of shares which would be issued in this case would be based upon the market price of the common stock at the time of the net exercise. If the warrant had been held for at least one year, the shares of common stock could be publicly sold under Rule 144. After the lock-up agreements described above expire, warrants to purchase 45,648 shares of our common stock, which also contain net exercise provisions, will have been outstanding for at least one year. 63 UNDERWRITING Under the terms and subject to the conditions contained in the underwriting agreement dated , 1999, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson Stephens Inc. and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, are acting as representatives, the following respective numbers of shares of common stock:
Number of Underwriter Shares ----------- --------- Credit Suisse First Boston Corporation............................ BancBoston Robertson Stephens, Inc................................ Dain Rauscher Wessels............................................. --------- Total........................................................... 3,000,000 =========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering, if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 450,000 additional shares from us at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
Per Share Total ------------------------------ ----------------------------- Without With Without With Over- allotment Over-allotment Over-allotment Over-allotment --------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us................... $ $ $ $ Expenses payable by us.. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We, our officers and directors and our stockholders have agreed that we will not offer, sell, contract to sell, announce our intention to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to any additional shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except in the case of issuances pursuant to the exercise of employee stock options outstanding on the date of this prospectus. 64 The underwriters have reserved for sale, at the initial public offering price, up to 200,000 shares of common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the others shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments which the underwriters may be required to make in that respect. We have applied to list the shares of common stock on The Nasdaq Stock Market's National Market under the symbol "IWOV." In June 1999, we issued an aggregate of 3,394,719 shares of our Series E Preferred Stock at a per share price of $5.66 in a private placement. These shares of Series E Preferred Stock are convertible into an aggregate of 2,263,136 shares of common stock at $8.49 per share. Credit Suisse First Boston Corporation acted as the placement agent for this private placement, and it received a customary fee for its services. In addition, Merchant Capital, Inc., an affiliate of Credit Suisse First Boston Corporation, purchased 229,682 shares of Series E Preferred Stock. These shares of Series E Preferred Stock are convertible into 153,121 shares of common stock. Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiation between us and the underwriters. The principal factors to be considered in determining the public offering price include: . the information set forth in this prospectus and otherwise available to the underwriters; . the history and the prospects for the industry in which we will compete; . the ability of our management; . the prospects for our future earnings; . the present state of our development and our current financial condition; . the general condition of the securities markets at the time of this offering; and . the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. . Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. 65 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom the purchase confirmation is received that (i) the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under the securities laws, (ii) where required by law, that the purchaser is purchasing as principal and not as agent, and (iii) the purchaser has reviewed the text above under "Resale Restrictions." Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or recission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or these persons. All or a substantial portion of the assets of the issuer and these persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or these persons in Canada or to enforce a judgment obtained in Canadian courts against the issuer or these persons outside of Canada. Notice to British Columbia Residents A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser in this offering. This report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 66 LEGAL MATTERS Fenwick & West LLP, Palo Alto, California, will pass upon the validity of the issuance of the shares of common stock offered by this prospectus. The underwriters have been represented by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. EXPERTS The financial statements as of December 31, 1997 and 1998 and for each of the three years in the period ended December 31, 1998 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission, a registration statement on Form S-1 under the Securities Act with respect to the common stock. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified by the filed exhibit. The registration statement, including exhibits and schedules, may be inspected without charge at the principal office of the Securities and Exchange Commission in Washington, D.C., and copies of all or any part of it may be obtained from that office after payment of fees prescribed by the Securities and Exchange Commission. The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission at http://www.sec.gov. We intend to provide our stockholders with annual reports containing financial statements audited by an independent public accounting firm and quarterly reports containing unaudited financial data for the first three quarters of each year. 67 INTERWOVEN, INC. INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants.......................................... F-2 Balance Sheet.............................................................. F-3 Statement of Operations.................................................... F-4 Statement of Changes in Stockholders' Deficit.............................. F-5 Statement of Cash Flows.................................................... F-6 Notes to Financial Statements.............................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The reincorporation described in Note 1 of the financial statements had not been consummated at June 30, 1999. When it has been consummated, we will be in a position to furnish the following report: "To the Board of Directors and Stockholders of Interwoven, Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Interwoven, Inc. (the "Company") at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, 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. /s/ PricewaterhouseCoopers LLP San Jose, California July 15, 1999" F-2 INTERWOVEN, INC. BALANCE SHEET (in thousands, except share and per share amounts)
December 31, Pro Forma ----------------- June 30, June 30, 1997 1998 1999 1999 ------- -------- -------- --------- (unaudited) ASSETS Current assets: Cash and cash equivalents............ $ 1,019 $ 9,022 $ 25,203 Accounts receivable, net............. 140 2,405 1,885 Prepaid expenses..................... -- 179 230 Other current assets................. 37 80 143 ------- -------- -------- Total current assets................ 1,196 11,686 27,461 Property and equipment, net............ 188 1,617 1,882 Restricted cash........................ -- 605 605 ------- -------- -------- $ 1,384 $ 13,908 $ 29,948 ======= ======== ======== LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable..................... $ 213 $ 484 $ 1,489 Accrued liabilities.................. 169 1,473 1,655 Debt and leases, current............. 22 258 511 Deferred revenue, current............ -- 627 1,172 ------- -------- -------- Total current liabilities........... 404 2,842 4,827 Debt and leases, long-term........... 87 1,257 1,000 Deferred revenue, long-term.......... -- 97 -- ------- -------- -------- 491 4,196 5,827 ------- -------- -------- Mandatorily redeemable convertible preferred stock 4,942,133, 15,163,093 and 18,763,092 shares authorized, respectively; 4,839,505, 15,060,465 and 18,455,184 shares issued and outstanding, respectively, actual; no shares authorized, issued or outstanding pro forma................. 4,627 20,464 45,276 $ -- ------- -------- -------- -------- Commitments (Note 4) Stockholders' Equity (Deficit): Preferred stock, $0.001 par value, no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma........... -- -- -- -- Common Stock, 10,000,000, 16,666,667, 26,666,667 (unaudited) and 75,000,000 (unaudited) shares authorized, respectively; 2,433,333, 4,909,232, 6,230,590 (unaudited) and 18,642,241 (unaudited) shares, respectively, issued and outstanding......................... 3 5 6 19 Additional paid-in capital........... (243) 881 1,707 46,970 Notes receivable from stockholders... (3) (240) (202) (202) Deferred stock-based compensation.... -- (1,090) (6,130) (6,130) Accumulated deficit.................. (3,491) (10,308) (16,536) (16,536) ------- -------- -------- -------- Total stockholders' equity (deficit).......................... (3,734) (10,752) (21,155) $ 24,121 ------- -------- -------- ======== $ 1,384 $ 13,908 $ 29,948 ======= ======== ========
See accompanying notes to financial statements. F-3 INTERWOVEN, INC. STATEMENT OF OPERATIONS (in thousands, except per share amounts)
Year Ended December Six Months Ended 31, June 30, ------------------------ ----------------- 1996 1997 1998 1998 1999 ------ ------- ------- ------- -------- (unaudited) Revenues: License........................ $ -- $ 84 $ 3,176 $ 624 $ 3,258 Services....................... -- 84 827 262 1,746 ------ ------- ------- ------- -------- Total revenues............... -- 168 4,003 886 5,004 Cost of revenues: License........................ -- -- 59 -- 119 Services....................... -- 95 1,274 350 1,429 ------ ------- ------- ------- -------- Total cost of revenues....... -- 95 1,333 350 1,548 Gross profit..................... -- 73 2,670 536 3,456 Operating expenses: Research and development....... 328 884 1,797 735 1,701 Sales and marketing............ 101 1,519 4,817 1,357 5,225 General and administrative..... 91 530 1,739 572 1,244 Amortization of deferred stock- based compensation............ -- -- 812 347 1,668 ------ ------- ------- ------- -------- Total expenses............... 520 2,933 9,165 3,011 9,838 Loss from operations............. (520) (2,860) (6,495) (2,475) (6,382) Interest income (expense), net... 10 (88) 151 57 154 ------ ------- ------- ------- -------- Net loss......................... $ (510) $(2,948) $(6,344) $(2,418) $ (6,228) Accretion of mandatorily redeemable convertible preferred stock to redemption value....... -- (261) (1,165) (583) (6,350) ------ ------- ------- ------- -------- Net loss attributable to common stockholders.................... $ (510) $(3,209) $(7,509) $(3,001) $(12,578) ====== ======= ======= ======= ======== Basic and diluted net loss per share........................... $(0.22) $ (1.36) $ (2.85) $ (1.25) $ (3.66) ====== ======= ======= ======= ======== Shares used in computing basic and diluted net loss per share.. 2,282 2,356 2,633 2,404 3,435 ====== ======= ======= ======= ======== Pro forma basic and diluted net loss per share.................. $ (0.74) $ (0.44) ======= ======== Shares used in computing pro forma basic and diluted net loss per share....................... 8,530 14,000 ======= ========
See accompanying notes to financial statements. F-4 INTERWOVEN, INC. STATEMENT OF STOCKHOLDERS' DEFICIT (in thousands)
Note Common Stock Additional Receivable Deferred -------------- Paid-In from Stock-Based Accumulated Shares Amount Capital Stockholders Compensation Deficit Total ------ ------ ---------- ------------ ------------ ----------- -------- Balance at December 31, 1995................... 1,933 $ 2 $ 13 $ -- $ -- $ (33) $ (18) Issuance of Common Stock for cash............... 200 -- 3 -- -- -- 3 Issuance of Common Stock for notes receivable... 233 -- 3 (3) -- -- -- Net loss................ -- -- -- -- -- (510) (510) ----- --- ------ ----- ------- -------- -------- Balance at December 31, 1996................... 2,366 2 19 (3) -- (543) (525) Repurchase of Common Stock.................. (33) -- (5) -- -- -- (5) Issuance of Common Stock on exercise of stock options................ 100 1 4 -- -- -- 5 Accretion of mandatorily redeemable convertible preferred stock........ -- -- (261) -- -- -- (261) Net loss................ -- -- -- -- -- (2,948) (2,948) ----- --- ------ ----- ------- -------- -------- Balance at December 31, 1997................... 2,433 3 (243) (3) -- (3,491) (3,734) Issuance of Common Stock for notes receivable... 1,333 1 239 (240) -- -- -- Note repayment.......... -- -- -- 3 -- -- 3 Repurchase shares of Series A mandatorily redeemable convertible preferred stock........ -- -- -- -- -- (473) (473) Accretion of mandatorily redeemable convertible preferred stock........ -- -- (1,165) -- -- -- (1,165) Issuance of Common Stock on exercise of stock options................ 1,143 1 148 -- -- -- 149 Deferred stock-based compensation........... -- -- 1,902 -- (1,902) -- -- Amortization of stock- based compensation..... -- -- -- -- 812 -- 812 Net loss................ -- -- -- -- -- (6,344) (6,344) ----- --- ------ ----- ------- -------- -------- Balance at December 31, 1998................... 4,909 $ 5 $ 881 $(240) $(1,090) $(10,308) $(10,752) ===== === ====== ===== ======= ======== ======== Issuance of Common Stock for services .......... 9 -- 27 -- -- -- 27 Issuance of Common Stock for notes receivable ...... 517 -- 202 (202) -- -- -- Repurchase of Common Stock ................. (63) -- (5) -- -- -- (5) Note repayment.......... -- -- -- 240 -- -- 240 Accretion of mandatorily redeemable convertible preferred stock........ -- -- (6,350) -- -- -- (6,350) Issuance of Common Stock on exercise of stock options ............... 859 1 244 -- -- -- 245 Deferred stock-based compensation........... -- -- 6,708 -- (6,708) -- -- Amortization of stock- based compensation .... -- -- -- -- 1,668 -- 1,668 Net loss................ -- -- -- -- -- (6,228) (6,228) ----- --- ------ ----- ------- -------- -------- Balance at June 30, 1999 (unaudited)............ 6,231 $ 6 $1,707 $(202) $(6,130) $(16,536) $(21,155) ===== === ====== ===== ======= ======== ========
See accompanying notes to financial statements. F-5 INTERWOVEN, INC. STATEMENT OF CASH FLOWS (in thousands)
Six Months Year Ended December 31, Ended June 30, -------------------------- ---------------- 1996 1997 1998 1998 1999 ------- -------- -------- ------- ------- (unaudited) Cash flows used in operating activities: Net loss........................ $ (510) $ (2,948) $ (6,344) $(2,418) $(6,228) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization... 17 56 294 87 296 Amortization of deferred stock- based compensation............. -- -- 812 347 1,668 Issuance of common stock for services....................... -- -- -- -- 27 Non-cash interest expense....... 7 135 -- -- -- Provisions for doubtful accounts....................... -- -- 270 -- 18 Changes in assets and liabilities: Accounts receivable............ -- (140) (2,535) (435) 502 Prepaid expenses and other assets........................ (1) (30) (222) (31) (114) Restricted cash................ -- -- (605) -- -- Accounts payable............... 116 96 271 583 1,005 Accrued liabilities............ 48 121 1,304 115 182 Deferred revenue............... -- -- 724 169 448 ------ -------- -------- ------- ------- Net cash used in operating activities................... (323) (2,710) (6,031) (1,583) (2,196) ------ -------- -------- ------- ------- Cash flows used in investing activities: Purchase of property and equipment...................... (64) (138) (1,723) (1,258) (561) ------ -------- -------- ------- ------- Cash flows from financing activities: Proceeds from (repurchases of) Series A Preferred Stock, net.. 309 -- (632) (632) -- Proceeds from Series B Preferred Stock, net..................... -- 3,415 -- -- -- Proceeds from Series C Preferred Stock, net..................... -- -- 7,887 6,712 -- Proceeds from Series D Preferred Stock, net..................... -- -- 6,944 -- -- Proceeds from Series E Preferred Stock, net..................... -- -- -- -- 18,462 Proceeds from issuance of Common Stock.......................... 3 -- -- -- -- Proceeds from exercise of stock options........................ -- 5 149 123 245 Proceeds from notes payable, net of discount.................... 75 375 -- -- -- Repayment (issuance) of stockholders loans............. 10 (11) 3 -- 240 Proceeds from bank borrowings... -- 76 1,500 -- -- Repurchase of Common Stock...... -- (5) -- -- (5) Principal payments of debt and leases......................... -- (5) (94) (3) (4) ------ -------- -------- ------- ------- Net cash provided by financing activities................... 397 3,850 15,757 6,200 18,938 ------ -------- -------- ------- ------- Net increase in cash and cash equivalents..................... 10 1,002 8,003 3,359 16,181 Cash and cash equivalents at beginning of period............. 7 17 1,019 1,019 9,022 ------ -------- -------- ------- ------- Cash and cash equivalents at end of period....................... $ 17 $ 1,019 $ 9,022 $ 4,378 $25,203 ====== ======== ======== ======= ======= Supplemental cash flow disclosures: Cash paid for interest.......... $ -- $ -- $ 41 $ 9 $ 64 ====== ======== ======== ======= ======= Supplemental non-cash investing and finance activities: Property and equipment leases... $ -- $ 38 $ -- $ -- $ -- ====== ======== ======== ======= ======= Issuance of Series A Preferred Stock upon conversion of stockholder loans.............. $ 50 $ -- $ -- $ -- $ -- ====== ======== ======== ======= ======= Common Stock issued for notes receivable..................... $ 3 $ -- $ 240 $ 240 $ 202 ====== ======== ======== ======= ======= Common Stock issued for services....................... $ -- $ -- $ -- $ -- $ 27 ====== ======== ======== ======= ======= Series B Preferred Stock issued upon conversion of convertible notes payable and accrued interest....................... $ -- $ 460 $ -- $ -- $ -- ====== ======== ======== ======= ======= Issuance of warrants to purchase Series B Preferred Stock....... $ -- $ 106 $ -- $ -- $ -- ====== ======== ======== ======= =======
See accompanying notes to financial statements. F-6 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company Interwoven, Inc. (the "Company") is a leading provider of software products and services that help businesses and other organizations manage the information that makes up the content of their web sites. In the Internet industry this is often referred to as "web content management." Our flagship software product, TeamSite, is designed to help customers develop, maintain and extend large web sites that are essential to their businesses. Reincorporation In June 1999, the Company's Board of Directors authorized the reincorporation of the Company in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 75,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors has the authority to issue undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. Share and per share information for each of the periods presented has been retroactively adjusted to reflect the reincorporation. Unaudited interim results The accompanying interim financial statements as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the six months ended June 30, 1998 and 1999. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Revenue recognition In October 1997 and March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and Statement of Position No. 98-4, "Deferral of the Effective Date of a Provision of SOP No. 97-2" ("SOP No. 98-4"). SOP 98-4 defers for one year the application of certain provisions of SOP 97-2. In December 1998, the AICPA issued Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions" ("SOP No. 98-9"), which is effective for transactions entered into beginning April 1, 1999. SOP 98-9 extends the effective date of SOP 98-4 and provides additional interpretive guidance. The adoption of SOP 97-2, SOP 98-4 and SOP 98-9 have not had and are not expected to have a material impact on the Company's results of operations, financial position or cash flows. The Company's revenues are derived from licenses of its software products and from services the Company provides to its customers. Revenues are recognized for the various contract elements based upon vendor-specific objective evidence of fair value of each element. F-7 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited License revenues from resellers and end users are recognized when persuasive evidence of an agreement exists, the product has been delivered, no significant post-delivery obligations remain, the license fee is fixed or determinable and collection of the fee is probable. The Company does not offer product return rights to resellers or end users. Services revenues consist of professional services and maintenance fees. Professional services primarily consists of software installation and integration, business process consulting and training. Professional services are billed on a time and materials basis and revenues are recognized as the services are performed. Maintenance agreements are typically priced based on a percentage of the product license fee and have a one-year term, renewable annually. Services provided to customers under maintenance agreements include technical product support and unspecified product upgrades. Deferred revenues from advanced payments for maintenance agreements are recognized ratably over the term of the agreement, which is typically one year. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. Cash equivalents consist principally of money-market accounts that are stated at historical cost, which approximates fair value. Concentration of credit risk Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents and accounts receivable. The Company limits its exposure to credit loss by placing its cash and cash equivalents with a major financial institution. The Company's accounts receivable are derived from revenues earned from customers located in the U.S. and are denominated in U.S. dollars. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful accounts receivable based upon expected collectibility of accounts receivable. The following table summarizes the revenues from customers in excess of 10% of the total revenues.
Six Months Year ended Ended December 31, June 30, --------------- ------------- 1997 1998 1998 1999 ------ ------ ----- ----- (unaudited) Company A.................................. 20% --% --% --% Company B.................................. 20% --% --% --% Company C.................................. 18% --% 13% --% Company D.................................. 11% --% --% --% Company E.................................. 10% --% --% --% Company F.................................. --% 13% --% --% Company G.................................. --% --% 17% --% Company H.................................. --% --% 14% --%
At December 31, 1997, Company A, B and C accounted for 25%, 22% and 21% of total accounts receivable, respectively. At December 31, 1998, Company F accounted for 10% of total accounts receivable. At June 30, 1999 (unaudited) no customer accounted for 10% of total accounts receivable. F-8 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited Fair value of instruments The Company's financial instruments including cash and cash equivalents, accounts receivable and accounts payable, are carried at cost, which approximate fair value due to the short-term maturity of these instruments. Debt and capital lease obligations are carried at cost, which approximates fair value due to the proximity of the implicit rates of these financial instruments and the prevailing market rates for similar instruments. Software development costs Software development costs incurred in the research and development of new products and enhancements to existing products are charged to expense as incurred. Software development costs are capitalized after technological feasibility has been established. The period between achievement of technological feasibility, which the Company defines as the establishment of a working model, until the general availability of such software to customers, has been short and software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs since its inception. Capitalization of internal-use software costs In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use". SOP 98-1 is effective for financial statements for years beginning after December 15, 1998 and provides guidance for the accounting of computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. The Company adopted the provisions of SOP 98-1 in its fiscal year beginning January 1, 1999. Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the useful lives of the assets, generally five years or less, or the shorter of the lease term or the estimated useful lives of the assets, if applicable. Impairment of long-lived assets The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires recognition of impairment of long- lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributed to such assets. Stock-based compensation The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation expense is based on the difference, if any, on the date of grant F-9 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited between fair value of the Company's stock and the exercise price. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus on Issue No. 96-18. Income taxes Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Net loss per share The Company computes net loss per share in accordance with SFAS No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is computed by dividing the net loss attributed to common stockholders for the period by the weighted average number of shares of Common Stock outstanding during the period excluding shares of Common Stock subject to repurchase. Such shares of Common Stock subject to repurchase aggregated 73,333, 1,737,435, 1,527,472 (unaudited), and 1,997,580 (unaudited) as of December 31, 1997 and 1998 and June 30, 1998 and 1999, respectively. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share amounts):
Year Ended December Six Months 31, Ended June 30, ---------------------- --------------- 1996 1997 1998 1998 1999 ------ ------ ------ ------ ------- (unaudited) Numerator: Net loss attributable to common stockholders................... (510) (3,209) (7,509) (3,001) (12,578) Denominator: Weighted average shares......... 2,282 2,405 3,949 3,360 5,549 Weighted average unvested shares of Common Stock subject to repurchase..................... -- (49) (1,316) (956) (2,114) ------ ------ ------ ------ ------- Denominator for basic and diluted calculation............ 2,282 2,356 2,633 2,404 3,435 Net loss per share: Basic and diluted............... ($0.22) ($1.36) ($2.85) ($1.25) ($ 3.66) ====== ====== ====== ====== =======
F-10 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited The following table sets forth potential shares of Common Stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):
Six Months Year Ended Ended June December 31, 30, ----------------- ------------ 1996 1997 1998 1998 1999 ----- ----- ----- ----- ------ (unaudited) Weighted average effect of Common Stock equivalents.................................... Series A Preferred Stock...................... 796 1,200 878 1,010 747 Series B Preferred Stock...................... -- 1,235 2,107 2,079 2,135 Series C Preferred Stock...................... -- -- 3,092 2,023 4,773 Series D Preferred Stock...................... -- -- 359 -- 2,494 Series E Preferred Stock...................... -- -- -- -- 344 Warrants to purchase mandatorily redeemable convertible preferred stock.................. 1 66 71 70 72 Shares of Common Stock subject to repurchase.. -- 49 1,316 956 2,114 Common Stock options.......................... 250 1,480 1,870 2,148 1,074 ----- ----- ----- ----- ------ 1,047 4,030 9,693 8,286 13,753 ===== ===== ===== ===== ======
Pro forma net loss per share (unaudited) Pro forma net loss per share is computed using the weighted average number of shares of Common Stock outstanding, including the pro forma effects of the exercise of warrants to purchase Series B Preferred Stock and automatic conversion of the Company's Series A, B, C, D and E Preferred Stock into shares of the Company's Common Stock effective upon the closing of the Company's initial public offering as if such conversion occurred at the beginning of the period, or at the date of issuance, if later. The resulting pro forma adjustment for the year ended December 31, 1998 and the six months ended June 30, 1999 includes (i) an increase in the weighted average shares used to compute the basic net loss per share of 5,896,280 and 10,564,993 (unaudited), respectively, and (ii) a decrease in the net loss attributable to common stockholders for the accretion of mandatorily redeemable convertible preferred stock of $1,165,000 and $6,350,000 (unaudited), respectively. The calculation of diluted net loss per share excludes potential shares of Common Stock as their effect would be antidilutive. Pro forma potential Common Stock consists of Common Stock subject to repurchase rights and incremental shares of Common Stock issuable upon the exercise of stock options. Pro forma stockholders' equity (unaudited) Effective upon the closing of the Company's initial public offering, the outstanding shares of Series A, B, C, D and E Preferred Stock will automatically convert into 746,664, 2,134,548, 4,773,161, 2,494,142, and 2,263,136 shares of Common Stock, respectively. The pro forma effects of these transactions are unaudited and have been reflected in the accompanying pro forma balance sheet at June 30, 1999. Comprehensive income Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net F-11 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited assets) during a period from non-owner sources. As of December 31, 1998 and June 30, 1999, the Company had not had any transactions that are required to be reported in comprehensive income. Segment information Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." The Company identifies its operating segment based on business activities, management responsibility and geographic location. During all periods presented, the Company operated in a single business segment. Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the current period presentation. NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
December 31, ----------- June 30, 1997 1998 1999 ---- ------ ----------- (unaudited) Accounts receivable, net: Accounts receivable............................... $140 $2,675 $2,173 Less: Allowance for doubtful accounts............. -- (270) (288) ---- ------ ------ $140 $2,405 $1,885 ==== ====== ======
There were no write-offs against the allowance for doubtful accounts in the years ended December 31, 1997 and 1998 and for the six months ended June 30, 1999 (unaudited).
December 31, ------------ June 30, 1997 1998 1999 ---- ------ ----------- (unaudited) Property and equipment, net: Computer equipment and purchased software...... $254 $ 952 $1,505 Furniture and fixtures......................... 10 586 590 Leasehold improvements......................... -- 449 453 ---- ------ ------ 264 1,987 2,548 Less: Accumulated depreciation and amortization.................................. (76) (370) (666) ---- ------ ------ $188 $1,617 $1,882 ==== ====== ======
F-12 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited Property and equipment includes $38,000, $23,000 and $23,000 (unaudited) of fixed assets under capital leases at December 31, 1997 and 1998 and June 30, 1999, respectively. Accumulated depreciation of such assets was $7,000, $8,000 and $12,000 (unaudited) at December 31, 1997 and 1998 and June 30, 1999, respectively.
December 31, ----------- June 30, 1997 1998 1999 ---- ------ ----------- (unaudited) Accrued liabilities: Payroll and related expenses....................... $ 59 $1,247 $1,063 Other.............................................. 110 226 592 ---- ------ ------ $169 $1,473 $1,655 ==== ====== ======
NOTE 3--DEBT: In June 1999, the Company amended a financing agreement (the "Financing Agreement") originally entered into in June 1998, whereby the bank will loan up to 80% of eligible accounts receivable up to a maximum of $3,000,000 (unaudited) for working capital purposes. Working capital advances accrue interest at the bank's prime rate and are payable monthly with principal due one year subsequent to the date of any advance. The Financing Agreement provides for additional borrowings of up to $1,500,000 to finance equipment purchases. Advances for equipment purchases accrue interest at the bank's prime rate plus .25% and advances are payable monthly for one year subsequent to the date of any advance. Thereafter, the outstanding balance will be due in 36 monthly installments. The Agreement requires the Company to comply with certain financial covenants. The Company was in compliance with all covenants at December 31, 1998 and for the six months ended June 30, 1999 (unaudited). Future minimum principal payments under the Financing Agreement are as follows (in thousands): Year Ending December 31, 1999................................................................ $ 250 2000................................................................ 500 2001................................................................ 500 2002................................................................ 250 ------ $1,500 ======
In January 1997, the Company issued $375,000 of convertible promissory notes payable. The notes bore interest at 6% per year. In connection with the issuance of the notes, the Company issued to the note holders warrants to purchase 82,219 shares of Series B Preferred Stock at $1.29 per share. The warrants expire at the earlier of November 2001 or upon an initial public offering of the Company's Common Stock. The Company recorded a $94,000 discount to the notes for the value of the warrants, which was recognized in 1997 as additional interest expense. In May 1997, the principal amounts and accrued interest outstanding for the notes were converted into 357,182 shares of Series B Preferred Stock (see Note 6). F-13 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited NOTE 4--COMMITMENTS: The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through May 2003. Rent expense for the year ended December 31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999 totaled $52,000, $557,000, $96,000 (unaudited) and $325,000 (unaudited), respectively. Future minimum lease payments under noncancelable operating and capital leases, as of December 31, 1998, are as follows (in thousands):
Capital Operating Sublease Leases Leases Income ------- --------- -------- Year Ending December 31, 1999.......................................... $10 $ 938 $356 2000.......................................... 7 951 211 2001.......................................... -- 979 -- 2002.......................................... -- 1,009 -- 2003.......................................... -- 426 -- --- ------ ---- Total minimum lease payments and sublease income....................................... 17 $4,303 $567 === ====== ==== Less: Amount representing interest............ 2 --- Present value of capital lease obligations.... $15 ===
Restricted cash During fiscal 1998, $605,000 of cash was pledged as collateral on an outstanding letter of credit relating to the building lease agreement and is classified as restricted cash on the balance sheet. The restricted cash will be reduced by $226,875 on the 31st month after the signing of the agreement provided no event of default has occurred. The Company was in compliance with all such covenants at December 31, 1998 and June 30, 1999 (unaudited). F-14 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited NOTE 5--INCOME TAXES: At December 31, 1998, the Company had approximately $7,181,000 of federal and $1,178,000 of state net operating tax loss carryforwards available to reduce future taxable income which expire in 2015 and 2010 for federal and state tax purposes, respectively. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. Deferred tax assets consist of the following (in thousands):
December 31, ---------------- June 30, 1997 1998 1999 ------- ------- ----------- (unaudited) Deferred tax assets: Net operating loss carryforwards............. $ 1,105 $ 2,882 $ 4,250 Accruals and reserves........................ 61 235 250 Research credits............................. 40 120 150 Depreciation................................. 60 128 150 ------- ------- ------- 1,266 3,365 4,800 Valuation allowance............................ (1,266) (3,365) (4,800) ------- ------- ------- Net deferred tax assets........................ $ -- $ -- $ -- ======= ======= =======
For financial reporting purposes, the Company has incurred a loss in each year since its inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided for a full valuation allowance against its net deferred tax assets at December 31, 1997 and 1998 and June 30, 1999 (unaudited). F-15 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK: At December 31, 1998, mandatorily redeemable convertible preferred stock consists of the following (in thousands):
Shares ---------------------- Liquidation Redemption Series Authorized Outstanding Amount Amount ------ ---------- ----------- ----------- ---------- Series A Preferred Stock...... 1,120 1,120 $ 224 $ 626 Series B Preferred Stock...... 3,142 3,040 3,909 4,756 Series C Preferred Stock...... 7,160 7,160 7,726 7,989 Series D Preferred Stock...... 3,741 3,741 7,000 7,093 ------ ------ ------- ------- 15,163 15,061 $18,859 $20,464 ====== ====== ======= =======
At June 30, 1999 (unaudited), mandatorily redeemable convertible preferred stock consists of the following (in thousands):
Shares ---------------------- Liquidation Redemption Series Authorized Outstanding Amount Amount ------ ---------- ----------- ----------- ---------- Series A Preferred Stock...... 1,120 1,120 $ 224 $ 1,095 Series B Preferred Stock...... 3,142 3,040 3,909 6,072 Series C Preferred Stock...... 7,160 7,160 7,726 10,987 Series D Preferred Stock...... 3,741 3,741 7,000 8,660 Series E Preferred Stock...... 3,600 3,395 19,214 18,462 ------ ------ ------- ------- 18,763 18,456 $38,073 $45,276 ====== ====== ======= =======
The holders of Series A, B, C, and D Preferred Stock have certain rights and privileges as follows: Warrants The Company issued warrants to purchase 20,409, 82,219 and 5,480 in 1996, 1997 and 1998, respectively, shares of Series B Preferred Stock at $1.29 per share to the holders of the warrants. The warrants expire at the earlier of November 2001 or upon an initial public offering of the Company's Common Stock. Voting Each share of Series A, B, C, and D Preferred Stock has voting rights equivalent to Common Stock on an "as if" converted basis. Dividends Holders of Series A, B, C and D Preferred Stock are entitled to receive non- cumulative annual dividends of $0.01, $0.10, $0.09 and $0.15 per share, respectively, when and if declared by the Company's Board of Directors. Dividends on the Series A, B, C and D Preferred Stock shall be payable in preference and prior to any payment of any dividend on the Common Stock. The holders of the Series A, B, C and D will also be entitled to participate in dividends on the Common Stock, when and if declared by the Board of Directors, on an as-converted to Common Stock basis. No dividends have been declared from inception through December 31, 1998. F-16 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited Liquidation In the event of any liquidation, dissolution, winding up or merger where less than 50% of the voting power is maintained by the Company, the holders of the Series A, B, C, and D Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of the Common Stock, an amount equal to $0.20, $1.29, $1.08 and $1.87 per share, respectively, plus any declared but unpaid dividends. Any amounts remaining after such distribution shall be distributed among the holders of Series B, C and D Preferred Stock, and Common Stock on an "as if" converted basis until the holders of Series B, C and D Preferred Stock have received an aggregate liquidation payment of $2.57, $2.16 and $2.81, thereafter any remaining amounts shall be distributed among the holders of Common Stock. Redemption Upon the request of holders of at least 50% of the outstanding shares of Series A, B, C or D Preferred Stock, the shares of all of the preferred stock may be redeemed in four equal installments beginning in May 2002. The redemption price for Series A, B, C and D Preferred Stock will be the greater of the original issuance price for Series A, B, C and D Preferred Stock, $0.20, $1.29, $1.08 and $1.87 per share, respectively, plus any undeclared and unpaid dividends and an amount equal to that amount which would result in the holder of such shares realizing an 8% annually compounded return on the purchase price or the fair market value of Series A, B, C and D Preferred Stock on the first redemption date. Conversion Each share of Series A, C, and D Preferred Stock is convertible at the option of the holder into two-thirds of a share of Common Stock at any time, subject to adjustment for antidilution. Each share of Series B Preferred Stock is convertible at the option of the holders into .7022705 of a share of Common Stock at any time, subject to adjustment for antidilution. Each share of Series A, B, C and D Preferred Stock will be automatically converted upon an initial public offering of the Company's Common Stock with aggregate proceeds in excess of $20,000,000 and a price per share of not less than $5.79. The Company has reserved sufficient shares of Common Stock for issuance upon conversion of the Series A, B, C and D Preferred Stock. Series E Preferred Stock Each share of Series E Preferred Stock has voting rights equivalent to Common Stock on an "as if" converted basis. Holders of Series E Preferred Stock are entitled to receive non-cumulative annual dividends of $0.45 per share, when and if declared by the Company's Board of Directors. Dividends on the Preferred Stock shall be payable in preference and prior to any payment of any dividend on the Common Stock. The holders of the Series E Preferred Stock will also be entitled to participate in dividends on the Common Stock, when and if declared by the Board of Directors, based on the number of shares of Common Stock held on an as-converted basis. No dividends have been declared from inception through June 30, 1999 (unaudited). In the event of any liquidation, dissolution, winding up or merger where less than 50% of the voting power is maintained by the Company, the holders of the Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of the Common Stock, an amount equal to $5.66 per share, respectively, plus any declared but unpaid dividends. Any amounts remaining after such distribution shall be distributed among the holders of Series E Preferred Stock, and Common Stock on an "as if" converted basis until the holders of Series E have received an aggregate liquidation payment of $8.49, thereafter any remaining amounts shall be distributed among the holders of Common Stock (unaudited). F-17 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited Upon the request of holders of at least 50% of the outstanding shares of Series E Preferred Stock, the shares of all of the preferred stock may be redeemed in four equal installments beginning in May 2002. The redemption price for Series E Preferred Stock will be the greater of the original issuance price for Series E Preferred Stock, $5.66 per share, respectively, plus any undeclared and unpaid dividends and an amount equal to that amount which would result in the holder of such shares realizing an 8% annually compounded return on the purchase price or the fair market value of Series E Preferred Stock on the first redemption date (unaudited). Each share of Series E Preferred Stock is convertible at the option of the holder into two-thirds of a share of Common Stock at any time, subject to adjustment for antidilution. Each share of Series E Preferred Stock will be automatically converted upon an initial public offering of the Company's Common Stock with aggregate proceeds in excess of $20,000,000 and a price per share of not less than $8.49. The Company has reserved sufficient shares of Common Stock for issuance upon conversion of the Series E Preferred Stock (unaudited). NOTE 7--COMMON STOCK: In March 1995, the Company issued 1,933,333 shares of Common Stock to its founder in exchange for $14,500 in total consideration. Additionally, in March 1996, the Company issued 233,333 shares of Common Stock to an employee in consideration of a $3,500 promissory note. In addition, the Company issued a further 200,000 shares of Common Stock in consideration of $3,000 in cash. Under the terms of the stock purchase agreements, the Company has the right to repurchase up to 2,166,667 shares of such Common Stock at the original issue price upon termination. The repurchase rights expired as to 25% of such Common Stock in January 1997 and the remainder expire ratably over a 36 month period thereafter with 586,667 and 315,972 (unaudited) shares of Common Stock subject to repurchase at December 31, 1998 and June 30, 1999. The Company had reserved shares of Common Stock for issuance as follows (in thousands):
As of June 30, 1999 ----------- (unaudited) Mandatorily redeemable convertible preferred stock: Series A Preferred Stock....................................... 747 Series B Preferred Stock....................................... 2,135 Series C Preferred Stock....................................... 4,773 Series D Preferred Stock....................................... 2,494 Series E Preferred Stock....................................... 2,263 Exercise of options under stock option plans..................... 945 ------ 13,357 ======
Notes receivable from stockholders In March 1998, the Company issued 1,333,333 shares of Common Stock to an officer of the Company in exchange for a $240,000 note receivable. The note bore interest at 6% per year. The note was secured by the underlying stock and is classified as a note receivable from stockholder in the accompanying balance sheet at December 31, 1998. Under the terms of the agreement, the Company has the right to repurchase all of the shares of such stock at the original issue price upon termination. The repurchase rights expire ratably over a 48 month period with 1,055,555 and 888,889 (unaudited) shares of Common Stock subject to repurchase at December 31, 1998 and June 30, 1999, respectively. In June 1999, the note was paid. F-18 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited In April 1999 the Company issued a total 516,667 shares of Common Stock to two officers of the Company in exchange for notes receivable totalling $201,500 (unaudited). The notes bear interest at 6% per year and are due upon the earlier of (i) an acquisition, (ii) an initial public offering, (iii) the employee's termination or (iv) five years. The notes are secured by the underlying stock and are classified as notes receivable from stockholders in the accompanying balance sheet at June 30, 1999. Under the terms of the agreement, the Company has the right to repurchase all of the shares of such stock at the original issue price upon termination. The repurchase rights will expire as to 25% of such Common Stock in April 2000, and the remainder will expire ratably over a 36 month period thereafter with 516,667 (unaudited) shares of Common Stock subject to repurchase at June 30, 1999. NOTE 8--EMPLOYEE STOCK OPTION PLAN: In August 1996, the Company adopted the 1996 Stock Option Plan (the "1996 Plan") and in March 1998 it adopted the 1998 Stock Option Plan (the "1998 Plan") (collectively, the "Plans"). The Plans provide for grants of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options ("ISO") may be granted only to employees (including officers and directors who are also employees) of the Company. Nonqualified stock options may be granted to employees and consultants of the Company. Options under the Plans may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant and (ii) the exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant and are for periods not to exceed five years. Options are immediately exercisable but are subject to repurchase by the Company at the original exercise price. The repurchase feature generally expires for 25% of the shares after the first year of service and then expires ratably over the next 36 months. The following table summarizes the activity under the Plans for the years ended December 31, 1997, 1998 and the six months ended June 30, 1999 (shares in thousands):
Year Ended December 31, Six months --------------------------------- ended June 30, 1997 1998 1999 ---------------- ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ -------- ------ -------- ------ -------- (unaudited) Outstanding at beginning of period.............. 487 $0.03 1,276 $0.11 622 $0.17 Granted................. 1,074 0.14 824 0.21 1,333 1.09 Canceled................ (185) 0.09 (334) 0.18 (151) 0.18 Exercised............... (100) 0.05 (1,144) 0.13 (859) 0.32 ----- ------ ----- Outstanding at end of period................. 1,276 0.11 622 0.17 945 1.33 ----- ------ ----- Options exercisable at end of period.......... 1,276 622 945 ----- ------ ----- Weighted average fair value of options granted during the period................. $0.03 $0.05 $0.21 ===== ===== =====
F-19 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited The followings table summarizes information about stock options outstanding and exercisable at December 31, 1998 (shares in thousands):
Options Outstanding at December Options Exercisable 31, 1998 at December 31, 1998 ------------------------------------- ----------------------- Weighted Average Remaining Weighted Weighted Range of Contractual Average Average Exercise Number Life Exercise Number Exercise Prices Outstanding (Years) Price Exercisable Price -------- ----------- ----------- -------- ----------- -------- $0.03-0.09 206 8.0 $0.07 206 $0.07 0.15-0.21 362 9.4 0.19 362 0.19 0.39 54 9.9 0.39 54 0.39 --- --- 622 9.0 0.17 622 0.17 === ===
The followings table summarizes information about stock options outstanding and exercisable at June 30, 1999 (unaudited) (shares in thousands):
Options Outstanding at June 30, Options Exercisable 1999 at June 30, 1999 ------------------------------------- ----------------------- Weighted Average Remaining Weighted Weighted Range of Contractual Average Average Exercise Number Life Exercise Number Exercise Prices Outstanding (Years) Price Exercisable Price -------- ----------- ----------- -------- ----------- -------- $0.15-0.21 144 8.9 $0.19 144 $0.19 0.39-1.20 341 9.7 0.72 341 0.72 1.65-2.25 460 10.0 2.14 460 2.14 --- --- 945 9.7 1.33 945 1.33 === ===
Fair value disclosures The Company calculated the minimum fair value of each option grant on the date of grant using the Black-Scholes option-pricing model as prescribed by SFAS No. 123 using the following assumptions:
Year Ended Six Months December 31, Ended --------------- June 30, 1997 1998 1999 ------ ------ ----------- (unaudited) Risk-free interest rates....................... 6.5% 6.5% 5.5% Expected lives (in years)...................... 4.0 4.0 4.0 Dividend yield................................. 0.0 0.0 0.0 Expected volatility............................ 0.0 0.0 0.0
The compensation cost associated with the Company's stock-based compensation plans, determined using the minimum value method prescribed by SFAS No. 123, did not result in a material difference from the reported net income for the years ended December 31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999 (unaudited). F-20 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited Deferred stock-based compensation In connection with certain stock option grants during the year ended December 31, 1998 and the six months ended June 30, 1999, the Company recognized deferred stock-based compensation totaling $1.9 million and $6.7 million (unaudited), respectively, which is being amortized over the vesting periods of the applicable options. Amortization expense recognized during the year ended December 31, 1998 and the six months ended June 30, 1999 totaled approximately $812,000 and $1.7 million (unaudited), respectively. NOTE 9--SUBSEQUENT EVENTS: Stock Split Prior to the effectiveness of the Company's initial public offering, the Company's Board of Directors intends to effect a two-for-three reverse stock split of the outstanding shares of Common Stock. All common share and per share information included in these financial statements have been retroactively adjusted to reflect this stock split. Employee Stock Purchase Plan In July 1999, the Board adopted, subject to stockholder approval, the 1999 Employee Stock Purchase Plan (the "Purchase Plan") and reserved 300,000 shares of Common Stock for issuance thereunder. On each January 1, the aggregate number of shares reserved for issuance under this plan will increase automatically by a number of shares equal to 1% of the Company's outstanding shares on December 31 of the preceding year. The aggregate number of shares reserved for issuance under the Purchase Plan shall not exceed 3,000,000 shares. The Purchase Plan will become effective on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Employees generally will be eligible to participate in the Purchase Plan if they are customarily employed by the Company for more than 20 hours per week and more than five months in a calendar year and are not (and would not become as a result of being granted an option under the Purchase Plan) 5% stockholders of the Company. Under the Purchase Plan, eligible employees may select a rate of payroll deduction between 2% and 10% of their W- 2 cash compensation subject to certain maximum purchase limitations. Each offering period will have a maximum duration of two years and consists of four six-month Purchase Periods. The first Offering Period is expected to begin on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Depending on the Effective Date, the first Purchase Period may be more or less than six months long. Offering Periods and Purchase Periods thereafter will begin on February 1 and August 1. The price at which the Common Stock is purchased under the Purchase Plan is 85% of the lesser of the fair market value of the Company's Common Stock on the first day of the applicable offering period or on the last day of that purchase period. The Purchase Plan will terminate after a period of ten years unless terminated earlier as permitted by the Purchase Plan. 1999 Equity Incentive Plan In July 1999, the Board adopted, subject to stockholder approval, the 1999 Equity Incentive Plan (the "1999 Plan") and reserved 2,900,000 shares of Common Stock for issuance thereunder. The 1999 Plan authorized the award of options, restricted stock awards and stock bonuses (each an "Award"). No person will be eligible to receive more than 1,000,000 shares in any calendar year pursuant to Awards under the 1999 Plan other than a new employee of the Company who will be eligible to receive no more than 1,500,000 shares in the calendar year in which such employee commences employment. Options granted under the 1999 Plan may F-21 INTERWOVEN, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Information as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is unaudited be either incentive stock options ("ISO") or nonqualified stock options ("NSO"). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, officers, directors, consultants, independent contractors and advisors of the Company. Options under the Plan may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO may not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% stockholder may not be less than 110% of the estimated fair value of the shares on the date of grant. The maximum term of options granted under the 1999 Plan is ten years. Members of the Board who are not employees of the Company, or any parent, subsidiary or affiliate of the Company, are eligible to participate in the 1999 Plan. The option grants under the 1999 Plan are automatic and nondiscretionary, and the exercise price of the options must be 100% of the fair market value of the Common Stock on the date of grant. Each eligible director who first becomes a member of the Board on or after the effective date of the Registration Statement of which this Prospectus forms a part (the "Effective Date") will initially be granted an option to purchase 20,000 shares (an "Initial Grant") on the date such director first becomes a director. Immediately following each Annual Meeting of the Company, each eligible director will automatically be granted an additional option to purchase 10,000 shares if such director has served continuously as a member of the Board since the date of such director's Initial Grant or, if such director was ineligible to receive an Initial Grant, since the Effective Date. The term of such options is ten years, provided that they will terminate 7 months following the date the director ceases to be a director or a consultant of the Company (twelve months if the termination is due to death or disability). All options granted under the Directors Plan will vest 100% of the shares upon the date of issuance. Acquisition Effective July 1, 1999, the Company acquired all the assets and liabilities of Lexington Software Associates Incorporated, which is a provider of configuration management solutions and development methodologies, including consulting and education. The acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values at the acquisition date. The total purchase price of approximately $769,000 consisted of 88,339 shares of the Company's Series E Preferred Stock (estimated fair value of $500,000), seven-year warrants to purchase 17,668 shares of Series E Preferred Stock at $5.66 per share (estimated fair value of $77,000), and other acquisition-related expenses of approximately $192,000. Of the total purchase price, approximately $794,000 was allocated to goodwill, which will be amortized over its estimated useful life of 48 months. The remainder of the purchase price was allocated to net tangible liabilities assumed of $25,000. F-22 [inside back cover] A man (whose legs and feet only are visible) standing on a sphere representing the earth. [LOGO OF INTERWOVEN APPEARS HERE] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market filing fee. Securities and Exchange Commission registration fee.............. $ 13,900 NASD filing fee.................................................. 5,500 Nasdaq National Market filing fee................................ 95,000 Accounting fees and expenses..................................... 225,000 Legal fees and expenses.......................................... 425,000 Road show expenses............................................... 35,000 Printing and engraving expenses.................................. 250,000 Blue sky fees and expenses....................................... 10,000 Transfer agent and registrar fees and expenses................... 10,000 Miscellaneous.................................................... 120,600 ---------- Total.......................................................... $1,190,000 ==========
- --------------------- * To be completed by amendment. Item 14. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the Delaware General Corporation Law, the Registrant's Certificate of Incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability: . for any breach of the director's duty of loyalty to the Registrant or its stockholders, . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, . under section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases), or . for any transaction from which the director derived an improper personal benefit. As permitted by the Delaware General Corporation Law, the Registrant's Bylaws provide that: . the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions, . the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law, . the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions, and . the rights conferred in the Bylaws are not exclusive. II-1 The Registrant intends to enter into Indemnity Agreements with each of its current directors and officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's Amended and Restated Certificate of Incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Registrant regarding which indemnification is sought, nor is the Registrant aware of any threatened litigation that may result in claims for indemnification. Reference is also made to Section 7 of the draft Underwriting Agreement to be entered into between the Registrant and the underwriters, which will provide for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's Amended and Restated Certificate of Incorporation, Bylaws and the Indemnity Agreements to be entered into between the Registrant and each of its directors and officers may be sufficiently broad to permit indemnification of the Registrant's directors and officers for liabilities arising under the Securities Act. The Registrant maintains directors' and officers' liability insurance. See also the undertakings set out in response to Item 17. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
Exhibit Document Number ---------------- ------ Form of Underwriting Agreement...................................... 1.01 Registrant's Amended and Restated Certificate of Incorporation...... 3.03 Registrant's Restated Bylaws........................................ 3.04 Third Amended and Restated Investors' Rights Agreement dated June 10, 1999........................................................... 4.02 Form of Indemnity Agreement......................................... 10.01
Item 15. Recent Sales of Unregistered Securities. Since inception we have issued and sold the following securities: 1. We granted stock options to purchase 4,124,036 shares of our common stock at exercise prices ranging from $0.03 to $10.01 per share to our employees, consultants, directors, and other service providers under our 1996 Stock Option Plan and 1998 Stock Option Plan. Through August 31, 1999, we issued and sold an aggregate of 2,372,629 shares of our common stock to employees, consultants, directors, and other service providers at prices ranging from $0.03 to $10.01 per share under direct issuances or exercises of options granted under our 1996 Stock Option Plan and 1998 Stock Option Plan. All shares purchased under our 1996 Stock Option Plan and 1998 Stock Option Plan are subject to our right to repurchase such shares at their original exercise price. The repurchase feature generally expires for 25% of the shares after the first year of service and then expires ratably over the next 36 months. 2. In March and June 1996, we issued and sold an aggregate of 1,800,000 shares of our Series A Preferred Stock to private investors for an aggregate purchase price of approximately $360,000. In March 1998, we repurchased 680,000 shares of our Series A Preferred Stock at $0.93 per share. The 1,120,000 shares of Series A Preferred Stock outstanding are convertible into an aggregate of 746,664 shares of common stock. 3. In August 1996, we issued a warrant to a certain bank in connection with a loan agreement. The warrant is exercisable for 9,330 shares of Series B Preferred Stock, which shares are convertible into 9,828 shares of Preferred Stock. These shares of Series B Preferred Stock are convertible into an aggregate of up to 6,552 shares of common stock. 4. In January 1997, in connection with a bridge loan that converted into Series B Preferred Stock, we issued warrants to private investors to purchase 93,298 shares of Series B Preferred Stock at an exercise price of II-2 $1.2862 per share. These shares of Series B Preferred Stock are convertible into an aggregate of up to 65,519 shares of common stock. 5. In May and June 1997, we issued and sold an aggregate of 3,039,505 shares of our Series B Preferred Stock to private investors for an aggregate purchase price of approximately $3,890,566. These shares of Series B Preferred Stock are convertible into an aggregate of up to 2,134,548 shares of common stock. 6. In March 1998, we issued and sold an aggregate of 6,241,619 shares of our Series C Preferred Stock to private investors for an aggregate purchase price of approximately $6,375,181, and warrants to purchase 918,124 shares of Series C Preferred Stock at an exercise price of $1.2862 per share. In connection with the Series D Preferred Stock financing, all warrants to purchase Series C Preferred Stock were exercised for an aggregate purchase price of approximately $1,180,891. These shares of Series C Preferred Stock are convertible into an aggregate of 4,773,161 shares of common stock. 7. In October, November and December 1998, we issued and sold an aggregate of 3,741,217 shares of our Series D Preferred Stock to private investors for an aggregate purchase price of approximately $6,996,075. These shares of Series D Preferred Stock are convertible into an aggregate of 2,494,142 shares of common stock. 8. In June 1999, we issued and sold an aggregate of 3,394,719 shares of our Series E Preferred Stock to private investors for an aggregate purchase price of approximately $19,214,109. These shares of Series E Preferred Stock are convertible into an aggregate of 2,263,136 shares of common stock. 9. In July 1999, we issued 88,339 shares of Series E Preferred Stock and warrants to purchase 17,668 shares of Series E Preferred Stock to certain shareholders of Lexington Software Associates, Inc. in exchange for their shares of that company. These shares of Series E Preferred Stock are convertible into an aggregate of up to 58,888 shares of common stock and warrants to purchase up to 11,770 shares of Series E Preferred Stock. All sales of common stock made pursuant to the exercise of stock options were made in reliance on Rule 701 under the Securities Act or on Section 4(2) of the Securities Act. All sales of preferred stock and warrants to purchase preferred stock were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. These sales were made without general solicitation or advertising. Each purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment and represented to the Registrant that the shares were being acquired for investment. Item 16. Exhibits and Financial Statement Schedules. (a) The following exhibits are filed herewith:
Number Exhibit Title ------ ------------- 1.01 Form of Underwriting Agreement. 3.01** Registrant's Certificate of Incorporation. 3.02 Registrant's Amended and Restated Certificate of Incorporation (to be filed in connection with our reincorporation from California to Delaware prior to consummation of this offering). 3.03* Registrant's Amended and Restated Certificate of Incorporation (to be filed upon the closing of this offering). 3.04 Registrant's Restated Bylaws to be adopted in connection with our reincorporation from California to Delaware prior to consummation of this offering). 3.05 Registrant's Certificate of Designation (to be filed in connection with our reincorporation from California to Delaware prior to consummation of this offering).
II-3
Number Exhibit Title ------ ------------- 4.01* Form of Certificate for Registrant's common stock. 4.02 Third Amended and Restated Investors' Rights Agreement, dated June 10, 1999. 5.01* Opinion of Fenwick & West LLP regarding legality of the securities being registered. 10.01** Form of Indemnity Agreement between Registrant and each of its directors and executive officers. 10.02** 1996 Stock Option Plan and related agreements. 10.03** 1998 Stock Option Plan and related agreements. 10.04 1999 Equity Incentive Plan and related agreements. 10.05 1999 Employee Stock Purchase Plan and related agreements. 10.06** Regional Prototype Profit Sharing Plan and Trust/Account Standard Plan Adoption Agreement AA #001. 10.07** Employment Agreement between Interwoven, Inc. and Martin W. Brauns dated February 27, 1998. 10.08** Offer Letter to David M. Allen from Interwoven, Inc. dated February 12, 1999. 10.09** Offer Letter to Michael A. Backlund from Interwoven, Inc. dated May 1, 1998. 10.10** Offer Letter to John Chang from Interwoven, Inc. dated January 20, 1997. 10.11** Offer Letter to Jeffrey E. Engelmann from Interwoven, Inc. dated December 11, 1998. 10.12** Offer Letter to Steven Farber from Interwoven, Inc. dated June 14, 1997. 10.13** Offer Letter to Jack S. Jia from Interwoven, Inc. dated January 3, 1997. 10.14** Offer Letter to Peng T. Ong from Interwoven, Inc. dated February 29, 1996. 10.15** Offer Letter to Jozef Ruck from Interwoven, Inc. dated February 18, 1999. 10.16** Confidential Separation Agreement and Release, between Interwoven, Inc. and John Chang dated November 25, 1998. 10.17** Confidential Separation Agreement and Release, between Interwoven, Inc. and Steven Farber dated February 12, 1998. 10.18** Secured Promissory Notes between Interwoven, Inc. and Jeffrey E. Engelmann, dated as of April 19, 1999. 10.19** Secured Promissory Notes between Interwoven, Inc. and Jozef Ruck, dated as of April 21, 1999. 10.20** Built-To-Suit Lease Agreement dated March 18, 1997 between Sunnyvale Partners Limited Partnership and First Data Merchant Services Corporation. 10.21** Sublease dated April 24, 1998 between First Data Merchant Services Corporation and Interwoven, Inc. 10.22** Loan and Security Agreement, dated October 1997, as amended, between Interwoven, Inc. and Silicon Valley Bank. 10.23** Agreement and Plan of Reorganization, dated June 30, 1999, by and among Interwoven, Inc., Lexington Software Associates, Inc. and certain Stockholders of Lexington Software Associates, Inc.
II-4
Number Exhibit Title ------ ------------- 10.24+ Standard Sales Agreement effective as of July 28, 1999 between Registrant and General Electric Company. 10.25+ Preferred Stock Warrant to Purchase Shares of Series E Preferred Stock of Registrant. 21.01 Subsidiaries of the Registrant 23.01* Consent of Fenwick & West LLP (included in Exhibit 5.01). 23.02 Consent of PricewaterhouseCoopers LLP, independent accountants. 24.01** Power of Attorney. 27.01 Financial Data Schedule.
- --------------------- * To be filed by amendment ** Previously filed + Confidential treatment requested as to certain portions of this exhibit Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. Item 17. Undertakings. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Mateo, State of California, on this 2nd day of September, 1999. INTERWOVEN, INC. /s/ David M. Allen By: _________________________________ David M. Allen Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act, this Amendment to Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Name Title Date ---- ----- ---- Principal Executive Officer *Martin W. Brauns President, Chief Executive September 2, 1999 ______________________________________ Officer and a director Martin W. Brauns Principal Financial Officer and Principal Accounting Officer: /s/ David M. Allen Vice President and Chief September 2, 1999 ______________________________________ Financial Officer David M. Allen Additional Directors: *Peng T. Ong Chairman of the Board September 2, 1999 ______________________________________ Peng T. Ong *Kathryn C. Gould Director September 2, 1999 ______________________________________ Kathryn C. Gould *Mark W. Saul Director September 2, 1999 ______________________________________ Mark W. Saul *Mark C. Thompson Director September 2, 1999 ______________________________________ Mark C. Thompson Director ______________________________________ Ronald E.F. Codd
*By: /s/ David M. Allen ____________________________ David M. Allen Attorney-in- fact II-6 EXHIBIT INDEX
Number Exhibit Title ------ ------------- 1.01 Form of Underwriting Agreement. 3.02 Registrant's Amended and Restated Certificate of Incorporation (to be filed in connection with to our reincorporation from California to Delaware prior to consummation of this offering). 3.04 Registrant's Restated Bylaws (to be adopted in connection with our reincorporation from California to Delaware prior to consummation of this offering). 3.05 Registrant's Certificate of Designation (to be filed in connection with our reincorporation from California to Delaware prior to consummation of this offering). 4.02 Third Amended and Restated Investors' Rights Agreement, dated June 10, 1999. 10.04 1999 Equity Incentive Plan and related agreements. 10.05 1999 Employee Stock Purchase Plan and related agreements. 10.24+ Standard Sales Agreement effective as of July 28, 1999 between Registrant and General Electric Company. 10.25+ Preferred Stock Warrant to Purchase Shares of Series E Preferred Stock of Registrant. 21.01 Subsidiaries of the Registrant. 23.02 Consent of PricewaterhouseCoopers LLP, independent accountants. 27.01 Financial Data Schedule.
- --------------------- + Confidential treatment requested as to certain portions of this exhibit. EX-1.01 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.01 _________ Shares INTERWOVEN, INC. Common Stock, par value $0.001 per share UNDERWRITING AGREEMENT ---------------------- September __, 1999 Credit Suisse First Boston Corporation BancBoston Robertson Stephens Inc. Dain Rauscher Wessels, A Division of Dain Rauscher Incorporated, As Representatives of the Several Underwriters, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. Interwoven, Inc., a Delaware corporation ("Company"), ------------ ------- proposes to issue and sell [________] shares ("Firm Securities") of its Common --------------- Stock, par value $0.001 per share ("Securities") and also proposes to issue and ---------- sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than [________] additional shares ("Optional Securities") of its Securities ------------------- as set forth below. The Firm Securities and the Optional Securities are herein collectively called the "Offered Securities." As part of the offering ------------------ contemplated by this Agreement, [____________________] (the "Designated ---------- Underwriter") has agreed to reserve out of the Firm Securities purchased by it - ----------- under this Agreement, up to [_________________] shares, for sale to the Company's directors, officers, employees and other parties associated with the Company (collectively, "Participants"), as set forth in the Prospectus (as ------------ defined herein) under the heading "Underwriters" (the "Directed Share Program"). ---------------------- The Firm Securities to be sold by the Designated Underwriter pursuant to the Directed Share Program (the "Directed Shares") will be sold by the Designated --------------- Underwriter pursuant to this Agreement at the public offering price. Any Directed Shares not orally confirmed for purchase by a Participant by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. The Company hereby agrees with the several Underwriters named in Schedule A hereto ("Underwriters") ------------ as follows: 2. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to, and agrees with, the several Underwriters that: (a) A registration statement (No. 333-______) relating to the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("Commission") and either (i) has been declared ---------- effective under the Securities Act of 1933, as amended ("Act") and is not --- proposed to be amended or (ii) is proposed to be amended by amendment or post- effective amendment. If such registration statement ("initial registration -------------------- statement") has been declared effective, either (i) an additional registration - --------- statement ("additional registration statement") relating to the Offered --------------------------------- Securities may have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has become effective upon filing ----------- pursuant to such Rule and the Offered Securities all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (ii) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities will all have been duly registered under the Act pursuant to the initial registration statement and such additional registration statement. If the Company does not propose to amend the initial registration statement or if an additional registration statement has been filed and the Company does not propose to amend it, and if any post-effective amendment to either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the ----------- case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "Effective Time" with respect to the initial registration statement -------------- or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (i) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has advised the Representatives that it proposes to file an amendment or post- effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post- effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "Effective Time" with respect to -------------- such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "Effective Date" with respect to the initial registration statement or the -------------- additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained in the additional registration statement (if any) and deemed to be a part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is ------------ hereinafter referred to as the "Initial Registration Statement". The additional ------------------------------ registration statement, as amended at its Effective Time, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be a part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "Additional Registration Statement". The Initial --------------------------------- Registration Statement and the Additional Registration Statement are herein referred to collectively as the "Registration Statements" and individually as a ----------------------- "Registration Statement". The form of prospectus relating to the Offered ---------------------- Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is ----------- required) as included in a Registration Statement, is hereinafter referred to as the "Prospectus". No document has been or will be prepared or distributed in ---------- reliance on Rule 434 under the Act. (b) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (i) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all respects to the requirements of the Act and the rules and regulations of the Commission ("Rules and Regulations") and did not include any --------------------- untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement in which the Prospectus is included, each Registration Statement and the Prospectus will conform, in all respects to the requirements of the Act and the Rules and Regulations, and neither of such documents includes, or will include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: on the Effective Date of the Initial -2- Registration Statement, the Initial Registration Statement and the Prospectus will conform in all respects to the requirements of the Act and the Rules and Regulations, neither of such documents will include any untrue statement of material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (c) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification. (d) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. (e) The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Securities. (f) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (g) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (h) The Offered Securities have been approved for listing on The Nasdaq Stock Market's National Market, subject to notice of issuance. (i) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities laws. (j) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, -3- or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (k) This Agreement has been duly authorized, executed and delivered by the Company. (l) Except as disclosed in the Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (m) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole ("Material Adverse Effect"). ----------------------- (n) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. (o) The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property, including applications licensed directly from third parties (collectively, "intellectual property rights") necessary to conduct the ---------------------------- business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. The discoveries, inventions, products or processes of the Company referred to in the Prospectus do not, to the Company's knowledge, infringe or conflict with any intellectual property right of any third party. (p) Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or ------------------ operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. (q) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company, or any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context -4- of the sale of the Offered Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated. (r) The financial statements included in each Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis and the schedules included in each Registration Statement present fairly the information required to be stated therein; and the assumptions used in preparing the pro forma financial statements included in each Registration Statement and the Prospectus provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. (s) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (t) The execution and delivery of the Agreement and Plan of Merger dated as of __________ ____, 1999 (the "Merger Agreement") between Interwoven, ---------------- Inc., a California corporation (the "California Corporation"), and the Company, ---------------------- effecting the reincorporation of the California Corporation under the laws of the State of Delaware, was duly authorized by all necessary corporate action on the part of each of the California Corporation and the Company. Each of the California Corporation and the Company had all corporate power and authority to execute and deliver the Merger Agreement, to file the Merger Agreement with the Secretary of State of California and the Secretary of State of Delaware and to consummate the reincorporation contemplated by the Merger Agreement, and the Merger Agreement at the time of execution and filing constituted a valid and binding obligation of each of the California Corporation and the Company. (u) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940. (v) The Company (i) has notified each holder of a currently outstanding option issued under the Company's 1996 Stock Option Plan, 1998 Stock Option Plan and 1999 Equity Incentive Plan, and each person who has acquired Securities pursuant to the exercise of any option granted under such option plans that pursuant to the terms of such option plans, none of such options or shares may be sold or otherwise transferred or disposed of for a period of 180 days after the date of the initial public offering of the Offered Securities and (ii) has imposed a stop-transfer instruction with the Company's transfer agent in order to enforce the foregoing lock-up provision imposed pursuant to the Option Plan. (w) Except as disclosed in the Prospectus, all outstanding Securities, and all securities convertible into or exercisable or exchangeable for Securities, are subject to valid and binding agreements (collectively, "Lock-up Agreements") that restrict the holders thereof from selling, making any ------------------ short sale of, granting any option for the purchase of, or otherwise transferring or disposing of, any of such Securities, or any such securities convertible into or exercisable or exchangeable for Securities, for a period of 180 days after the date of the Prospectus without the prior written consent of Credit Suisse First Boston Corporation ("CSFBC"). ----- -5- (x) The Company (i) has notified each stockholder who is party to the Third Amended and Restated Investors Rights Agreement dated June 10, 1999 (the "Rights Agreement"), that pursuant to the terms of the Rights Agreement, none of ---------------- the shares of the Company's capital stock held by such stockholder may be sold or otherwise transferred or disposed of for a period of 180 days after the date of the initial public offering of the Offered Securities and (ii) has imposed a stop-transfer instruction with the Company's transfer agent in order to enforce the foregoing lock-up provision imposed pursuant to the Rights Agreement. (y) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes and the Company agrees to comply with such Section if prior to the completion of the distribution of the Offered Securities it commences doing such business. (z) The Company has not offered, or caused the Underwriters to offer, any offered Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. Furthermore, the Company represents and warrants to the Underwriters that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization , approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities law and regulations or foreign jurisdictions in which the Directed Shares are offered outside the United States. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the ------------------------------------------------- representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a purchase price of $[____] per share, the respective numbers of shares of Firm Securities set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Securities to the Representatives for the accounts of the Underwriters, at the office of CSFBC, Eleven Madison Avenue, New York, New York, against payment of the purchase price in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of the Company at the office of Fenwick & West LLP ("Fenwick & West"), Two Palo Alto Square, Palo Alto, California, at 10:00 A.M., New York time, on September [__], 1999, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "First Closing Date." For ------------------ purposes of Rule 15c6-1 under the Exchange Act , the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The certificates for the Firm Securities so to be delivered will be in definitive form, in such denominations and registered in such names as CSFBC requests and will be made available for checking and packaging at the above office of CSFBC in New York at least 24 hours prior to the First Closing Date. In addition, upon written notice from CSFBC given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of -6- shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFBC to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "Optional Closing Date," which may be the First --------------------- Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CSFBC ------------ but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, at the above office of CSFBC in New York, against payment of the purchase price therefor in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of the Company at the above office of Fenwick & West. The certificates for the Optional Securities being purchased on each Optional Closing Date will be in definitive form, in such denominations and registered in such names as CSFBC requests upon reasonable notice prior to such Optional Closing Date and will be made available for checking and packaging at the above office of CSFBC at a reasonable time in advance of such Optional Closing Date. 4. Offering by Underwriters. It is understood that the several ------------------------ Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several --------------------------------- Underwriters that: (a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Date of the Initial Registration Statement. The Company will advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement and an additional registration statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of such execution and delivery, the Company will file the additional registration statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Prospectus is printed and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by CSFBC. (b) The Company will advise CSFBC promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CSFBC's consent; and the Company will also advise CSFBC promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. -7- (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CSFBC of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "Availability Date" means the 45th day after the end of the ----------------- fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "Availability Date" means the 90th day after the end of ----------------- such fourth fiscal quarter. (e) The Company will furnish to the Representatives copies of each Registration Statement (four of which will be signed and will include all exhibits), each related preliminary prospectus, and, so long as a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents, in each case in such quantities as CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. (f) The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and will continue such qualifications in effect so long as required for the distribution. (g) During the period of five years hereafter, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (h) The Company will pay all expenses incident to the performance of its obligations under this Agreement, for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and the printing of memoranda relating thereto, for the filing fee incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. of the Offered Securities, for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities and for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (i) For a period of 180 days after the date of the initial public offering of the Offered Securities, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or -8- indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or securities convertible into or exchangeable or exercisable for any shares of its Securities, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFBC, except issuances of Securities pursuant to the conversion of convertible securities or the exercise of warrants, in each case outstanding on the date hereof, grants of employee stock options pursuant to the terms of a plan in effect on the date hereof, issuances of Securities pursuant to the exercise of such options or the exercise of any other employee stock options outstanding on the date hereof. (j) The Company agrees to use its best efforts to cause (i) each of its directors, officers and stockholders and (ii) each person who acquires Securities of the Company pursuant to the exercise of any option or right granted under the Company's 1996 Stock Option Plan, 1998 Stock Option Plan or the 1999 Equity Incentive Plan to sign a Lock-up Agreement, which states that such person will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Securities or securities convertible into or exchangeable or exercisable for any shares of Securities, or publicly disclose the intention to make any such offer, sale, pledge or disposal, for a period of 180 days after the date of the Prospectus without the prior written consent of CSFBC; and the Company will (i) enforce the terms of each such Lock- up Agreement and (ii) issue and impose a stop-transfer instruction with the Company's transfer agent in order to enforce the foregoing Lock-up Agreements. (k) Except with the prior written consent of CSFBC, the Company agrees (i) not to amend or terminate, or waive any right under, any Lock-up Agreement, or take any other action that would directly or indirectly have the same effect as an amendment or termination, or waiver of any right under any Lock-up Agreement, that would permit any holder of Securities, or any securities convertible into, or exercisable or exchangeable for, Securities, to make any short sale of, grant any option for the purchase of, or otherwise transfer or dispose of, any such Securities or other securities, prior to the expiration of the 180 days after the date of the Prospectus and (ii) not to consent to any sale, short sale, grant of an option for the purchase of, or other disposition or transfer of shares of Securities, or securities convertible into or exercisable or exchangeable for Securities, subject to a Lock-up Agreement. (l) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules ---- from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. The Designated Underwriter will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer instructions upon such securities for such period of time. (m) The Company will pay all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program. 6. Conditions of the Obligations of the Underwriters. The obligations of ------------------------------------------------- the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the registration statement to be filed shortly prior to such Effective Time), of PricewaterhouseCoopers LLP confirming that they are independent public -9- accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion the financial statements and schedules examined by them and included in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Registration Statements; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of such letter, there was any change in the capital stock or any increase in short-term or long- term debt, total or current liabilities or total stockholders' deficit, or any decrease in current assets or total assets of the Company and its consolidated subsidiaries, as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest statement of operations included in the Prospectus to a specified date not more than three business days prior to the date of such letter, there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length in the previous quarter, in total revenues, or increases in loss from operations, comprehensive loss or the total or per share amounts of basic net loss; except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial and statistical information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial and statistical information to be in agreement with such results, except as otherwise specified in such letter. -10- For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "Registration Statements" shall mean the initial registration ----------------------- statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement but the Effective Time of the Additional Registration is subsequent to such execution and delivery, "Registration Statements" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "Prospectus" shall mean the prospectus included in the Registration Statements. ---------- (b) The Company shall have received from PricewaterhouseCoopers LLP (and furnished to the Representatives) an examination report with respect to Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company for the three fiscal years ending December 31, 1998 in accordance with Statement on Standards for Attestation Engagement No. 8 issued by the Auditing Standards Board of the American Institute of Certified Public Accountants, and such examination report shall be included in the Registration Statement. (c) If the Effective Time of the Initial Registration Statement is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or such later date as shall have been consented to by CSFBC. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Prospectus is printed and distributed to any Underwriter, or shall have occurred at such later date as shall have been consented to by CSFBC. If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. (d) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company or its subsidiaries taken as one enterprise which, in the judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including the Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (e) The Representatives shall have received an opinion, dated such Closing Date, of Fenwick & West, counsel for the Company, to the effect that: -11- (i) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; (ii) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, direct or through subsidiaries, is owned free from liens, encumbrances and defects; (iii) The Offered Securities delivered on such Closing Date and all other outstanding shares of the capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Securities; (iv) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings known to such counsel between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act; (v) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940. (vi) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance or sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities laws; (vii) The execution, delivery and performance of this Agreement and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company -12- or any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement; (viii) The Initial Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Additional Registration Statement (if any) was filed and became effective under the Act as of the date and time (if determinable) specified in such opinion, the Prospectus either was filed with the Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion on the date specified therein or was included in the Initial Registration Statement or the Additional Registration Statement (as the case may be), and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each Registration Statement and the Prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; such counsel have no reason to believe that any part of a Registration Statement or any amendment thereto, as of its effective date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto, as of its issue date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; the descriptions in the Registration Statements and Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown; and such counsel do not know of any legal or governmental proceedings required to be described in a Registration Statement or the Prospectus which are not described as required or of any contracts or documents of a character required to be described in a Registration Statement or the Prospectus or to be filed as exhibits to a Registration Statement which are not described and filed as required; it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Registration Statements or the Prospectus; (ix) The statements set forth under the heading "Description of Capital Stock" in the Prospectus, insofar as such statements purport to summarize certain provisions of the capital stock of the Company, provide a fair summary of such provisions; and the statements set forth under the headings "Risk Factors-We Have Various Mechanisms in Place to Discourage Takeover Attempts," "Management-Director Compensation," "Management-- Employment Agreements," "Management-Indemnification of Directors and Executive Officers and Limitation of Liability," "Certain Transactions" and "Shares Eligible For Future Sale" in the Prospectus, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, have been reviewed by such counsel and fairly present the information called for with respect to such legal matters, documents and proceedings in all material respects as required by the Act and the rules and regulations thereunder; (x) This Agreement has been duly authorized, executed and delivered by the Company; (xi) The execution and delivery of the Merger Agreement, effecting the reincorporation of the California Corporation under the laws of the State of Delaware, was duly authorized by all necessary corporate action on the part of each of the California Corporation and the Company; and -13- (xii) Under the provisions of Rule 152 promulgated under the Act, the Company's issuance of Series E Preferred Stock on June 10, 1999 is not integrated with the offering contemplated hereby. Such issuance was exempt from the registration requirements of Section 5 of the Act pursuant to Section 4(2) thereof. (f) The Representatives shall have received from Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (g) The Representatives shall have received a certificate, dated such Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (h) The Representatives shall have received a letter, dated such Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. CSFBC may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. (a) The Company will indemnify and -------------------------------- hold harmless each Underwriter, its partners, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or -14- omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below. The Company agrees to indemnify and hold harmless the Designated Underwriter and each person, if any, who controls the Designated Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act (the "Designated Entities"), from and against any and all losses, claims, ------------------- damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Designated Entities. (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any who controls the Company within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph under the caption "Underwriting" and the information regarding sales to discretionary accounts and stabilizing transactions contained in the sixth and thirteenth paragraphs, respectively, under the caption "Underwriting". (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the last paragraph in Section 7(a) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses -15- of not more than one separate firm (in addition to any local counsel) for the Designated Underwriter for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all persons, if any, who control the Designated Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 8. Default of Underwriters. If any Underwriter or Underwriters default in ----------------------- their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, -16- but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective --------------------------------------------------- indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent ------- to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department-- Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it 1195 West Fremont Avenue, Suite 2000, Sunnyvale, California 94087, Attention: David Allen; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter. 11. Successors. This Agreement will inure to the benefit of and be binding ---------- upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the ------------------------------ several Underwriters in connection with this financing, and any action under this Agreement taken by the Representatives jointly or by CSFBC will be binding upon all the Underwriters. 13. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement shall be governed by, and construed in -------------- accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. -17- The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. -18- If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, Interwoven, Inc. ---------------------------------- By: The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation BancBoston Robertson Stephens Inc. Dain Rauscher Wessels, A Division of Dain Rauscher Incorporated Acting on behalf of themselves and as the Representatives of the several Underwriters By: Credit Suisse First Boston Corporation By: ---------------------------------------- Title: Managing Director ----------------- -19- SCHEDULE A
Number of Underwriter Firm Securities - ----------- --------------- Credit Suisse First Boston Corporation......................................... BancBoston Robertson Stephens, Inc............................................. Dain Rauscher Wessels.......................................................... Total........................................................... $
-20- EX-3.02 3 REGISTRANT'S AMENDED AND RESTATED CERTIFICATE Exhibit 3.02 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF INTERWOVEN, INC. Interwoven, Inc., a Delaware corporation, hereby certifies that the Amended and Restated Certificate of Incorporation of the corporation attached hereto as Exhibit "A", which is incorporated herein by this reference, has been ----------- duly adopted by the corporation's Board of Directors and stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the corporation's stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law. IN WITNESS WHEREOF, said corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer. Dated: ______ __, 1999 INTERWOVEN, INC. --------------------------- Martin W. Brauns, President and Chief Executive Officer AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF INTERWOVEN, INC. ARTICLE I The name of the corporation is Interwoven, Inc. ARTICLE II The address of the registered office of the corporation in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The name of its registered agent at that address is Corporation Service Company. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV The total number of shares of all classes of stock which the corporation has authority to issue is One Hundred Million (100,000,000) shares, consisting of two classes: Seventy-Five Million (75,000,000) shares of Common Stock, $0.001 par value per share, and Twenty-Five Million (25,000,000) shares of Preferred Stock, $0.001 par value per share. The Board of Directors is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and, by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote, unless a vote of any other holders is required pursuant to a Certificate or Certificates establishing a series of Preferred Stock. Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock, or any future class or series of Preferred Stock or Common Stock. ARTICLE V The Board of Directors of the corporation shall have the power to adopt, amend or repeal the Bylaws of the corporation. ARTICLE VI For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: (A) The conduct of the affairs of the corporation shall be managed under the direction of its Board of Directors. The number of directors shall be fixed from time to time exclusively by resolution of the Board of Directors. (B) Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE VII To the fullest extent permitted by law, no director of the corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision. EX-3.04 4 REGISTRANT'S RESTATED BYLAWS EXHIBIT 3.04 - -------------------------------------------------------------------------------- RESTATED BYLAWS OF INTERWOVEN, INC. (a Delaware corporation) As Adopted _________, 1999 - -------------------------------------------------------------------------------- RESTATED BYLAWS OF INTERWOVEN, INC. (a Delaware corporation) TABLE OF CONTENTS
PAGE ---- ARTICLE I - STOCKHOLDERS............................................... 1 Section 1.1: Annual Meetings.................................... 1 Section 1.2: Special Meetings................................... 1 Section 1.3: Notice of Meetings................................. 1 Section 1.4: Adjournments....................................... 1 Section 1.5: Quorum............................................. 2 Section 1.6: Organization....................................... 2 Section 1.7: Voting; Proxies.................................... 2 Section 1.8: Fixing Date for Determination of Stockholders of Record.......................................... 3 Section 1.9: List of Stockholders Entitled to Vote.............. 3 Section 1.10: Action by Written Consent of Stockholders.......... 4 Section 1.11: Inspectors of Elections............................ 5 Section 1.12: Notice of Stockholder Business; Nominations........ 6 ARTICLE II - BOARD OF DIRECTORS........................................ 8 Section 2.1: Number; Qualifications............................. 8 Section 2.2: Election; Resignation; Removal; Vacancies.......... 8
PAGE ---- Section 2.3: Regular Meetings................................... 8 Section 2.4: Special Meetings................................... 9 Section 2.5: Telephonic Meetings Permitted...................... 9 Section 2.6: Quorum; Vote Required for Action................... 9 Section 2.7: Organization....................................... 9 Section 2.8: Written Action by Directors........................ 9 Section 2.9: Powers............................................. 9 Section 2.10: Compensation of Directors.......................... 9 ARTICLE III - COMMITTEES............................................... 10 Section 3.1: Committees......................................... 10 Section 3.2: Committee Rules.................................... 10 ARTICLE IV - OFFICERSA................................................. 11 Section 4.1: Generally.......................................... 11 Section 4.2: Chief Executive Officer............................ 11 Section 4.3: Chairman of the Board.............................. 12 Section 4.4: President.......................................... 12 Section 4.5: Vice President..................................... 12 Section 4.6: Chief Financial Officer............................ 12 Section 4.7: Treasurer.......................................... 12 Section 4.8: Secretary.......................................... 12 Section 4.9: Delegation of Authority............................ 12
PAGE ---- Section 4.10: Removal............................................ 13 ARTICLE V - STOCK...................................................... 13 Section 5.l: Certificates....................................... 13 Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificate........................ 13 Section 5.3: Other Regulations.................................. 13 ARTICLE VI - INDEMNIFICATION........................................... 13 Section 6.1: Indemnification of Officers and Directors.......... 13 Section 6.2: Advance of Expenses................................ 14 Section 6.3: Non-Exclusivity of Rights.......................... 14 Section 6.4: Indemnification Contracts.......................... 14 Section 6.5: Effect of Amendment................................ 14 ARTICLE VII - NOTICES.................................................. 15 Section 7.l: Notice............................................. 15 Section 7.2: Waiver of Notice................................... 15 ARTICLE VIII - INTERESTED DIRECTORS.................................... 15 Section 8.1: Interested Directors; Quorum....................... 15 ARTICLE IX - MISCELLANEOUS............................................. 16 Section 9.1: Fiscal Year........................................ 16 Section 9.2: Seal............................................... 16 Section 9.3: Form of Records.................................... 16 Section 9.4: Reliance Upon Books and Records.................... 16
PAGE ---- Section 9.5: Certificate of Incorporation Governs............... 16 Section 9.6: Severability....................................... 16 ARTICLE X - AMENDMENT.................................................. 17 Section 10.1: Amendments......................................... 17
RESTATED BYLAWS OF INTERWOVEN, INC. (a Delaware corporation) As Adopted _________, 1999 ARTICLE I STOCKHOLDERS Section 1.1: Annual Meetings. An annual meeting of stockholders shall be ----------- --------------- held for the election of directors at such date, time and place, either within or without the State of Delaware, as the Board of Directors shall each year fix. Any other proper business may be transacted at the annual meeting. Section 1.2: Special Meetings. Special meetings of stockholders for any ----------- ---------------- purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the holders of shares of the Corporation that are entitled to cast not less than a ten percent (10%) of the total number of votes entitled to be cast by all stockholders at such meeting (the "Ten Percent ----------- Stockholders"), or by a majority of the members of the Board of Directors. - ------------ Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called by any person or persons other than by a majority of the members of the Board of Directors, then such person or persons shall call such meeting by delivering a written request to call such meeting to each member of the Board of Directors, and the Board of Directors shall then determine the time, date and place of such special meeting, which shall be held not more than one hundred twenty (120) nor less than thirty-five (35) days after the written request to call such special meeting was delivered to each member of the Board of Directors. Following the closing of the corporation's initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the "Initial Public Offering"), Ten Percent Stockholders may not ----------------------- call a Special Meeting of Stockholders. Section 1.3: Notice of Meetings. Written notice of all meetings of ----------- ------------------ stockholders shall be given stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 1.4: Adjournments. Any meeting of stockholders may adjourn from ----------- ------------ time to time to reconvene at the same or another place, and notice need not be given of any such adjourned meeting if the time, date and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the -------- ------- adjournment is for more than thirty (30) days, or if after the adjournment, a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting, the Corporation may transact any business that might have been transacted at the original meeting. Section 1.5: Quorum. At each meeting of stockholders, the holders of a ----------- ------ majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except if otherwise required by applicable law. If a quorum shall ------ fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation's stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the -------- ------- foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation's stock held by it in a fiduciary capacity. Section 1.6: Organization. Meetings of stockholders shall be presided ----------- ------------ over by such person as the Board of Directors may designate, or, in the absence of such a person, the Chairman of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairman of the meeting and, subject to Section 1.12 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in his or her absence, the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7: Voting; Proxies. Unless otherwise provided by law or the ----------- --------------- Certificate of Incorporation of the Corporation, and subject to the provisions of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1) vote for each share of stock held by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Voting at meetings of stockholders need not be by written ballot unless such is demanded at the meeting before voting begins by a stockholder or stockholders holding shares representing at least one percent (1%) of the votes entitled to vote at such meeting, or by such stockholder's or stockholders' proxy; provided, -------- however, that an election of directors shall be by written ballot if demand is - ------- so made by any stockholder at the meeting before voting begins. If a vote is to be taken by written ballot, then each such ballot shall state the name of the stockholder or proxy voting and such other information as the chairman of the meeting deems appropriate. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and -2- entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation of the Corporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the shares of stock entitled to vote thereon that are present in person or represented by proxy at the meeting and are voted for or against the matter. Section 1.8: Fixing Date for Determination of Stockholders of Record. ----------- ------------------------------------------------------- (a) Generally. In order that the Corporation may determine the --------- stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board of Directors, then the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, -------- however, that the Board of Directors may fix a new record date for the adjourned - ------- meeting. (b) Stockholder Request for Action by Written Consent. For such period of ------------------------------------------------- time as stockholders are authorized to act by written consent pursuant to the provisions of the Certificate of Incorporation of the Corporation and Section 1.10 hereof, any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary of the Corporation, request the Board of Directors to fix a record date for such consent. Such request shall include a brief description of the action proposed to be taken. The Board of Directors shall, within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. Such record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors within ten (10) days after the date on which such a request is received, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, to its principal place of business or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting -3- shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 1.9: List of Stockholders Entitled to Vote. A complete list of ----------- ------------------------------------- stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. Section 1.10: Action by Written Consent of Stockholders. ------------ ----------------------------------------- (a) Procedure. Unless otherwise provided by the Certificate of --------- Incorporation of the Corporation, and except as set forth in Section 1.8(b) above, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that effective immediately after the closing of an -------- ------- underwritten public offering of shares of the Corporation's Common Stock pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission, any action required or permitted to be taken by the Corporation's stockholders shall be taken only at a duly called annual or special meeting of such stockholders, and the Corporation's stockholders shall not be able to act by written consent. For such period of time as written stockholder consents are permitted, such consents shall bear the date of signature of each stockholder who signs the consent and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, to its principal place of business or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. No written consent shall be effective to take the action set forth therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner provided above, written consents signed by a sufficient number of stockholders to take the action set forth therein are delivered to the Corporation in the manner provided above. (b) Notice of Consent. Prompt notice of the taking of corporate action by ----------------- stockholders without a meeting by less than unanimous written consent of the stockholders shall be given to those stockholders who have not consented thereto in writing and, in the case of a Certificate Action (as defined below), if the Delaware General Corporation Law so requires, such notice shall be given prior to filing of the certificate in question. If the action which is consented to requires the filing of a certificate under the Delaware General Corporation Law (a "Certificate Action"), then if the Delaware General Corporation Law so ------------------ requires, the -4- certificate so filed shall state that written stockholder consent has been given in accordance with Section 228 of the Delaware General Corporation Law and that written notice of the taking of corporate action by stockholders without a meeting as described herein has been given as provided in such section. Section 1.11: Inspectors of Elections. ------------ ----------------------- (a) Applicability. Unless otherwise provided in the Corporation's ------------- Certificate of Incorporation or required by the Delaware General Corporation Law, the following provisions of this Section 1.11 shall apply only if and when the Corporation has a class of voting stock that is: (i) listed on a national securities exchange; (ii) authorized for quotation on an interdealer quotation system of a registered national securities association; or (iii) held of record by more than 2,000 stockholders; in all other cases, observance of the provisions of this Section 1.11 shall be optional and at the discretion of the Corporation. (b) Appointment. The Corporation shall, in advance of any meeting of ----------- stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. (c) Inspector's Oath. Each inspector of election, before entering ---------------- upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. (d) Duties of Inspectors. At a meeting of stockholders, the -------------------- inspectors of election shall (i) ascertain the number of shares outstanding and the voting power of each share, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (e) Opening and Closing of Polls. The date and time of the opening ---------------------------- and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the inspectors at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (f) Determinations. In determining the validity and counting of -------------- proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with Section 212(c)(2) of the Delaware General Corporation Law, the ballots and the regular books and -5- records of the Corporation, except that the inspectors may consider other ------ reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons that represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.11 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 1.12: Notice of Stockholder Business; Nominations. ------------ ------------------------------------------- (a) Annual Meeting of Stockholders. ------------------------------ (i) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (A) pursuant to the Corporation's notice of such meeting, (B) by or at the direction of the Board of Directors or (C) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.12, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.12. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i) of this Section 1.12, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual -------- ------- meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder, to be timely, must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in ------------ the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to -6- the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (2) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. (iii) Notwithstanding anything in the second sentence of subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased board of directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy (70) days prior to such annual meeting), a stockholder's notice required by this Section 1.12 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings of Stockholders. Only such business shall be -------------------------------- conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of such meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.12. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) General. ------- (i) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.12 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.12. Except as otherwise provided by law or these Bylaws, the chairman of the meeting shall have the power and duty to determine -7- whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.12 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. (ii) For purposes of this Section 1.12, the term "public ------ announcement" shall mean disclosure in a press release reported by the Dow - ------------ Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to sections 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 1.12, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE II BOARD OF DIRECTORS Section 2.1: Number; Qualifications. The Board of Directors shall consist ----------- ---------------------- of one or more members. The initial number of directors shall be six (6), and thereafter shall be fixed from time to time by resolution of the Board of Directors. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation. Section 2.2: Election; Resignation; Removal; Vacancies. Effective ----------- ----------------------------------------- immediately on such date, if ever, that the Corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code, the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors, with the number of directors in each class to be divided as equally as reasonably possible. The term of office of the Class I directors shall expire at the corporation's first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II directors shall expire at the corporation's second annual meeting of stockholders following the closing of the Initial Public Offering, and the term of office of the Class III directors shall expire at the corporation's third annual meeting of stockholders following the closing of the Initial Public Offering. At each annual meeting of stockholders commencing with the first annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Prior to the closing of the Initial Public Offering, each director shall hold office until the next annual meeting of stockholders and until such director's successor is elected and qualified, or until such director's -8- earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of the holders of any series of Preferred Stock, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless (i) the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, or (ii) as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. Notwithstanding the preceding sentence, in any election of directors, the stockholders of the corporation shall have the rights set forth in subdivisions (a), (b) and (c) of Section 708 of the California Corporations Code; provided, however, that the rights set forth in this sentence shall -------- ------- terminate to the extent permitted by applicable law immediately on such date, if ever, that the Corporation becomes a listed corporation within the meaning of Section 301.5 of the California Corporations Code. Any director elected in accordance with the two preceding sentences shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred. Subject to the rights of any holders of Preferred Stock, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that a director may not be removed without cause if the votes - -------- ------- cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of stockholders, or if greater, the number of directors for whom removal is being sought, were then being elected. Section 2.3: Regular Meetings. Regular meetings of the Board of ----------- ---------------- Directors may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board of Directors. Section 2.4: Special Meetings. Special meetings of the Board of ----------- ---------------- Directors may be called by the Chairman of the Board, the President or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand-delivery, telegram, telex, mailgram, facsimile or similar communication method. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. Section 2.5: Telephonic Meetings Permitted. Members of the Board of ----------- ----------------------------- Directors, or any committee of the Board of Directors, may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting -9- pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting. Section 2.6: Quorum; Vote Required for Action. At all meetings of the ----------- -------------------------------- Board of Directors a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation of the Corporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7: Organization. Meetings of the Board of Directors shall be ----------- ------------ presided over by the Chairman of the Board, or in his or her absence by the President, or in his or her absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence, the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8: Written Action by Directors. Any action required or ----------- --------------------------- permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee, respectively. Section 2.9: Powers. The Board of Directors may, except as otherwise ------------ ------ required by law or the Certificate of Incorporation of the Corporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Section 2.10: Compensation of Directors. Directors, as such, may ------------ ------------------------- receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors. ARTICLE III COMMITTEES Section 3.1: Committees. The Board of Directors may, by resolution ----------- ---------- passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the -10- Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation of the Corporation (except that a committee may, to the extent authorized in the ------ resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the Delaware General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series, adopting an agreement of merger or consolidation under Sections 251 or 252 of the Delaware General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending these Bylaws; and unless the resolution of the Board of Directors expressly so provides, no such committee shall have the power or authority to declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger pursuant to section 253 of the Delaware General Corporation Law. Section 3.2: Committee Rules. Unless the Board of Directors otherwise ----------- --------------- provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws. ARTICLE IV OFFICERS Section 4.1: Generally. The officers of the Corporation shall consist of ----------- --------- a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chairman of the Board of Directors and/or Chief Financial Officer, as may from time to time be appointed by the Board of Directors. All officers shall be elected by the Board of Directors; provided, however, that the Board of Directors may empower the -------- ------- Chief Executive Officer of the Corporation to appoint officers other than the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors. Section 4.2: Chief Executive Officer. Subject to the control of the ----------- ----------------------- Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are: -11- (a) To act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation; (b) To preside at all meetings of the stockholders; (c) To call meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and (d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board of Directors has not designated any other officer to be the Chief Executive Officer, then the Chairman of the Board shall be the Chief Executive Officer. Section 4.3: Chairman of the Board. The Chairman of the Board shall have ----------- --------------------- the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe. Section 4.4: President. The President shall be the Chief Executive ----------- --------- Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board of Directors to the Chairman of the Board and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of president or that are delegated to the President by the Board of Directors. Section 4.5: Vice President. Each Vice President shall have all such ----------- -------------- powers and duties as are commonly incident to the office of Vice President or that are delegated to him or her by the Board of Directors or the Chief Executive Officer. A Vice President may be designated by -12- the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer's absence or disability. Section 4.6: Chief Financial Officer. Subject to the direction of the ----------- ----------------------- Board of Directors and the President, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of chief financial officer. Section 4.7: Treasurer. The Treasurer shall have custody of all monies ------------ --------- and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of a treasurer or as the Board of Directors or the President may from time to time prescribe. Section 4.8: Secretary. The Secretary shall issue or cause to be issued ----------- --------- all authorized notices for, and shall keep or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of secretary or as the Board of Directors or the President may from time to time prescribe. Section 4.9: Delegation of Authority. The Board of Directors may from ----------- ----------------------- time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.10: Removal. Any officer of the Corporation shall serve at ------------ ------- the pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. ARTICLE V STOCK Section 5.1: Certificates. Every holder of stock shall be entitled to ----------- ------------ have a certificate signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of ----------- --------------------------------------------------------- New Certificates. The Corporation may issue a new certificate of stock in the - ---------------- place of any certificate previously issued by it that is alleged to have been lost, stolen or destroyed, and the Corporation may require -13- the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 5.3: Other Regulations. The issue, transfer, conversion and ----------- ----------------- registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI INDEMNIFICATION Section 6.1: Indemnification of Officers and Directors. Each person who ----------- ----------------------------------------- was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he ---------- or she (or a person of whom he or she is the legal representative) is or was a director or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor (as defined below) as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, -------- ------- that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation; provided, further, that the Corporation shall not be required -------- ------- to indemnify a person for amounts paid in settlement of a proceeding unless the Corporation consents in writing to such a settlement (such consent not to be unreasonably withheld). As used herein, the term "Reincorporated Predecessor" -------------------------- means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger and (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor, and shall include Interwoven, Inc., a California corporation. Section 6.2: Advance of Expenses. The Corporation shall pay all expenses ----------- ------------------- (including attorneys' fees) incurred by such a director or officer in defending any such proceeding as such expenses are incurred in advance of its final disposition; provided, however, that if the Delaware General Corporation Law -------- ------- then so requires, the payment of such expenses incurred by such a director or officer in advance of the final disposition of such proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not -14- entitled to be indemnified under this Article VI or otherwise; and provided, -------- further, that the Corporation shall not be required to advance any expenses to a - ------- person against whom the Corporation directly brings a claim, in a proceeding, alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction. Section 6.3: Non-Exclusivity of Rights. The rights conferred on any ------------ ------------------------- person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation of the Corporation, these Bylaws, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI. Section 6.4: Indemnification Contracts. The Board of Directors is ----------- ------------------------- authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification and related rights to such person. Such rights may be greater than those provided in this Article VI. Section 6.5: Effect of Amendment. Any amendment, repeal or modification ----------- ------------------- of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. ARTICLE VII NOTICES Section 7.1: Notice. Except as otherwise specifically provided herein or ----------- ------ required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery (including use of a delivery service) by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, telex, overnight express courier, mailgram or facsimile. Any such notice shall be addressed to the person to whom notice is to be given at such person's address as it appears on the records of the Corporation. The notice shall be deemed given (i) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in the case of delivery by overnight express courier, on the first business day after such notice is dispatched, and (iv) in the case of delivery via telegram, telex, mailgram or facsimile, when dispatched. -15- Section 7.2: Waiver of Notice. Whenever notice is required to be given ----------- ---------------- under any provision of these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE VIII INTERESTED DIRECTORS Section 8.1: Interested Directors; Quorum. No contract or transaction ----------- ---------------------------- between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IX MISCELLANEOUS Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be ----------- ----------- determined by resolution of the Board of Directors. Section 9.2: Seal. The Board of Directors may provide for a corporate ----------- ---- seal, which shall have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board of Directors. -16- Section 9.3: Form of Records. Any records maintained by the Corporation ----------- --------------- in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, magnetic tape, diskettes, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible -------- form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 9.4: Reliance Upon Books and Records. A member of the Board of ----------- ------------------------------- Directors, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 9.5: Certificate of Incorporation Governs. In the event of any ----------- ------------------------------------ conflict between the provisions of the Corporation's Certificate of Incorporation and Bylaws, the provisions of the Corporation's Certificate of Incorporation shall govern. Section 9.6: Severability. If any provision of these Bylaws shall be held ----------- ------------ to be invalid, illegal, unenforceable or in conflict with the provisions of the Corporation's Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including, without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Corporation's Certificate of Incorporation that are not themselves invalid, illegal, unenforceable or in conflict with the Corporation's Certificate of Incorporation) shall remain in full force and effect. ARTICLE X AMENDMENT Section 10.1: Amendments. Stockholders of the Corporation holding a ------------ ---------- majority of the Corporation's outstanding voting stock shall have the power to adopt, amend or repeal Bylaws. To the extent provided in the Corporation's Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation, except insofar as Bylaws adopted by the stockholders shall otherwise provide. -17- CERTIFICATION OF RESTATED BYLAWS OF INTERWOVEN, INC. (a Delaware corporation) KNOW ALL BY THESE PRESENTS: I, Matthew P. Quilter, certify that I am Corporate Secretary of Interwoven, Inc., a Delaware corporation (the "Company"), that I am duly ------- authorized to make and deliver this certification and that the attached Bylaws are a true and correct copy of the Bylaws of the Company in effect as of the date of this certificate. Dated: __________, 1999 ______________________________________________ Matthew P. Quilter, Assistant Secretary EX-3.05 5 REGISTRANT'S CERTIFICATE OF DESIGNATION EXHIBIT 3.05 INTERWOVEN INC. Certificate of Designation of Preferred Stock Pursuant to Section 151 of the Delaware General Corporation Law Interwoven, Inc., a Delaware corporation, (the "Corporation"), does hereby ----------- certify that, pursuant to the authority contained in Article IV of its Certificate of Incorporation, and in accordance with the provisions of Section 151 of the Delaware General Corporation Law, the Corporation's Board of Directors has duly adopted the following resolution creating five separate series of Preferred Stock designated as Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. Resolved, that the Corporation hereby designates and creates five (5) separate series of the authorized Preferred Stock designated respectively, as Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock as follows: A. Series of Preferred Stock. Of the twenty five million (25,000,000) ------------------------- shares of Preferred Stock, par value $0.001 per share, authorized to be issued by the Corporation, one million one hundred twenty thousand (1,120,000) shares are hereby designated as "Series A Preferred Stock," three million one hundred ------------------------ forty two thousand one hundred thirty three (3,142,133) shares are hereby designated as "Series B Preferred Stock," seven million one hundred fifty nine ------------------------ thousand seven hundred forty three (7,159,743) shares are hereby designated as "Series C Preferred Stock", three million seven hundred forty one thousand two - ------------------------- hundred seventeen (3,741,217) shares are hereby designated "Series D Preferred ------------------ Stock" and three million six hundred thousand (3,600,000) shares are designated - ----- "Series E Preferred Stock." The rights, preferences, privileges and ------------------------ restrictions granted to and imposed upon the respective classes and series of the Corporation's capital stock are set forth below in Article B. B. Rights, Preference and Restrictions of Preferred Stock. The rights, ------------------------------------------------------ preferences, restrictions and other matters relating to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are as follows: 1. Definitions. For purposes of this Section B, the following definitions ----------- shall apply: 1.1 "Common Stock" shall mean the Common Stock, $0.001 par value, of ------------ the Corporation. 1.2 "Preferred Stock" shall mean the Series A Preferred Stock, the --------------- Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock. 2. Dividend Rights. --------------- 2.1 The holders of Preferred Stock shall each be entitled to receive, out of any funds legally available therefor, dividends on each outstanding share of Preferred Stock at an annual rate of (i) $0.01 per share of Series A Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Common Stock (other than those payable solely in Common Stock or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements), (ii) $0.102896 per share of Series B Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Common Stock (other than those payable solely in Common Stock, or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants, pursuant to contractual arrangements), (iii) $0.086326 per share of Series C Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Common Stock (other than those payable solely in Common Stock, or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements), (iv) $0.149684 per share of Series D Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Common Stock (other than those payable solely in Common Stock, or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements) and (v) $0.4528 per share of Series E Preferred held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares, payable when and as declared by the Board of Directors, in preference and priority to any payment of any dividend on any shares of Common Stock (other than those payable solely in Common Stock, or involving the repurchase of shares of Common Stock from terminated employees, officers, directors, or consultants pursuant to contractual arrangements). No dividends shall be declared on the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred unless dividends are declared on each such series of Preferred Stock. In the event dividends are paid to the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred that are less than the full amounts to which such holders are entitled pursuant to this Section 2, such holders shall share ratably in the total amount of dividends paid according to the respective amounts which would be payable in respect of the shares held by them if the dividends payable on or with respect to said shares were paid in full. The right to such dividends shall not be cumulative, and no right shall accrue to holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E -2- Preferred by reason of the fact that dividends on such shares are not declared or paid in any prior year whether or not the earnings of the Corporation in that prior year were sufficient to pay such dividends in whole or in part. The Preferred Stock shall participate on any distribution of dividends on the Common Stock (based on the number of shares of Common Stock into which such share of Preferred Stock is convertible on the date the dividend is declared). In the event that the Corporation shall have declared but unpaid dividends outstanding immediately prior to, and in the event of, a conversion of Preferred Stock (as provided in Section 6 hereof), the Corporation shall, at the option of the holder, pay in cash to the holder(s) of Preferred Stock subject to conversion the full amount of any such dividends or allow such dividends to be converted into Common Stock in accordance with, and pursuant to the terms specified in, Section 6 hereof. 2.2 Dividends shall be paid by forwarding a check, postage prepaid, to the address of each holder (or, in the case of joint holders, to the address of any such holder) of Series E Preferred, Series D Preferred, Series C Preferred, Series B Preferred, and Series A Preferred as shown on the books of the Corporation, or to such other address as such holder specifies for such purpose by written notice to the Corporation. The forwarding of such check shall satisfy all obligations of the Corporation with respect to such dividends, unless such check is not paid upon timely presentation. 3. Liquidation Preference. In the event of any liquidation, dissolution, ---------------------- or winding up of the Corporation (each a "Liquidation Event"), whether voluntary ----------------- or involuntary, distributions to the shareholders of the Corporation shall be made in the following manner. 3.1 The holders of Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock, by reason of their ownership of such stock, an amount per share equal to the sum of (i) $0.20 (the "Original Series A Issue Price") for each share of Series A Preferred then held ----------------------------- by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares and, in addition, all accrued but unpaid dividends on such shares of Series A Preferred (the "Series A Preference"), (ii) ------------------- $1.2862 (the "Original Series B Issue Price") for each share of Series B ----------------------------- Preferred then held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares and, in addition, all accrued but unpaid dividends on such shares of Series B Preferred (the "Series B -------- Preference"), (iii) $1.079076 (the "Original Series C Issue Price") for each - ---------- ----------------------------- share of Series C Preferred then held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares and, in addition, all accrued but unpaid dividends on such shares of Series C Preferred (the "Series C Preference"), (iv) $1.87105 (the "Original Series D ------------------- Issue Price") for each share of Series D Preferred then held by them, adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares and, in addition, all accrued but unpaid dividends on such shares of Series D Preferred (the "Series D Preference") and (v) $5.66 (the "Original ------------------- -------- Series E Issue Price") for each share of Series E Preferred then held by them, - -------------------- adjusted for any combinations, consolidations, subdivisions, or stock splits with respect to such shares and, in addition, all accrued but unpaid dividends on such shares of Series E Preferred (the "Series E Preference"). The Series A ------------------- Preferred, Series B -3- Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall rank on a pari passu basis as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. If the assets and funds thus distributed among the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall be insufficient to permit the payment to such holders of the full aforesaid Series A Preference, Series B Preference, Series C Preference, Series D Preference and Series E Preference, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred in proportion to the total preferential amount owed to each holder under this Section 3.1. 3.2 After payment of the Series A Preference, Series B Preference, Series C Preference, Series D Preference and Series E Preference has been made to the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred of the full amounts to which they are entitled pursuant to Section 3.1 above, the remaining assets and funds of the Corporation available for distribution shall be distributed ratably among all holders of Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred and holders of Common Stock based on the number of shares of Common Stock held by each such holder (assuming conversion of all Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred). Notwithstanding the foregoing sentence, the right to receive the remaining assets so described shall cease (i) as to the holders of Series B Preferred at such time as the holders of Series B Preferred have received an aggregate of $2.5724 per share of Series B Preferred held by them (including amounts previously paid as the Series B Preference), (ii) as to the holders of Series C Preferred at such time as the holders of Series C Preferred have received an aggregate of $2.158152 per share of Series C Preferred held by them (including amounts previously paid as the Series C Preference), (iii) as to the holders of Series D Preferred at such time as the holders of Series D Preferred have received an aggregate of $2.806575 per share of Series D Preferred held by them (including amounts previously paid as the Series D Preference) and (iv) as to the holders of Series E Preferred at such time as the holders of Series E Preferred have received an aggregate of $8.49 per share of Series E Preferred held by them (including amounts previously paid as the Series E Preference). Thereafter, the remaining assets and funds of the Corporation available for distribution shall be distributed ratably among all holders of Common Stock (including shares of Common Stock into which the Preferred Stock is converted prior to the commencement of the Liquidation Event distribution described in this Section 3). 3.3 Notwithstanding the foregoing Sections 3.1 and 3.2, the entire liquidation amount payable with respect to a share of Series B Preferred, a share of Series C Preferred, a share of Series D Preferred and a share of Series E Preferred upon a liquidation, dissolution or winding up shall, in each instance, be equal to the greater of (i) the amount that would be distributable under Sections 3.1 and 3.2 with respect to such share, and (ii) the amount that would be distributable under Sections 3.1 and 3.2 in respect of the shares of Common Stock issuable upon conversion of such share, assuming that such share were converted into Common Stock pursuant to Section 6.1 immediately prior to such liquidation, dissolution or winding up of the Corporation. -4- 3.4 For purposes of this Section 3, any transaction or series of transactions, including without limitation a merger, consolidation, or other corporate reorganization of the Corporation with or into any other corporation or corporations in which more than fifty percent (50%) of the outstanding voting power of this Corporation is disposed of, or a sale of all or substantially all of the assets of the Corporation, shall be treated as a Liquidation Event, irrespective of the form of payment made in such transaction or series of transactions. 3.5 Each holder of Preferred Stock shall, by virtue of its acceptance of a stock certificate evidencing Preferred Stock, be deemed to have consented to distributions made by this Corporation in connection with the repurchase by this Corporation of its Common Stock pursuant to its agreements with certain of the holders thereof. 3.5 The value of securities and property paid or distributed pursuant to this Section 3 shall be computed at fair market value at the time of payment as determined by the Board of Directors in the good faith exercise of its reasonable business judgment, provided that (i) if such securities are listed on any established stock exchange or a national market system, their fair market value shall be the mean between the high and low prices for such securities as quoted on such system or exchange (or the largest such exchange) for the 5 trading days immediately preceding and including the date the value is to be determined (or if there are no sales for such date, then for the 5 trading days immediately preceding such date), as reported in the Wall Street Journal or ------------------- similar publication, (ii) if such securities are regularly quoted by a recognized securities dealer but selling prices are not reported, their fair market value shall be the mean between the high bid and low asked prices for such securities on the 5 business days immediately preceding and including the date the value is to be determined (or if there are no quoted prices for such dates, then for the 5 last preceding business days on which there were quotes prices), and (iii) if a majority of the directors elected by the holders of Series B Preferred and Series C Preferred pursuant to Section 5.2 hereof (the --- "Preferred Directors") does not approve the Board of Directors' valuation of - -------------------- securities and property paid or distributed, the Corporation shall promptly engage competent independent appraisers from a nationally recognized accounting firm reasonably acceptable to the Preferred Directors (and with no prior business relationship with the Corporation), or such other appraisers which are agreed to by the Board of Directors and the Preferred Directors, to determine the value of such securities and property paid or distributed, which determination shall be final and binding; and provided, further, that if the -------- ------- securities described in (i) or (ii) are subject to restrictions on transfer, the Board of Directors shall apply an appropriate discount in determining the value thereof. 3.6 Nothing hereinabove set forth shall affect in any way the right of each holder of Preferred Stock to convert such shares into Common Stock in accordance with Section 6 hereof at any time prior to the commencement of the distribution of assets and funds described above. 4. Redemption Rights. ----------------- 4.1 Series A Preferred. At the election in writing by the holders of ------------------ more than fifty percent (50%) of the outstanding shares of Series A Preferred, the Corporation shall redeem, -5- on the terms and conditions stated herein, out of funds legally available therefor, all of the Series A Preferred in four (4) annual installments beginning on May 9, 2002 (the "Initial Redemption Date"), and continuing ----------------------- thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Series A Redemption Date" and, together with each ------------------------ Series B Redemption Date (as defined below), Series C Redemption Date (as defined below), Series D Redemption Date (as defined below), and Series E Redemption Date (as defined below), a "Redemption Date"), by paying in cash --------------- therefor a sum equal to the greater of (i) the Original Series A Issue Price for each share of Series A Preferred, plus all declared but unpaid dividends thereon (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and an amount equal to 8% of the Original Series A Issue Price compounded per annum from the date on which the first share of Series A Preferred was issued to the Series A Redemption Date, and (ii) the fair market value of the Series A Preferred on the Initial Redemption Date as determined in the manner in which the value of a security is determined in Section 3.5 hereof (the "Series A Redemption Price"). The number ------------------------- of shares of Series A Preferred that the Corporation shall be required to redeem under this paragraph (a) on any one Series A Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of Series A Preferred outstanding immediately prior to the Series A Redemption Date by (y) the number of remaining Series A Redemption Dates (including the Series A Redemption Date to which such calculation applies). 4.2 Series B Preferred. At the election in writing by the holders of ------------------ more than fifty percent (50%) of the outstanding shares of Series B Preferred, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the Series B Preferred in four (4) annual installments beginning on the Initial Redemption Date, and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Series B Redemption Date"), by paying in cash therefor ------------------------ a sum equal to the greater of (i) the Original Series B Issue Price for each share of Series B Preferred, plus all declared but unpaid dividends thereon (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and an amount equal to 8% of the Original Series B Issue Price compounded per annum from the date on which the first share of Series B Preferred was issued (the "Series B Original Issue Date") to the ---------------------------- Series B Redemption Date, and (ii) the fair market value of the Series B Preferred on the Initial Redemption Date as determined in the manner in which the value of a security is determined in Section 3.5 hereof (the "Series B -------- Redemption Price"). The number of shares of Series B Preferred that the - ---------------- Corporation shall be required to redeem under this paragraph (b) on any one Series B Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of Series B Preferred outstanding immediately prior to the Series B Redemption Date by (y) the number of remaining Series B Redemption Dates (including the Series B Redemption Date to which such calculation applies). 4.3 Series C Preferred. At the election in writing by the holders of ------------------ more than fifty percent (50%) of the outstanding shares of Series C Preferred, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the Series C Preferred in four (4) annual installments beginning on the Initial Redemption Date, and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date -6- (each a "Series C Redemption Date") by paying in cash therefor a sum equal to ------------------------ the greater of (i) the Original Series C Issue Price for each share of Series C Preferred, plus all declared but unpaid dividends thereon (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and an amount equal to 8% of the Original Series C Issue Price compounded per annum from the date on which the shares of Series C Preferred to be redeemed were issued (the "Series C Original Issue Date") to the ---------------------------- Series C Redemption Date, and (ii) the fair market value of the Series C Preferred on the Initial Redemption Date as determined in the manner in which the value of a security is determined in Section 3.5 hereof (the "Series C -------- Redemption Price"). The number of shares of Series C Preferred that the - ---------------- Corporation shall be required to redeem under this paragraph (c) on any one Series C Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of Series C Preferred and standing immediately prior to the Series C Redemption Date by (y) the number of remaining Series C Redemption Dates (including the Series C Redemption Date to which such calculation applies). 4.4 Series D Preferred. At the election in writing by the holders of ------------------ more than fifty percent (50%) of the outstanding shares of Series D Preferred, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the Series D Preferred in four (4) annual installments beginning on the Initial Redemption Date, and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Series D Redemption Date") by paying in cash therefor a ------------------------ sum equal to the greater of (i) the Original Series D Issue Price for each share of Series D Preferred, plus all declared but unpaid dividends thereon (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and an amount equal to 8% of the Original Series D Issue Price compounded per annum from the date on which the shares of Series D Preferred to be redeemed were issued (the "Series D Original Issue ----------------------- Date") to the Series D Redemption Date, and (ii) the fair market value of the Series D Preferred on the Initial Redemption Date as determined in the manner in which the value of a security is determined in Section 3.5 hereof (the "Series D -------- Redemption Price"). The number of shares of Series D Preferred that the - ---------------- Corporation shall be required to redeem under this paragraph (d) on any one Series D Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of Series D Preferred and standing immediately prior to the Series D Redemption Date by (y) the number of remaining Series D Redemption Dates (including the Series D Redemption Date to which such calculation applies). 4.5 Series E Preferred. At the election in writing by the holders of ------------------ more than fifty percent (50%) of the outstanding shares of Series E Preferred, the Corporation shall redeem, on the terms and conditions stated herein, out of funds legally available therefor, all of the Series E Preferred in four (4) annual installments beginning on the Initial Redemption Date, and continuing thereafter on the first, second and third anniversaries of the Initial Redemption Date (each a "Series E Redemption Date") by paying in cash therefor a ------------------------ sum equal to the greater of (i) the Original Series E Issue Price for each share of Series E Preferred, plus all declared but unpaid dividends thereon (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and an amount equal to 8% of the Original Series E Issue Price compounded per annum from the date on which the shares of Series -7- E Preferred to be redeemed were issued (the "Series E Original Issue Date") to ---------------------------- the Series E Redemption Date, and (ii) the fair market value of the Series E Preferred on the Initial Redemption Date as determined in the manner in which the value of a security is determined in Section 3.5 hereof (the "Series E -------- Redemption Price"). The number of shares of Series E Preferred that the - ---------------- Corporation shall be required to redeem under this paragraph (d) on any one Series E Redemption Date shall be equal to the amount determined by dividing (x) the aggregate number of shares of Series E Preferred and standing immediately prior to the Series E Redemption Date by (y) the number of remaining Series E Redemption Dates (including the Series E Redemption Date to which such calculation applies). 4.6 The Corporation shall use its best efforts to be legally able to redeem the full number of shares of Preferred Stock to be redeemed on any Redemption Date, including, but not limited to, a sale of the Corporation (by merger or otherwise) or sale of all or substantially all of its assets. In the event that the Corporation is unable to redeem the full number of shares of Preferred Stock to be redeemed on any Redemption Date, the shares not redeemed shall be redeemed by this Corporation as provided in this Section 4 as soon as practicable after funds are legally available therefor. Any redemption effected pursuant to this Section 4.6 shall be made ratably among the holders of the Preferred Stock in proportion to the aggregate Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price and Series E Redemption Price, as applicable, to which each holder is entitled under Sections 4.1, 4.2, 4.3, 4.4 and 4.5. 4.7 If the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and/or Series E Preferred have elected to have the shares of Preferred Stock that they hold redeemed as provided in Sections 4.1, 4.2, 4.3, 4.4, and 4.5 above, then at least thirty (30) but no more than sixty (60) days prior to each Redemption Date, the Corporation shall give written notice by certified or registered mail, postage prepaid, to all holders of outstanding Preferred Stock whose shares are being redeemed, at the address last shown on the records of the Corporation for such holder, stating such Redemption Date, the Series A Redemption Price, the Series B Redemption Price, the Series C Redemption Price, the Series D Redemption Price and the Series E Redemption Price, as applicable, the then current conversion rate (as provided in Section 6.1)) for such shares, and the date of termination of the right to convert (which date shall not be earlier than (30) days after the written notice by the Corporation has been given) and shall call upon such holder to surrender to the Corporation on such Redemption Date at the place designated in the notice, such holder's certificate or certificates representing the shares to be redeemed. On or after the Redemption Date stated in such notice, the holder of each share of Preferred Stock called for redemption shall surrender the certificate evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment of the Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price or Series E Redemption Price, as the case may be, for the shares surrendered. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on such Redemption Date funds necessary for the redemption shall be available therefor, then, as to any certificates evidencing any Preferred Stock so called for redemption and not surrendered, all rights of the holders of such shares so called for -8- redemption and not surrendered shall cease with respect to such shares, except only the right of the holders to receive the Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price and Series E Redemption Price for the Preferred Stock which they hold, without interest, upon surrender of their certificates therefor. 4.8 Notwithstanding anything herein to the contrary, if, on or prior to a Redemption Date (and after a redemption election has been made pursuant to this Section 4), the Corporation deposits, with any bank or trust company in the State of California having aggregate capital and surplus in excess of $100,000,000, as a trust fund, a sum sufficient to redeem on such Redemption Date the shares called for redemption, with irrevocable instructions and authority to the bank or trust company to give the notice of redemption thereof (or to complete the giving of such notice if theretofore commenced) and to pay, on or after the Redemption Date or prior thereto, the Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price and Series E Redemption Price of the shares to their respective holders upon the surrender of their share certificates, then from and after the date of the deposit (although prior to such Redemption Date), the shares so called for redemption on such Redemption Date (but not any subsequent Redemption Date) shall be redeemed. The deposit of such sum shall constitute full payment of such shares to their holders and from and after the date of the deposit such shares shall no longer be outstanding, and the holders thereof shall cease to be stockholders with respect to such shares, and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the Series A Redemption Price, the Series B Redemption Price, the Series C Redemption Price, Series D Redemption Price and Series E Redemption Price for the Preferred Stock called for redemption on such Redemption Date without interest, upon the surrender of their certificates therefor and the right to convert said shares as provided herein at any time up to but not after the close of business on the fifth day prior to the Redemption Date of such shares (which conversion date will not be earlier than thirty (30) days after the written notice of redemption has been given). Any monies so deposited on account of the Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price and Series E Redemption Price of the Preferred Stock converted into Common Stock subsequent to the making of such deposit shall be repaid to the Corporation forthwith upon the conversion of such Preferred Stock. Any interest accrued on any funds so deposited shall be the property of, and paid to, the Corporation. If the holders of Preferred Stock so called for redemption shall not, at the end of two (2) years after the applicable Redemption Date, have claimed any funds so deposited, such bank or trust company shall thereupon pay over to the Corporation such unclaimed funds, and such bank or trust company shall thereafter be relieved of all responsibility in respect thereof to such holders and such holders shall look only to the Corporation for payment of the Series A Redemption Price, Series B Redemption Price, Series C Redemption Price, Series D Redemption Price and Series E Redemption Price for the Preferred Stock which they hold. 5. Voting Rights. ------------- 5.1 Except as otherwise required by law or hereunder, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of -9- Common Stock into which such share of Preferred Stock could be converted at the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of stock of the Corporation having general voting power and not separately as a class. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number (with one half being rounded upward). Holders of Common Stock and Preferred Stock shall be entitled to notice of any shareholders' meeting in connection with the Bylaws of the Corporation. 5.2 Notwithstanding the provisions of paragraph (a), at each annual or special meeting called for the purpose of electing directors, (i) the holders of the Series B Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Board of Directors for so long as at least 1,000,000 originally issued shares of Series B Preferred remain outstanding (as adjusted for stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) and (ii) the holders of the Series C Preferred, Series D Preferred and Series E Preferred, voting together as a single class, shall be entitled to elect one (1) member of the Board of Directors for so long as at least 1,000,000 originally issued shares of Series C Preferred, Series D Preferred and/or Series E Preferred remain outstanding (as adjusted for stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), (iii) the holders of Common Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board of Directors, and (iv) the holders of Preferred Stock and Common Stock, voting together as a single class and on an as-converted basis, shall be entitled to elect the remaining directors. In the case of any vacancy in the office of a director elected pursuant to clauses (i), (ii), or (iii) of the preceding sentence, a successor shall be elected to hold office for the unexpired term of such director by the affirmative vote of a majority of the shares of such specified group given at a special meeting of such shareholders duly called (or by a written consent in lieu thereof) for that purpose. Subject to Section 141(k) of the Delaware General Corporation Law, any director who shall have been elected by a specified group of shareholders may be removed during the aforesaid term of office, either for or without cause, by, and only by, the holders of a majority of the shares of such specified group, given at the a special meeting of such stockholders duly called (or by a written consent in lieu thereof) for that purpose, and such vacancy thereby created may be filled by the vote of the holders of a majority of shares of such specified group represented at such meeting (or in such consent). 6. Conversion. The holders of Preferred Stock shall have conversion ---------- rights as follows (the "Conversion Rights"): 6.1 Right to Convert. Each share of Preferred Stock shall be ---------------- convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such Preferred Stock. Each share of Preferred Stock shall be convertible into such number of fully-paid and non-assessable shares of Common Stock as (i) in the case of the Series A Preferred is determined by dividing the Original Series A Issue Price by the Series A Preferred Conversion Price (the "Series A -------- Conversion Price"), determined - ---------------- -10- as hereinafter provided, in effect at the time of conversion, (ii) in the case of the Series B Preferred is determined by dividing the Original Series B Issue Price by the Series B Preferred Conversion Price (the "Series B Conversion ------------------- Price"), determined as hereinafter provided, in effect at the time of - ----- conversion, (iii) in the case of the Series C Preferred is determined by dividing the Original Series C Issue Price by the Series C Preferred Conversion Price (the "Series C Conversion Price"), determined as hereinafter provided, in ------------------------- effect at the time of conversion, (iv) in the case of the Series D Preferred is determined by dividing the Original Series D Issue Price by the Series D Preferred Conversion Price (the "Series D Conversion Price"), determined as ------------------------- hereinafter provided, in effect at the time of conversion and (v) in the case of the Series E Preferred is determined by dividing the Original Series E Issue Price by the Series E Preferred Conversion Price (the "Series E Conversion ------------------- Price"), determined as hereinafter provided, in effect at the time of - ----- conversion. The initial Series A Preferred Conversion Price shall be $0.20 per share, the initial Series B Conversion Price shall be $1.2862 per share, the initial Series C Conversion Price shall be $1.079076 per share, the initial Series D Conversion Price shall be $1.87105 per share, and the initial Series E Conversion Price shall be $5.66 per share. Each of these Conversion Prices shall be subject to adjustment as provided in accordance with Section 6.4. 6.2 Automatic Conversion. Each share of Series A Preferred, Series B -------------------- Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall automatically be converted into shares of Common Stock at the then effective Conversion Price for such series of Preferred Stock upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public with aggregate proceeds to the Company in excess of Twenty Million Dollars ($20,000,000) (before deduction for underwriters commissions and expenses) and a per share price not less than $8.49 per share (appropriately adjusted for any stock combination, stock split, stock dividend, recapitalization, or other similar transaction) (an "Automatic Conversion"). In the event of an Automatic Conversion of the Preferred Stock upon a public offering as aforesaid, the person(s) entitled to receive the Common Stock issuable upon such conversion of Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. 6.3 Mechanics of Conversion. No fractional shares of Common Stock ----------------------- shall be issued upon conversion of Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional shares to which the holder would otherwise be entitled, pay cash equal to such fraction multiplied by the then effective Conversion Price for such series of Preferred Stock. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificate therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall given written notice to the Corporation at such office that he or she -11- elects to convert the same; provided, however, that in the event of an Automatic Conversion pursuant to Section 6.2, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversions unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agents as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid and check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 6.4 Adjustments to Conversion Price. ------------------------------- (i) Adjustments for Dividends, Splits, Subdivisions, ----------------------------------------------- Combinations, or Consolidation of Common Stock. In the event the outstanding ---------------------------------------------- shares of Common Stock shall be increased by stock dividend payable in Common Stock, stock split, subdivision, or other similar transaction occurring after the filing of these Amended and Restated Articles of Incorporation into a greater number of shares of Common Stock, the Conversion Price then in effect for each series of Preferred Stock shall, concurrently with the effectiveness of such event, be decreased in proportion to the percentage increase in the outstanding number of shares of Common Stock. In the event the outstanding shares of Common Stock shall be decreased by reverse stock split, combination, consolidation, or other similar transaction occurring after the filing of this Certificate of Designation into a lesser number of shares of Common Stock, the Conversion Price then in effect for each series of Preferred Stock shall, concurrently with the effectiveness of such event, be increased in proportion to the percentage decrease in the outstanding number of shares of Common Stock. (ii) Adjustments for Other Distributions. In the event the ----------------------------------- Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, any distribution payable in securities of the Corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 6, 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 which they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, -12- during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 6 with respect to the rights of the holders of the Preferred Stock. (iii) Adjustments for Reclassification, Exchange and Substitution. ----------------------------------------------------------- If the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Price then in effect for each series of Preferred Stock shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of such Preferred Stock immediately before that change. (iv) Adjustments of Series B Conversion Price, Series C Conversion ------------------------------------------------------------- Price, Series D Conversion Price and Series E Conversion Price Upon Issuance of - ------------------------------------------------------------------------------- Additional Stock. If the Corporation shall issue "Additional Stock" (as defined - ---------------- below) for a consideration per share less than the Series B Conversion Price, the Series C Conversion Price, the Series D Conversion Price or the Series E Conversion Price then in effect on the date and immediately prior to such issue, then and in each such event, such Conversion Price shall be reduced concurrently with such issue, to a price (calculated to three decimal places) determined by multiplying such Conversion Price by a fraction (1) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares of Common Stock issuable upon conversion of the outstanding Preferred Stock and upon exercise of all outstanding options) plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Stock so issued (or deemed to be issued) would purchase at such Conversion Price; and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue (including all shares of Common Stock issuable upon conversion of the outstanding Preferred Stock and upon exercise of all outstanding options) plus the number of shares of Additional Stock so issued. For purposes of this subsection (iv) "Additional Stock" shall mean all Common Stock issued by the Corporation after the Series B Original Issue Date other than Common Stock issued or issuable at any time (1) upon conversion of the Preferred Stock, (2) up to a total of 5,754,206 shares (net of repurchases and option expirations or terminations) to officers, directors, and employees of, and consultants to, the Corporation after the Series B Original Issue Date as designated and approved by the Board of Directors, or such larger number of shares as may hereafter be approved by the Board of Directors including the affirmative vote of the member elected by the holders of Series B Preferred or the member elected by the holders of Series C Preferred, Series D Preferred and Series E Preferred; (3) in connection with equipment leasing or bank financing transactions approved by the Corporation's Board of Directors; (4) as a dividend or distribution with respect to the Preferred Stock; (5) upon the -13- issuance of shares of Series C Preferred Stock in excess of 5,560,314 shares; or (6) as described in subparagraphs (i), (ii) and (iii) of this Section 4.6 For the purpose of making any adjustment in the Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price as provided above, the consideration received by the Corporation for any issue or sale of Common Stock will be computed: (1) to the extent it consists of cash, as the amount of cash received by the Corporation before deduction of any offering expenses payable by the Corporation and any underwriting or similar commissions, compensation, or concessions paid or allowed by the Corporation in connection with such issue or sale; (2) to the extent it consists of property other than cash, at the fair market value of that property as determined in good faith in the manner in which the value of such property is determined in Section 3.5; and (3) if Common Stock is issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Common Stock. If the Corporation (1) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells any security convertible into shares of Common Stock, then, in each case, the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities will be determined by dividing the total amount, if any, received or receivable by the Corporation as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Corporation on exercise or conversion of the securities, by the maximum number of shares of Common Stock issuable on the exercise of conversion. Such granting or issue or sale will be considered to be an issue or sale for cash of the maximum number of shares of Common Stock issuable on exercise or conversion at the price per share determined under this subsection, and the Conversion Price for such Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred will be adjusted as above provided to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Price for such Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred will be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. Upon the redemption or repurchase of any such securities or the expiration or termination of the right to convert into, exchange for, or exercise with respect to, Common Stock, the Conversion Price for the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred, as applicable, will be readjusted to such price as would have been obtained had the adjustment made upon their issuance been made upon the basis of the issuance of only the number of such securities as were actually converted into, exchanged for, or -14- exercised with respect to, Common Stock. If the purchase price or conversion or exchange rate provided for in any such security changes at any time, then, upon such change becoming effective, the Conversion Price for the Series B Preferred, the Series C Preferred, the Series D Preferred or the Series E Preferred as applicable, then in effect will be readjusted forthwith to such price as would have been obtained had the adjustment made upon the issuance of such securities been made upon the basis of (1) the issuance of only the number of shares of Common Stock theretofore actually delivered upon the conversion, exchange or exercise of such securities, and the total consideration received therefor, and (2) the granting or issuance, at the time of such change, of any such securities then still outstanding for the consideration, if any, received by the Company therefor and to be received on the basis of such changed price or rate. 6.5 No Impairment. Except as provided in Section 7, the Corporation will ------------- not, by amendment of its Certificate of Designation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 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. 6.6 Certificate as to Adjustments. Upon the occurrence of each adjustment ----------------------------- or readjustment of the Conversion Price of each series of Preferred Stock pursuant to this Section 6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof 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 of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Preferred Stock. (a) Notices of Record Date. In the event that this Corporation shall ---------------------- propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock, or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease, or convey all or substantially all its property or business, or to liquidate, dissolve, or wind -15- up; then, in connection with each such event, this Corporation shall send to the holders of the Preferred Stock: (1) at least 20 days' prior written notice of the date on which a record shall be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least 20 days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event or the record date for the determination of such holders if such record date is earlier). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Preferred Stock at the address for each such holder as shown on the books of this Corporation. (h) Issue Taxes. The Corporation shall pay any and all issue and other ----------- taxes (other than income taxes) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (i) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to its Articles of Incorporation. (j) Status of Converted Stock. No share of Preferred Stock acquired by ------------------------- the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued and all such shares shall be cancelled, retired or eliminated from the shares which the Corporation is authorized to issue. 7. Covenants. --------- 7.1 In addition to any other rights provided by law, this Corporation shall not without first obtaining the affirmative vote or written consent of the holders of more than fifty percent (50%) of the outstanding shares of Preferred Stock (voting on an as-converted basis): -16- (i) amend or repeal any provision of, or add any provision to, this Corporation's Articles of Incorporation if such action would adversely alter or change the preferences, rights, privileges, or powers of, or the restrictions provided for the benefit of or imposed upon, the Preferred Stock; (ii) increase the authorized number of shares of Preferred Stock; (iii) authorize or issue shares of any class or series of stock having any rights, preferences or privileges superior to or on a parity with any rights, preferences or privileges of the Preferred Stock; (iv) undertake any transaction or series of transactions as described in Section 3.4 hereof; or (v) amend the Corporation's Bylaws. 7.2 In addition to any other rights provided by law and in addition to the provisions of Section 7(a), this Corporation shall not without first obtaining the affirmative vote or written consent of the holders of more than sixty percent (60%) of the outstanding shares of Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred, voting together as a single class and on an as-converted basis: (vi) increase the authorized number of shares of Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred; (vii) amend or repeal any provision of, or add any provision to, this Corporation's Articles of Incorporation if such action would adversely alter or change the preferences, rights, privileges, or powers of, or the restrictions provided for the benefit of or imposed upon, the Series B Preferred, the Series C Preferred, the Series D Preferred or the Series E Preferred; (viii) pay or declare any dividends on the Common Stock or Preferred Stock; (ix) authorize or issue shares of any class or series of stock having any rights, preferences or privileges superior to any rights, preferences or privileges of the Series B Preferred, the Series C Preferred, the Series D Preferred or the Series E Preferred; (x) undertake any transaction or series of transactions as described in Section 3.4 hereof; or (xi) redeem, repurchase or otherwise acquire (including, without limitation, payment into a sinking fund for such purpose) any share or shares of Common Stock or Preferred Stock; provided, however, that this restriction shall not apply to (A) redemptions in accordance with Section 3 of this Article Fourth, or (B) repurchases by the Company of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, -17- advisors, or other persons performing services for the Company or a subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Company has the option to repurchase such shares: (1) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (2) at any price pursuant to the Company's exercise of a right of first refusal to repurchase such shares, and such repurchase is approved by the Board of Directors. 8. Residual Rights. All rights accruing to the outstanding shares of the --------------- Corporation not expressly provided for to the contrary herein shall be vested to the Common Stock. The Common Stock shall not be redeemable. In Witness Whereof, the Corporation has caused this Certificate of Designation to be signed and attested by its duly authorized officer this ___day of August, 1999. ______________________________ Martin Brauns, Chief Executive Officer and President I declare under penalty of perjury under the of the State of California, the State of Delaware and the United States of America that the foregoing is true and correct and that this declaration was executed on _____________,1999 at Sunnyvale, California. -18- EX-4.02 6 THIRD AMENDED AND RESTATED INVESTOR'S RIGHTS EXHIBIT 4.02 THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement") is made as of June 10, 1999, by and among Interwoven, Inc., a California corporation (the "Company"), the persons listed on the attached Schedule A who become signatories to this Agreement (collectively, the "Investors"). R E C I T A L S --------------- A. The Company and the Investors have entered into one or more agreements for sale by the Company and purchase by the Investors of the Company's Preferred Stock and other securities. B. In connection with the purchase and sale of the Company's securities, the Company and the Investors desire to provide for the rights of the Investors with respect to information about the Company and registration of the Common Stock issued upon conversion or exercise of the securities according to the terms of this Agreement. In addition, the Investors who were parties to the Second Amended and Restated Investor Rights Agreement made as of October 30, 1998, as amended (the "Prior Agreement"), desire to restate the Prior Agreement as set forth below, and consent to the addition, as parties to this Agreement, of the Investors who purchase the Company's Series E Preferred Stock, such that this Agreement is the only agreement governing the information and registration rights of the holders of the Company's Preferred Stock. THE PARTIES AGREE AS FOLLOWS: 1. Certain Definitions. As used in this Agreement, the following terms ------------------- shall have the following respective meanings: (a) "Commission" shall mean the U.S. Securities and Exchange ---------- Commission or any other federal agency at the time administering the Securities Act. (b) "Convertible Securities" shall mean securities of the Company ---------------------- convertible into or exercisable or exchangeable for Common Stock of the Company, or into other securities that are convertible into or exercisable or exchangeable for Common Stock. (c) "Exchange Act" shall mean the Securities and Exchange Act of 1934, ------------ as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (d) "Form S-3" shall mean Form S-3 issued by the Commission or any -------- substantially similar form then in effect. (e) "Holder" shall mean any holder of outstanding Registrable ------ Securities which have not been sold to the public pursuant to a public offering, but only if such holder is one of the Investors or an assignee or transferee of Registration rights as permitted by Section 12. (f) "Initiating Holders" shall mean Holders (a) who in the aggregate ------------------ hold at least forty percent (40%) of the Registrable Securities, or (b) who hold any of the Company's outstanding Series B Preferred which are Registrable Securities, or (c) who in the aggregate hold at least twenty percent (20%) of the Company's outstanding Series C Preferred which are Registrable Securities, or (d) who in the aggregate hold at least twenty percent (20%) of the Company's outstanding Series D Preferred which are Registrable Securities, or (e) who in the aggregate hold at least twenty percent (20%) of the Company's outstanding Series E Preferred which are Registrable Securities. (g) "Major Investor" shall mean an investor that, together with any -------------- affiliates, holds not less than 300,000 shares of the Convertible Securities and/or Registrable Securities (as equitably adjusted for stock splits, subdivisions, stock dividends, changes, combinations, or the like). (h) "Material Adverse Event" shall mean an occurrence having a ---------------------- consequence that either (a) is materially adverse as to the business, properties, prospects, or financial condition of the Company or (b) is reasonably foreseeable, has a reasonable likelihood of occurring, and if it were to occur might materially adversely affect the business, properties, prospects, or financial condition of the Company. (i) The terms "Register", "Registered", and "Registration" refer to a -------- ---------- ------------ registration effected by preparing and filing a registration statement in compliance with the Securities Act ("Registration Statement"), and the declaration or ordering of the effectiveness of such Registration Statement. (j) "Registrable Securities" shall mean all Common Stock issued or ---------------------- issuable upon conversion of the Company's Convertible Securities purchased by or issued to the Investors, including Common Stock issued pursuant to stock splits, stock dividends and similar distributions, and any securities of the Company granted registration rights pursuant to Section 11 of this Agreement unless (a) such Common Stock has previously been sold to the public, or (b) registration rights with respect to such Common Stock have expired in accordance with Section 7 hereof. (k) "Registration Expenses" shall mean all expenses incurred by the --------------------- Company in complying with Sections 4 or 5 of this Agreement, including, without limitation, all federal and state registration, qualification, and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, reasonable fees and expenses of special counsel for the Holders, and the expense of any special audits incident to or required by any such registration. (l) "S-C Group" shall mean Quantum Industrial Partners LDC, S-C . --------- Phoenix Holdings, L.L.C., Winston Partners II LDC, Winston Partners II LLC, and their affiliates. For -2- purposes of this Agreement, "affiliates" of the S-C Group shall include one or more of Purnendu Chatterjee, Chatterjee Fund Management, George Soros or Soros Fund Management LLC or affiliates thereof, and any person or entity for which any such person or entity acts as investment advisor or investment manager. (m) "Securities Act" shall mean the Securities Act of 1933, as -------------- amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (n) "Selling Expenses" shall mean all underwriting discounts, selling ---------------- commissions and stock transfer taxes applicable to the sale of Registrable Securities pursuant to this Agreement. 2. Financial Statements and Reports to Major Preferred Investors. ------------------------------------------------------------- 2.1 The Company shall deliver to each holder who, together with affiliates, holds a total of more than (x) 680,000 shares of Series B Preferred, Series C Preferred, or Series D Preferred (or Common Stock issued upon conversion of Series B Preferred, Series C Preferred, Series D Preferred), or (y) 100,000 shares of Series E Preferred (or Common Stock issued upon conversion of Series E Preferred), and to the S-C Group (each a "Major Preferred Investor"): (a) As soon as practicable after the end of each fiscal quarter after the Closing, and in any event within 30 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such quarter, and consolidated statements of income and cash flow for such quarter and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), consistently applied with prior practice for earlier periods, and signed by the Chief Financial Officer or President of the Company certifying that they fairly and accurately present the financial condition and results of operation of the Company, subject to changes resulting from year-end audit adjustment; (b) As soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, an audited consolidated balance sheet of the Company as of the end of such year and audited consolidated statements of income, shareholders' equity and cash flow for such year, which year-end financial reports shall be in reasonable detail and shall be prepared in accordance with generally accepted accounting principles, consistently applied with prior practice for earlier periods, and accompanied by the opinion of independent public accountants of nationally recognized standing selected by the Company; (c) As soon as practicable following submission to and approval by the Board of Directors of the Company (such submission to be prior to the end of each fiscal year) an operating budget and business plan (the "Plan") respecting the next fiscal year and a summary of such Plan, together with any update of the Plan as such update is prepared and approved by the Board of Directors; and -3- (d) A copy of each report or document of the Company delivered to a majority of the holders of Common Stock (including Common Stock issuable upon conversion of Preferred Stock); (e) An annual capitalization summary; and (f) Prompt notice of any litigation or any material adverse claims or disputes involving the Company. 2.2 The covenants of the Company set forth in this Section 2 shall terminate and be of no further effect with respect to each Major Preferred Investor upon the closing of the first public offering of the Common Stock of the Company that is effected pursuant to a Registration Statement filed with, and declared effective by, the Commission under the Securities Act (other than either a public offering limited solely to employees of the Company or an offering pursuant to Rule 145 under the Securities Act). 3. Right of First Refusal. ---------------------- 3.l The Company hereby grants to each Major Investor the right of first refusal to purchase up to its Pro Rata Share of the New Securities (as defined below) which the Company may, from time to time, propose to sell and issue in a transaction or series of related transactions involving aggregate proceeds to the Company of $1,000,000 or more. The Major Investors may purchase said New Securities on the same terms and at the same price at which the Company proposes to sell the New Securities. The "Pro Rata Share" of each Major Investor, for purposes of this right of first refusal, is the ratio of (i) the total number of shares of Common Stock held by such Major Investor (including any shares of Common Stock into which shares of the Convertible Securities held by such Major Investor are convertible) to (ii) the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities (including any shares of Common Stock into which outstanding shares of the Convertible Securities are convertible and treating as outstanding the maximum number of shares of Common Stock that can be issued under the Company's Stock Option Plan). 3.2 "New Securities" shall mean any capital stock of the Company, whether authorized or not, and any rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided that "New Securities" does not include (i) the Series E Preferred Stock issued pursuant to that certain Series E Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement"), or the Common Stock issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or such Series E Preferred Stock; (ii) securities offered pursuant to a registration statement filed under the Securities Act; (iii) securities issued by the Company pursuant to the acquisition of another corporation by merger, purchase of substantially all of the assets, or other reorganization; (iv) securities issued by the Company to a strategic corporate partner pursuant to a strategic corporate partnership; provided such issuances are for other than primarily equity financing purposes and provided that at the time of any such issuance, the aggregate of such issuance and similar issuances in the preceeding twelve month period do not exceed 1% of the then -4- outstanding Common Stock of the Company (assuming full conversion and exercise of all convertible and exercisable securities); (v) shares issued or issuable to employees, directors, consultants, advisers and others performing services for the Company or its subsidiaries, pursuant to a plan or arrangement approved by the Company's Board of Directors; (vi) shares issued without consideration pursuant to a stock dividend, stock split, or similar transaction; (vii) warrants, and shares issuable upon exercise of such warrants, issued in connection with equipment leasing or credit transactions with commercial lending institutions and approved by the Company's Board of Directors; and (viii) Registrable Securities issued or issuable upon conversion, exercise, or exchange of New Securities. 3.3 In the event the Company proposes to undertake an issuance of New Securities, it shall give to each Major Investor written notice (the "Notice") of its intention, describing the type of New Securities, the price, the terms upon which the Company proposes to issue the same, the number of shares which Major Investor is entitled to purchase, and a statement that each Major Investor shall have twenty (20) days to respond to such Notice. Each Major Investor shall have twenty (20) days from the date of receipt of the Notice to agree to purchase any portion of or all of its Pro Rata Share of the New Securities for the price and upon the terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased and forwarding payment for such New Securities to the Company if immediate payment is required by such terms. 3.4 In the event a Major Investor fails to exercise in full the right of first refusal within said twenty (20) day period, the Company shall have sixty (60) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within thirty (30) days from date of said agreement) to sell the New Securities respecting which such Major Investor's rights were not exercised, at a price and upon general terms no more favorable to the purchaser thereof than specified in the Notice. In the event the Company has not sold the New Securities within said sixty (60) day period (or sold and issued New Securities in accordance with the foregoing within thirty (30) days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities without first offering such securities to such Major Investor in the manner provided above. 3.5 The right of first refusal granted under this Section 3 is assignable by the Major Investors and their affiliates to (i) any transferee of a minimum of 100,000 shares of Common Stock (including any shares of Common Stock into which shares of Convertible Securities then held by it are convertible), (ii) any wholly owned subsidiary or parent of, or any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such Major Investor, or (iii) any Major Investor. 3.6 The covenants of the Company set forth in this Section 3 shall be terminated and be of no further force or effect immediately prior to the closing of the first public offering of the Common Stock of the Company that is effected pursuant to a Registration Statement filed with, and declared effective by, the Commission under the Securities Act (other than either a public offering limited solely to employees of the Company or an offering pursuant to Rule 145 under the Securities Act), and such covenants shall terminate as to any Major -5- Investor as of the date such Major Investor no longer holds any shares of the capital stock of the Company. 4. Demand Registration. ------------------- 4.1 Request for Registration on Form Other Than Form S-3. Subject to ---------------------------------------------------- the terms of this Agreement, in the event that the Company shall receive from the Initiating Holders at any time after the earlier of (a) May 9, 2001 and (b) six (6) months after the closing of the Company's initial public offering of shares of Common Stock under a Registration Statement, a written request that the Company effect any Registration with respect to all or a part of the Registrable Securities on a Form other than Form S-3 for an offering with a reasonably anticipated aggregate offering price to the public exceeding $5,000,000, the Company shall (i) promptly give written notice of the proposed Registration to all other Holders and shall (ii) use its best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, Registration of the Registrable Securities specified in such request, together with any Registrable Securities of any Holder joining in such request as are specified in a written request given within twenty (20) days after written notice from the Company. The Company shall not be obligated to take any action to effect any such registration pursuant to this Section 4.1 (i) for the one hundred eighty (180) day period immediately following the closing of the Company's initial public offering of shares of Common Stock under a Registration Statement, (ii) after the Company has effected two such Registrations pursuant to this Section 4.1 and such Registrations have been declared effective, or (iii) if the Company, within thirty (30) days of the receipt of the request of the Initiating Holders, gives notice of its bona fide intention to effect the filing of a Registration Statement with the Commission within sixty (60) days of receipt of such request (other than with respect to a Registration Statement relating to a Rule 145 transaction or an offering solely to employees), provided that the Company is actively employing in good faith all best efforts to cause such Registration Statement to become effective. The substantive provisions of Section 4.5 shall be applicable to each Registration initiated under this Section 4.1. 4.2 Right of Deferral of Registration on Form Other Than Form S-3. If ------------------------------------------------------------- the Company shall furnish to all such Holders who joined in the request a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for any Registration to be effected as requested under Section 4.1, the Company shall have the right, exercisable not more than once in any twelve-month period, to defer the filing of a Registration Statement with respect to such offering for a period of not more than ninety (90) days from delivery of the request of the Initiating Holders. 4.3 Request for Registration on Form S-3. ------------------------------------ (a) If one or more Initiating Holders requests that the Company file a Registration Statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of Registrable Securities the reasonably anticipated aggregate price to the public of which would not be less than $1,000,000, and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall (i) promptly give -6- written notice of the proposed registration to all other Holders, and (ii) as soon as practicable effect such registration and all qualifications and compliance as may be so requested and as would permit or facilitate the sale and distribution of all of such portion of such Holder's or Holders' Registrable Securities as are specified in such request; provided, however, that the Company shall not be required to effect more than one Registration pursuant to this Section 4.3 in any six (6) month period. The substantive provisions of Section 4.5 shall be applicable to each Registration initiated under this Section 4.3. (b) Notwithstanding the foregoing, the Company shall not be obligated to file a registration statement pursuant to this Section 4.3: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) if the Company, within thirty (30) days of the receipt of the request of the Initiating Holders, gives notice of its bona fide intention to effect the filing of a Registration Statement with the Commission within sixty (60) days of receipt of such request (other than with respect to a Registration Statement relating to a Rule 145 transaction or an offering solely to employees), provided that the Company is actively employing in good faith all reasonable efforts to cause such Registration Statement to become effective provided that the foregoing is limited to one time in any twelve (12) month period; (iii) within one hundred eighty (180) days immediately following the effective date of any Registration Statement pertaining to the securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan); or (iv) if the Company shall furnish to such Initiating Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a Registration Statement to be filed in the near future, then the Company's obligation to use its best efforts to file a Registration Statement shall be deferred for a period not to exceed 90 days from the receipt of the request to file such registration by such Holder provided that the Company shall not exercise the right contained in this paragraph (iv) more than once in any twelve (12) month period. 4.4 Registration of Other Securities in Demand Registration. Any ------------------------------------------------------- Registration Statement filed pursuant to the request of the Initiating Holders under this Section 4 may, subject to the provisions of Section 4.5, include securities of the Company other than Registrable Securities. -7- 4.5 Underwriting in Demand Registration. ----------------------------------- 4.5.1 Notice of Underwriting. If the Initiating Holders intend to ---------------------- distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 4, and the Company shall include such information in the written notice referred to in Section 4.1 or 4.3. The right of any Holder to Registration pursuant to Section 4 shall be conditioned upon such Holder's agreement to participate in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting. 4.5.2 Inclusion of Other Holders in Demand Registration. If the ------------------------------------------------- Company, officers, or directors of the Company holding Common Stock other than Registrable Securities, or holders of securities other than Registrable Securities, request inclusion in such Registration, the Initiating Holders, to the extent they deem advisable and consistent with the goals of such Registration and subject to Section 4.5.4, may, in their sole discretion, on behalf of all Holders, offer to any or all of the Company, such officers or directors, and such holders of securities other than Registrable Securities that such securities other than Registrable Securities be included in the underwriting and may condition such offer on the acceptance by such persons of the terms of this Section 4. In the event, however, that the number of shares so included exceeds the number of shares of Registrable Securities requested to be included by all Holders, such Registration shall be treated as governed by Section 5 hereof rather than Section 4, and it shall not count as a Registration for purposes of Section 4.1 or Section 4.3 hereof. 4.5.3 Selection of Underwriter in Demand Registration. The Company ----------------------------------------------- shall (together with all Holders and other security holders, if any, proposing to distribute their securities through such underwriting) enter into an underwriting agreement with the representative ("Underwriter's Representative") of the underwriter or underwriters selected for such underwriting by the Company and reasonably acceptable to the Holders of a majority of the Registrable Securities being registered by the Initiating Holders. 4.5.4 Marketing Limitation in Demand Registration. In the event the ------------------------------------------- Underwriter's Representative advises the Initiating Holders in writing that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, the underwriter and the Company may limit the number of Registrable Securities to be included in the Registration and underwriting; provided, however, that no Registrable Securities shall be so excluded unless (i) first, the Common Stock (other than Registrable Securities) held by officers or employees of the Company, (ii) second, the securities other than Registrable Securities (other than those described in paragraph (iii) below), and (iii) third, the securities requested to be registered by the Company, shall be excluded from such Registration to the extent required by such limitation. If a limitation of the number of shares is still required, the Company shall so advise all Holders and the number of shares of Registrable Securities that may be included in the Registration and underwriting shall be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities otherwise -8- entitled to inclusion in such Registration held by such Holders at the time of filing the Registration Statement. No Registrable Securities or other securities excluded from the underwriting by reason of this Section 4.5.4 shall be included in such Registration Statement. 4.5.5 Right of Withdrawal in Demand Registration. If any Holder of ------------------------------------------ Registrable Securities, or a holder of other securities entitled (upon request) to be included in such Registration, disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the Underwriter's Representative and the Initiating Holders delivered at least seven days prior to the effective date of the Registration Statement. The securities so withdrawn shall also be withdrawn from the Registration Statement. If the remaining Holders are not Initiating Holders, then the Company may discontinue the Registration. 4.6 Blue Sky in Demand Registration. In the event of any Registration ------------------------------- pursuant to this Section 4, the Company will exercise its best efforts to Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of such securities; provided, however, that (i) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act, and (ii) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling shareholders, such expenses shall be payable pro rata by selling shareholders. 5. Piggyback Registration. ---------------------- 5.1 Notice of Piggyback Registration and Inclusion of Registrable ------------------------------------------------------------- Securities. Subject to the terms of this Agreement, in the event the Company - ---------- decides to Register any of its Common Stock (either for its own account or the account of a security holder or holders exercising their respective demand registration rights other than pursuant to Section 4 hereof) on a form that would be suitable for a registration involving Registrable Securities, the Company will: (i) promptly give each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable Blue Sky or other state securities laws) and (ii) include in such Registration (and any related qualification under Blue Sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request delivered to the Company by any Holder within twenty (20) days after delivery of such written notice from the Company. 5.2 Underwriting in Piggyback Registration. -------------------------------------- 5.2.1 Notice of Underwriting in Piggyback Registration. If the ------------------------------------------------ Registration of which the Company gives notice is for a Registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 5.1. In such event, the right of any Holder to Registration shall be conditioned upon such underwriting and the inclusion of such Holder's Registrable Securities in -9- such underwriting to the extent provided in this Section 5. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement with the Underwriter's Representative for such offering. The Holders shall have no right to participate in the selection of the underwriters for an offering pursuant to this Section 5. 5.2.2 Marketing Limitation in Piggyback Registration. In the event ---------------------------------------------- the Underwriter's Representative advises the Company that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be Registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the Registration) require a limitation of the number of shares to be underwritten, the Underwriter's Representative and the Company (subject to the allocation priority set forth in Section 5.2.3) may: (i) in the case of the Company's initial Registered public offering, exclude some or all Registrable Securities from such registration and underwriting; and (ii) in the case of any Registered public offering subsequent to the initial public offering, limit the number of shares of Registrable Securities to be included in such Registration and underwriting to not less than thirty percent (30%) of the securities included in such Registration (based on aggregate market values). 5.2.3 Allocation of Shares in Piggyback Registration. In the event ---------------------------------------------- that the Underwriter's Representative and the Company limit the number of shares to be included in a Registration pursuant to Section 5.2.2, the shares (other than Registrable Securities) held by officers or employees of the Company shall be excluded from such registration and underwriting to the extent required by such limitation. If a limitation of the number of shares is still required after such exclusion, the number of shares held by all other holders of securities (including Registrable Securities) requesting and legally entitled to include such securities in such Registration shall be excluded from such registration and underwriting to the extent required by such limitation, in proportion, as nearly as practicable, to the respective amounts of securities which such other holders would otherwise be entitled to include in such Registration; provided, however, that the number of shares of Registrable Securities held by the Holders to be included in such Registration and underwriting shall not be limited to less than thirty percent (30%) of the securities included in such Registration (based on aggregate market value). No Registrable Securities or other securities excluded from the underwriting by reason of this Section 5.2.3 shall be included in the Registration Statement. 5.2.4 Withdrawal in Piggyback Registration. If any Holder ------------------------------------ disapproves of the terms of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the Underwriter's Representative delivered at least seven days prior to the effective date of the Registration Statement. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such Registration. 5.3 Blue Sky in Piggyback Registration. In the event of any Registration ---------------------------------- of Registrable Securities pursuant to this Section 5, the Company will exercise its best efforts to -10- Register and qualify the securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of such securities; provided, however, that (i) the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act, and (ii) notwithstanding anything in this Agreement to the contrary, in the event any jurisdiction in which the securities shall be qualified imposes a non-waivable requirement that expenses incurred in connection with the qualification of the securities be borne by selling shareholders, such expenses shall be payable pro rata by selling shareholders. 6. Expenses of Registration. All Registration Expenses incurred in ------------------------ connection with all Registrations pursuant to Section 4 and Section 5 shall be borne by the Company. Notwithstanding the above, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 4 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (which Holders shall bear such expenses unless the Holders of a majority of the Registrable Securities agree to forfeit their right to such registration), provided however, that if at the time of such withdrawal, the Holders have learned of a Material Adverse Event with respect to the condition, business, or prospects of the Company not known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 4. All Selling Expenses shall be borne by the holders of the securities Registered Pro Rata on the basis of the number of shares Registered. 7. Termination of Registration Rights. The rights to cause the ---------------------------------- Company to register securities granted under Sections 4 and 5 of this Agreement shall terminate, with respect to each Holder five years after the closing date of the Company's initial public offering; provided, however, that a Holder's rights provided for under Sections 4 and 5 shall terminate earlier when (i) such Holder owns less than one percent (1%) of the outstanding securities of the Company, (ii) such Holder may sell all its shares in a three (3) month period under Rule 144 of the Act, and (iii) the Company is then subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act. 8. Registration Procedures and Obligations. Whenever required under --------------------------------------- this Agreement to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such Registration Statement effective for up to one hundred eighty (180) days, provided, however, that such one hundred eighty (180) day period shall be - -------- ------- extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company. -11- (b) Prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement for up to one hundred eighty (180) days. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing such obligation to continue for one hundred eighty (180) days. (g) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such Registration Statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (h) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered for sale in connection with a registration pursuant to this Agreement, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering if any and to the Holders requesting registration of Registrable Securities, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters if any and to the Holders requesting registration of Registrable Securities. -12- (i) Cause all Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. 9. Information Furnished by Holder. It shall be a condition precedent of ------------------------------- the Company's obligations under this Agreement, with respect to each Holder, that such Holder of Registrable Securities included in any Registration furnish to the Company such information regarding such Holder and the distribution proposed by such Holder or Holders as shall be required to effect the registration of such Holder's Registrable Securities. 10. Indemnification. --------------- 10.1 Company's Indemnification of Holders. To the extent permitted ------------------------------------ by law, the Company will indemnify each Holder, each of its officers, directors, and constituent partners, legal counsel for the Holders, and each person controlling such Holder (within the meaning of the Securities Act), with respect to which Registration, qualification, or compliance of Registrable Securities has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter against all claims, losses, damages, or liabilities (or actions in respect thereof) to the extent such claims, losses, damages, or liabilities arise out of or are based upon any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or other document (including any related Registration Statement) incident to any such Registration, qualification, or compliance, or are based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or the Exchange Act applicable to the Company and relating to action or inaction required of the Company in connection with any such Registration, qualification, or compliance; and the Company will reimburse each such Holder, each such underwriter, and each person who controls any such Holder or underwriter, for any legal and any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating or defending any such claim, loss, damage, liability, or action; provided, however, that the indemnity contained in this Section 10.1 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability, or action if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); and provided, further, that if the Company and the Holder disagree as to the reasonableness of the settlement terms, they shall mutually agree upon an independent counsel to review the matter and resolve the dispute with the cost of such counsel to be split between the Company and the Holder; and provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to the Company by such Holder, underwriter, or controlling person and stated to be for use in connection with the offering of securities of the Company. 10.2 Holder's Indemnification of Company. To the extent permitted by ----------------------------------- law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such Registration, qualification or, compliance is being effected pursuant to this Agreement, indemnify the Company, each of its directors and officers, each legal counsel and -13- independent accountant of the Company, each underwriter, if any, of the Company's securities covered by such a Registration Statement, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other such Holder, each of its officers, directors, and constituent partners, and each person controlling such other Holder (within the meaning of the Securities Act), against all claims, losses, damages, and liabilities (or actions in respect thereof) arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of any rule or regulation promulgated under the Securities Act or the Exchange Act applicable to such Holder and relating to action or inaction required of such Holder in connection with any such Registration, qualification, or compliance, and will reimburse the Company, such Holders, such directors, officers, partners, persons, law and accounting firms, underwriters or control persons for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but in each case only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use in connection with the offering of securities of the Company, provided, however, that the indemnity contained in this Section 10.2 shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld) and provided, further, that each Holder's liability under this Section 10.2 shall not exceed such Holder's net proceeds from the offering of securities made in connection with such Registration. 10.3 Indemnification Procedure. Promptly after receipt by an ------------------------- indemnified party under this Section 10 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 10, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim; provided, however, that the indemnifying party shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld; provided further, however, that if either party reasonably determines that there may be a conflict between the position of the Company and the Holders in conducting the defense of such action, suit, or proceeding (such conflict being related to claims for indemnity under this Section 10), then counsel for such party whose reasonable fees and expenses shall be borne by the indemnifying party shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interest of such party. The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to the ability of the indemnifying party to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this Section 10, but the omission so to notify the indemnifying party will not relieve such party of any liability that such party may have to any indemnified party otherwise other than under this Section 10. -14- 10.4 Contribution. If the indemnification provided for in this ------------ Section 10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 10.5 The obligations of the Company and Holders under this Section 10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement. 11. Limitations on Registration Rights Granted to Other Securities. From -------------------------------------------------------------- and after the date of this Agreement, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company providing for the granting to such holder of any Registration rights that are superior to such rights provided to the Holders under this Agreement without the consent of the holders of at least two-thirds of the Registrable Securities. With the consent of the Holders of a majority of the Registrable Securities then outstanding, additional holders may be added as parties to this Agreement with regard to any or all securities of the Company held by them. Any such additional parties shall execute a counterpart of this Agreement, and upon execution by such additional parties and by the Company, shall be considered an Investor for all purposes of this Agreement. The additional parties and the additional Registrable Securities shall be identified in an amendment to Schedule A hereto. 12. Transfer of Rights. ------------------ 12.1 The right to cause the Company to Register Securities granted by the Company to the Investors under this Agreement may be assigned by any Holder to (i) any partner, member or other owner or retired partner, member or other owner of any Holder which is a partnership or limited liability company, (ii) any family member or trust for the benefit of any individual Holder, or (iii) any transferee or assignee of any Convertible Securities or Registrable Securities not sold to the public pursuant to a public offering acquiring at least 300,000 shares of such Holder's Registrable Securities (equitably adjusted for any stock splits, subdivisions, stock dividends, changes, combinations or the like); provided, however, that the Company must receive written notice prior to the time of said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such information and Registration rights are being assigned, and the transferee or assignee of such rights must not be a person deemed by the Board of Directors of the Company, in its best judgment, to be a competitor or potential competitor of the Company. -15- 12.2 Notwithstanding the limitation set forth in the foregoing Section 12.1, any Holder which is a partnership, a limited liability company or a limited duration company may transfer such Holder's Registration rights to such Holder's constituent partners or members (or any affiliates) without restriction as to the number or percentage of shares acquired by any such constituent partner or member and any Holder who is an individual may transfer such rights to a member of Holder's immediate family or to a trust for the benefit of Holder or of a member of Holder's immediate family without restriction as to the number or percentage of shares acquired by any such person or trust. 13. Market Standoff. Each Holder hereby agrees that, if so requested by --------------- the Company and the Underwriter's Representative (if any) in connection with the Company's initial public offering, such Holder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise transfer or dispose (other than to partners, affiliates or shareholders of such Holder who shall be bound by the provisions of this Section 13) of any Registrable Securities without the prior written consent of the Company and the Underwriter's Representative for such offerings for such period of time (not to exceed one hundred eighty (180) days) following the effective date of a Registration Statement of the Company filed under the Securities Act as may be requested by such Underwriter's Representative. The obligations of Holders under this Section 13 shall be conditioned upon similar agreements being in effect with each other shareholder who is an employee, officer, director or 1% shareholder of the Company. Furthermore, with respect to any shares of the Company offered or traded in the public market (including pursuant to the Company's initial public offering or any market that may develop pursuant to Rule 144A promulgated under the Securities Act) there shall be no restriction on the acquisition or disposition of such shares pursuant to the Transactional Agreements (as defined in the Stock Purchase Agreement). 14. No-Action Letter or Opinion of Counsel in Lieu of Registration; --------------------------------------------------------------- Conversion of Preferred Stock. Notwithstanding anything else in this Agreement, - ----------------------------- if the Company shall have obtained from the Commission a "no-action" letter in which the Commission has indicated that it will take no action if, without Registration under the Securities Act, any Holder disposes of Registrable Securities covered by any request for Registration made under this Section in the specific manner in which such Holder proposes to dispose of the Registrable Securities included in such request (such as including, without limitation, inclusion of such Registrable Securities in an underwriting initiated by either the Company or the holders) and that such Registrable Securities may be sold to the public without Registration, or if in the opinion of counsel for the Company concurred in by counsel for such Holder, which concurrence shall not be unreasonably withheld, no Registration under the Securities Act is required in connection with such disposition and that such Registrable Securities may be sold to the public without Registration, the Registrable Securities included in such request shall not be eligible for Registration under this Agreement; provided, however, that any Registrable Securities not so disposed of shall be eligible for Registration in accordance with the terms of this Agreement with respect to other proposed dispositions to which this Section 14 does not apply. The Registration rights of the Holders of the Registrable Securities set forth in this Agreement are conditioned upon the conversion of the Registrable Securities with respect to which Registration is sought into Common Stock immediately prior to the effectiveness of the Registration Statement. -16- 15. Reports Under Exchange Act. With a view to making available to -------------------------- the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the Commission that may at any time permit a Holder to sell securities of the Company to the public without Registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 after the date that the Company becomes subject to the periodic reporting requirements of the Exchange Act; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the first Registration Statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act, and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without Registration or pursuant to such form. 16. Capital Expenditures. The Company covenants that it will not -------------------- undertake any corporate action involving capital expenditures greater than $200,000 (other than such action included in a budget previously approved by the Company's Board of Directors) without first obtaining the affirmative vote or written consent of the holders of more than fifty percent (50%) of the outstanding shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred (voting on an as-converted to Common Stock basis), voting together as a single class. 17. Miscellaneous. ------------- 17.1 Entire Agreement; Successors and Assigns; Waiver of Rights of ------------------------------------------------------------- First Refusal. This agreement constitutes the entire contract between the - ------------- Company and the Investors relative to the subject matter hereof. Any previous agreement between the Company and any Investor concerning registration rights and rights to information is superseded by this Agreement. Subject to the exceptions specifically set forth in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successor, and assigns of the parties. Investors who are parties to the Prior Agreement, who constitute a majority of the Registrable Securities thereunder, hereby waive on -17- behalf of all the Holders under the Prior Agreement (i) the notice periods set forth in Section 3 of the Prior Agreement with respect to their Right of First Refusal, and (ii) the Right of First Refusal with respect to shares of Series E Preferred that the Holders are not acquiring hereunder. 17.2 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of California excluding those laws that direct the application of the laws of another jurisdiction. 17.3 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17.4 Headings. The headings of the Sections of this Agreement are -------- for convenience and shall not by themselves determine the interpretation of this Agreement. 17.5 Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be conclusively deemed effectively given upon personal delivery, or five days after deposit in the United States mail, by registered or certified mail, postage prepaid, addressed (i) if to the Company, as set forth below the Company's name on the signature page of this Agreement, and (ii) if to an Investor, at such Investor's address as set forth on Schedule A, or at such other address as the Company or such Investor may designate by ten (10) days advance written notice to the Investors or the Company, respectively. 17.6 Amendment of Agreement. Any provision of this Agreement may be ---------------------- amended (and the rights of first refusal provided in Section 3 waived) only by a written instrument signed by the Company and by persons holding a majority of the Registrable Securities as defined in Section 1 of this Agreement; provided, however, that no provision of this Agreement may be amended such that the rights hereunder of any Holder of Registrable Securities are adversely affected relative to the rights of any other such Holder without the approval of the Holders of at least two-thirds of the Registrable Securities adversely affected; provided, however, that no amendment shall be effective as to any investment company without its approval. 17.7 Severability. In case any provision of this Agreement shall be ------------ invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 17.8 Prior Agreements. Any and all prior agreements between the ---------------- Company and the parties hereto governing information and registration rights are hereby superseded and replaced. 17.9 Aggregation of Stock. All shares of Registrable Securities held -------------------- or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. -18- IN WITNESS WHEREOF, the parties hereto have executed this Third Amended and Restated Investor Rights Agreement as of the day and year first above written. Company: INTERWOVEN, INC., a California corporation By: /s/ Martin Brauns ------------------------------------ Martin Brauns, President and Chief Executive Officer Address: 1195 West Fremont Avenue, Suite 2000 Sunnyvale, CA 94087 INVESTOR: Foundation Capital II, L.P. By: Foundation Capital Management II, L.L.C. By: /s/ Kathryn C. Gould ----------------------------------------- Kathryn C. Gould, Manager Foundation Capital II Entrepreneurs' Fund, L.L.C. By: Foundation Capital Management II, L.L.C. By: /s/ Kathryn C. Gould ----------------------------------------- Kathryn C. Gould, Manager Foundation Capital II Principals Fund, L.L.C. By: Foundation Capital Management II, L.L.C. By: /s/ Kathryn C. Gould ----------------------------------------- Kathryn C. Gould, Manager ACCEL VL.P. By: ACCEL V ASSOCIATES L.L.C. ITS GENERAL PARTNER By: /s/ Carter Sednaoui ----------------------------------------- MANAGING MEMBER Accel Internet/Strategic Technology Fund L.P. By: Accel Internet/Strategic Technology Fund Associates L.L.C. Its General Partner By: /s/ Carter Sednaoui ----------------------------------------- Managing Member Accel Keiretsu V L.P. By: Accel Keiretsu V Associates L.L.C. Its General Partner By: /s/ Carter Sednaoui ----------------------------------------- Managing Member ACCEL INVESTORS '97 L.P. By: /s/ Carter Sednaoui ----------------------------------------- Managing Partner Ellmore C. Patterson Partners By: /s/ Arthur C. Patterson ----------------------------------------- Arthur C. Patterson General Partner By: /s/ Eileen Richardson ----------------------------------------- (Signature) JK&B Capital, L.P. ----------------------------------------- (Name of Entity or Individual) ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Eileen Richardson ----------------------------------------- (Signature) JK&B Capital II, L.P. ----------------------------------------- (Name of Entity or Individual) ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Ron Hiram ----------------------------------------- (Signature) Quantum Industrial Partners LDC Ron Hiram ----------------------------------------- (Name of Entity or Individual) Attorney-in-Fact ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Michael C. Neus ----------------------------------------- (Signature) Michael C. Neus Attorney-in-Fact ----------------------------------------- (Name of Entity or Individual) S-C Phoenix Holdings LLC ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Peter A. Hurwitz ----------------------------------------- (Signature) Winston Partners II LDC ----------------------------------------- (Name of Entity or Individual) Peter A. Hurwitz Attorney in Fact ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Peter A. Hurwitz ----------------------------------------- (Signature) Winston Partners II LLC by Chatterjee Advisors LLC Its Manager ----------------------------------------- (Name of Entity or Individual) /s/ Peter A. Hurwitz, Manager ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ A. Barr Dolan ----------------------------------------- (Signature) Charter Ventures III LLC ----------------------------------------- (Name of Entity or Individual) ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Steve Jurvetson ----------------------------------------- (Signature) Draper Fisher Associates Fund III, L.P. ----------------------------------------- (Name of Entity or Individual) Steve Jurvetson, Managing Director ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Steve Jurvetson ----------------------------------------- (Signature) Draper Fisher Partners LLC ----------------------------------------- (Name of Entity or Individual) Steve Jurvetson, Managing Director ----------------------------------------- (Name and Title of Authorized Signatory) By: Integral Capital Management IV, LLC Its General Partner By: /s/ Pamela Hagenah ----------------------------------------- (Signature) Integral Capital Partners IV, L.P. Pamela K. Hagenah ----------------------------------------- (Name of Entity or Individual) Manager ----------------------------------------- (Name and Title of Authorized Signatory) By: Integral Capital Partners NBT, LLC Its General Partner By: /s/ Pamela Hagenah ----------------------------------------- (Signature) Integral Capital Partners IV MS Side Fund, L.P. Pamela K. Hagenah ----------------------------------------- (Name of Entity or Individual) Manager ----------------------------------------- (Name and Title of Authorized Signatory) Merchant Capital, Inc. By: /s/ John M. Carroll ----------------------------------------- (Signature) John M. Carroll ----------------------------------------- (Name of Entity or Individual) Vice President ----------------------------------------- By: /s/ Michael Huffman ----------------------------------------- (Signature) Michael Huffman ----------------------------------------- (Name of Entity or Individual) ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ S. M.S. Boswick ----------------------------------------- (Signature) Seligman Communication and Information Fund ----------------------------------------- (Name of Entity or Individual) S. M. S. Boswick, Managing Director ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Garrett Van Wagoner ----------------------------------------- (Signature) Van Wagoner Capital Management ----------------------------------------- (Name of Entity or Individual) Garrett Van Wagoner, President ----------------------------------------- (Name and Title of Authorized Signatory) CAMBRIDGE TECHNOLOGY CAPITAL FUND I L.P. By: Cambridge Technology GPLP, L.P. By: Cambridge Technology CGP, Inc. By: /s/ Barry Rosenbaum ----------------------------------------- Name: Barry Rosenbaum Title: Managing Director By: /s/ William James Bell ----------------------------------------- (Signature) William James Bell 1993 Trust ----------------------------------------- (Name of Entity or Individual) William James Bell - Trustee ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Steven P. Bird ----------------------------------------- (Signature) Charter Growth Capital, L.P. ----------------------------------------- (Name of Entity or Individual) Steven P. Bird, G.P of the G.P. ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Steven P. Bird ----------------------------------------- (Signature) Charter Growth Capital Co. - Investment Fund, L.P. ----------------------------------------- (Name of Entity or Individual) Steven P. Bird, G.P. of the G.P. ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Steven P. Bird ----------------------------------------- (Signature) CGC Investors, L.P. ----------------------------------------- (Name of Entity or Individual) Steven P. Bird, G.P. of the G.P. ----------------------------------------- (Name and Title of Authorized Signatory) STAR BAY PARTNERS, L.P., a California Limited Partnership By: APH Capital Management LLC. A California Limited Liability Company, its General Partner By: Levensohn Capital Management LLC, a California Limited Liabililty Company, its Managing Member By: /s/ Pascal N. Levensohn ----------------------------------------- Pascal N. Levensohn Managing Member By: /s/ James P. Labe ----------------------------------------- (Signature) COMDISCO, INC. ----------------------------------------- (Name of Entity or Individual) James P. Labe, President Comdisco Ventures Division ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ M. Waldron ----------------------------------------- (Signature) Lion Investments Limited ----------------------------------------- (Name of Entity or Individual) Michael Waldron - Director ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ M. Waldron ----------------------------------------- (Signature) Westpool Investment Trust plc ----------------------------------------- (Name of Entity or Individual) Michael Waldron - Director ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ Eugene M. Weber, Trustee ----------------------------------------- (Signature) Weber Family Trust dated 1/6/89 ----------------------------------------- (Name of Entity or Individual) Eugene M. Weber, Trustee ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ David Leyrer ----------------------------------------- (Signature) Nexus Capital Partners I, LP ----------------------------------------- (Name of Entity or Individual) David Leyrer, Gen. Partner ----------------------------------------- (Name and Title of Authorized Signatory) By: /s/ David Leyrer ----------------------------------------- (Signature) Porcelain Partners, LP ----------------------------------------- (Name of Entity or Individual) David Leyrer, Gen. Partner ----------------------------------------- (Name and Title of Authorized Signatory) -19- SCHEDULE A ---------- SCHEDULE OF INVESTORS
Number of Aggregate --------- --------- Investor Shares Purchase Price - -------- ------ -------------- Foundation Capital II, L.P. 187,000 $1,058,420.00 Foundation Capital II Entrepreneurs Fund, LLC 22,000 $ 124,520.00 Foundation Capital II Principals Fund, LLC 11,000 $ 62,260.00 Foundation Capital Subtotal: 220,000 $1,245,200.00 c/o Foundation Capital 70 Willow Road, Suite 200 Menlo Park, CA 94025 Attn: Kathryn Gould - ---------------------------------------------------------------------------------------- Accel V L.P. 84,827 480,120.82 Accel Internet/Strategic Technology Fund L.P. 11,238 63,607.08 Accel Keiretsu V L.P. 4,430 25,073.80 Accel Investors `97 L.P. 5,187 29,358.42 Ellmore C. Patterson Partners 2,377 13,453.82 Accel Partners Subtotal: 108,059 $ 611,613.94 c/o Accel Partners 428 University Ave. Palo Alto, CA 94301 Attn: John Partridge with copies to: Accel Partners One Palmer Square Princeton, NJ 08542-3718 Attn: Carter Sednaoui - ---------------------------------------------------------------------------------------- JK&B Capital, L.P. 132,862 $ 751,998.92 JK&B Capital II, L.P. 66,431 $ 375,999.46 JK&B Capital Subtotal: 199,293 $1,127,998.38 JK&B Capital 205 North Michigan Avenue, Suite 808 Chicago, IL 60601 Attn: Eileen Richardson with copies to: c/o JK&B Capital Corporate Centre/West Bay Road Leeward 1 P.O. Box 31106 SMB Grand Cayman, Cayman Islands Attn: William Keunen - ----------------------------------------------------------------------------------------
SCHEDULE A ---------- SCHEDULE OF INVESTORS (Cont'd)
Number of Aggregate -------- --------- Investor Shares Purchase Price - -------- ------ -------------- Quantum Industrial Partners LDC 20,742 $117,399.72 c/o Curacao Corporation Company, N.V. Kava Flamhoyan 9 Willemstad, Curacao Netherlands Antilles with copies to: Soros Fund Management LLC 888 Seventh Avenue New York, New York 10106 Attention: Michael C. Neus Akin, Gump, Strauss, Hauer & Feld L.L.P 590 Madison Avenue New York. New York 10022 Attention: Patrick J. Dooley - --------------------------------------------------------------------------------- S-C Phoenix Holdings LLC 13,828 $ 78,266.48 c/o Soros Fund Management LLC 888 Seventh Avenue New York, New York 10106 Attention Michael C Neus with a copy to Akin, Gump, Straus, Hauer & Feld L.L.P. 590 Madison Avenue New York, New York 10022 Attention: Patrick J Dooley - --------------------------------------------------------------------------------- Winston Partners II LDC 4,609 $ 26,086.94 c/o Curacao Corporation Company, N V Kaya Flamboyan 9 Willemstad, Curacao Netherlands Antilles with copies to The Chatterjee Group 888 Seventh Avenue New York, New York 10106 Attention Dan Alexander/Peter Hurwitz Akin, Gump, Strauss, Hauer & Feld L.L.P 590 Madison Avenue New York New York 10022 Attention: James E. Kaye - --------------------------------------------------------------------------------- Winston Partners II LLC 2,305 $ 13,046.30 c/o Chatterjee Advisors L.L.C. 888 Seventh Avenue New York, New York 10106 Attention: Dan Alexander/Peter Hurwitz with a copy to: Akin, Gump, Strauss, Hauer & Feld L.L.P 590 Madison Avenue New York, New York 10022 Attention: James E. Kaye - ---------------------------------------------------------------------------------
2 SCHEDULE A ---------- SCHEDULE OF INVESTORS (Cont'd)
Number of Aggregate --------- --------- Investor Shares Purchase Price - -------- ------ -------------- Charter Ventures III LLC 45,000 $ 254,700.00 c/o Charter Venture Capital 525 University Avenue, Suite 1500 Palo Alto, CA 94301 Attn: A. Barr Dolan - ----------------------------------------------------------------------------------- Draper Fisher Partners, LLC 120 679.20 Draper Fisher Associates Fund III, L.P. 1849 10,465.34 Draper Fisher Subtotal: 1,969 $ 11,144.54 c/o Draper Fisher Jurvetson 400 Seaport Court, Suite 250 Redwood City, CA 94063 Attn: Steve Jurvetson - ----------------------------------------------------------------------------------- Integral Capital Partners IV, L.P. 57,746 $ 326,842.36 Integral Capital Partners IV MS Side Fund, L.P. 320 $ 1,811.20 Integral Capital Partners Subtotal: 58,066 $ 328,653.56 c/o Integral Capital Partners 2750 Sand Hill Road Menlo Park, CA 94025 Attn: Pamela Hagenah - ----------------------------------------------------------------------------------- Merchant Capital, Inc. 229,682 $1,300,000.12 11 Madison Avenue, 26th Floor New York, NY 10010-3629 Attn: John Carroll - ----------------------------------------------------------------------------------- Michael Huffman 8,834 $ 50,000.44 6595 Stonehill Drive San Jose, CA 95120 - ----------------------------------------------------------------------------------- Seligman Communications and Information Fund, Inc. 706,714 $4,000,001.24 100 Park Avenue, 7th Floor New York, NY 10017 Attn: Paul B. Goucher, Esq. - ----------------------------------------------------------------------------------- Van Wagoner Capital Management 706,714 $4,000,001.24 345 California Street, Suite 2450 San Francisco, CA 94104 Attn: Garrett Van Wagoner - ----------------------------------------------------------------------------------- Cambridge Technology Capital Fund I L.P. 176,678 $ 999,997.48 8 Cambridge Center Cambridge, MA 02412 Attn: Scott Johnson - ----------------------------------------------------------------------------------- William James Bell 1993 Trust 132,510 $ 750,006.60 10539 Bellagio Road Bel Air, CA 90077 - -----------------------------------------------------------------------------------
3 SCHEDULE A ---------- SCHEDULE OF INVESTORS (Cont'd)
Number of Aggregate --------- --------- Investor Shares Purchase Price - -------- ------ -------------- Charter Growth Capital, L.P. 141,343 $ 800,001.38 Charter Growth Capital Co-Investment Fund, L.P. 26,501 $ 149,995.66 CGC Investors, L.P. 8,834 $ 50,000.44 Charter Growth Capital Subtotal 176,678 $ 999,997.48 525 University Avenue, Suite 1400 Palo Alto, CA 94301 Attn: Steven Bird - ------------------------------------------------------------------------------- Star Bay Partners, L.P. 88,339 $ 499,998.74 c/o Levensohn Capital Management 44 Montgomery Street, Suite 1200 San Francisco, CA 94104 Attn: Frank Brown - ------------------------------------------------------------------------------- Comdisco, Inc. 88,339 $ 499,998.74 6111 North River Road Rosemont, IL 60018 Attn: Venture Group - ------------------------------------------------------------------------------- Lion Investments Limited 176,678 $ 999,997.48 c/o London Merchant Securities plc 33 Robert Adam Street London WIM 5AH, England Attn: Michael Bennett - ------------------------------------------------------------------------------- Westpool Investment Trust plc 84,806 $ 480,001.96 c/o London Merchant Securities plc 33 Robert Adam Street London WIM 5AH, England Attn: Michael Bennett - ------------------------------------------------------------------------------- Weber Family Trust Dated 1/6/89 3,534 $ 20,002.44 c/o Bluewater Capital Management 50 California Street, Suite 3200 San Francisco, CA 94111 Attn: Eugene Weber - ------------------------------------------------------------------------------- Nexus Capital Partners I, L.P. 88,339 $ 499,998.74 201 Spear Street, Suite 1700 San Francisco, CA 94105 Attn: David Leyrer - ------------------------------------------------------------------------------- Porcelain Partners, L.P. 53,003 $ 299,996.98 201 Spear Street, Suite 1700 San Francisco, CA 94105 Attn: David Leyrer - ------------------------------------------------------------------------------- _________ ______________ TOTAL: 3,394,719 $19,214,109.54
4 EX-10.04 7 1999 EQUITY INCENTIVE PLAN EXHIBIT 10.04 INTERWOVEN, INC. 1999 EQUITY INCENTIVE PLAN As Adopted July 22, 1999 1. PURPOSE. The purpose of this Plan is to provide incentives to ------- attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. -------------------------- 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, -------------------------- the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 2,900,000 Shares plus Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. In addition, any authorized shares not issued or subject to outstanding grants under the 1996 Stock Option Plan and the 1998 Stock Option Plan (the "Prior Plans") on the Effective Date (as defined below) and any shares issued under the Prior Plans that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plans that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plans, but will be available for grant and issuance under this Plan. At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of -------------------- outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that -------- ------- fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted ----------- only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided -------- such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No person will be eligible to receive more than 1,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company), who are eligible to receive up to a maximum of 1,500,000 Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. 4. ADMINISTRATION. -------------- 4.1 Committee Authority. This Plan will be administered by the ------------------- Committee or by the Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Except for automatic grants to Outside -------------------- Directors pursuant to Section 9 hereof, any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and ------- will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan -------------------- will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("Stock Option Agreement"), and, except as otherwise required by the terms of Section 9 hereof, will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option will be the ------------- date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the 2 granting of the Option. 5.3 Exercise Period. Options may be exercisable within the times --------------- or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be -------- ------- exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by ---------------- attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("Ten Percent Stockholder") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. 5.4 Exercise Price. The Exercise Price of an Option will be -------------- determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by ------------------ delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth ----------- in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or Disability, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. (c) Notwithstanding the provisions in paragraph 5.6(a) above, if a Participant is terminated for Cause, neither the Participant, the Participant's estate nor such other person who may then 3 hold the Option shall be entitled to exercise any Option with respect to any Shares whatsoever, after termination of service, whether or not after termination of service the Participant may receive payment from the Company or Subsidiary for vacation pay, for services rendered prior to termination, for services rendered for the day on which termination occurs, for salary in lieu of notice, or for any other benefits. In making such determination, the Board shall give the Participant an opportunity to present to the Board evidence on his behalf. For the purpose of this paragraph, termination of service shall be deemed to occur on the date when the Company dispatches notice or advice to the Participant that his service is terminated. 5.7 Limitations on Exercise. The Committee may specify a ----------------------- reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value ------------------ (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may ---------------------------------- modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced -------- ------- below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in ------------------- this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the ---------------- Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "Purchase Price"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a ------------------------------ Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("Restricted Stock Purchase Agreement") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, 4 unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant -------------- to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards -------------------------------- shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant is ------------------------------------- Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. ------------- 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares ----------------------- (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "Performance Stock Bonus Agreement") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee will determine the ---------------------- number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 5 7.3 Form of Payment. The earned portion of a Stock Bonus may be --------------- paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. --------------------------- 8.1 Payment. Payment for Shares purchased pursuant to this Plan ------- may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are -------- ------- not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay --------------- for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS. -------------------------------------- 9.1 Types of Options and Shares. Options granted under this Plan ---------------------------- and subject to this Section 9 shall be NQSOs. 6 9.2 Eligibility. Options subject to this Section 9 shall be ----------- granted only to Outside Directors. 9.3 Annual Grants. Each Outside Director who was a member of ------------- the Board before the Effective Date will automatically be granted an Option for 10,000 Shares on the Effective Date, unless such Outside Director received a grant of Options before the Effective Date. Each Outside Director who first becomes a member of the Board on or after the Effective Date will automatically be granted an Option for 20,000 Shares on the date such Outside Director first becomes a member of the Board. Immediately following each annual meeting of stockholders, all Outside Directors will automatically be granted an Option for 10,000 Shares, provided the Outside Director is a member of the Board on such date and has served continuously as a member of the Board for a period of at least one year since the date when such Outside Director first became a member of the Board (the "Annual Grant"). 9.4 Vesting. Each Annual Grant shall be 100% vested and ------- immediately exercisable as of the date of grant. 9.5 Exercise Price. The exercise price of an Annual Grant shall -------------- be the Fair Market Value of the Shares, at the time that the Option is granted. 10. WITHHOLDING TAXES. ----------------- 10.1 Withholding Generally. Whenever Shares are to be issued in --------------------- satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 10.2 Stock Withholding. When, under applicable tax laws, a ----------------- Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee 11. TRANSFERABILITY. --------------- 11.1 Except as otherwise provided in this Section 11, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. 11.2 All Awards other than NQSO's. All Awards other than NQSO's ----------------------------- shall be exercisable: (i) during the Participant's lifetime, only by (A) the Participant, or (B) the Participant's guardian or legal representative; and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. 11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO ----- shall be exercisable: (i) during the Participant's lifetime only by (A) the Participant, (B) the Participant's guardian or legal representative, (C) a Family Member of the Participant who has acquired the NQSO by "permitted transfer;" and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. "Permitted transfer" means, as authorized by this Plan and the Committee in an NQSO, any transfer effected by 7 the Participant during the Participant's lifetime of an interest in such NQSO but only such transfers which are by gift or domestic relations order. A permitted transfer does not include any transfer for value and neither of the following are transfers for value: (a) a transfer of under a domestic relations order in settlement of marital property rights or (b) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members or the Participant in exchange for an interest in that entity. 12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.. ------------------------------------------------------ 12.1 Voting and Dividends. No Participant will have any of the -------------------- rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such -------- Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to -------- ------- retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's Purchase Price or Exercise Price pursuant to Section 12. 12.2 Financial Statements. The Company will provide financial -------------------- statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be -------- ------- required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 12.3 Restrictions on Shares. At the discretion of the Committee, ----------------------- the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of or all Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price or Purchase Price, as the case may be. 13. CERTIFICATES. All certificates for Shares or other securities ------------ delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a ------------------------ Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may -------- ------- require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 8 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or ----------------------------- from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not ---------------------------------------------- be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award ----------------------- granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. ---------------------- 18.1 Assumption or Replacement of Awards by Successor. In the ------------------------------------------------ event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participants, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a transaction described in this Subsection 18.1, such Awards will expire on such transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a transaction described in this Section 18. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate at such time as determined by the Committee. 9 18.2 Other Treatment of Awards. Subject to any greater rights ------------------------- granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from time ----------------------------------- to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable ------ upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become --------------------------------- effective on the date on which the registration statement filed by the Company with the SEC under the Securities Act registering the initial public offering of the Company's Common Stock is declared effective by the SEC (the "Effective Date"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to -------- ------- initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded; and (d) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase of Shares pursuant to such increase will be rescinded. 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided -------------------------- herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time -------------------------------- terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval -------- ------- of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by -------------------------- the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have ----------- the following meanings: 10 "Award" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. "Award Agreement" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "Board" means the Board of Directors of the Company. "Cause" means the commission of an act of theft, embezzlement, fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation Committee of the Board. "Company" means Interwoven, Inc. or any successor corporation. "Disability" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Price" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "Fair Market Value" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; ----------------------- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall -------- Street Journal; -------------- (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (e) if none of the foregoing is applicable, by the Committee in good faith. "Family Member" includes any of the following: (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, 11 brother-in-law, or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption; (b) any person (other than a tenant or employee) sharing the Participant's household; (c) a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial interest; (d) a foundation in which the persons in (a) and (b) or the Participant control the management of assets; or (e) any other entity in which the persons in (a) and (b) or the Participant own more than fifty percent of the voting interest. "Insider" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "Option" means an award of an option to purchase Shares pursuant to Section 5. "Outside Director" means a member of the Board who is not an employee of the Company or any Parent, Subsidiary or Affiliate of the Company. "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Participant" means a person who receives an Award under this Plan. "Performance Factors" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total stockholder return and/or total stockholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and 12 (k) Individual confidential business objectives. "Performance Period" means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "Plan" means this Interwoven, Inc. 1999 Equity Incentive Plan, as amended from time to time. "Restricted Stock Award" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security. "Stock Bonus" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Termination" or "Terminated" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "Termination Date"). "Unvested Shares" means "Unvested Shares" as defined in the Award Agreement. "Vested Shares" means "Vested Shares" as defined in the Award Agreement. 13 No. ______ INTERWOVEN, INC. 1999 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT ---------------------- This Stock Option Agreement (this "Agreement") is made and entered into as of the Date of Grant set forth below (the "Date of Grant") by and between Interwoven, Inc., a Delaware corporation (the "Company"), and the Optionee named below ("Optionee"). Capitalized terms not defined herein shall have the meanings ascribed to them in the Company's 1999 Equity Incentive Plan (the "Plan"). Optionee: __________________________________________ Social Security Number: __________________________________________ Optionee's Address: __________________________________________ Total Option Shares: __________________________________________ Exercise Price Per Share: __________________________________________ Date of Grant: __________________________________________ Vesting Start Date: __________________________________________ Expiration Date: __________________________________________ (unless earlier terminated under Section 3 hereof) Type of Stock Option (Check one): [ ] Incentive Stock Option [ ] Nonqualified Stock Option 1. Grant of Option. The Company hereby grants to Optionee an option --------------- (this "Option") to purchase up to the total number of shares of Common Stock of the Company set forth above as Total Option Shares (collectively, the "Shares") at the Exercise Price Per Share set forth above (the "Exercise Price"), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, this Option is intended to qualify as an "incentive stock option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to the extent permitted under Code Section 422. 2. Vesting; Exercise Period. ------------------------ 2.1 Vesting of Shares. This Option shall be exercisable as it ----------------- vests. Subject to the terms and conditions of the Plan and this Agreement, this Option shall vest and become exercisable as to portions of the Shares as follows: (a) this Option shall not be exercisable with respect to any of the Shares until _________________, 19___ (the "First Stock Option Agreement 1999 Equity Incentive Plan Vesting Date"); (b) if Optionee has continuously provided services to the Company, or any Parent or Subsidiary of the Company, then on the First Vesting Date, this Option shall become exercisable as to twenty-five percent (25%) of the Shares; and (c) thereafter this Option shall become exercisable as to an additional 2.08333% of the Shares on each monthly anniversary of the First Vesting Date, provided that Optionee has continuously provided services to the Company, or any Parent or Subsidiary of the Company, at all times during the relevant month. This Option shall cease to vest upon Optionee's Termination and Optionee shall in no event be entitled under this Option to purchase a number of shares of the Company's Common Stock greater than the "Total Option Shares." 2.2 Vesting of Options. Shares that are vested pursuant to the ------------------ schedule set forth in Section 2.1 hereof are "Vested Shares." Shares that are not vested pursuant to the schedule set forth in Section 2.1 hereof are "Unvested Shares." 2.3 Expiration. This Option shall expire on the Expiration Date ---------- set forth above and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is earlier terminated in accordance with the provisions of Section 3 hereof. 3. Termination. ----------- 3.1 Termination for Any Reason Except Death, Disability or Cause. ------------------------------------------------------------ If Optionee is Terminated for any reason except Optionee's death, Disability or Cause, then this Option, to the extent (and only to the extent) that it is vested in accordance with the schedule set forth in Section 2.1 hereof on the Termination Date, may be exercised by Optionee no later than three (3) months after the Termination Date, but in any event no later than the Expiration Date. 3.2 Termination Because of Death or Disability. If Optionee is ------------------------------------------ Terminated because of death or Disability of Optionee (or the Optionee dies within three (3) months after Termination other than for Cause or because of Disability), then this Option, to the extent that it is vested in accordance with the schedule set forth in Section 2.1 hereof on the Termination Date, may be exercised by Optionee (or Optionee's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date. Any exercise after three months after the Termination Date when the Termination is for any reason other than Optionee's death or disability, within the meaning of Code Section 22(e)(3), shall be deemed to be the exercise of a nonqualified stock option. 3.3 Termination for Cause. If Optionee is Terminated for Cause, --------------------- this Option will expire on the Optionee's date of Termination. 3.4 No Obligation to Employ. Nothing in the Plan or this ----------------------- Agreement shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionee's employment or other relationship at any time, with or without Cause. Stock Option Agreement 1999 Equity Incentive Plan 4. Manner of Exercise. ------------------ 4.1 Stock Option Exercise Agreement. To exercise this Option, ------------------------------- Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Company --------- from time to time (the "Exercise Agreement"), which shall set forth, inter alia, ----- ---- Optionee's election to exercise this Option, the number of shares being purchased, any restrictions imposed on the Shares and any representations, warranties and agreements regarding Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option. 4.2 Limitations on Exercise. This Option may not be exercised ----------------------- unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. This Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. 4.3 Payment. The Exercise Agreement shall be accompanied by ------- full payment of the Exercise Price for the Shares being purchased in cash (by check), or where permitted by law: (a) by cancellation of indebtedness of the Company to the Optionee; (b) by surrender of shares of the Company's Common Stock that either: (1) have been owned by Optionee for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Optionee in the open public market; and (3) are clear of all liens, --- claims, encumbrances or security interests; (c) by waiver of compensation due or accrued to Optionee for services rendered; (d) provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (2) through a "margin" commitment from Optionee and an NASD -- Dealer whereby Optionee irrevocably elects to exercise this Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the Stock Option Agreement 1999 Equity Incentive Plan NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; (f) by any combination of the foregoing. 4.4 Tax Withholding. Prior to the issuance of the Shares upon --------------- exercise of this Option, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld. In such case, the Company shall issue the net number of Shares to the Optionee by deducting the Shares retained from the Shares issuable upon exercise. 4.5 Issuance of Shares. Provided that the Exercise Agreement ------------------ and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Optionee, Optionee's authorized assignee, or Optionee's legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto. 5. Notice of Disqualifying Disposition of ISO Shares. To the extent ------------------------------------------------- this Option is an ISO, if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1) year after transfer of such Shares to Optionee upon exercise of this Option, then Optionee shall immediately notify the Company in writing of such disposition. 6. Compliance with Laws and Regulations. The exercise of this Option ------------------------------------ and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance. 7. Nontransferability of Option. This Option may not be transferred ---------------------------- in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee. 8. Tax Consequences. Set forth below is a brief summary as of the ---------------- date the Board adopted the Plan of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. Stock Option Agreement 1999 Equity Incentive Plan 8.1 Exercise of Incentive Stock Option. To the extent this ---------------------------------- Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of this Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal income tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. 8.2 Exercise of Nonqualified Stock Option. To the extent this ------------------------------------- Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of this Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company may be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 8.3 Disposition of Shares. The following tax consequences may --------------------- apply upon disposition of the Shares. a. Incentive Stock Options. If the Shares are held for ----------------------- more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. b. Nonqualified Stock Options. If the Shares are held for -------------------------- more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long-term capital gain. c. Withholding. The Company may be required to withhold ----------- from Participant's compensation or collect from the Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. 9. Privileges of Stock Ownership. Optionee shall not have any of the ----------------------------- rights of a stockholder with respect to any Shares until the Shares are issued to Optionee. 10. Interpretation. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee. 11. Entire Agreement. The Plan is incorporated herein by reference. ---------------- This Agreement and the Plan and the Exercise Agreement constitute the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior understandings and agreements with respect to such subject matter. Stock Option Agreement 1999 Equity Incentive Plan 12. Notices. Any notice required to be given or delivered to the ------- Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated above or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile. 13. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee's heirs, executors, administrators, legal representatives, successors and assigns. 14. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflict of law. 15. Acceptance. Optionee hereby acknowledges receipt of a copy of the ---------- Plan and this Agreement. Optionee has read and understands the terms and provisions thereof, and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee acknowledges that there may be adverse tax consequences upon exercise of this Option or disposition of the Shares and that the Company has advised Optionee to consult a tax advisor prior to such exercise or disposition. Stock Option Agreement 1999 Equity Incentive Plan IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Optionee has executed this Agreement in duplicate as of the Date of Grant. INTERWOVEN, INC. OPTIONEE By:_________________________________ _____________________________________ (Signature) ____________________________________ _____________________________________ (Please print name) (Please print name) ____________________________________ (Please print title) EXHIBIT A --------- STOCK OPTION EXERCISE AGREEMENT Exhibit A --------- INTERWOVEN, INC. 1999 EQUITY INCENTIVE PLAN (the "Plan") STOCK OPTION EXERCISE AGREEMENT ------------------------------- I hereby elect to purchase the number of shares of Common Stock of INTERWOVEN, INC. (the "Company") as set forth below: Optionee_________________________________________ Number of Shares Purchased:_________________________________ Social Security Number:__________________________ Purchase Price per Share:___________________________________ Address:_________________________________________ Aggregate Purchase Price:___________________________________ _________________________________________ Date of Option Agreement:___________________________________ _________________________________________ Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:______________________________ [ ] Nonqualified Stock Option ____________________________________________________________
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the Aggregate Purchase Price, to the extent permitted in the Option Agreement (the "Option Agreement") as follows (check as applicable and complete): [ ] in cash (by check) in the amount of $_____________________, receipt of which is acknowledged by the Company; [ ] by cancellation of indebtedness of the Company to Optionee in the amount of $___________________________________; [ ] by delivery of ______________________________ fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $____________________ per share; [ ] by the waiver hereby of compensation due or accrued to Optionee for services rendered in the amount of $____________________________________ ; [ ] through a "same-day-sale" commitment, delivered herewith, from Optionee and the NASD Dealer named therein, in the amount of $______________________; or [ ] through a "margin" commitment, delivered herewith from Optionee and the NASD Dealer named therein, in the amount $________________________________. 2. Market Standoff Agreement. Optionee, if requested by the Company and an underwriter of Common Stock (or other securities) of the Company, agrees not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by Optionee during the period requested by the managing underwriter following the effective date of a registration statement of the Company filed under the Securities Act, provided that all officers and directors of the Company are required to enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or other securities) subject to the foregoing restriction until the end of such period. 3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 4. Entire Agreement. The Plan and Option Agreement are incorporated herein by reference. This Exercise Agreement, the Plan and the Option Agreement constitute the entire agreement and understanding of the parties and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by California law except for that body of law pertaining to choice of law or conflict of law. Date:__________________________________ ____________________________________ Signature of Optionee Spousal Consent I acknowledge that I have read the foregoing Stock Option Exercise Agreement (the "Agreement") and that I know its contents. I hereby consent to and approve all of the provisions of the Agreement, and agree that the shares of the Common Stock of Interwoven, Inc. purchased thereunder (the "Shares") and any interest I may have in such Shares are subject to all the provisions of the Agreement. I will take no action at any time to hinder operation of the Agreement on these Shares or any interest I may have in or to them. ____________________________________ Date:______________________ Signature of Optionee's Spouse ____________________________________ Spouse's Name - Typed or Printed ____________________________________ Optionee's Name - Typed or Printed 23 EXHIBIT 10.04 No. ______ INTERWOVEN, INC. 1999 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT ---------------------- (For Non-Employee Directors) This Stock Option Agreement (this "Agreement") is made and entered into as of the Date of Grant set forth below (the "Date of Grant") by and between Interwoven, Inc., a Delaware corporation (the "Company"), and the Optionee named below ("Optionee"). Capitalized terms not defined herein shall have the meanings ascribed to them in the Company's 1999 Equity Incentive Plan (the "Plan"). Optionee: ________________________________________ Social Security Number: ________________________________________ Optionee's Address: ________________________________________ Total Option Shares: ________________________________________ Exercise Price Per Share: ________________________________________ Date of Grant: ________________________________________ Expiration Date: ________________________________________ (unless earlier terminated under Section 3 hereof) Type of Stock Option: Nonqualified Stock Option ________________________________________ 1. Grant of Option. The Company hereby grants to Optionee an option --------------- (this "Option") to purchase up to the total number of shares of Common Stock of the Company set forth above as Total Option Shares (collectively, the "Shares") at the Exercise Price Per Share set forth above (the "Exercise Price"), subject to all of the terms and conditions of this Agreement and the Plan. 2. Vesting; Exercise Period. ------------------------ 2.1 Vesting of Shares. Subject to the terms and conditions of ----------------- the Plan and this Agreement, this Option shall be 100% vested and exercisable as to the Shares as of the Date of Grant. 2.2 Expiration. This Option shall expire on the Expiration ---------- Date set forth above and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is earlier terminated in accordance with the provisions of Section 3 hereof. 3. Termination. Except as provided below in this Section, this ----------- Option shall terminate and may not be exercised if Optionee ceases to be a member of the Board of Directors Stock Option Agreement For Non-Employee Directors 1999 Equity Incentive Plan of the Company ("Board Member"). The date on which Optionee ceases to be a Board Member shall be referred to as the "Termination Date." 3.1 Termination for Any Reason Except Death or Disability. If ----------------------------------------------------- Optionee ceases to be a Board Member for any reason except Death or Disability, then this Option may be exercised by Optionee no later than three (3) months after the Termination Date, but in any event no later than the Expiration Date. 3.2 Termination Because of Death or Disability. If Optionee ------------------------------------------ ceases to be a Board Member for any reason except Death or Disability, then this Option may be exercised by Optionee (or Optionee's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date. 4. Manner of Exercise. ------------------ 4.1 Stock Option Exercise Agreement. To exercise this Option, ------------------------------- Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Company --------- from time to time (the "Exercise Agreement"), which shall set forth, inter alia, ----- ---- Optionee's election to exercise this Option, the number of shares being purchased, any restrictions imposed on the Shares and any representations, warranties and agreements regarding Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option. 4.2 Limitations on Exercise. This Option may not be exercised ----------------------- unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. This Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. 4.3 Payment. The Exercise Agreement shall be accompanied by ------- full payment of the Exercise Price for the Shares being purchased in cash (by check), or where permitted by law: (a) by cancellation of indebtedness of the Company to the Optionee; (b) by surrender of shares of the Company's Common Stock that either: (1) have been owned by Optionee for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Optionee in the open public market; and (3) are clear of all liens, --- claims, encumbrances or security interests; 2 Stock Option Agreement For Non-Employee Directors 1999 Equity Incentive Plan (c) by waiver of compensation due or accrued to Optionee for services rendered; (d) provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (2) through a "margin" commitment from Optionee and an NASD -- Dealer whereby Optionee irrevocably elects to exercise this Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; (f) by any combination of the foregoing. 4.4 Tax Withholding. Prior to the issuance of the Shares upon --------------- exercise of this Option, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld. In such case, the Company shall issue the net number of Shares to the Optionee by deducting the Shares retained from the Shares issuable upon exercise. 4.5 Issuance of Shares. Provided that the Exercise Agreement ------------------ and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Optionee, Optionee's authorized assignee, or Optionee's legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto. 5. Compliance with Laws and Regulations. The exercise of this Option ------------------------------------ and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance. 6. Nontransferability of Option. This Option may not be transferred ---------------------------- in any manner other than under the terms and conditions of the Plan or by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The 3 Stock Option Agreement For Non-Employee Directors 1999 Equity Incentive Plan terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee. 7. Tax Consequences. Set forth below is a brief summary as of the ---------------- date the Board adopted the Plan of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. 7.1 Exercise of Nonqualified Stock Option. To the extent this ------------------------------------- Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of this Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company may be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 7.2 Disposition of Shares. The following tax consequences may --------------------- apply upon disposition of the Shares. a. Nonqualified Stock Options. If the Shares are -------------------------- held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long-term capital gain. b. Withholding. The Company may be required to ------------ withhold from Optionee's compensation or collect from the Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income. 8. Privileges of Stock Ownership. Optionee shall not have any of the ----------------------------- rights of a stockholder with respect to any Shares until the Shares are issued to Optionee. 9. Interpretation. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee. 10. Entire Agreement. The Plan is incorporated herein by reference. ---------------- This Agreement and the Plan and the Exercise Agreement constitute the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior understandings and agreements with respect to such subject matter. 11. Notices. Any notice required to be given or delivered to the ------- Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to 4 Stock Option Agreement For Non-Employee Directors 1999 Equity Incentive Plan Optionee shall be in writing and addressed to Optionee at the address indicated above or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile. 12. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee's heirs, executors, administrators, legal representatives, successors and assigns. 13. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflict of law. 14. Acceptance. Optionee hereby acknowledges receipt of a copy of the ---------- Plan and this Agreement. Optionee has read and understands the terms and provisions thereof, and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee acknowledges that there may be adverse tax consequences upon exercise of this Option or disposition of the Shares and that the Company has advised Optionee to consult a tax advisor prior to such exercise or disposition. 5 Stock Option Agreement For Non-Employee Directors 1999 Equity Incentive Plan IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Optionee has executed this Agreement in duplicate as of the Date of Grant. INTERWOVEN, INC. OPTIONEE By:_______________________ _______________________ (Signature) __________________________ _______________________ (Please print name) (Please print name) __________________________ (Please print title) 6 EXHIBIT A --------- STOCK OPTION EXERCISE AGREEMENT Exhibit A --------- INTERWOVEN, INC. 1999 EQUITY INCENTIVE PLAN (the "Plan") STOCK OPTION EXERCISE AGREEMENT ------------------------------- (For Non-Employee Directors) I hereby elect to purchase the number of shares of Common Stock of INTERWOVEN, INC. (the "Company") as set forth below: Optionee______________________________________________ Number of Shares Purchased:_________________________________ Social Security Number:_______________________________ Purchase Price per Share:___________________________________ Address:______________________________________________ Aggregate Purchase Price:___________________________________ ______________________________________________ Date of Option Agreement:___________________________________ ______________________________________________ Type of Option: Nonqualified Stock Option Exact Name of Title to Shares:______________________________ ____________________________________________________________
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the Aggregate Purchase Price, to the extent permitted in the Option Agreement (the "Option Agreement") as follows (check as applicable and complete): [ ] in cash (by check) in the amount of $_____________________, receipt of which is acknowledged by the Company; [ ] by cancellation of indebtedness of the Company to Optionee in the amount of $___________________________________; [ ] by delivery of ______________________________ fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $____________________ per share; [ ] by the waiver hereby of compensation due or accrued to Optionee for services rendered in the amount of $____________________________________ ; [ ] through a "same-day-sale" commitment, delivered herewith, from Optionee and the NASD Dealer named therein, in the amount of $_______________________________; or [ ] through a "margin" commitment, delivered herewith from Optionee and the NASD Dealer named therein, in the amount of $___________________________. 2. Market Standoff Agreement. Optionee, if requested by the Company and an underwriter of Common Stock (or other securities) of the Company, agrees not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by Optionee during the period requested by the managing underwriter following the effective date of a registration statement of the Company filed under the Securities Act, provided that all officers and directors of the Company are required to enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or other securities) subject to the foregoing restriction until the end of such period. 3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 4. Entire Agreement. The Plan and Option Agreement are incorporated herein by reference. This Exercise Agreement, the Plan and the Option Agreement constitute the entire agreement and understanding of the parties and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by California law except for that body of law pertaining to choice of law or conflict of law. Date:__________________________________ ____________________________________ Signature of Optionee Spousal Consent I acknowledge that I have read the foregoing Stock Option Exercise Agreement (the "Agreement") and that I know its contents. I hereby consent to and approve all of the provisions of the Agreement, and agree that the shares of the Common Stock of Interwoven, Inc. purchased thereunder (the "Shares") and any interest I may have in such Shares are subject to all the provisions of the Agreement. I will take no action at any time to hinder operation of the Agreement on these Shares or any interest I may have in or to them. _____________________________________ Date:__________________ Signature of Optionee's Spouse _____________________________________ Spouse's Name - Typed or Printed _____________________________________ Optionee's Name - Typed or Printed EX-10.05 8 1999 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.05 INTERWOVEN, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN As Adopted July 22, 1999 1. Establishment of Plan. Interwoven, Inc. (the "Company") proposes to grant options for purchase of the Company's Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan, "Parent Corporation" and "Subsidiary" shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). "Participating Subsidiaries" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "Board") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 300,000 shares of the Company's Common Stock is reserved for issuance under this Plan. In addition, on each January 1, the aggregate number of shares of the Company's Common Stock reserved for issuance under the Plan shall be increased automatically by a number of shares equal to 1% of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31; provided that the aggregate number of shares issued over the term -------- of this Plan shall not exceed 3,000,000 shares. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. Purpose. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. Administration. This Plan shall be administered by the Compensation Committee of the Board (the "Committee"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. Eligibility. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or a Participating Subsidiary (10) days before the beginning of such Offering Period, except that employees who are employed on the Effective Date of the Registration Statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "Securities Act") registering the initial public offering of the Company's Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax ------ --- purposes. 5. Offering Dates. The offering periods of this Plan (each, an "Offering Period") shall be of twenty-four (24) months duration commencing on February 1 and August 1 of each year and ending on January 31 and July 31 of each year; provided, however, that notwithstanding the foregoing, the first such Offering - -------- ------- Period shall commence on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market (the "First Offering Date") and shall end on July 31, 2001. Except for the first Offering Period, each Offering Period shall consist of four (4) six month purchase periods (individually, a "Purchase Period") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no more than five and no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "Offering Date". The last business day of each Purchase Period is referred to as the "Purchase Date". The Committee shall have the power to change the duration of Offering Periods with respect to offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 6. Participation in this Plan. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company's treasury department (the "Treasury Department") not later than five (5) days before such Offering Date. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Treasury Department by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Treasury Department not later than five (5) days preceding a subsequent Offering Date. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. Grant of Option on Enrollment. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty- five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Common Stock), provided, however, that the number of shares of the Company's Common Stock - -------- ------- subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 8 below. 8. Purchase Price. The purchase price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of: (a) The fair market value on the Offering Date; or (b) The fair market value on the Purchase Date. 2 For purposes of this Plan, the term "Fair Market Value" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; ----------------------- (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; ----------------------- (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall -------- Street Journal; or -------------- (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of Shares. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than two percent (2%), nor greater than ten percent (10%) or such lower limit set by the Committee. Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that -------- ------- for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Treasury Department a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing more than fifteen (15) days after the Treasury Department's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Treasury Department a new authorization for payroll deductions not later than fifteen (15) days before the beginning of such Offering Period. (c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Treasury Department a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period commencing more than fifteen (15) days after the Treasury Department's receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the participant's account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero. 3 (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (e) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (g) During a participant's lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. Limitations on Shares to be Purchased. (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension. (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Not less than thirty (30) days prior to the commencement of any Offering Period, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "Maximum Share Amount"). Until otherwise determined by the Committee, there shall be no Maximum Share Amount. In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Com- 4 mittee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. Withdrawal. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Treasury Department a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time at least fifteen (15) days prior to the end of an Offering Period. (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan. (c) If the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any. 12. Termination of Employment. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or - -------- reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. Return of Payroll Deductions. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. Capital Changes. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any -------- ------- convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. 5 In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan will continue with regard to Offering Periods that commenced prior to the closing of the proposed transaction and shares will be purchased based on the Fair Market Value of the surviving corporation's stock on each Purchase Date, unless otherwise provided by the Committee consistent with pooling of interests accounting treatment. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. Nonassignability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. Reports. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. 17. Notice of Disposition. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "Notice Period"). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. No Rights to Continued Employment. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. 19. Equal Rights And Privileges. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 6 20. Notices. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Term; Stockholder Approval. After this Plan is adopted by the Board, this Plan will become effective on the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board. 22. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. Applicable Law. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. Amendment or Termination of this Plan. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board. 7 INTERWOVEN, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN ENROLLMENT FORM Check One: Complete: [ ] New Enrollment or Re-enrollment Social Security No._______________ [ ] Change Employee No.______________________ [ ] Change in How Shares Are to Be Held in Account [ ] Increase in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period [ ] Decrease in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period [ ] Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form) [ ] Withdrawal (Attach Completed Withdrawal Form) [ ] Beneficiary Change
1. Name of Participant________________________________________________________ 2. Shares purchased under the Plan should be held in account with the Plan Broker in my name or in my name together with the name(s) indicated below: Name___________________________ Social Security No._____________________ Name___________________________ Social Security No._____________________ There may be tax consequences for naming individuals other than your spouse on the account in which Shares purchased under the Plan are held. If spouse (circle one): Joint Tenants/Community Property. Please notify the Plan Broker directly to transfer or sell your stock. 3. Payroll Deduction Level (from 2% to 10% in whole percentages):____________ (the percentage deduction will be made from your W-2 compensation including base salary, commissions, overtime, shift premiums, bonuses and draws against commissions) 4. I confirm my spouse's interest (if married) in the community property herein, and I hereby designate the following person(s) as my beneficiary(ies) to receive all payments and/or stock attributable to my interest under the Plan:
NAME *To be divided ADDRESS as follows: ____________________________________ _______________ ____________________________________ Last First M.I. Number Street _____________________________________ _____________________________________ Social Security No. Relationship City State Zip ____________________________________ _______________ _____________________________________ Last First M.I. Number Street ____________________________________ ______________________________________ Social Security No. Relationship City State Zip
* If more than one beneficiary: (1) insert "in equal shares", or (2) insert percentage to be paid to each beneficiary. 5. The information provided on this Enrollment Form will remain in effect unless and until I complete and submit to the Treasury Department a new enrollment form. INTERWOVEN, INC. OFFICE USE: Signature:__________________ Date received by the Treasury Department.:_________________ Name:______________________________ Date entered into system:___________________________________ Date:_______________________________ Please return this completed form to the Treasury Department
INTERWOVEN, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT 1. I elect to participate in the Interwoven, Inc. (the "Company") 1999 Employee Stock Purchase Plan (the "Plan") and to subscribe to purchase shares of the Company's Common Stock (the "Shares") in accordance with this Subscription Agreement and the Plan. 2. I authorize payroll deductions from each of my paychecks in that percentage of my base salary, commissions, overtime, shift premiums, bonuses and draws against commissions as shown on my Enrollment Form, in accordance with the Plan. 3. I understand that such payroll deductions shall be accumulated for the purchase of Shares under the Plan at the applicable purchase price determined in accordance with the Plan. I further understand that except as otherwise set forth in the Plan, Shares will be purchased for me automatically at the end of each Purchase Period unless I withdraw from the Plan or otherwise become ineligible to participate in the Plan. 4. I understand that this Subscription Agreement will automatically re-enroll me in all subsequent Offering Periods unless I withdraw from the Plan or I become ineligible to participate in the Plan. 5. I acknowledge that I have a copy of and am familiar with the Company's most recent Prospectus which describes the Plan. A copy of the complete Plan and the Prospectus is on file with the Company. (In the case of the initial Plan Purchase Period, the Prospectus will be on file on the first day of the Offering Period.) 6. I understand that Shares purchased for me under the Plan will be held in a personal account with the Plan Broker unless I request otherwise. 7. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. 8. I have read and understood this Subscription Agreement. Signature:_______________________ Name:____________________________ Date:____________________________ Please return this completed form to the Treasury Department. INTERWOVEN, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I, _________________________, the undersigned participant in the Offering Period of the Interwoven, Inc. 1999 Employee Stock Purchase Plan (the "Plan") which began on _______________, hereby notify Interwoven, Inc. (the "Company") that I wish to withdraw from the Offering Period. I direct the Company to pay to me as promptly as practicable all payroll deductions credited to my account with respect to such Offering Period. I understand and agree that my participation in the Plan will terminate and no shares will be purchased for me at the end of the Purchase Period so long as I submit this Notice of Withdrawal to the Company at least 15 days prior to the end of the Purchase Period. I understand and agree that if I submit this Notice of Withdrawal to the Company less than 15 days prior to the end of the Purchase Period, shares ---- will be purchased for me at the end of the Purchase Period, and my participation in the Plan will end at the beginning of the next Purchase Period or Offering Period, as the case may be. I further understand that no additional payroll deductions will be made for the purchase of shares in the current Offering Period, and I shall be eligible to participate in succeeding Offering Periods only by timely delivering to the Company a new Subscription Agreement and Enrollment Form. Name and address of Participant (please print): Name:______________________________________________________________________ Street Address or P.O. Box:________________________________________________ City, State ZIP:___________________________________________________________ __________________________________ __________________________________ Signature Date Please return this form to the Treasury Department. INTERWOVEN, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF SUSPENSION I, _________________________, the undersigned participant in the Offering Period of the Interwoven, Inc. 1999 Employee Stock Purchase Plan (the "Plan") which began on _______________, hereby notify Interwoven, Inc. (the "Company") that I wish to suspend my payroll deductions to the Plan for the remainder of the Offering Period. I understand and agree that my request will be effective beginning with the next payroll period commencing more than 15 days after the Human Resources Department receives this Notice of Suspension. I understand and agree that payroll deductions credited to my account prior to the date this Notice of Suspension is effective will be used to purchase shares on the next Purchase Date. I further understand that no additional payroll deductions will be made for the purchase of shares in the current Offering Period, and I will be eligible to participate in succeeding Offering Periods only by timely delivering to the Company a new Subscription Agreement and Enrollment Form. Name and address of Participant (please print): Name:______________________________________________________________________ Street Address or P.O. Box:________________________________________________ City, State ZIP:___________________________________________________________ _________________________________ ____________________________________ Signature Date Please return this form to the Treasury Department. EX-10.24 9 STANDARD SALES AGREEMENT AS OF JULY 28,1999 [LETTERHEAD OF INTERWOVEN] Exhibit 10.24 INTERWOVEN, INC. ---------------- 1195 W. Fremont Ave., #2000 Sunnyvale, CA 94087 Telephone: (408)774-2000 Fax: (408)774-2003 STANDARD SALES AGREEMENT ------------------------ CUSTOMER: LEGAL NAME: GENERAL ELECTRIC COMPANY ------------------------ ADDRESS: 3135 Easton Turnpike --------------------- CITY/STATE/ZIP: Fairfield, CT 064231 --------------------- STATE OF INCORPORATION: New York --------- TELEPHONE NUMBER: (203) 373-2148 --------------- FAX NUMBER: (203)373-3968 ------------- CONTACT PERSON: Mark Mastrianni --------------- This Agreement is entered into by and between "Interwoven," a California corporation and the "Customer" set forth above. In consideration of the terms and conditions contained in the Standard Terms and Conditions, the Schedules listed below and this Facing Page (collectively "Agreement") the parties agree to be bound herein. ATTACHMENTS: STANDARD TERM AND CONDITIONS SCHEDULES: Schedule 1 Software Product Overview, Description and Fees Schedule 2 Technical Support Services Schedule 3 Software Update Services IN WITNESS WHEREOF, THE PARTIES LISTED BELOW HAVE EXECUTED THIS AGREEMENT AS OF THE EFFECTIVE DATE. INTERWOVEN, INC. CUSTOMER: GENERAL ELECTRIC COMPANY ------------------------- By: /s/ MARTIN BRAUNS By: /s/ MARK MASTRIANNI - ------------------------------ ------------------------------ Printed: Martin Brauns Printed: Mark Mastrianni --------------------- ------------------------- Title: President and CEO Title: Manager, Technology ----------------------- -------------------------- Effective Date: July 28, 1999 Date: July 27, 1999 --------------- --------------------------- 1 STANDARD TERMS AND CONDITIONS ----------------------------- 1. DEFINITIONS: ----------- "Content Management" shall mean for the purposes of this Agreement, content staging (such as the ability to bundle a set of changes together for content approval, quality assurance and deployment), content promotion (such as the ability to review, approve and deploy an entire body of staged content), content deployment (such as ability to transfer web assets to a reproduction server machine), content workflow (such as ability to bundle a set of changes for review and approval), version control (such as the ability to maintain a history of all file versions that are available to revert to), content rollback (such as the ability to take an entire known state of the website and revert any number of files to the appropriate version number to reconstruct the website at that point in time), content change tracking (such as the ability to track who changed what and when), content templating (such as the ability to capture test content from a non- technical user to create standard web pages), content reporting (such as ability to query software event information to determine what activity has occurred over a given time period and content quality assurance (such as the ability to preview an entire set of web changes in the content of the website to enable approval, promotion, version control and deployment). "Customer" shall mean the entity named as "Customer" on the Facing Page and all General Electric components, businesses, subsidiaries, affiliates, and joint-venture partners worldwide under the common ownership and control of GE and not a competitor of Interwoven. For purposes of this definition "competitor of Interwoven" shall mean those companies who offer competitive products to Interwoven's products in the web Content Management environment. As of the Effective Date of this Agreement, Interwoven acknowledges that no such competitors are within the definition of Customer as used herein. "Enterprise License" shall mean the license grant to access and use the Software by an unlimited number of simultaneous users, with no limitation on the number of copies which may be made by Customer. "Major Business Units" shall mean individual operating businesses or divisions of GE, which operating divisions at the time of this Agreement include: GE Aircraft Engines, GE Appliances, GE Capital Services, GE Industrial Systems, GE Information Services, GE Lighting, GE Medical Systems, GE Motors, GE Plastics, GE Supply, GE Transportation Systems, NBC and GE Corporate (which includes GE Corporate Research & Development, and all other Corporate and support components which components provide, among other things, international trade support, market development, licensing and investments for various GE businesses). "Non-Production Use" shall mean any use or installation of the Software for failover, disaster recovery, development, staging, technology integration, testing, and/or other such purposes, whether by Customer or by Third Parties acting strictly on behalf of Customer. Customer shall not be subject to any requirement by Interwoven to pay Software Update or Technical Support Fees on a per use or installation basis, provided that there shall be a requirement that such Fees shall be applicable to at least one instance of an Operational deployment in cases where a Major Business Unit is undertaking any such Non-Production Use or installation of the Software and does not yet otherwise have an Operational deployment in place and Customer seeks the benefit of Software Updates and/or Technical Support Services. "Operational" shall mean, under the Enterprise License, for the Software installations, only those server installations of Software which are deployed for operational ("production") use in support of Customer. After December 31, 2000 and at Customer's option and request as set forth herein such Operational Software shall only be subject to annual Software Updates and/or Technical Support Fees under the Agreement, including Customer's right to change Technical Support Services upgrades to different Support levels or to change the number of Technical Contacts, as described on Schedule 1. "Software" shall mean a machine executable copy of the object code of the Interwoven Content Management software products, including all additional options and further including the related user manuals, documentation, and training materials, in either printed or electronic form, described on the attached Schedule 1 for the Software. "Software Update" shall mean a successor version of the given Software whether the successor version is characterized as a change in the one's, tenth's, hundredth's, or after hundredth's digit of the Software version number, or by such other means, and which successor version if generally available incorporates corrections, upgrades and/or enhancements to the Software, whether or not such corrections, upgrades and/or enhancements are marketed separately by Interwoven. Software Updates shall include, for example, migration from 32-bit Software to 64-bit Software, and migration from one platform generation to the next generation. Software Updates shall further include the migration by Interwoven of Software from one localized language (e.g.: U.S. English) to any other localized language (e.g.: German) to the extent that Interwoven has made such migration available to other licensed users of the Software. Software Updates shall further include, but not be limited to, such new releases of functionality (whether marketed separately or as part of a more comprehensive release) as outlined on Schedule 3 of this Agreement. For Software that connects to and stores information on a database and where Interwoven has made available to Customer optional licenses for Customer to use Sybase SQLA which interfaces with Software, Customer shall 3 have the right to migrate from a license of one database option to another Customer database license option at no charge. The databases for which this option applies are Informix, Sybase, MS SQLA Server or Oracle. There shall be no new warranty period on the new Software. If Interwoven removes a feature or function from the Software that existed as of the Effective Date of this Agreement, or which resulted from a Software Update during the term of this Agreement, and Interwoven then distributes the removed feature or function as a stand-alone or other product, then such new stand alone product shall be deemed to be a Software Update for purposes of this Agreement. In such instances when the removed feature or function is enhanced with considerably different functionality, then such new stand alone product shall be considered a new product and will not be considered a Software Update. If Interwoven develops other software products with incremental improvements to the Software with similar functionality and Interwoven then distributes the other software product, then such other software product will be considered a Software Update. However, if Interwoven develops, other software products outside the Content Management space, it shall be at Interwoven's discretion as to whether or not the other software products are distributed as a Software Update. Interwoven expressly acknowledges and agrees that it is Customer's intent, by virtue of this Agreement, to license a comprehensive Content Management solution for Customer's Major Business Units globally, and the parties acknowledge that since Content Management solutions are still evolving Interwoven has a material obligation to provide Customer with all such evolving Content Management solutions under Customer's right to Software Update Services. "Software Update Services" shall mean the services provided under Interwoven's Software Update Services Program as further described on Schedule 3. "Technical Support Services" shall mean the services provided under Interwoven's Technical Support Services Program in effect on the date such services are ordered by Customer which, in the event of any change, shall be no less favorable to Customer than the terms in effect on the Effective Date. A copy of the current Technical Support Services Program ordered by Customer is attached as Schedule 2. 2. LICENSE RIGHTS: -------------- A. Scope of This Agreement: This Agreement shall apply to Customer wherever -- ----------------------- situated, and Software may be used by Customer and its officers and, employees engaged in work on behalf of Customer, so long as above are not competitors of Interwoven, whether on or off premises, worldwide. This Agreement shall also apply to Third Parties provided that such Third Parties have entered into a written agreement that i) any such Software accessed or utilized by a Third Party of Customer is executed only on equipment operated under the control of Customer, and ii) such written agreement restricts such Third Party's access and/or utilization of such Software to activities related to either business between Customer and such Third Party and/or in conjunction with services being provided to Customer by such Third Party for Customer's benefit. "Third Parties" shall be defined as agents, contractors, customers and suppliers. Notwithstanding, Software may also be accessed and utilized by any end user in the world for purposes of obtaining application services provided by the Software and such access shall not be subject to the written agreement requirement set forth in this Section 2(A) above. B. License Grant: In consideration of payment to be made by Customer to -- ------------- Interwoven pursuant to Schedule 1 of this Agreement, Interwoven grants and agrees to grant Customer an unlimited, non-exclusive, worldwide Enterprise License to use, operate, copy and install the Software. Customer will copy or reproduce all proprietary markings, trademark and copyright notices onto all full or partial copies of the Software made by Customer. 3. LICENSE RESTRICTIONS. Except as permitted under this Agreement, Customer -------------------- may not: (i) distribute, copy, modify, reverse engineer, decompile, translate, disassemble or create a source code equivalent of the Software or allow others to do so, (ii) use the Software to provide time-sharing or service bureau services to third parties, or (iii) permit any party, without the prior written consent of Interwoven (which may be withheld for any reason), to access the Software, or any portion thereof, except for employees of Customer or third party contractors retained by Customer on a "work-made-for-hire" basis, provided, however, that such access, in each -------- ------- such case, is limited solely to access on or through premises or equipment leased, owned, or controlled by Customer. 4. PAYMENTS: FEES; EXPENSES; TAXES. License, Technical Support Services and -------------------------------- Software Update Services fees ("Fees") are described on the attached Schedule 1. For purposes of the calculation of any Fees based upon installations of copies of the Software, all Non-Production Use Copies of Software shall be disregarded. With the exception of the initial Software Fees listed on Schedule 1 due on the Effective Date, all Fees and expenses are due and payable by Customer forty-five (45) days from the date of issuance of Interwoven's invoice. All payment of Fees and expenses shall be in U.S. currency. Overdue payments shall bear interest at a rate of 1 1/2% per month or the maximum rate allowed by applicable law. Customer is responsible for all taxes covering the Software and/or Services, excluding taxes for Interwoven's income. 5. DELIVERY. Interwoven agrees to deliver the Software as specified on the -------- Schedule attached, FOB Destination. Additionally, Interwoven will use the Internet to deliver Software, Software Updates and to augment Technical Support Services under this Agreement. 4 6. TECHNICAL SUPPORT SERVICES. In consideration for Technical Support -------------------------- Services, as described in the attached Schedule 2, Customer agrees to pay the corresponding Fees pursuant to the terms of this Agreement. Technical Support Services will begin with delivery of the Software and will continue through the Technical Support Services term. Subsequently, Customer's Major Business Units (through its Major Business Units) may select different levels of Technical Support Services offered by Interwoven. Interwoven will invoice Technical Support Services term(s) at least thirty (30) days before the expiration of the prior Technical Support Services term to each Major Business Unit, unless terminated pursuant to this Agreement. Customer's Major Business Units, at their option, may adjust the level of Support Coverage in any election for a new support term. Invoices shall be based upon an accounting provided by Customer, as of the date of any such renewal, setting forth the components of the Technical Support Services Fees, as set forth on the applicable Schedule, which such accounting shall be provided by Customer no less than forty five (45) days prior to the expiration of the prior Technical Support Services Term. Reinstatement of lapsed Technical Support Services will be subject to the payment of Technical Support Services Fees in accordance with Schedule 1. 7. SOFTWARE UPDATE SERVICES. In consideration for the Software Update ------------------------ Services, as described in the attached Schedule 3, Customer agrees to pay the corresponding Fees pursuant to the terms of this Agreement. [*], as indicated on the attached Schedule 1. Interwoven will automatically invoice renewal Software Update Services term(s) at least thirty (30) days before the expiration of the prior Software Update Services term, unless terminated pursuant to this Agreement. Such invoice shall be based upon an accounting provided by Customer, as of the date of such renewal, setting forth the components of the Software Update Services Fees, as set forth on the applicable Schedule, which such accounting shall be provided by Customer no less than forty five (45) days prior to the expiration of the prior Software Update Services Term. 8. AUDIT. Customer agrees to implement reasonable controls to ensure compliance ----- with the intended use of Software, Technical Support Services, and Software Update Services authorized by this Agreement. Interwoven agrees to apply reasonable efforts to minimize reporting requirements in the administration of this Agreement. However, at such times as Interwoven may reasonably request on an as needed basis, but not more than once in every twelve (12) consecutive months, Interwoven reserves the right to perform a compliance audit of Customer's deployment and use of the Software at any time during Customer's normal business hours, upon reasonable written notice and at Interwoven's expense. 9. WARRANTIES AND DISCLAIMERS: -------------------------- A. Title. Interwoven represents and warrants it has title and the authority ----- to grant the license to the Software. B. Limited Software Warranty. Interwoven represents and warrants for a period ------------------------- of one hundred twenty (120) days after the date of successful installation and subsequent incremental installations of the Software (i) the media on which each copy of the Software is furnished will be free of defects in manufacture and material and (ii) the Software will operate substantially in accordance with the published specifications, instructions, end-user manuals that describe installation, use, and/or operation of the Software. For any breach of this warranty, Interwoven will promptly repair or replace any defective media or Software, which fails to comply with such warranty. However, Customer may request a full refund for all applicable license Fees paid, and upon the return of the nonconforming Software, Customer will be refunded those license Fees which it paid for the nonconforming Software. C. Code Integrity Warranty. Interwoven warrants that the Software contains ----------------------- no "computer viruses" or "time bombs" as those terms are commonly understood in the information processing industry. Specifically, Interwoven warrants that the Software contains no code or instructions (including any code or instructions provided by third parties) that may be used to access, modify, delete, damage, or disable any computer, associated equipment, computer programs, data files or other electronically stored information operated or maintained by Customer. Interwoven hereby expressly waives and disclaims any right or remedy it may have at law or in equity to de-install, disable or repossess (except as may otherwise be expressly provided in this Agreement) any Software, in the event Interwoven fails to perform any of its obligations under this Section C. D. Documentation Warranty. Any documentation furnished as part of the ----------------------- Software hereunder will be in form and substance at least equal to comparable materials generally in use in the industry. If at any time such original documentation is revised or supplemented by additional documentation, thereupon Interwoven shall deliver to Customer copies of such revised or additional documentation at no charge in a quantity equivalent to the quantity of such original documentation then in Customer's possession. Customer shall have the right to reproduce all documentation supplied hereunder provided such reproduction shall be solely for the use of Customer. E. Year 2000 Warranty. Interwoven represents and warrants that any ------------------- Software or support provided by Interwoven hereunder, including, without limitation, each item of hardware, software, or firmware; any system, equipment, or products consisting of or containing one or more thereof; and any and all enhancements, upgrades, customizations, 5 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. maintenance and the like shall be Year 2000 Compliant at the time of delivery and at all times thereafter and in all subsequent updates or revisions of any kind. For purposes of this Agreement, Year 2000 Compliant means that (1) the Software and services accurately process, provide and/or receive date data (including without limitation calculating, comparing, and sequencing), within, from, into, and between centuries (including without limitation the twentieth and twenty-first centuries), including leap year calculations, and (2) neither the performance nor the functionality of Software and services will be affected by dates prior to, on, after, or spanning January 1, 2000, so long as all other hardware, software and firmware working in combination with Software is also Year 2000 Compliant. The Software and services shall include, without limitation, date data century recognition, calculations that accommodate same century and multi-century formulae and date values, and date data interface values that reflect the century. In particular, but without limitation, (i) no value for current date will cause any error, interruption, or decreased performance in the operation of such Software and services, (ii) all manipulations of date-related data (including, but not limited to, calculating, comparing, sequencing, processing, and outputting) will produce correct results for all valid dates, including when used in combination with other products, (iii) date elements in interfaces and data storage will specify the correct century to eliminate date ambiguity without human intervention, including Leap Year calculations, (iv) where any date element is represented without a century, the correct century will be unambiguous for all manipulations involving that element, (v) authorization codes, passwords, and zaps (purge functions) should function normally and in the same manner prior to, on, after and spanning January 1, 2000, including, without limitation, the manner in which they function with respect to expiration dates and CPU serial numbers. If at any time the Software and/or services are found not to be Year 2000 Compliant, then Interwoven shall, at no additional charge to Customer and by no later than thirty (30) days after receipt of a report of noncompliance, render the Software and/or services Year 2000 Compliant, and shall thereafter distribute such corrected version to Customer, and, at Customer's option, install such corrected version free of charge. In doing so, Interwoven shall not require Customer to make any changes to the Software and/or services except to install or have installed any changes provided by Interwoven, shall not require or cause to be made any changes to Customer's data unless Customer in its sole discretion approves such changes, and shall not require or cause to be made any changes to any other product or service that Customer uses in its business operations. In addition to Interwoven's obligations as set forth above, Interwoven's liability as to the remedy of any deficiencies of this provision shall be to repair or replace the non-conforming Software and/or service. Notwithstanding anything herein to the contrary, the liability of Interwoven for a breach of Interwoven's Year 2000 Compliant representation and warranty [*]. F. Customer Standards. Interwoven represents and warrants that for the ------------------ period Customer is entitled to Software Update Services and pays the applicable Fees, the Software will connect to and store database information in Oracle databases. G. Disclaimers. EXCEPT AS SET FORTH IN THIS SECTION, INTERWOVEN EXPRESSLY ----------- DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY AS TO ANY ASPECTS OF THE SOFTWARE OR TO ANY SERVICES RENDERED INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. INTERWOVEN DOES NOT WARRANT THE OPERATION OF THE SOFWARE WILL BE UNINTERRUPTED OR ERROR FREE. 10.INDEMNIFICATION. Interwoven represents and warrants that it is the sole ---------------- owner of the Software, or has procured the Software under valid licenses from the owners thereof, and Interwoven further represents and warrants that it has full power and authority to grant the rights herein granted without the consent of any other person. Interwoven shall indemnify and hold Customer harmless against and shall handle and defend against any claim, suit, or other proceeding brought against Customer based on an allegation that the Software or any elements thereof, or the use of any Software furnished by Interwoven pursuant to this Agreement constitutes a violation or infringement of a worldwide copyright, trade secret, proprietary information right or U.S. patent provided that Interwoven is notified promptly in writing of such allegation, suit, or proceeding and given full and complete authority, information and assistance (at Interwoven's expense) for the defense of same. Interwoven shall pay without limitation all actual damages and costs incurred by Customer with respect to such suits or proceedings, but Interwoven shall not be responsible for any compromise made by Customer or its agents without Interwoven's consent. Interwoven shall have no liability for any claim of infringement based on alterations or modifications of the Software, unless authorized and under the direction of Interwoven, or the combination, operation or use of any Software furnished under this Agreement with programs or data or hardware not furnished by Interwoven, if such infringement would have been avoided by the use of the Software without 6 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. such programs or data or hardware. If such Software is held by a court of competent jurisdiction to constitute infringement, and its use is enjoined, Interwoven shall, at its own expense without limitation, either promptly procure the right for continued use of such Software by Customer, or, if the performance thereof will not thereby be materially adversely affected promptly replace or modify such product(s) so that it becomes non- infringing. If neither of the actions specified for Interwoven in the preceding sentence is commercially feasible, then as a last resort, Interwoven shall accept return of such Software and refund to Customer all Fees paid by Customer for such Software, plus any unused Software Update and/or Technical Support Fees paid for the Software. During the pendency of any claim against Interwoven or Customer with respect to Interwoven's ownership or authority, Customer may withhold payment of any sum otherwise required to be paid hereunder. 11.LIMITATION OF LIABILITY. EXCEPT AS PROVIDED FOR IN THE INDEMNIFICATION ----------------------- SECTION 10.0, THE YEAR 2000 WARRANTY SECTION 9.0 E, AND DAMAGES TO BODILY INJURY (INCLUDING DEATH) AND DAMAGES TO REAL PROPERTY AND TANGIBLE PERSONAL PROPERTY, INTERWOVEN'S LIABILITY FOR DIRECT DAMAGES UNDER THIS AGREEMENT SHALL IN NO EVENT EXCEED THE AGGREGATE AMOUNT PAID OR IS PAYABLE BY CUSTOMER TO INTERWOVEN UNDER THIS AGREEMENT FOR THE SOFTWARE OR THE SERVICES AS TO WHICH THE CLAIM AROSE. INTERWOVEN SHALL NOT BE LIABLE FOR DIRECT, INDIRECT, INCIDENTIAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST PROFITS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY SIMILAR CLAIM AGAINST CUSTOMER BY ANY OTHER PARTY. THE PARTIES AGREE TO THE ALLOCATION OF LIABILITY RISK, WHICH IS SET FORTH IN THIS SECTION. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES; THE ABOVE LIMITATION MAY NOT APPLY. 12.TITLE; OWNERSHIP; EQUITABLE RELIEF. Interwoven, or its suppliers or ---------------------------------- licensors, retains title to all portions of the Software and any full or partial copies thereof. Except as provided under this Agreement, no right, title or interest to the Software is transferred to Customer. Each party acknowledges that any breach of its obligations with respect to the proprietary rights of the other party may cause such other party irreparable injury, for which there may be inadequate remedy at law and, therefore, such other party will be entitled to equitable relief in addition to all other rights and remedies available to it. 13.CONFIDENTIALITY. The parties agree to hold each other's Confidential --------------- Information in confidence for the term of this Agreement or five (5) years after its termination. Confidential Information means any information, data or know-how of either party identified as confidential or proprietary by the disclosing party, disclosed in writing, orally or by access to the disclosing party's premises. The parties further agree not to make the other party's Confidential Information in any form available to third parties, other than employees on a need to know basis and consultants under nondisclosure agreements, who are not competitors of the disclosing party. The receiving party is liable for all misuse by consultants of disclosing party's Confidential Information, or for the use of the disclosing party's Confidential Information for any purpose not contemplated by this Agreement. Confidential Information does not include that which: (i) is in the receiving party's possession at the time of disclosure; (ii) is or becomes part of the public knowledge or literature, not as a result of any action or inaction of the receiving party; (iii) is approved for release by written authorization of the disclosing party or (iv) is independently developed by the receiving party without access to the Confidential Information. In the event the receiving party is required to disclose Confidential Information pursuant to a judicial or governmental order, such party will promptly notify the other party to allow intervention in response to such order. 14.TERM; TERMINATION. ----------------- A. Term. The term of the license grant is perpetual unless terminated ---- pursuant to the terms of this Agreement. The terms for the initial Technical Support Services and Software Update Services are specified on Schedule 1. Subsequent optional renewal of Technical Support Services and/or Software Update Services term(s) will commence at the expiration of the prior term and continue for one (1) year terms thereafter, unless terminated pursuant to the terms of this Agreement. B. Termination: ----------- 1. Convenience. Customer may terminate the Agreement and/or any Software ----------- license at any time upon written notice and return of the Software to Interwoven; however, Interwoven has no obligation to return license or initial Technical Support Services and Software Update Services Fees to Customer. With the exception of the initial Technical Support Services and Software Update Services Fees, Customer may terminate any subsequent Technical Support Services and Software Update Services term(s) upon sixty (60) days' prior written notice to Interwoven. Customer shall be responsible for Technical Support Services and Software Update Services Fees through the effective date of termination and shall receive a pro rata refund of any unused prepaid Technical Support Services and Software Update Services Fees, excluding the initial Technical Support Services and Software Update Services Fees. Interwoven may terminate Technical Support Services and/or 7 Software Update Services but only as to the Major Business Units in default in the event Customer fails to pay Fees and fails to cure within forty five (45) days from date of written notice. 2. Cause. Either party may terminate this Agreement upon written notice ----- if the other party materially breaches this Agreement and fails to cure such breach within forty-five (45) days written notice specifying the breach in detail. Termination pursuant to this Section does not relieve Customer of its obligation to pay Fees or Interwoven to provide Technical Support and/or Software Update Services on a pro- rata basis, accrued prior to the effective date of termination. 3. Survival. Sections that by their nature survive expiration or -------- termination shall survive any expiration or termination of this Agreement. 15.NOTICE. All notices shall be in writing, sent to the addresses listed on ------ the facing page of the Agreement and sent by overnight mail, courier, first- class mail or facsimile (followed by confirmation copy by mail). Notice shall be deemed received upon personal delivery when sent by overnight mail, courier, and first-class mail or confirmation copy when a facsimile is sent . 16.ASSIGNMENT. Either party may assign or sublicense its rights under this ---------- Agreement with written notice to the other party in the event of a merger, consolidation or other reorganization. Either party may assign this Agreement to any subsidiary or affiliate or entity owned or controlled by the other party without regard to jurisdiction of incorporation of said subsidiary, affiliate or entity, or as part of the sale of that part of its business which includes the hardware or any substantial portion of its data processing facilities, or pursuant to any merger, consolidation or other reorganization, so long as said assignment is not to a competitor of the other party. An assignee of either party, if authorized hereunder, shall be deemed to have all of the rights and obligations of the assigning party set forth in this Agreement. It is understood that no assignment shall release the assigning party from any of its obligations. 17.GOVERNING LAW. This Agreement shall be governed and construed by the laws ------------- of the State of New York, excluding its conflict of law rules. 18.ATTORNEY'S FEES. In the event legal action is required to enforce or --------------- interpret any terms and conditions of this Agreement, the prevailing party in such legal action shall recover all reasonable costs and expenses, including attorney's fees, incurred in connection with such action. 19.ENTIRE AGREEMENT. This Agreement, together with the Schedules and any ---------------- addenda attached, which has been signed by both parties, constitutes the entire agreement between the parties regarding Customer's use of the Software. No purchase orders, other ordering documentation, email or any hand written or typewritten text which purports to modify or supplement this Agreement shall add to or vary the terms and conditions of this Agreement unless signed or initialed by an authorized officer of each party. This Agreement replaces and supersedes any prior verbal understanding, written communications or representations made by the parties regarding the subject matter contained in this Agreement. 20.EXPORT COMPLIANCE. Customer will comply with all applicable laws and ----------------- regulations in its use of the Software. Customer may not export, re-export or otherwise transfer the Software to any territory outside of the United States except with the prior written consent of Interwoven, and then, only in full compliance with the provisions of the U.S. Export Administration Act and Regulations. 21.GOVERNMENT USES. If Customer is an agency of the U.S. Government, the --------------- following will apply: The Software has been developed entirely at private expense, is regularly used for non-governmental purposes and has been licensed to the public. The Software is a "commercial item" as that term is defined in 48 C.F.R. 2.101 (Oct. 1995), consisting of "commercial computer software" and "commercial computer software documentation" as those terms are used in 48 C.F.R. 12.212 (Sept. 1995) or as "commercial computer software" as that term is defined in 48 C.F.R. 252.227-7014 (June 1995) or any equivalent agency regulation or contract clause, whichever is applicable. Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (June 1995), all U.S. Government agencies acquire only those rights to the Software as are expressly set forth herein. 22.AMENDMENTS. In the event Interwoven develops other or new software products ---------- which are not Software Updates and if GE elects to license such new software products, the parties agree to endeavor in good faith to amend this Agreement to add such other software products under the same discount levels and similar terms and conditions as hereby offered to Customer on the Effective Date of this Agreement. All amendments and modifications to this Agreement or the Schedules shall be in a signed writing to be binding on the parties. 23.PUBLICITY. As a material obligation of this Agreement, neither party shall ---------- use the name of the other in publicity, advertising, or similar activity without the prior written consent of the other. Interwoven understands that Customer does not contemplate providing any such consent and is under no obligation, express or implied, to provide any such consent, and, in the event that any such consent should be granted for a particular communication, Customer shall not be under any further obligation to provide consent in any future request. Customer will consider participation in 8 Interwoven's marketing programs from time to time but is under no obligation to participate. Both parties to this Agreement agree not to disclose the existence or terms of this Agreement to any third party without the prior written approval of the other, except a party may disclose this Agreement to an Assignee pursuant to the Assignment Section hereof. 24.SECURITY. In the event that any Interwoven personnel are physically --------- present at a Customer location pursuant to this Agreement, any such physical presence shall be subject to Customer's security requirements, and Interwoven shall indemnify Customer against any claims of any nature whatsoever that may arise because of such physical presence. 25.QUALITY. -------- A. Industry Standards. Interwoven represents that any Software, Software Update Services and Technical Support Services will be performed promptly, diligently and in a professional manner in accordance with the highest commercial industry standards. This clause shall not be interpreted as an extension to the warranty in Section 9(B), as the latter is the warranty for the Software. B. Liquidated Damages. Interwoven acknowledges that its responsibility for paid Software, Software Update Services and Technical Support Services hereunder is a material obligation. Per the terms of the Technical Support Services described on Schedule 2,beyond the agreed response times for the different levels of Support subscribed to by Customer's Major Business Unit, (1) the failure by Interwoven to respond to Customer's Priority Error One request and provide a Fix, workaround or action plan to said Error within twenty four (24) hours or (2) the failure by Interwoven to respond to Customer's Priority Error Two request and provide a Fix, workaround or action plan to said Error within forty eight (48) hours, is a material breach of the Agreement. Additionally, failure by Interwoven to provide Software Updates to Customer to correct a Priority One Error and/or Priority Two Error, as described in Schedule 2, within a normal product development cycle (generally, a 12 month cycle) represents a material breach of this Agreement. The above-described material breaches by Interwoven will result in damage to Customer, which will be very difficult to calculate. To offset and partially compensate Customer for damages due to Interwoven's material breach as described above, Interwoven will pay to Customer as liquidated damages and not as a penalty, an amount equal to the sum of [*]. After a final decision to the amount of the liquidated damages, the amount shall be payable as cash payments due within forty five (45) days following a written request sent to Interwoven by Customer. 26.GENERAL. Neither party shall be liable for any failure to perform due to -------- causes beyond its reasonable control. The failure to enforce any right will not be deemed a waiver of such or any other right, including the right to enforce a subsequent breach of the same obligation. The parties are independent contractors and this Agreement will not be construed as a teaming agreement, joint venture or other business relationship. This Agreement may be executed in counterparts, each of which will be considered an original, but all counterparts together will constitute one agreement. A facsimile of a signed copy of this Agreement received from Customer may be relied upon as an original. The parties executing this Agreement represent and warrant that they have the authority to enter into this Agreement on behalf of their respective party. 9 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. SCHEDULE 1 ---------- SOFTWARE PRODUCT OVERVIEW, DESCRIPTION AND FEES A. CONTENT MANAGEMENT SOFTWARE PRODUCT OVERVIEW: - ------------------------------------------------ Interwoven currently produces two main products in the Content Management space, TeamSite and OpenDeploy. These products and all associated options (Software) provide Content Management capabilities for web environments. TeamSite currently provides the functionality to enable users to edit web file system content within the context of their own virtualized workspace. TeamSite provides workflow to enable the allocation of files to workers as well as implementing simple approval processes. TeamSite provides a staging area where the content can be assembled into a single edition. TeamSite provides authors with the ability to visually compare the contents of two files and highlight those areas that are changed. The merge tool steps through these changes to provide a single final file that can be moved to production. TeamSite provides for multiple teams to work together by supporting separate branches of development that can later be incorporated into a single development stream. TeamSite Global Report Center is an additional option that allows TeamSite event information to be stored in a relational database for event reporting. TeamSite Templating is an additional option that supports the use of customizable HTML templates for end users to employ in conjunction with TeamSite. OpenDeploy transfers web related assets from development to production and can synchronize the deployment of web pages, executable code and databases. This deployment is securely encrypted with 128bit key within the US only and unencrypted for all other international markets. B. LICENSED SOFTWARE DESCRIPTION: - --------------------------------- The [*] Enterprise License granted to Customer under this Agreement shall vest to Customer the rights to copy, install and use the Software, which includes by definition corresponding documentation, and is described as TeamSite 3.0, OpenDeploy 3.0, TeamSite-Documentum Interface and TeamSite-Broadvision Interface and all options commercially available as of the Effective Date including such options described above in Content Management Software Product Overview. The manuals include Administering TeamSite, Using TeamSite, Author Card, Administering OpenDeploy, Using OpenDeploy and Documentum and Broadvision Interface manuals. The Software includes the following products: ------------------------------------------------------------- TeamSite Server, Workgroup, Single CPU ------------------------------------------------------------- TeamSite Server, Departmental, Dual CPU ------------------------------------------------------------- TeamSite Server, Enterprise, Unlimited CPU ------------------------------------------------------------- TeamSite-Documentum Interface Per TeamSite Server ------------------------------------------------------------- TeamSite-Broadvision Interface Per TeamSite Server ------------------------------------------------------------- Templating ------------------------------------------------------------- Per Named Client User - Master ------------------------------------------------------------- Per Named Client User - Administrator ------------------------------------------------------------- Per Named Client User - Editor ------------------------------------------------------------- Per Named Client User - Author ------------------------------------------------------------- Per OpenDeploy Server Process on Target Server (Included) ------------------------------------------------------------- Per OpenDeploy Server Process on Target Server Add'l. ------------------------------------------------------------- Global Report Center - Ten Named Client Users (NOTE) ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- NOTE: Interwoven will license Customer Global Report Center Software in object - -------------------------------------------------------------------------------- code form to (a) connect to and store Software event information in a relational - -------------------------------------------------------------------------------- database and (b) connect to and generate reports from event information in a - ---------------------------------------------------------------------------- relational database. This Interwoven Software product requires a license to a - ------------------------------------------------------------------------------ relational database such as (Oracle, Informix or Sybase) to store the Software - ------------------------------------------------------------------------------ event information. The Ten Named Client Users refers to Operational Software - ---------------------------------------------------------------------------- 10 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. installations and there are no restrictions on the Non-Production Use Software - ------------------------------------------------------------------------------ users under the Agreement. The Ten Named Client Users restriction only applies - ------------------------------------------------------------------------------- to those TeamSite Servers storing event information in an Interwoven provided - ----------------------------------------------------------------------------- embedded Sybase SQLA relational database. - ----------------------------------------- C. FEES: - -------- 1. LICENSE FEES ------------ The license Fees and payment schedule for the Software license Fees are as follows: ---------------------------------------------------- Payment Due Date Payment Amount ---------------------------------------------------- Upon Effective Date of this [*] Agreement ---------------------------------------------------- January 30, 2000 [*] ---------------------------------------------------- January 30, 2001 [*] ---------------------------------------------------- 2. TECHNICAL SUPPORT SERVICES AND FEES ----------------------------------- Fees for Technical Support Services shall be as set forth in the following table for the corresponding levels of Support (Standard, Gold or Platinum), as fully described in the attached Schedule 2. Under the Standard level of Support, the Fee for each Technical Contact [*] is [*]. The Fees for upgrading the level of Support is calculated on [*] as set forth in the table below. --------------------------------------------------------------------------- Support Level Per Technical Contact Fees Per Installation of Operational Software --------------------------------------------------------------------------- Standard [*] [*] --------------------------------------------------------------------------- Gold [*] [*] --------------------------------------------------------------------------- Platinum [*] [*] --------------------------------------------------------------------------- Through the period commencing on the Effective Date and ending on December 31, 2000, Interwoven [*] per Operational Software Installation. In the event Customer requests additional Technical Contacts during this referenced period, the corresponding Fees due by Customer shall be invoiced by Interwoven to Customer. After December 31, 2000, Technical Support Services shall be an option on a per installation of Operation Software basis and Customer shall have the ability to change the Support Level in accordance with the Fees for such Support Level stated in the table above. Within fourteen (14) days prior to the end of any annual calendar term in which Technical Support Services were provided by Interwoven to Customer, Customer shall provide Interwoven with a written report in accordance with Section 8 of this Agreement of any additions or changes in the Technical Contacts or Operational Software Installations or Support level upgrades added during such annual term. Interwoven shall invoice Customer for the applicable Fees during the annual calendar term 3. SOFTWARE UPDATE SERVICES AND FEES ---------------------------------- Commencing on January 1, 2001, the optional annual Fees for Software Update Services shall be: a minimum of [*] per annual term but not in excess of [*] per annual term based on [*] per installation of Operational Software in excess of twenty-five installations, which is listed in the table below. ------------------------------------------------------ Minimum Annual Fee [*] ------------------------------------------------------ Per Installation in Excess of 25 [*] ------------------------------------------------------ Maximum Annual Fee [*] ------------------------------------------------------ 11 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Through the period commencing on the Effective Date and ending December 31, 2000, Interwoven [*]. Within fourteen (14) days prior to the end of any annual calendar term, during which Software Update Services were provided by Interwoven to Customer, Customer shall provide Interwoven with a written report in accordance with Section 8 of this Agreement of any additional installations of the Operational Software (excluding Non-Production copies of the Software) installed during the annual term. Interwoven shall invoice Customer for the amount of the applicable Software Update Services Fee corresponding to the number of installations of Operational Software during the annual term as described above . 4. MAILING ADDRESS: All invoices, expense reports, delivery of Software, --------------- final Agreements or future Amendment(s) will be mailed to Customer's address on the Facing Page unless otherwise specified below: Billing Address: General Electric Company Shipping Address: ATTN: Elizabeth Hankamp ATTN: 3135 Easton Turnpike Fairfield, CT 06431 5. PURCHASE ORDER: If a Customer Purchase Order is required for this -------------- transaction: [_] YES - Provide Purchase Order #:_________________ [X] NO - Provide Authorized Customer: Signature: /s/ Mark Mastrianni ------------------------ Printed Name: Mark Mastrianni --------------------- 12 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. SCHEDULE 2 ---------- TECHNICAL SUPPORT SERVICE PROGRAM STANDARD OF CARE For such periods as Customer fully pays the Annual Support Fee, as set forth on the Fee Schedule, applicable to the level of support selected by Customer, Interwoven will provide Technical Support Services ("Support") described herein pursuant to the terms and conditions in the Agreement and as stated herein. During the initial Support term set forth in the Fee Schedule each installation of the Software, which is not an installation of a Non- Production Use Copy of the Software, shall receive the "Standard" level of Support described below. During such term Customer may elect to upgrade any installation of the Software, which is not an installation of a Non-Production Use Copy of the Software, to a higher level of Support (i.e., "Gold" or "Platinum") by providing notice to Interwoven and payment, for each such installation, of the pro-rata portion of the annual fee for such higher level of Support corresponding to the period of time remaining in such term. 1. DEFINITIONS "Error" means a material failure of the Software to conform to its functional specifications as described in the Product Specifications. Errors do not include, and Interwoven will have no responsibility for, any of the following circumstances which adversely impact the operation of Software or the ability of Interwoven provide Support: (i) the Software has been modified or damaged in any manner by any person or entity other than Interwoven; (ii) the Software has been used outside of the scope of the license granted under this Agreement; (iii) any failure of the computer hardware, the computer operating system and/or third party software utilized by Customer; (iv) the Software has been installed or operated other than in accordance with Interwoven's installation and operations instructions, including, without limitation, on computer hardware, or operating systems other than for which that System Release was designed; (v) Customer has failed to install the most recent New Release made available to Customer pursuant to the Software Update Services and Interwoven affirms to Customer that the Error in question has been corrected in such New Release. "Fix" means, in Interwoven's discretion, either an Interim Release designed to correct an Error, or a temporary work-around, patch or bypass supplied by Interwoven, or temporary implementation by Customer of a data input or operational procedure in order to diminish or avoid the effect of an Error. "Priority 1 Error" means an Error that: (1) renders the Software inoperative; or (2) poses imminent danger to Customer's equipment or data. "Priority 2 Error" means an Error that materially degrades performance of the Software or materially impairs substantial functions of the Software, but which is not a Priority 1 Error. "Priority 3 Error" means any Error other than a Priority 1 Error or Priority 2 Error. "Dedicated Support Engineer" means a senior technical support engineer who is dedicated to managing the technical requirements of specific Interwoven customer accounts. Interwoven, may, in its discretion, substitute one or more product specialists on a Dedicated Support Engineer Team, or designate a different Dedicated Support Engineer to provide Support to Customer. "Technical Contacts" Customer engineers who: (i) serve as the contacts with the Support Team (in the case of Standard or Gold Support) or the Dedicated Support Engineer Team (in the case of Platinum Support) on all Support matters; (ii) are responsible for administration of the Software; and (iii) have been trained and certified by Interwoven as "Enterprise Web Production Administrators" within ninety (90) days of the Effective Date of this Agreement. 13 1. SUPPORT COVERAGE a. TELEPHONE/E-MAIL SUPPORT. A member of the Support Team (in the case ------------------------ of Standard or Gold Support) or a Dedicated Support Engineer (in the case of Platinum Support) will be available by telephone (408-774-2000) or E-mail (support requests should be sent to support@interwoven.com) excluding major holidays, during the times set forth below for the level of Support received by a particular installation, to assist the Technical Contact in the installation and operation of the Software, and to receive reports of Error conditions. Customer must direct all calls or E-mails to a member of the Support Team (in the case of Standard or Gold Support) or a Dedicated Support Engineer (in the case of Platinum Support). Such Support Team member or Dedicated Support Engineer will communicate to the Technical Contact (by telephone, E-mail or fax) to assist the situation, gather additional information, or report the status of Interwoven's efforts to correct an Error within the time specified in herein. Telephone/E-Mail Support is available as follows: Standard during normal business hours from Monday to Friday -------- (excluding major holidays) between 6:00am to 5:00pm Pacific Time. Gold anytime between 00:01 Monday Pacific Time through 23:59 ---- Friday Pacific Time (excluding major holidays). Platinum twenty-four (24) hours a day, seven (7) days a week. -------- b. EMERGENCY ON-SITE SUPPORT. Under most circumstances, Interwoven will ------------------------- provide Support remotely. However, in the event that Customer reports a Priority 1 Error which cannot be resolved remotely within a reasonable period of time, Interwoven will provide emergency, on-site support. The necessity and timing for providing such on-site support will be mutually determined and agreed to by the respective management teams of Interwoven and Customer. 2. ERROR CORRECTION a. ERROR PROCEDURES. A member of the Support Team (in the case of ---------------- Standard or Gold Support) or a Dedicated Support Engineer (in the case of Platinum Support) will respond to reports of Error conditions brought to Interwoven's attention within the allotted time described below of receiving a report. Interwoven will further exercise commercially reasonable efforts to correct any Error reported by Customer in accordance with the following procedures. Interwoven will reasonably determine the priority classification of any Error in its sole discretion. (1) Priority 1 Errors: Interwoven will respond to Error reports received by Customer as follows: Standard within two (2) business hours of receiving a report. -------- Gold within two (2) business hours of direct contact and verbal ---- acknowledgment from the Support Team member. Platinum within one (1) hour of direct contact and verbal -------- acknowledgment from the Dedicated Support Engineer. Interwoven will assign one or more senior engineers to attempt to replicate the Error. If the Error can be replicated, Interwoven will: (1) notify its senior management that such Error has been reported and the steps being taken to correct the Error; (2) commence work to provide Customer with a Fix; and (3) 14 provide Customer with periodic reports on the status of such Fix. Interwoven will use commercially reasonable efforts to deliver a Fix to Priority 1 Errors within two (2) business days of Customer's request for assistance. (2) Priority 2 Errors: Interwoven will respond to Error reports received by Customer as follows: Standard within four (4) business hours of receiving a report. -------- Gold within three (3) business hours of direct contact and verbal ---- acknowledgment from the Support Team Member. Platinum within one (1) hour of direct contact and verbal -------- acknowledgment from the Dedicated Support Engineer. Interwoven will use commercially reasonable efforts to correct such Error in future New Releases. (3) Priority 3 Errors: Interwoven will respond to Error reports received by Customer as follows: Standard within two (2) business days of receiving a report. -------- Gold within four (4) business hours of direct contact and verbal ---- acknowledgment from the Dedicated Support Engineer. Platinum within three (3) hours of direct contact and verbal -------- acknowledgment from the Dedicated Support Engineer. Interwoven may correct such Error in future Version Releases. b. ESCALATION. In those instances where: (i) Interwoven cannot provide ---------- a Fix to a Priority 1 Error within two (2) business days of Customer's request for assistance, or (ii) Customer is not satisfied with the progress attained after two (2) business days in an instance of a Priority 1 Error (in the case of Platinum Support) or a Priority 2 Error (in the case of Standard or Gold Support), Interwoven will review its plan for addressing such Error with Customer. Customer will have the right to escalate the matter to Interwoven's senior management, if, in the reasonable opinion of Customer, the plan of action does not demonstrate that Interwoven is making commercially reasonable efforts to correct the Error in light of its impact on Customer's business. 3. SCOPE OF SERVICES a. ADDITIONAL SOFTWARE. Interwoven will provide Support as set forth in ------------------- this Agreement for the Software. Support for additional Interwoven products acquired after the Effective Date will be provided upon terms to be mutually agreed upon in writing by the parties. b. ADDITIONAL SUPPORT. In the event Customer's technical environments, ------------------ facilities or Interwoven product mix changes such that Customer is not satisfied with the Support provided under this Agreement, Customer and Interwoven will meet and discuss options to improve the provision of Support. Customer understands that greater Support than that provided hereunder may be accompanied by an increase in fees. c. SUPPORT PROVIDED TO PERSON OTHER THAN TECHNICAL CONTACTS. In the -------------------------------------------------------- event Interwoven provides Support to anyone other than Technical Contacts, except as expressly provided herein, 15 and the reported problem is later determined not to be an Error, Customer agrees to pay Interwoven for time and materials spent in providing such Support at Interwoven's then current rates. 4. New Releases Interwoven's obligations with respect to Technical Support Services are expressly conditioned upon the installation and use by Customer of either: (i) the most current version of the Software; or (ii) the release immediately preceding the New Release. 16 SCHEDULE 3 ---------- SOFTWARE UPDATE SERVICE PROGRAM As of the Effective Date of this Agreement and until December 31, 2000 and thereafter, provided that Customer, at its option, fully pays the applicable Annual Software Update Fees corresponding to the number of Operational installations of the Software which are not installations of Non-Production Use Copies of the Software, Customer shall receive Software Updates as defined in Section 1 of this Agreement which updates shall include but not be limited to the types of Software defined and described below. SOFTWARE UPDATE DEFINITIONS AND DESCRIPTIONS "Interim Release" means an interim release version of the Software in which one or more previously identified Errors have been corrected. A new Interim Release typically will be indicated by the addition of one (1) to the third digit of the release number (e.g. v.X.X.2 would be the next Interim Release after v.X.X.1). "New Release" is either a Version Release or Interim Release but does not include a System Release or computer programs that, in Interwoven's sole determination, contain substantially new or different functions and/or features relative to the Software. "System Release" means a release of the Software which is designed to operate on designated combinations of computer hardware and operating systems. A new System Release typically will be indicated by the addition of one (1) to the first digit of the release number (e.g. v.2.X.X would be the next System Release after v.1.X.X). "Version Release" means an updated version of the Software with a limited number of new or enhanced functions and/or features. A new Version Release typically will be indicated by the addition of one (1) to the second digit of the release number (e.g. v.X.2.X would be the next Version Release after v.X.1.X). NEW RELEASES When Software Updates to the Software, as generally described in Schedule 1, are available, such Software Updates will be made available to Customer. Upon delivery to Customer and payment of all applicable Fees, the Software Updates will be considered "Software" for purposes of this Agreement. In the event Interwoven offers to its customers Content Management software in the future, whether as enhancements or new products separate from the licensed Software as described on Schedule 1, the same will be offered to Customer under the Software Update Service Program. Such Software Updates, if and when available, and in part based upon Interwoven's current technology roadmap, may include, but not be limited to the following: [*] 17 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [*] 18 [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.25 10 PREFERRED STOCK WARRANT Exhibit 10.25 PREFERRED STOCK WARRANT TO PURCHASE [*] SHARES OF SERIES E PREFERRED STOCK OF INTERWOVEN, INC. (Void after July 22, 2006) Preferred Stock Warrant: PEW-___ THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS WARRANT AND THE SHARES PURCHASABLE HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN. This certifies that General Electric Company ("GE") each of GE and any successor or assign being a "Holder"), for consideration the sufficiency and receipt of which is hereby acknowledged, is entitled to purchase from Interwoven, Inc., a California corporation (the "Company"), subject to the terms set forth below, [*], newly issued, fully paid and nonassessable shares (subject to adjustment as provided herein) of the Company's Series E Preferred Stock, no par value per share (the "Warrant Shares") for cash at a price of [*] (as adjusted as provided herein, the "Exercise Price") or pursuant to the cashless exercise terms in Section 1.2 at any time or from time to time up to and including 5:00 p.m. (Pacific Time) July 22, 2006, or if such day is not a Business Day, then on the next succeeding Business Day, such day being referred to herein as the "Expiration Date," upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Exercise Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. [*]. The Exercise Price is subject to adjustment as provided in Section 3 of this Warrant and the right to purchase the Warrant Shares and the number of Warrant Shares that may be purchased hereunder are subject to the contingencies set forth in this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise, Issuance of Certificates, Reduction in Number of Warrant ------------------------------------------------------------------ Shares. ------ 1.1 General. Except as provided in Section 1.2, this Warrant is ------- exercisable at the option of the Holder of record hereof on or prior to the Expiration Date, at any time or from time to time, for all or any part of the Warrant Shares (but not for a fraction of a share) which may be purchased hereunder, as that number may be adjusted pursuant to Sections 1.2 or 3 of this Warrant. The Company agrees that the Warrant Shares purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such Warrant Shares as [*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. of the close of business on the date on which this Warrant shall have been surrendered, the completed and executed Form of Subscription delivered, and payment of the Exercise Price in cash or by certified check, or if applicable, submission of the cashless exercise calculation pursuant to Section 1.2 for such Warrant Shares. In addition, with respect to the Warrant Shares, Holder will make the representations and warranties set forth in Section 6.1 and Company will make representations and warranties with respect to due authorization, valid issuance and otherwise as set forth in Section 9.4 (excluding Section 9.4(c)), including the absence of pre-emptive rights and the absence of conflict with the Company's constituent documents. Certificates for the Warrant Shares so acquired, together with any other securities or property (including any money) to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder or its transferee designated in writing to the Company by the Company at the Company's expense not later than ten (10) days after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the Warrant Shares which may be purchased under this Warrant, the Company shall cancel this Warrant and promptly execute and deliver to the Holder or its transferee designated in writing to the Company a new Warrant or Warrants of like tenor for the balance of the Warrant Shares purchasable under the Warrant surrendered upon such purchase. Each stock certificate so delivered shall be registered in the name of such Holder. The Company shall pay all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. 1.2 Net Issue Exercise of Warrant. Notwithstanding any provisions ----------------------------- herein to the contrary, if the fair market value of one share of Series E Preferred Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, Holder may elect to receive shares of Series E Preferred Stock equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription in which event the Company shall issue to the Holder a number of shares of Series E Preferred Stock computed using the following formula: X = Y (A-B) --------- A Where X = the number of shares of Series E Preferred Stock to be issued to Holder Y = the number of shares of Series E Preferred Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Series E Preferred Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) 2 2. Reservation of Shares. The Company hereby agrees that at all times --------------------- there shall be reserved for issuance and delivery upon exercise of this Warrant such number of authorized but unissued Warrant Shares (and Common Stock into which such Warrant Shares are convertible) as will be sufficient to permit the full exercise of this Warrant. The Company covenants and agrees that all Warrant Shares, and all shares of Common Stock issuable upon conversion of such Warrant Shares, shall be duly authorized and, upon issuance in accordance herewith, shall be validly issued, fully paid and nonassessable, and free of all liens, security interests, charges and other encumbrances or restrictions upon sale and free and clear of preemptive or similar rights, except for restrictions on transfer provided for herein, under the Rights Agreement or under applicable federal and state securities laws. 3. Adjustment of Exercise Price and Number of Shares for Equity Events. ------------------------------------------------------------------- The Exercise Price and the total number of Warrant Shares shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Exercise Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Exercise Price resulting from such adjustment. 3.1 Dividends; Subdivision or Combination of Stock. ---------------------------------------------- (a) In the case the Company shall at any time after the date hereof (i) declare a dividend or make a distribution on Series E Preferred Stock payable in Series E Preferred Stock, (ii) subdivide or split the outstanding Series E Preferred Stock, (iii) combine or reclassify the outstanding Series E Preferred Stock into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of Series E Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, split, combination or reclassification shall be proportionately adjusted so that the exercise of this Warrant after such time shall entitle the holder to receive the aggregate number of shares of Series E Preferred Stock or other securities of the Company (or shares of any security into which such shares of Series E Preferred Stock have been reclassified pursuant to clause 3.1(a)(iii) or 3.1(a)(iv) above) which, if this Warrant had been exercised immediately prior to such time, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to the holders of its Series E Preferred Stock or other securities entitling such holders to subscribe for or purchase for a period expiring within 60 days of such record date shares of Series E Preferred Stock (or securities convertible into share of Series E Preferred Stock) at a price per share of Series E Preferred Stock (or having a conversion price per share of Series E Preferred Stock, if a security convertible into shares of Series E Preferred Stock) less than the Current Market Price Per Series E Preferred Share on such record date, the maximum number of shares of Series E Preferred Stock issuable upon exercise of such rights, 3 options or warrants (or conversion of such convertible securities) shall be deemed to have been issued and outstanding as of such record date and the Exercise Price shall be adjusted in the manner set forth in the following sentence, as through such maximum number of shares of Series E Preferred Stock had been so issued for an aggregate consideration payable by the holders of such rights, options, warrants or convertible securities prior to their receipt of such shares of Series E Preferred Stock. The adjusted Exercise Price shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the sum of (x) the number of shares of Series E Preferred Stock outstanding immediately prior to the time of such issuance or sale multiplied by the Current Market Price Per Series E Preferred Shares immediately prior to such record date and (y) the aggregate consideration, if any, to be received by the Company upon such issuance or sale, and the denominator of which shall be the product of the aggregate number of shares of Series E Preferred Stock outstanding immediately after such record date and the Current Market Price Per Series E Preferred Share immediately prior to such issuance. In case any portion of the consideration to be received by the Company shall be in a form other than cash, the fair market value of such noncash consideration shall be utilized in the foregoing computation. Such fair market value shall be determined by the Board of Directors of the Company; provided that if the Holder shall object to any such determination, the Board of Directors shall retain an independent appraiser reasonably satisfactory to the Holder to determine such fair market value. The Holder shall be notified promptly of any consideration other than cash to be received by the Company and furnished with a description of the consideration and the fair market value thereof, as determined by the Board of Directors. Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued or expire unexercised, or in the event of a change in the number of shares of Series E Preferred Stock to which the holders of such rights, options or warrants are entitled (other then pursuant to adjustment provisions therein comparable to those contained in this paragraph 3.1), the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed, in the former event, or the Exercise Price which would then be in effect if such holder had initially been entitled to such changed number of shares of Common Stock, in the latter event. (c) In the case the Company shall fix a record date for the making of a distribution to holders of Series E Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, assets or other property (other than dividends payable in Series E Preferred Stock or rights, options or warrants referred to in, and for which an adjustment is made pursuant to, paragraph 3(b) hereof), the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price Per Series E Preferred Share on such record date, less the fair market value (determined as set forth in paragraph 3.1(d) hereof) of the portion of the assets, other property or evidence of indebtedness so to be distributed which is applicable to one share of Series E Preferred Stock, and the denominator of which shall be such Current Market Price Per Series E Preferred Share. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. 4 (d) For the purchase of any computation under paragraph 1.2 or paragraph 3.1(b), or 3.1(c) hereof, on any determination date (i) on or prior to the Company's initial public offering, the Current Market Price Per Series E Preferred Share shall, subject to the penultimate sentence of this paragraph 3.1(d), be the fair market value per share of the applicable class of Series E Preferred Stock as reasonably determined by the Board of Directors of the Company, and (ii) after the Company's initial public offering, the Current Market Price Per Series E Preferred Share shall be deemed to be the product of (i) the average (weighted by daily trading volume) of the Daily Prices (as defined below) per share of the applicable class of Common Stock for the 20 consecutive trading days immediately prior to such date and (ii) the number of shares of Common Stock into which each share of Series E Preferred Stock is then convertible into. "Daily Price" means (A) if the shares of such class of Common Stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the closing price on such day as reported on the NYSE Composite Transactions Tape; (B) if the shares of such class of Common Stock then are not listed and traded on the NYSE, the closing price on such day as reported by the principal national securities exchange on which the shares are listed and traded; (C) if the shares of such class of Common Stock then are not listed and traded on any such securities exchange, the last reported sale price on such day on the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"); or (D) if the shares of such class of Common Stock then are not traded on the NASDAQ National Market, the average of the highest reported bid and lowest reported asked price on such day as reported by NASDAQ. If on any determination date the shares of such class of Stock are not quoted by any such organization, the Current Market Price Per Share shall be the fair market value of such shares on such determination date as determined by the Board of Directors. If the Holder shall object to any determination by the Board of Directors on or prior to the Company's initial public offering of the Current Market Price Per Series E Preferred Share, the Current Market Price Per Series E Preferred Share shall be the fair market value per share of the applicable class of Series E Preferred Stock as determined by an independent appraiser retained by the Company at its expense and reasonably acceptable to the Holder. For purposes of any computation under this paragraph 3.1, the number of shares of Series E Preferred Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company. (e) In the event that, at any time as a result of the provisions of this paragraph 3.1 the Holder of this Warrant upon subsequent exercise shall become entitled to receive any shares of capital stock of the Company other than Series E Preferred Stock, the number of such other shares so receivable upon exercise of this Warrant shall, as more fully provided in Section 9.3, thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained herein. (f) Upon each adjustment of the Exercise Price as a result of the calculations made in paragraphs 3.1(a), 3.1(b), or 3.1(c) hereof, the number of shares for which this Warrant is exercisable immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Series E Preferred Stock obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to this adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. 5 3.2 [Intentionally Omitted] --------------------- 3.3 Notice of Adjustment. Upon any adjustment of the Exercise Price -------------------- or any increase or decrease in the number of Warrant Shares, the Company shall give written notice thereof, by first class mail postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be prepared by the independent public accountants then auditing the books of the Company and signed by the Company's Chief Financial Officer and the Company's Secretary and shall state the Exercise Price resulting from such adjustment and the adjusted number of shares if applicable, purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts requiring such adjustment upon which such calculation is based. A copy of such notice shall be kept in the custody of the Company's Secretary or Assistant Secretary at its principal office and with its stock transfer agent. 4. Consolidation, Merger, or Sale of Assets. In case of any ---------------------------------------- consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Series E Preferred Stock) or any sale or transfer of all or substantially all of the assets of the Company or of the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, the Holder shall have the right thereafter to exercise this Warrant for the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Series E Preferred Stock for which this Warrant may have been exercised immediately prior to such consolidation, merger, sale or transfer, assuming (i) such holder of Series E Preferred Stock is not a person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("constituent person"), or an Affiliate of a constituent person and (ii) in the case of a consolidation, merger, sale or transfer which includes an election as to the consideration to be received by the holders, such holder of Series E Preferred Stock failed to exercise its rights of election, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Series E Preferred Stock held immediately prior to such consolidation, merger, sale or transfer by other than a constituent person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this paragraph 4 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non- electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Adjustments for events subsequent to the effective date of such a consolidation, merger and sale of assets shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. In any such event, effective provisions shall be made in the certificate or articles of incorporation of the resulting or surviving corporation, in any contract of sale, conveyance, lease or transfer, or otherwise so that the provisions set forth herein for the protection of the rights of the Holder shall thereafter continue to be applicable; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon exercise, such shares of stock, other securities, cash and property. The provisions of this paragraph 4 shall similarly apply to successive consolidations, mergers, sales, leases or transfers. 6 5. No Voting or Dividend Rights. Nothing contained in this Warrant ---------------------------- shall be construed as conferring upon the Holder hereof the right, prior to the exercise of the Warrant, to vote or to consent to receive notice as a shareholder of the Company on any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 6. Compliance with Securities Act; Transferability of Warrant; ----------------------------------------------------------- Disposition of Warrant Shares or Common Stock. - --------------------------------------------- 6.1 Compliance with Securities Act. The Holder of this Warrant, by ------------------------------ acceptance hereof, agrees that this Warrant is being acquired for investment and that it will not offer, sell, or otherwise dispose of this Warrant, any Warrant Shares, or any shares of Common Stock to be issued upon conversion of the Warrant Shares except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act"), or any applicable state securities laws. All Warrant Shares and all shares of Common Stock issued upon conversion of the Warrant Shares (unless registered under the Act) shall, subject to Section 6.3 be stamped or imprinted with a legend in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THEY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT. 6.2 Warrant Transferable. Subject to compliance with applicable -------------------- federal and state securities laws under which this Warrant was purchased, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder (except for transfer taxes), upon surrender of this Warrant properly endorsed; provided, however, that the Holder shall notify the Company in writing in advance of any proposed transfer and shall not transfer this Warrant or any rights hereunder to any person or entity which is then known to the Holder to be principally engaged in a business in direct and substantial competition with the Company. 6.3 Disposition of Warrant Shares and Common Stock. With respect to ---------------------------------------------- any offer, sale, or other disposition of the Warrant, any Warrant Shares, or of any shares of Common Stock issued upon conversion of the Warrant Shares prior to registration of such shares, the Holder hereof and each subsequent Holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, if reasonably requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration under the Act or any applicable state law then in effect of such Warrant, Warrant Shares or Common Stock, as the case may be, or that such Warrant, Warrant Shares or Common Stock are no longer subject to the restrictive legends referred to herein. Promptly upon receiving such written notice and opinion, the Company, as promptly as practicable, shall notify such Holder that such Holder may sell or otherwise dispose of such Warrant, Warrant Shares or Common Stock, all in accordance with the terms of the 7 notice delivered to the Company. If a determination has been made pursuant to this subparagraph 6.3 that the opinion of the counsel for the Holder is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly after such determination has been made and provide a written legal opinion of the Company's outside counsel explaining the reasons for such determination. Notwithstanding the foregoing, such Warrant, Warrant Shares or Common Stock may be offered, sold or otherwise disposed of in accordance with Rule 144 under the Act, provided that the Company shall have been furnished with such information as the Company may request to provide reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing the Warrant, Warrant Shares or Common Stock thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of counsel for the Holder, such legend is not required in order to insure compliance with the Act. If appropriate in the circumstances, the Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. 7. Modification and Waiver. This Warrant and any provision hereof may ----------------------- be amended, changed, waived, discharged, or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. Except as expressly provided herein, no failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 8. Notices. Any notice, request, or other document required or ------- required or permitted to be given or delivered to the Holder hereof or the Company shall be in writing and shall be given to the Holder or the Company at its address or telecopier number set forth below or such other address or telecopier number as either may from time to time provide to the other. Address/Telecopier (Company): Interwoven, Inc. 1195 West Fremont Ave., Suite 2000 Sunnyvale, CA 94087 Fax: (408) 774-2002 Attn: David Allen Address/Telecopier (Holder): General Electric Company 3135 Easton Turnpike Fairfield, CT 06431 Fax: (203) 373-3707 Attn: Gary Reiner 8 With a copy to: Pamela Daley VP - Senior Counsel for Transactions Fax: (203) 373-3008 Each such notice, request or other document shall be effective (i) if given by telecopy, when such telecopy is properly transmitted and the intended recipient confirms receipt of such telecopy or (ii) if given by any other means, when received at the address specified herein or, subsequently notified to the other party in writing. 9. Representations and Warranties and Covenants of the Company. ----------------------------------------------------------- 9.1 Notice of Certain Events. If at any time: ------------------------ (i) the Company shall declare any cash dividend upon its Series E Preferred Stock; (ii) the Company shall declare any dividend upon its Series E Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Series E Preferred Stock; (iii) the Company shall offer for subscription pro rata to the holders of its Series E Preferred Stock any additional shares of stock of any class or other rights; (iv) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (v) there shall be a voluntary or involuntary dissolution, liquidation, or winding-up of the Company; or (vi) there shall be an initial public offering of Company securities; then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least ten (10) days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, or public offering, at least ten (10) days' prior written notice of the date when the same shall take place. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution, or subscription rights, the date on which the holders of Series E Preferred Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the proposed date of such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up, conversion, or public offering, as the case may be. 9 9.2 Registrable Securities. Upon exercise of this Warrant, the ---------------------- Warrant Shares shall be Registrable Securities under that Third Amended and Restated Investor Rights Agreement dated as of June 10, 1999, to which the Company and holders of its Preferred Stock are parties ("Rights Agreement") and the Holder of this Warrant shall be a Holder under the Rights Agreement. By its receipt of this Warrant, Holder agrees to be bound by the terms of Sections 4 through 13 and Section 15 of the Rights Agreement. 9.3 Replacement Warrant Upon IPO. In the event of conversion of all ---------------------------- of the Company's Series E Preferred Stock into Common Stock in connection with an initial public offering, (i) this Warrant shall be exercisable for Common Stock, not for Series E Preferred Stock, and (ii) Holder shall, following receipt of proper notice from the Company of such conversion, surrender this Warrant to the Company and the Company shall cancel this Warrant and execute and promptly deliver to Holder a replacement Warrant, dated the date of the conversion and having substantially the same terms as those contained herein, with such modifications as are appropriate to give effect to the changes in the Company's capital structure. Holder and the Company shall cooperate to agree on such terms and such replacement Warrant shall be exercisable for such number of shares of Common Stock as would be issuable had the Warrant Shares been outstanding on the date of conversion. 9.4 Representations and Warranties of the Company to Investors. ---------------------------------------------------------- Except as set forth in the Schedule of Exceptions attached as Exhibit B to the --------- Series E Preferred Stock Purchase Agreement dated as of June 10, 1999, the Company hereby represents and warrants to Holder that: (a) Corporate Organization and Authority. The Company: ------------------------------------ (i) is a corporation duly organized, validly existing, authorized to exercise all its corporate powers, rights and privileges, and in good standing in the State of California; (ii) has the corporate power and corporate authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted; (iii) is qualified as a foreign corporation in all jurisdictions in which such qualification is required and where its failure to qualify would have a material adverse effect on the business, properties, prospects or financial condition of the Company. (b) Capitalization. As of June 30, 1999, the authorized -------------- capital of the Company consisted of: 40,000,000 shares of Common Stock, of which 9,642,834 were issued and outstanding, and 25,000,000 shares of Preferred Stock (the "Preferred") of which (a) 1,120,000 shares have been designated Series A Preferred, 1,120,000 of which are issued and outstanding, (b) 3,142,133 shares have been designated Series B Preferred, 3,039,505 of which are issued and outstanding, (c) 7,159,743 shares have been designated Series C Preferred, all of which are issued and outstanding, (d) 3,741,217 shares have been designated Series D Preferred Stock, all of which are issued and outstanding, and (e) 3,600,000 shares have been designated Series E Preferred, 3,394,719 of which are issued or outstanding. The Preferred shall have the 10 rights, preferences, privileges, and restrictions set forth in the Articles. The outstanding shares have been duly authorized and validly issued (including, without limitation, issued in compliance with applicable federal and state securities laws), and are fully-paid and non-assessable. The Company has reserved 1,120,000 shares of Common Stock for issuance upon conversion of the Series A Preferred, an additional 3,309,940 shares of Common Stock for issuance upon conversion of the Series B Preferred, of which 3,201,832 are reserved for issuance upon conversion of the Series B Preferred and 108,108 are reserved for issuance upon the conversion of the Series B Preferred issuable upon exercise of outstanding warrants to purchase Series B Preferred, an additional 7,159,743 shares of Common Stock for issuance upon conversion of the Series C Preferred, an additional 3,741,217 shares of Common Stock for issuance upon conversion of the Series D Preferred, and an additional 3,400,000 are reserved for issuance upon conversion of the Series E Preferred. Except as set forth herein, and in the Rights Agreement, there are no outstanding warrants, options, conversion privileges, preemptive rights, or other rights or agreements to purchase or otherwise acquire or issue any equity securities of the Company other than rights pursuant to the Company's Stock Option Plan and other Board approved equity compensation arrangements and the Warrants listed in the Schedule of Exceptions to the Series E Preferred Stock Purchase Agreement, nor has the issuance of any of the aforesaid rights to acquire securities of the Company been authorized. Since June 30, 1999, there have been no share issuances other than in connection with (i) the Company's acquisition of Lexington Software Associates, Inc. and (ii) option exercises under the Company's Stock Option Plans. (c) Subsidiaries. The Company does not presently own, have any ------------ investment in, or control, directly or indirectly, any Subsidiaries, associations, or other business entities. The Company is not a participant in any joint venture, limited liability company ("L.L.C."), or partnership. (d) Authorization. All corporate action on the part of the ------------- Company, its officers, directors, and shareholders necessary for the authorization, execution, delivery, and performance of all obligations under this Warrant and under the Rights Agreement and for the authorization, issuance, and delivery of the Warrant, the Warrant Shares and the Common Stock issuable upon conversion of the Warrant Shares has been taken, and this Warrant and the Rights Agreement (collectively, the "Transactional Agreements"), constitute legally binding and valid obligations of the Company enforceable in accordance with their terms. (e) Corporate Power. The Company has all requisite legal and --------------- corporate power and authority to execute, issue and deliver the Warrant, to issue the Warrant Shares and the Common Stock issuable upon conversion of the Warrant Shares, and to carry out and perform its obligations under the terms of the Transactional Agreements. (f) Validity of Shares. The Warrant is duly and validly issued ------------------ (including, without limitation, issued in compliance with applicable federal and state securities laws), fully paid and non-assessable. The Warrant Shares and the Common Stock issuable upon conversion of the Warrant Shares have been duly and validly reserved and, assuming such Warrant Shares and Common Stock are issued as contemplated by this Warrant, upon issuance in accordance with the Restated Articles will be duly and validly issued (including, without limitation, issued in compliance with all applicable federal and state securities laws) and 11 non-assessable and will be free of any liens or encumbrances other than any liens or encumbrances created by or imposed thereon by the holders; provided, however, that the Warrant, the Warrant Shares (and the Common Stock issuable upon conversion thereof) shall be subject to restrictions on transfer under state and/or federal securities laws. The Warrant, the Warrant Shares and the Common Stock issuable upon conversion of the Warrant Shares are not subject to any preemptive rights or rights of first refusal, except as otherwise so agreed to by the holders thereof. (g) No Conflict with Other Instruments. The execution, ---------------------------------- delivery, and performance of the Transactional Agreements will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of the Company's Restated Articles or Bylaws; (ii) any provision of any judgment, decree, or order to which the Company is a party or by which it is bound or an event which results in the creation of any material lien, charge or encumbrance upon any material assets of the Company; (iii) any material contract, obligation, or commitment to which the Company is a party or by which it is bound; or (iv) any statute, rule, or governmental regulation applicable to the Company. 10. Governing Law. This Warrant shall be construed and enforced in ------------- accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 11. Lost Warrants. The Company represents and warrants to the Holder ------------- hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor and date, in lieu of the lost, stolen, destroyed or mutilated Warrant. 12. Fractional Shares. No fractional shares or scrip representing ----------------- fractional shares shall be issued upon exercise of this Warrant and in lieu thereof the Company shall pay the Holder an amount in cash equal to such fraction multiplied by the fair market value of a Warrant Share on the date of exercise of this Warrant. 13. No Impairment. The Company represents and warrants that the terms of ------------- this Warrant (other than exercise price and expiration date), taken as a whole or in any material respect, are not less favorable to Holder than the terms of the other warrants issued by the Company. The Company will not, by charter amendment or by 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 terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to Holder, the continued validity of this Warrant and the Company's obligations hereunder. 14. Successors and Assigns. This Warrant and the rights evidenced hereby ---------------------- shall inure to the benefit of and be binding upon the successors of the Company and the successors and 12 assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officer, thereunto duly authorized as of this 28 day of July 1999. INTERWOVEN, INC. a California corporation /s/ MARTIN BRAUNS ------------------------------- Martin Brauns President and Chief Executive Officer 13 FORM OF SUBSCRIPTION -------------------- (To be signed only upon exercise of Warrant) To: [_] Check this box and fill out Item (B) if the undersigned is electing to ---------------------------------------------------------------------- utilize the Net Issue Exercise provisions of Section 1.2 of the attached ------------------------------------------------------------------------ Preferred Stock Warrant. ----------------------- (A) The undersigned, the holder of the attached Preferred Stock Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (1) ( ) shares of --------------------- Series E Preferred Stock of Interwoven, Inc. (the "Company") and herewith makes payment of _____________________ Dollars ($_________) therefor, and requests certificates for such shares be issued in the name of, and delivered to, ___________________________ whose address is __________________________________. (B) The undersigned, the holder of the attached Preferred Stock Warrant, hereby irrevocably elects, in accordance with Section 1.2 of such Warrant, to exercise the purchase right represented by such Warrant for, and to purchase thereunder, (2) ( ) shares of Series E Preferred ---------------------- Stock of Interwoven, Inc. (the "Company") and herewith makes payment in the form of the surrender of the Warrant and the cancellation of the portion of the Warrant representing (3) ( ) shares of Series E Preferred --------------------- Stock, and requests certificates for such shares be issued in the name of, and delivered to, __________________ whose address is _____________________________. In exercising its right to exercise the Warrant, the undersigned hereby confirms and acknowledges the investment representations and covenants made in Section 6.1 of the Warrant. DATED: _______________ ________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) _________________________________ _________________________________ (1) Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. (2) Insert here the number of shares to be issued to the undersigned as determined in accordance with Section 1.2 of the attached Preferred Stock Warrant (such number of shares shall be equal to X as determined in such Section 1.2). (3) Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise (such number being representing Y as set forth in Section 1.2 of the attached Preferred Stock Warrant). 14 EX-21.01 11 SUBSIDIARY OF THE REGISTRANT EXHIBIT 21.01 Interwoven, Inc. has the following subsidiary: Interwoven Ltd. EX-23.02 12 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated July 15, 1999, relating to the financial statements of Interwoven, Inc., which appears in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers LLP San Jose, California September 2, 1999 EX-27.01 13 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from December 31, 1998 and June 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR YEAR 6-MOS DEC-31-1997 DEC-31-1998 DEC-31-1999 JAN-01-1997 JAN-01-1998 JAN-01-1999 DEC-31-1997 DEC-31-1998 JUN-30-1999 1,019 9,022 25,203 0 0 0 140 2,675 2,173 0 270 288 0 22 0 37 237 373 264 1,987 2,548 76 370 666 1,384 13,908 29,948 404 2,842 4,827 0 0 0 4,627 20,464 45,276 0 0 0 3 5 6 (3,737) (10,757) (21,161) 1,384 13,908 29,948 84 3,176 3,258 168 4,003 5,004 0 59 119 95 1,333 1,548 2,933 9,165 9,838 0 0 0 88 41 64 (2,948) (6,344) (6,228) 0 0 0 (2,948) (6,344) (6,228) 0 0 0 0 0 0 0 0 0 (2,948) (6,344) (6,228) (1.36) (2.85) (3.66) (1.36) (2.85) (3.66)
-----END PRIVACY-ENHANCED MESSAGE-----