-----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, S0pQxu5OGR577tDXQsYhNQtsdqaA/BHjuLURcCE1DGNcRim/U0O6pXjFlaf0eIKw M7YVsze4KdIeUzkVlu/06g== 0001012870-00-002485.txt : 20000503 0001012870-00-002485.hdr.sgml : 20000503 ACCESSION NUMBER: 0001012870-00-002485 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 20000502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE MARTINI SOFTWARE INC CENTRAL INDEX KEY: 0001077814 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-36062 FILM NUMBER: 616541 BUSINESS ADDRESS: STREET 1: 2600 CAMPUS DR STREET 2: SUITE 175 CITY: SAN MATEO STATE: CA ZIP: 94403 S-1 1 FORM S-1 As filed with the Securities And Exchange Commission on May 2, 2000 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- BLUE MARTINI SOFTWARE, INC. (Exact name of Registrant as specified in its charter) Delaware 7372 94-3303721 (State or other jurisdiction of (Primary standard industrial (I.R.S. Employer incorporation or organization) classification code number) Identification No.)
2600 Campus Drive, San Mateo, CA 94403, (650) 356-4000 (Address, including zip code, and telephone number, including area code, of the Registrant's principal executive offices) MONTE ZWEBEN Chairman, President and Chief Executive Officer Blue Martini Software, Inc. 2600 Campus Drive, San Mateo, CA 94403, (650) 356-4000 (Name, address, including zip code and telephone number, including area code, of agent for service) --------------- COPIES TO: James C. Gaither, Esq. William H. Hinman, Jr., Esq. Eric C. Jensen, Esq. Shearman & Sterling Cooley Godward LLP 1550 El Camino Real Five Palo Alto Square Menlo Park, CA 94025 3000 El Camino Real (650) 330-2200 Palo Alto, CA 94306 (650) 843-5000
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, as amended (the "Securities Act") check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) of the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration 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 Amount of Title of Each Class of Securities Aggregate Registration to be Registered Offering Price(1) Fee - ------------------------------------------------------------------------------------------------ Common Stock, $0.001 par value................................. $75,000,000 $19,800 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee pursuant to Rule 457(o) promulgated under the Securities Act. 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 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. These + +securities may not be sold until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell nor does it seek an offer to buy these securities in any + +jurisdiction where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion. Dated May 2, 2000. Shares [BMSI Logo] Common Stock ----------- This is an initial public offering of shares of common stock of Blue Martini Software, Inc. All of the shares of common stock are being sold by Blue Martini. Prior to this offering, there has been no public market for the common stock. Blue Martini has applied for quotation of the common stock on the Nasdaq National Market under the symbol "BLUE". It is currently estimated that the initial public offering price per share will be between $ and $ . See "Risk Factors" beginning on page 7 to read about factors you should consider before buying shares of the common stock. ----------- Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. -----------
Per Share Total ----- ----- Initial public offering price................................. $ $ Underwriting discount......................................... $ $ Proceeds, before expenses, to Blue Martini.................... $ $
To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from Blue Martini at the initial public offering price less the underwriting discount. ----------- The underwriters expect to deliver the shares against payment in New York, New York on , 2000. Goldman, Sachs & Co. Dain Rauscher Wessels Thomas Weisel Partners LLC U.S. Bancorp Piper Jaffray ----------- Prospectus dated , 2000. The inside front cover features images of the Blue Martini solution. These include screen shots of websites deployed with our CIS Website module, images of the Symbol Technology mobile wireless device operating the Blue Martini product and screenshots of customer service stations deployed with our Call Center module. PROSPECTUS SUMMARY You should read this summary together with the entire prospectus, including the more detailed information in our financial statements and accompanying notes appearing elsewhere in this prospectus. Unless otherwise indicated, all information contained in this prospectus assumes: (1) no exercise of the underwriters' over-allotment option, (2) the conversion of each outstanding share of preferred stock into four shares of common stock and (3) no exercise of outstanding stock options or warrants. Blue Martini Software, Inc. Our Business We provide e-business software and services that enable companies to build brand equity through direct customer interaction across Internet-related customer "touch points," such as websites, mobile wireless devices and on-line trading exchanges and traditional customer touch points, such as stores and call centers. We believe that our software's integrated analytical and operational capabilities enable companies to increase revenues by coordinating customer interactions across these touch points. Our comprehensive, packaged software application is designed to simplify deployment and accelerate our customers' time to benefit while reducing their total cost of ownership. We have targeted a number of large, vertical markets where we believe brand is paramount, such as retail, manufacturing, financial services, telecommunications, media and travel. Our customers range from Global 2000 companies that have adopted e-business strategies to rapidly growing Internet companies. As of March 31, 2000, we had licensed our software to 35 customers. Our Market Opportunity The use and acceptance of the Internet as a medium for interacting with customers are evolving at rates significantly faster than those experienced by traditional media. According to estimates by International Data Corporation, business-to-business and business-to-consumer transactions are expected to grow from an aggregate of $111 billion at the end of 1999 to $1.3 trillion by the end of 2003. The increasing importance and prevalence of the Internet has further heightened the importance of brand equity and awareness. A powerful brand can attract and retain customers, generating higher revenues and increasing customer value. We believe that companies need to be closer and more responsive to their customers than ever before and, in order to compete more effectively, must coordinate their on-line branding, marketing and merchandising efforts with their traditional sales channels. To address this need, we have developed an integrated suite of enterprise software applications that is designed to offer the following capabilities: . Product Management. Our software enables companies to richly, accurately and persuasively describe their products and product hierarchies, establish pricing and create promotions. . Content Management. Our software enables companies to author, manage, approve and track the development and use of content, such as text, graphics, audio and video. . Transaction Execution. Our software enables companies to conduct business on their websites, over the phone, via wireless devices and through other sales channels, including taking orders and managing returns. . Analysis. Our software's analytic capabilities increase companies' ability to accurately identify market segments, deeply understand customer behavior, readily mine purchase histories and determine strategies to effectively target customers. . Personalization. Our software's sophisticated algorithms enable companies to effectively target customers across multiple touch points with meaningful and relevant products, promotions and content. 3 Our Strategy Our objective is to be the leading provider of enterprise e-business software applications and services that enable companies worldwide to build brand equity through direct customer interaction across multiple touch points. Key elements of our product strategy are to: . Enable consistent and personalized customer interaction across multiple touch points; . Provide a comprehensive suite of e-business applications targeted at business line managers; and . Integrate operational and analytical applications to enable effective customer interaction and ongoing business improvements. Key elements of our sales and marketing strategy are to: . Target large, vertical markets where brand equity is paramount; . Leverage relationships with systems integrators to focus on license revenues; . Expand our international presence; and . Address smaller, or mid-market, companies through a subscription-driven business model. We were formed in June 1998 as Blue Martini LLC, a Delaware limited liability company, and merged into Blue Martini Software, Inc., a Delaware corporation, in January 1999. Our principal executive offices are located at 2600 Campus Drive, San Mateo, California 94403 and our telephone number is (650) 356-4000. Information contained on our website shall not be deemed to be a part of this prospectus. "Blue Martini Software" is our registered trademark. This prospectus also includes trademarks owned by other parties. 4 The Offering Common stock offered................................ shares Common stock to be outstanding after the offering .. shares Use of proceeds..................................... For operating activities, including expansion of our sales and marketing organizations, capital expenditures and other general corporate purposes, including general and administrative operations and the repayment of indebtedness. Proposed Nasdaq National Market symbol.............. BLUE
The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of April 15, 2000, and excludes: . 5,906,400 shares subject to options outstanding as of April 15, 2000, at a weighted average exercise price of $2.32 per share; . 2,445,000 shares subject to outstanding warrants as of April 17, 2000, at a weighted average exercise price of $4.94 per share; . 9,950,100 additional shares that are available for future grant under our stock option plans as of April 15, 2000; and . 4,000,000 shares that we could issue under our employee stock purchase plan as of April 15, 2000. 5 Summary Financial Data
June 5, 1998 Three Months (Inception) to Year Ended Ended March 31, December 31, December 31, ----------------- 1998 1999 1999 2000 -------------- ------------ ------- -------- (In thousands, except per share data) Statements of Operations Data: Total revenues.................. $ -- $ 11,232 $ 241 $ 10,681 Gross profit.................... -- 5,084 128 3,902 Loss from operations............ (1,160) (10,181) (1,393) (11,441) Net loss ....................... (1,145) (9,928) (1,362) (11,381) ======= ======== ======= ======== Basic and diluted net loss per common share................... $ (0.05) $ (0.43) $ (0.06) $ (0.45) ======= ======== ======= ======== Shares used in computing basic and diluted net loss per common share.......................... 22,000 22,964 22,000 25,108 ======= ======== ======= ======== Pro forma basic and diluted net loss per common share.......... $ (0.24) $ (0.23) ======== ======== Shares used in computing pro forma basic and diluted net loss per common share.......... 41,348 48,452 ======== ========
The following table presents a summary of our balance sheet as of March 31, 2000: . on an actual basis; . on a pro forma basis after giving effect to the conversion of our outstanding convertible preferred stock into 23,297,000 shares of common stock immediately prior to the closing of the offering; and . on a pro forma as adjusted basis to reflect the sale of shares of common stock at an assumed initial public offering price of $ per share after deducting underwriting discounts and commissions and estimated offering expenses.
Pro Pro Forma Actual Forma As Adjusted ------- ------- ----------- (In thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments............ $13,632 $13,632 Working capital......... 1,023 1,023 Total assets............ 27,788 27,788 Long-term obligations, less current portion... 602 602 Total stockholders' equity................. 6,537 6,537
6 RISK FACTORS An investment in our common stock is risky. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before deciding whether to invest in our common stock. The occurrence of any of the following risks could harm our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose part or all of your investment. The risks and uncertainties described below are not exhaustive. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also harm our business. Risks Related To Our Business Our short operating history makes it difficult to evaluate our business and prospects. You must consider our business and prospects given the risks, expenses and challenges we might encounter because we are at an early stage of development in a new and rapidly evolving market. We licensed our first product in March 1999, and our sales and service organizations are new and still growing. As a result, we have not yet experienced one full calendar year of operations since we first licensed our product. Due to our short operating history, our future financial performance is not predictable and may disappoint investors and result in a significant decline in our stock price. We have incurred losses during our operating history and we may not achieve or maintain profitability. We incurred net losses of $1.1 million for the period from June 5, 1998, our date of inception, through December 31, 1998, $9.9 million for the year ended December 31, 1999 and $11.4 million for the quarter ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of $22.5 million. We expect to continue to incur losses on both a quarterly and annual basis for the next few years. Moreover, we expect to continue to incur significant sales and marketing and research and development expenses. Further, we will incur substantial stock compensation expense in future periods, which represents non-cash charges incurred due to the issuance of stock options prior to this offering. Therefore, we will need to significantly increase our revenues to achieve and maintain profitability. We may not be able to sustain our recent revenue growth rates or be able to generate sufficient revenues to achieve profitability. If our product does not successfully function for customers with large numbers of transactions, customers or product offerings, we may lose sales and suffer decreased revenues. Our product must be highly scalable to accommodate a large number of transactions, customers and product offerings. Large scale usage presents significant technical challenges which are difficult or impossible to predict. To date, our product has been deployed by only a limited number of customers and, therefore, we cannot assure you that our product is scaleable enough to meet our customers' demands for large scale usage. If our customers experience difficulty with our product during periods of high traffic or usage, it could damage our reputation and reduce our revenues. Because a small number of customers have accounted, and are likely to continue to account, for a substantial portion of our revenues, our revenues could decline due to the loss or delay of a single customer order. A relatively small number of customers account for a significant portion of our total revenues. The loss or delay of individual orders could have a significant impact on revenues and operating 7 results. Levi Strauss & Co., Deluxe Corporation and Harley-Davidson, Inc. each accounted for more than ten percent of our total revenues in 1999 and combined for an aggregate of 48% of our total revenues in 1999. EighteenGlobal BVI and ibeauty.com, Inc. each accounted for more than ten percent of our total revenues in the quarter ended March 31, 2000 and combined for an aggregate of 22% of our total revenues in that period. We expect that revenues from a limited number of new customers will continue to account for a large percentage of total revenues in future quarters. Our ability to attract new customers will depend on a variety of factors, including the performance, quality, breadth, depth and price of our current and future products. Our failure to add new customers that make significant purchases of our product and services would reduce our future revenues. We record as deferred revenues payments from customers that do not meet our revenue recognition policy requirements. Since only a portion of our revenues each quarter is recognized from deferred revenues, our quarterly results will depend primarily upon entering into new contracts to generate revenues for that quarter. New contracts may not result in revenues in the quarter in which the contract was signed and commissions and royalties become payable, and we may not be able to predict accurately when revenues from these contracts will be recognized. Substantially all of our revenues to date have been derived from the licensing of our software product and related services, and if we fail to successfully upgrade or enhance our product and introduce new products, our revenues would decline. Substantially all of our revenues to date have been derived from the licensing of our software product and related services. Our future revenues will depend, in significant part, on our successful development and license of new and enhanced versions of our product and of other new products. If we are not able to successfully develop new products or these new products do not achieve market acceptance, our revenues would be reduced. Our product has a long and variable sales cycle, which makes it difficult to predict our quarterly results and may cause our operating results to vary significantly. The period between initial contact with a prospective customer and the licensing of our product varies, but is typically five to seven months. The licensing of our product is often an enterprise-wide decision by our customers that involves a significant commitment of resources by us and the prospective customer. Customers generally consider a wide range of issues before committing to purchase our product, including product benefits, cost and time of implementation, ability to operate with existing and future computer systems and ability to accommodate increased transaction volume and product reliability. As part of the sales process, we spend a significant amount of resources informing prospective customers about the use and benefits of our product, which may not result in a sale, thereby reducing our margins. As a result of this sales cycle, our revenues are unpredictable and could vary significantly from quarter to quarter causing our operating results to vary significantly from quarter to quarter. Our failure to develop and maintain strong relationships with systems integrators would harm our ability to market our product, which could reduce future revenues and increase our expenses. A significant portion of our sales are influenced by the recommendation of our product by systems integrators, consulting firms and other third parties that help deploy our product for our customers. Losing the support of these third parties may limit our ability to penetrate our existing or potential markets. These third parties are under no obligation to recommend or support our product and could recommend or give higher priority to the products and services of other companies or to their own products. A significant shift by these companies toward favoring competing products could negatively affect our software license and service revenues. 8 Some systems integrators also engage in joint marketing and sales efforts with us. If our relationships with systems integrators fail, we will have to devote substantially more resources to the sales and marketing of our product. In many cases, these parties have extensive relationships with our existing and potential customers and influence the decisions of these customers. A number of our competitors have longer and more established relationships with these systems integrators than we do, and as a result these systems integrators may be more likely to recommend competitors' products and services and increase our expenses. Our failure to develop and maintain strong relationships with systems integrators would harm our ability to implement our product. Systems integrators assist our customers with the installation and deployment of our product, in addition to those of our competitors, and perform custom integration of computer systems and software. If we are unable to develop and maintain relationships with systems integrators, we would be required to hire additional personnel to install and maintain our product, which would result in higher expenses. If our product does not operate with a wide variety of hardware, software and operating systems used by our customers, our revenues would be harmed. We currently serve a customer base that uses a wide variety of constantly changing hardware, software applications and operating systems. Our product will only gain broad market acceptance if it can support a wide variety of hardware, software applications and systems. If our product is unable to support a variety of these products our revenues would be harmed. Our business depends on the following factors, among others: . our ability to integrate our product with multiple hardware systems and existing software systems and to modify our product as new versions of packaged applications are introduced; . our ability to anticipate and support new standards, especially Internet-based standards; and . our ability to integrate additional software modules under development with our existing product. Defects in our product could diminish demand for our product and result in loss of revenues, decreased market acceptance, injury to our reputation and product liability claims. Errors may be found from time to time in our existing, new or enhanced products after commencement of commercial shipments, resulting in loss of revenues or injury to our reputation. Although we conduct extensive product testing during product development, we have in the past discovered software errors in our product and, as a result, have experienced delays in the shipment of our product. Errors in our product may be caused by defects in third-party software incorporated into our product. If so, we may not be able to fix these defects without the cooperation of these software providers. Since these defects may not be as significant to our software providers as they are to us, we may not receive the rapid cooperation that we may require. We may not have the contractual right to access the source code of third-party software and, even if we access the source code, we may not be able to fix the defect. Since our customers use our product for critical business applications such as e-commerce, any errors, defects or other performance problems of our product could result in damage to the businesses of our customers. These customers could seek significant compensation from us for their losses. Although our license agreements typically contain provisions designed to limit our exposure to 9 product liability claims, existing or future laws or unfavorable judicial decisions could negate these limitations. Even if unsuccessful, a product liability claim brought against us would likely be time consuming and costly. We depend on technologies licensed to us by third parties, and the loss or inability to maintain these licenses could prevent or delay sales of our product. We license technologies from third party software providers that are incorporated into our product. We anticipate that we will continue to license technologies from third parties in the future. In particular, we license application server technology from BEA Systems, Inc. and a rules engine from Blaze Software, Inc. The license agreement with BEA expires in July 2003, and the license agreement with Blaze expires in March 2004. We may not be able to renew our license agreements for this software on commercially reasonable terms, if at all. The loss of these technologies or other third-party technologies could prevent sales of our product and increase our costs until substitute technologies, if available, are developed or identified, licensed and successfully integrated into our product. Even if substitute technologies are available, there can be no guarantee that we will be able to license these technologies on commercially reasonable terms, if at all. If we fail to introduce new versions and releases of our product in a timely manner, customers may license competing products and our revenues may decline. If we are unable to ship or implement enhancements to our product when planned or at all, or fail to achieve timely market acceptance of these enhancements, we may suffer lost sales and could fail to increase our revenues. Our future operating results will depend on demand for our product, including new and enhanced releases that are subsequently introduced. We may not successfully enter international markets or generate significant revenues abroad, which could result in slower revenue growth and harm our business. To date, we have generated limited revenues from sales outside the United States. We intend to establish offices in the United Kingdom and elsewhere in Europe, Asia and Latin America. If we fail to sell our product in international markets, we could experience slower revenue growth and our business could be harmed. We anticipate devoting significant resources and management attention to expanding international opportunities. Expanding internationally subjects us to a number of risks, including: . greater difficulty in staffing and managing foreign operations; . changes in a specific country's or region's political or economic conditions; . expenses associated with localizing our product for foreign countries; . differing intellectual property rights; . protectionist laws and business practices that favor local competitors; . longer sales cycles and collection periods or seasonal reductions in business activity; . multiple, conflicting and changing governmental laws and regulations; and . foreign currency restrictions and exchange rate fluctuations. Our operating results may fluctuate significantly and an unanticipated decline in our financial performance may disappoint securities analysts or investors and result in a decline in our stock price. Our quarterly operating results have fluctuated significantly in the past and will vary significantly in the future. If our operating results are below the expectations of securities analysts or investors, 10 our stock price is likely to decline. We believe that period-to-period comparisons of our historical results of operations are not a good predictor of our future performance. Our revenues and operating results depend upon the volume and timing of customer orders and the date of product delivery. Since our operating expenses primarily consist of personnel and facilities costs which are relatively fixed, a delay in the recognition of revenue from one or more license transactions could cause significant, unanticipated variations in operating results from quarter to quarter. Our growth continues to place a significant strain on our management systems and resources, and if we fail to manage our growth our ability to market and license our product, sell our services and develop new products may be harmed. We must manage our growth effectively in order to successfully license our product, sell our services and achieve revenue growth and profitability in a rapidly evolving market. Our growth has placed, and will continue to place, a significant strain on our management systems and resources, and we may not be able to effectively manage our growth in the future. We continue to increase the scope of our operations and have added a substantial number of employees. For example, the number of our employees grew from 23 people at March 31, 1999 to 235 people at March 31, 2000. In particular, our professional services, technical support and training organizations grew from three people at March 31, 1999 to 109 people at March 31, 2000. In addition, we need to obtain additional office space in Northern California to accommodate our growth. We may not be able to obtain space at commercially reasonable rates, if at all. For us to effectively manage our growth, we must continue to do the following: . improve our operational, financial and management controls; . improve our reporting systems and procedures; . install new management and information control systems; and . expand, train and motivate our workforce. In particular, we are currently migrating to a new accounting software package designed to allow greater flexibility in reporting and tracking results. If we fail to install this software in an efficient and timely manner, or if the new system fails to adequately support our level of operations, then we could incur substantial additional expenses to remedy these failures. Risks Related to the Software Industry Competition in our markets is intense and could reduce our sales and prevent us from achieving profitability. The market for our product is intensely competitive and subject to rapid technological change. We expect the intensity of competition to increase in the future. Increased competition is likely to result in price reductions, reduced gross margins and loss of our market share, any one of which could reduce our future revenues or earnings. Our current competitors include: . Point Application Vendors. We compete with providers of stand-alone point solutions such as BroadVision, Inc., E.piphany, Inc. and Vignette Corporation. . Component Vendors. We compete with component vendors such as Art Technology Group, Inc., IBM and Microsoft Corporation. . Enterprise Resource Planning, Customer Relationship Management and Supply Chain Management Vendors. We compete with ERP, CRM and SCM Vendors such as Oracle, PeopleSoft, Inc., SAP AG, Siebel Systems, Inc. and i2 Technologies, Inc. 11 . Internal IT Departments. Information technology departments of potential customers have developed or may develop systems that provide for some or all of the functionality of our product. We expect that internally- developed application integration and process automation efforts will continue to be a principal source of competition for the foreseeable future. In particular, it can be difficult to license our product to a potential customer whose internal development group has already made large investments in, and progress towards completion of, systems that our product is intended to replace. Many of our competitors have greater resources and broader customer relationships than we do. In addition, many of these competitors have extensive knowledge of our industry. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to offer a single solution and increase the ability of their products to address customer needs. Because competition for qualified personnel is intense, we may not be able to retain or recruit personnel, which could impact the development and license of our product. If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or to reach expected levels of productivity, our ability to develop and market our product will be weakened. Our success also depends on the continued contributions of our key management, engineering, sales and marketing and professional services personnel. In particular, Monte Zweben, our Chairman, President and Chief Executive Officer, would be difficult to replace. We do not have employment agreements with any of our key personnel except an agreement with John E. Calonico, Jr., our Vice President, Chief Financial Officer and Secretary. Our ability to increase our sales will depend on our ability to recruit, train and retain top quality sales people who are able to target prospective customers' senior management, and who can generate and service large accounts. There is a shortage of qualified sales personnel in our industry and competition for them is intense. Failure of our prospective Internet customers to receive necessary funding could harm our business. Our targeted customers include rapidly growing Internet companies. Most privately and publicly held Internet companies require outside cash sources to continue operations. To the extent additional funding is less available for Internet companies as a result of a stock market decline or other factors, demand for our product may decline significantly and thereby reduce our revenues. Increasing government regulation of the Internet, imposition of sales and other taxes on products sold by our customers over the Internet and privacy concerns relating to the Internet could reduce the license of our product and harm our business. Federal, state or foreign agencies may adopt laws or regulations affecting the use of the Internet as a commercial medium. Although many of these laws or regulations may not apply to our business directly, we expect that laws and regulations relating to user privacy, pricing, content and quality of products and services could indirectly affect our business. Current federal legislation limits the imposition of state and local taxes on Internet-related sales at this time. Congress may choose not to renew this legislation in 2001, in which case state and local governments would be free to impose taxes on electronically purchased goods. The imposition of new sales or other taxes could limit the growth of Internet commerce in general and, as a result, the demand for our product and services. Businesses use our software to capture information regarding their customers when those customers contact them on-line with customer service inquiries. Privacy concerns may cause visitors 12 to withhold personal data, which would limit the effectiveness of our software product. More importantly, even the perception of privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our product. If we are unable to protect our intellectual property, we may lose a valuable asset or incur costly litigation to protect our rights. Our success and ability to compete depend upon our proprietary rights and intellectual property. We rely on trademark, trade secret and copyright laws to protect our intellectual property. We have no patents and two patent applications. Despite our efforts to protect our intellectual property, a third party could copy or obtain the source code to our software or other proprietary information without authorization, or could develop software competitive to ours. Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technology or duplicate our product. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets or know-how or to determine their scope, validity or enforceability. Enforcing our proprietary technology would be expensive, could cause the diversion of our resources and may not prove successful. If we are unable to protect our intellectual property, we may lose a valuable asset. If we become subject to intellectual property infringement claims, these claims could be costly and time-consuming to defend, divert management attention, cause product delays and harm our revenues and results of operations. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry grows and the functionality of products overlaps. Any claims, with or without merit, could be costly and time-consuming to defend, divert our management's attention or cause product delays. We have no patents that we could use defensively against any company bringing such a claim. If our product was found to infringe a third party's proprietary rights, we could be required to enter into royalty or licensing agreements to be able to sell our product. Royalty and licensing agreements, if required, may not be available on terms acceptable to us, or at all. If we are unable to meet the rapid changes in technology, our existing product could become obsolete. The market for our product is marked by rapid technological change, frequent new product introductions, Internet-related technology enhancements, uncertain product life cycles, changes in client demands and evolving industry standards. We cannot be certain that we will successfully develop and market new products, new product enhancements or new products compliant with present or emerging Internet technology standards. New products based on new technologies or new industry standards can render existing products obsolete and unmarketable. To succeed, we will need to enhance our current product and develop new products on a timely basis to keep pace with developments related to Internet technology and to satisfy the increasingly sophisticated requirements of our clients. Enterprise application software technology is complex and new products and product enhancements can require long development and testing periods. Any delays in developing and releasing enhanced or new products could harm our business. Risks Related to this Offering Our failure to raise the additional capital necessary to expand our operations and invest in new products could reduce our ability to compete and result in lower revenues. We expect that the net proceeds from this offering will be sufficient to meet our working capital and capital expenditure needs for the next twelve to eighteen months. After that, we may need to 13 raise additional funds, and we cannot be certain that we will be able to obtain additional financing on favorable terms, or at all. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things: . develop or enhance our product and services; . acquire technologies, products or businesses; . expand operations in the United States or internationally; . hire, train and retain employees; or . respond to competitive pressures or unanticipated capital requirements. Our failure to do any of these things could result in lower revenues and could harm our business. New investors in our common stock will experience immediate and substantial dilution. The initial public offering price will be substantially higher than the book value per share of our common stock. Investors purchasing common stock in this offering will, therefore, incur immediate dilution of $ in net tangible book value per share of common stock, based on the assumed initial public offering price of $ per share. In addition, the number of shares available for issuance under our stock option and employee stock purchase plans will automatically increase without stockholder approval. Investors will incur additional dilution upon the exercise of outstanding stock options. Our directors and executive officers will retain significant control over Blue Martini after the offering, which may lead to conflicts with other stockholders over corporate governance. Following the completion of this offering, our directors, executive officers and holders of 5% or more of our outstanding common stock will beneficially own approximately % of our outstanding common stock. Monte Zweben, our Chairman, President and Chief Executive Officer, together with related entities, will own approximately % of our common stock after this offering. These stockholders, acting together, and Mr. Zweben, individually, will be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions. This control may delay or prevent a third party from acquiring or merging with us. Our stock price may be volatile because our shares have not been publicly traded before and, as a result, you may lose all or a part of your investment. The market price of our common stock may fluctuate significantly in response to factors including the following, most of which are beyond our control: . variations in our quarterly revenues and operating results; . changes in overall market conditions; . changes in market valuations of similar companies; and . departures of key personnel. Before this offering, you could not buy or sell our common stock publicly. The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay. Prior to this offering, you could not buy or sell our common stock publicly. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay. 14 An active public market for our common stock may not develop or be sustained after the offering. We negotiated and determined the initial public offering price with the representatives of the underwriters and this price may not be indicative of prices that will prevail in the trading market. As a result, you may be unable to sell your shares of common stock at or above the offering price. We are at risk of securities class action litigation due to our expected stock price volatility. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially acute for us because technology companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number of securities class action claims than companies in other industries. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, and could harm our business. We have implemented anti-takeover provisions which could discourage or prevent a takeover, even if an acquisition would be beneficial to our stockholders. Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include: . establishment of a classified board of directors requiring that not all members of the board may be elected at one time; . authorizing the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; . prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; . limitations on the ability of stockholders to call special meetings of stockholders; . prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and . establishing advance notice requirements 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 the terms of our stock option plans may discourage, delay or prevent a change in control of Blue Martini. There may be sales of a substantial amount of our common stock after this offering that could cause our stock price to fall. Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Sales of a substantial number of shares of our common stock within a short period of time after this offering could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock. See "Shares Eligible for Future Sale." 15 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "potential," "continue," "may," "will," "should," "could" and "estimates," and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" and elsewhere in this prospectus. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. 16 USE OF PROCEEDS We estimate that our net proceeds from the sale of the shares of common stock that we are offering will be approximately $ million, at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters' over-allotment option is exercised in full, we estimated that our net proceeds will be approximately $ million. We intend to use the net proceeds from this offering for operating activities, including approximately $20.5 million to expand our sales and marketing organizations, approximately $7.3 million for capital expenditures and the balance for other general corporate purposes, including general and administrative operations and the repayment of approximately $650,000 of indebtedness. Our management will retain broad discretion in the allocation of the net proceeds of this offering. The amounts we actually spend will depend on a number of factors, including the amount of our future revenues and other factors described elsewhere in this prospectus. We may also use a portion of the net proceeds to invest in or acquire additional businesses, products and technologies, or to establish joint ventures that we believe will complement our current or future business. Pending these uses, we will invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have never paid or declared any cash dividends. We currently expect to retain earnings for use in the operation and expansion of our business, and therefore do not anticipate paying any cash dividends for the foreseeable future. 17 CAPITALIZATION The following table sets forth our capitalization as of March 31, 2000: . on an actual basis; . on a pro forma basis after giving effect to the conversion of our outstanding convertible preferred stock into 23,297,000 shares of common stock immediately prior to the closing of the offering; and . on a pro forma as adjusted basis to reflect the sale of shares of common stock at an assumed initial public offering price of $ per share after deducting underwriting discounts and commissions and estimated offering expenses.
Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (In thousands, except per share amounts) Long-term obligations, less current portion.... $ 602 $ 602 $ 602 -------- -------- -------- Stockholders' equity: Convertible preferred stock, $0.001 par value; actual--7,200 shares authorized; 5,824 shares issued and outstanding; aggregate liquidation preference of $18,712; pro forma--5,000 shares authorized; no shares issued and outstanding.................................. 6 -- -- Common stock, $0.001 par value; actual--46,000 shares authorized; 35,361 shares issued and outstanding; pro forma--500,000 shares authorized; 58,657 shares issued and outstanding; pro forma as adjusted--500,000 shares authorized shares issued and outstanding.................................. 35 59 Additional paid-in-capital.................... 67,086 67,068 Deferred stock compensation................... (38,136) (38,136) (38,136) Accumulated deficit........................... (22,454) (22,454) (22,454) -------- -------- -------- Total stockholders' equity................... $ 6,537 6,537 -------- -------- -------- Total capitalization......................... $ 7,139 $ 7,139 $ ======== ======== ========
The number of shares outstanding excludes: . 5,906,400 shares subject to options outstanding as of April 15, 2000, at a weighted average exercise price of $2.32 per share; . 2,445,000 shares subject to outstanding warrants as of April 17, 2000 at a weighted average exercise price of $4.94 per share; . 9,950,100 additional shares that are available for future grant under our stock option plans as of April 15, 2000; and . 4,000,000 shares that we could issue under our employee stock purchase plan as of April 15, 2000. 18 DILUTION Our pro forma net tangible book value as of March 31, 2000 was approximately $6.5 million, or approximately $0.11 per share. 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 after giving effect to the conversion of all outstanding shares of preferred stock into shares of common stock upon completion of this offering. Dilution in net tangible book value per share represents the difference between the amount per share paid by new investors purchasing shares of common stock in this offering and the net tangible book value per share immediately after completion of this offering. Our net tangible book value as of March 31, 2000 would have been approximately $ million or $ per share, after giving effect to the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. This amount represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing shares of common stock in this offering, as illustrated in the following table: Assumed initial public offering price per share.................. $ Pro forma net tangible book value per share as of March 31, 2000.......................................................... $0.11 Increase per share attributable to new investors............... ----- Pro forma net tangible book value per share after this offering.. --- Dilution per share to new investors.............................. $ ===
The following table summarizes, on the pro forma basis described above, as of March 31, 2000, 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 new investors purchasing shares in this offering. We have assumed an initial public offering price of $ per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses.
Shares Total Purchased Consideration Average -------------- -------------- Price Number Percent Amount Percent Per Share ------ ------- ------ ------- --------- Existing stockholders................ New investors........................ ---- --- ---- --- --- Total.............................. ==== === ==== === ===
As of April 17, 2000, there were outstanding options to purchase a total of 5,906,400 shares of common stock at a weighted average exercise price of $2.32 per share. As of April 17, 2000, there were outstanding warrants to purchase a total of 2,445,000 shares of series C preferred stock at a weighted average exercise price of $4.94 per share. To the extent these outstanding options or warrants are exercised, there will be further dilution to new investors. 19 SELECTED FINANCIAL DATA This section presents historical financial data of Blue Martini. You should carefully read the financial statements included in this prospectus, including the notes to the financial statements. The selected data in this section is not intended to replace the financial statements. We derived the statement of operations data for the period from June 5, 1998 (Inception) to December 31, 1998 and the year ended December 31, 1999 and balance sheet data as of December 31, 1998 and 1999 from the audited financial statements included in this prospectus. KPMG LLP, our independent auditors, audited these financial statements. We derived the statement of operations data for the three months ended March 31, 1999 and 2000 and balance sheet data as of March 31, 2000 from the unaudited financial statements included in this prospectus. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations for these periods and financial condition at that date. The historical results presented below are not necessarily indicative of future results. The pro forma information in the following table gives effect to the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering.
June 5, 1998 Three Months (Inception) to Year Ended Ended March 31, December 31, December 31, ------------------ 1998 1999 1999 2000 -------------- ------------ -------- -------- (In thousands, except per share data) Statement of Operations Data: Revenues: License....................... $ -- $ 7,205 $ 25 $ 6,070 Service....................... -- 4,027 216 4,611 -------- -------- -------- -------- Total revenues............... -- 11,232 241 10,681 -------- -------- -------- -------- Cost of revenues: License....................... -- 719 3 561 Service....................... -- 5,429 110 6,218 -------- -------- -------- -------- Total cost of revenues....... -- 6,148 113 6,779 -------- -------- -------- -------- Gross profit................. -- 5,084 128 3,902 -------- -------- -------- -------- Operating expenses: Sales and marketing........... 407 7,177 366 8,473 Research and development...... 504 6,870 947 4,361 General and administrative.... 249 1,218 208 2,509 -------- -------- -------- -------- Total operating expenses..... 1,160 15,265 1,521 15,343 -------- -------- -------- -------- Loss from operations......... (1,160) (10,181) (1,393) (11,441) Interest and other, net........ 15 253 31 60 -------- -------- -------- -------- Net loss..................... $ (1,145) $ (9,928) $ (1,362) $(11,381) ======== ======== ======== ======== Basic and diluted net loss per common share.................. $ (0.05) $ (0.43) $ (0.06) $ (0.45) ======== ======== ======== ======== Shares used in computing basic and diluted net loss per common share.................. 22,000 22,964 22,000 25,108 ======== ======== ======== ======== Pro forma basic and diluted net loss per common share......... $ (0.24) $ (0.23) ======== ======== Shares used in computing pro forma basic and diluted net loss per common share......... 41,348 48,452 ======== ========
December 31, ------------ March 31, 1998 1999 2000 ---- ------- --------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments....... $261 $12,924 $13,632 Working capital ........................................ 53 7,708 1,023 Total assets ........................................... 742 20,360 27,788 Long-term obligations, less current portion............. 39 544 602 Total stockholders' equity.............................. 317 10,295 6,537
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus. Overview Blue Martini LLC, a Delaware limited liability company, was founded on June 5, 1998. On January 12, 1999, Blue Martini LLC merged into Blue Martini Software, Inc., a Delaware corporation, with Blue Martini Software, Inc. being the surviving entity. We provide e-business software and services that enable companies to build brand equity through direct customer interaction across customer Internet- related touch points, such as websites, mobile wireless devices and on-line trading exchanges and traditional customer touch points, such as stores and call centers. In March 1999, we released the first commercial version of our product. Following the initial release of our product, we accelerated the development of our professional services, technical support, training, sales and marketing organizations. We have incurred significant losses since inception, and as of March 31, 2000, we had an accumulated deficit of $22.5 million. Our revenues are derived from the licensing of our software product and the sale of related services. The license agreement for our software product typically provides for an initial fee to use the software in perpetuity. License revenues are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collectibility is probable, assuming no significant future obligations or customer acceptance rights exist. If an acceptance period is contractually provided, revenues are recognized upon the earlier of customer acceptance or the expiration of that period. In instances where delivery is electronic and all other criteria for revenue recognition have been achieved, the product is considered to have been delivered when the customer either takes possession by downloading the software or the access code to download the software from the Internet has been provided to the customer. Payments received in advance of revenue recognition are recorded as deferred revenues. Services revenues are principally derived from professional services, technical support and training. Customers who license our product typically purchase maintenance contracts. Our maintenance agreements entitle customers to receive software updates, maintenance releases and technical support. Maintenance is typically paid in advance and the related revenues are deferred and recognized ratably over the term of the maintenance contract, which is typically one year. A majority of our customers use systems integrators to implement our product. Customers typically purchase additional professional services and training from us to support their implementations. Professional services and training are typically sold on a time-and-materials basis and revenues from these services are recognized when the services are performed and collectibility is deemed probable. We market our software product through a direct sales force. We also engage in alliances with systems integrators and technology vendors to assist us in marketing and selling our software product and related services. While our revenues to date have been derived principally from customers in the United States, 19% of our revenues for the quarter ended March 31, 2000, were from customers outside the United States. We believe international revenues will represent a more 21 significant portion of our total revenues in the future. Although we have a limited operating history, we believe that our quarterly operating results may experience seasonal fluctuations. For instance, quarterly results may fluctuate based on our customers' fiscal year, budgeting cycles and slow summer purchasing patterns. We have derived a significant portion of our license revenues in each quarter from a small number of relatively large orders. In 1999, revenues from each of Levi Strauss & Co., Deluxe Corporation and Harley-Davidson, Inc. represented more than 10% of our total revenues and combined for an aggregate of 48% of our total revenues in 1999. EighteenGlobal BVI and ibeauty.com each accounted for more than 10% of our total revenues in the quarter ended March 31, 2000, and combined for an aggregate of 22% of our total revenues in that period. While we do not anticipate that any one customer will represent more than 10% of total revenues in 2000, we do expect that a limited number of customers will continue to account for a substantial portion of our license revenues in a given quarter. As a result, if we lose a major customer or if an anticipated license contract is delayed or cancelled, our revenues and operating results in a particular quarterly period would be adversely affected. In addition, customers that have accounted for significant revenues in the past may not generate revenues in any future period. If we fail to obtain a significant number of new customers or additional orders from existing customers, our business and operating results could be harmed. We believe our success requires expanding our customer base, continuing to enhance our software product and growing our professional services, technical support and training organizations. We expect that our operating expenses will increase as we invest to expand our sales and marketing operations worldwide, fund greater levels of research and development, grow our global professional services, technical support and training organizations and expand our related infrastructure. As a result of anticipated increases in our operating expenses, we expect to continue to incur net losses both on a quarterly and annual basis for the next few years. Our operating expenses are based in part on our expectations of future revenues and are relatively fixed in the short term. As such, a delay in the recognition of revenues from one or more license contracts could cause variations in our operating results from quarter to quarter and could result in net losses in a given quarter being greater than expected. 22 Results of Operations The following table presents selected financial data for the periods indicated as a percentage of total revenues:
Three Months Ended Year Ended March 31, December 31, --------------- 1999 1999 2000 ------------ ------ ------ Revenues: License........................................ 64% 10% 57% Service........................................ 36 90 43 --- ------ ------ Total revenues............................... 100 100 100 --- ------ ------ Cost of revenues: License........................................ 6 1 5 Service........................................ 48 46 58 --- ------ ------ Total cost of revenues....................... 54 47 63 --- ------ ------ Gross profit................................. 46 53 37 --- ------ ------ Operating expenses: Sales and marketing............................ 64 152 79 Research and development....................... 61 393 41 General and administrative..................... 11 86 24 --- ------ ------ Total operating expenses..................... 136 631 144 --- ------ ------ Loss from operations......................... (90) (578) (107) Interest and other, net.......................... 2 13 1 --- ------ ------ Net loss..................................... (88)% (565)% (106)% === ====== ======
Revenues License. Our software product was commercially released in March 1999, and we recognized no license revenues before that date. License revenues increased from $25,000 for the three months ended March 31, 1999 to $6.1 million for the three months ended March 31, 2000 due to an increase in software licenses to new customers. License revenues were $7.2 million in 1999. Service. Service revenues increased from $216,000 for the three months ended March 31, 1999 to $4.6 million for the three months ended March 31, 2000. This increase was due to an increase in the number of customer deployments and customers under maintenance agreements, as well as an increase in training revenues. Service revenues were $4.0 million in 1999, reflecting revenues from our professional services, technical support and training organizations established during the year and maintenance revenues associated with new product licenses. We expect that our service revenues will increase as a percentage of total revenues as we build our professional services staff in the near term, and then decrease as a percentage of total revenues over the long term as we increase the number of business alliances with systems integrators and other professional services organizations. Cost of Revenues License. Cost of license revenues consists of royalties payable to third parties for software that is either embedded in or bundled with our product. Cost of license revenues increased from $3,000 for the three months ended March 31, 1999 to $561,000 for the three months ended March 31, 2000. These amounts represented 12% and 9% of license revenues for these periods. The increase in cost of license revenues in absolute dollars was principally the result of growth in license revenues resulting in increased royalties payable to third parties. In 1999, cost of license revenues was $719,000 and represented 10% of license revenues for the period. We expect cost of license 23 revenues will increase in absolute dollars in the future due to higher royalties payable to third parties as a result of anticipated growth in license revenues. To the extent license revenues increase, we expect cost of license revenues to decline as a percentage of total revenues as a result of royalty agreements with declining royalty rates. Service. Cost of service revenues consists primarily of salaries and other personnel-related expenses, as well as depreciation on equipment used to provide professional services, technical support and training. Cost of service revenues increased from $110,000 for the three months ended March 31, 1999 to $6.2 million for the three months ended March 31, 2000. These amounts represented 51% and 135% of service revenues for these periods. The increase in absolute dollars resulted from the expansion of our professional services, technical support and training organizations to support the growth in new licenses and a $1.1 million increase in stock compensation. For 1999, cost of service revenues was $5.4 million and represented 135% of related service revenues reflecting the significant costs incurred in establishing our professional services, technical support and training organizations. We expect cost of service revenues to increase in absolute dollars in the future as we continue to expand our professional services, technical support and training organizations to meet anticipated growth. While cost of services, when expressed as a percentage of related service revenues, may fluctuate in the near term as additional personnel are hired, we expect this percentage to decrease over time due to higher productivity of our professional services organizations and economics of scale. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of costs of our direct sales and marketing personnel as well as costs of marketing programs including trade shows, advertisements, promotional activities and media events. Sales and marketing expenses increased from $366,000 for the three months ended March 31, 1999 to $8.5 million for the three months ended March 31, 2000. Of this increase, $4.3 million was attributable to an increase in sales and marketing personnel expenses and commissions to sales personnel associated with higher revenues, and $1.6 million was due to increased spending for marketing programs. In addition, amortization of stock compensation accounted for $1.3 million of the increase. For 1999, sales and marketing expenses were $7.2 million as compared with $407,000 for the period from inception to December 31, 1998. The increase in sales and marketing expenses resulted from a full year of operations in 1999, hiring and training of additional sales and marketing personnel, increased spending on advertising and marketing campaigns and amortization of deferred stock compensation. We believe sales and marketing expenses will continue to increase in absolute dollars in the future due to the planned growth of our sales force, the establishment of additional sales offices in both domestic and foreign locations and increases in marketing programs. In April 2000, we entered into a non-exclusive marketing and business development agreement with a systems integrator to promote and market our product in Europe, the Middle East and Africa. As part of this arrangement, we issued a warrant to purchase 2,400,000 shares of our series C convertible preferred stock at an exercise price of $5 per share on an as-converted basis. The warrant is exercisable at the end of eight years and can be exercised sooner upon the achievement of performance thresholds during the first four years of the agreement. The fair value of this warrant, which is expected to be between $12 to $15 million, will be capitalized and amortized over the service period and included as a non-cash component of marketing and sales expense in our statement of operations. Research and Development. Research and development expenses consist primarily of salaries and related expenses for engineering personnel, costs of contractors and depreciation of equipment used in the development of our software product. To date, we have expensed all internal software development costs as incurred. 24 Research and development expenses increased from $947,000 for the three months ended March 31, 1999 to $4.4 million for the three months ended March 31, 2000. The growth in expenses was primarily due to the increase in the number of engineering personnel to support the development and enhancement of our product and a $2.1 million increase in stock compensation. Research and development expenses increased from $504,000 for the period from inception to December 31, 1998 to $6.9 million for 1999. Research and development expenses increased over the prior period due to a full year of operations in 1999, an increase in the number of engineering personnel and amortization of deferred stock compensation. We expect research and development expenses to increase significantly in absolute dollars in future periods. General and Administrative. General and administrative expenses include costs associated with our finance, human resources, legal and other administrative functions and consist principally of salaries and related expenses, professional fees and equipment depreciation. General and administrative expenses increased from $208,000 for the three months ended March 31, 1999 to $2.5 million for the three months ended March 31, 2000. Of this increase, $501,000 was attributable to increased professional fees, $384,000 was attributable to an increase in personnel-related costs and $1.0 million was attributable to an increase in stock compensation. General and administrative expenses increased from $249,000 for the period from inception to December 31, 1998 to $1.2 million for 1999, reflecting an increase in administrative personnel, increased professional fees and amortization of deferred stock compensation. We believe general and administrative expenses will continue to increase in absolute dollars in future periods as we hire additional staff, invest in infrastructure projects to support our continued growth and incur expenses associated with operating as a public company. Stock Compensation. Deferred stock compensation represents the difference between the exercise price of stock option grants to employees and the deemed fair value of our common stock at the time of those grants. We recorded deferred stock compensation of $516,000 for the period from inception to December 31, 1998, $9.8 million for 1999 and $34.3 million for the three months ended March 31, 2000. Amounts related to employee stock options are being amortized to operations over the vesting periods of the individual stock options using a graded vesting method. Such amortization amounted to $91,000 for the period from inception to December 31, 1998, $2.2 million in 1999 and $4.2 million for the three months ended March 31, 2000. During the year ended December 31, 1999 and the three months ended March 31, 2000, we granted immediately vested and exercisable stock options to non- employees. In connection with these grants, we recorded non-cash compensation expense of $47,000 in 1999 and $1.4 million for the three months ended March 31, 2000 which reflects the fair value of these options based on the Black- Scholes option pricing model. The amortization of deferred stock compensation, combined with the expense associated with stock options granted to non-employees, relates to the following items in the accompanying statement of operations (in thousands):
June 5, 1998 Three Months (Inception) to Year Ended Ended December 31, December 31, March 31, 1998 1999 2000 -------------- ------------ ------------ Cost of revenues................. $ -- $ 385 $1,084 Sales and marketing.............. 14 839 1,285 Research and development......... 33 882 2,126 General and administrative....... 44 146 1,080 ---- ------ ------ $ 91 $2,252 $5,575 ==== ====== ======
25 Amortization of deferred stock compensation is estimated to total $22.7 million for 2000, $12.3 million for 2001, $5.5 million for 2002 and $1.7 million for 2003. Amortization of deferred stock compensation will be reduced in future periods to the extent options are terminated prior to full vesting. Interest and Other, Net Interest and other, net consists of interest income from cash, cash equivalents and available-for-sale short-term investments, partially offset by interest expense associated with capital leases and bank borrowings. Interest and other, net increased from $31,000 for the three months ended March 31, 1999 to $60,000 for the three months ended March 31, 2000 due primarily to higher average balances of cash, cash equivalents and short-term investments. Interest and other, net increased from $15,000 for the period from inception to December 31, 1998 to $253,000 in 1999 due to a full year of operations and an increase in average cash, cash equivalents and short-term investment balances. Income Taxes From inception to December 31, 1999, we incurred net losses for federal and state tax purposes and have not recognized any tax provision or benefit. As of December 31, 1999, we had approximately $4.3 million of federal and $2.2 million state net operating loss carryforwards to offset future taxable income. The federal and state tax net operating loss carryforwards are available to reduce future taxable income and expire at various dates through 2019 and 2004, respectively. Because of our limited operating history, our losses incurred to date and the difficulty in accurately forecasting our future results, management does not believe that the realization of the related deferred income tax asset meets the criteria required by generally accepted accounting principles. Therefore, we have recorded a 100% valuation allowance against the deferred income tax asset. See Note 10 of the notes to our financial statements. Significant future changes in our share ownership, as defined in the Tax Reform Act of 1986 and similar state provisions, may restrict the utilization of these carryforwards. 26 Quarterly Results of Operations The following tables set forth statement of operations data for our most recent five quarters. This information has been derived from our unaudited financial statements that, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information. You should read this statement of operations data in conjunction with our audited financial statements and related notes appearing elsewhere in this prospectus. We have experienced and expect to continue to experience fluctuations in operating results from quarter to quarter. We incurred net losses in each quarter since inception and expect to continue to incur losses in the foreseeable future. You should not draw any conclusions about our future results from the results of our operations for any quarter, as quarterly results are not indicative of the results for a full fiscal year or any other period.
Three Months Ended --------------------------------------------------- June Mar. 31, 30, Sept. 30, Dec. 31, Mar. 31, 1999 1999 1999 1999 2000 -------- ------- --------- -------- -------- (In thousands) Statement of Operations Data: Revenues: License............... $ 25 $ 1,066 $ 1,934 $ 4,180 $ 6,070 Service............... 216 410 1,661 1,740 4,611 ------- ------- ------- ------- -------- Total revenues...... 241 1,476 3,595 5,920 10,681 ------- ------- ------- ------- -------- Cost of revenues: License............... 3 214 170 332 561 Service............... 110 346 1,808 3,165 6,218 ------- ------- ------- ------- -------- Total cost of revenues........... 113 560 1,978 3,497 6,779 ------- ------- ------- ------- -------- Gross profit........ 128 916 1,617 2,423 3,902 ------- ------- ------- ------- -------- Operating expenses: Sales and marketing... 366 786 2,000 4,025 8,473 Research and development.......... 947 1,540 1,887 2,496 4,361 General and administrative....... 208 275 284 451 2,509 ------- ------- ------- ------- -------- Total operating expenses........... 1,521 2,601 4,171 6,972 15,343 ------- ------- ------- ------- -------- Loss from operations......... (1,393) (1,685) (2,554) (4,549) (11,441) Interest and other, net.................... 31 13 97 112 60 ------- ------- ------- ------- -------- Net loss............ $(1,362) $(1,672) $(2,457) $(4,437) $(11,381) ======= ======= ======= ======= ======== As a Percentage of Total Revenues: Revenues: License............... 10 % 72 % 54 % 71 % 57 % Service............... 90 28 46 29 43 ------- ------- ------- ------- -------- Total revenues...... 100 100 100 100 100 ------- ------- ------- ------- -------- Cost of revenues: License............... 1 15 5 6 5 Service............... 46 23 50 53 58 ------- ------- ------- ------- -------- Total cost of revenues........... 47 38 55 59 63 ------- ------- ------- ------- -------- Gross profit........ 53 62 45 41 37 ------- ------- ------- ------- -------- Operating expenses: Sales and marketing... 152 53 56 68 79 Research and development.......... 393 104 52 42 41 General and administrative....... 86 19 8 8 24 ------- ------- ------- ------- -------- Total operating expenses........... 631 176 116 118 144 ------- ------- ------- ------- -------- Loss from operations......... (578) (114) (71) (77) (107) Interest and other, net.................... 13 1 3 2 1 ------- ------- ------- ------- -------- Net loss............ (565)% (113)% (68)% (75)% (106)% ======= ======= ======= ======= ========
27 Our revenues and operating results are likely to vary significantly from quarter to quarter. A number of factors are likely to cause these variations, including: . demand for our product and services; . the timing of sales of our product and services; . the timing of customer orders, customer budget cycles and product implementations; . unexpected delays in introducing new products, product enhancements and services; . the introduction of competing products; . increased expenses related to sales and marketing, professional services, product development, technical support or administration; . availability of financing sources for our customers; . the mix of license and service revenues; . the rate of international expansion; . non-renewal of service agreements; . changes in our pricing policies or those of our competitors; . changes in our sales compensation and incentive plans; . the rate at which new sales personnel become productive; . changes in our strategy; and . costs related to possible acquisitions of technologies or businesses. Accordingly, quarter-to-quarter comparisons of our operating results are not necessarily meaningful and investors should not rely on the results of one quarter as an indicator of our future performance. We plan to significantly increase our operating expenses to expand our sales and marketing operations, develop new distribution channels, fund greater levels of research and development, broaden professional services, technical support and training and improve operational and financial systems. If our revenues do not increase along with these expenses, our business, operating results or financial condition could be harmed and net losses in a given quarter would be greater than expected. Although we have a limited operating history, we believe that our quarterly operating results may experience seasonal fluctuations. For instance, quarterly results may fluctuate based on our clients' calendar year budgeting cycles and slow summer purchasing patterns. Liquidity and Capital Resources Since inception, we have financed our operations with $18.7 million from the sale of our preferred stock, $2.2 million from the sale of our common stock and $750,000 of borrowings under a secured loan agreement. As of March 31, 2000, we had cash, cash equivalents and short-term investments of $13.6 million and $1.5 million available under an equipment lease facility. As of March 31, 2000, we had outstanding borrowings of $625,000 under a secured loan agreement. The loan agreement provides for borrowing of up to $750,000 and is collateralized by equipment and other assets. This borrowing bears interest at the bank's prime rate plus 0.50% per annum. At March 31, 2000, we also had capital lease obligations of $476,000. 28 Net cash used in operating activities was $854,000 for the period from inception to December 31, 1998 and $2.3 million in 1999 and cash provided by operating activities was $2.1 million for the three months ended March 31, 2000. Net cash used in operating activities from inception to December 31, 1998 and for 1999 was primarily the result of net losses of $1.1 million for the period from inception to December 31, 1998 and $9.9 million in 1999, after adjusting for stock compensation of $91,000 for the period from inception to December 31, 1998 and $2.3 million in 1999. For the three months ended March 31, 2000, cash provided by operations was $2.1 million, which reflected a net loss of $11.4 million, amortization of stock compensation of $5.6 million, and changes in operating assets and liabilities. Net cash used for investing activities was $249,000 from inception to December 31, 1998, $5.9 million for 1999 and $2.4 million for the three months ended March 31, 2000. The cash used for investing activities was related to the purchase of computer hardware and software, office furniture and equipment and short-term investments. At March 31, 2000, we had rental obligations of approximately $1.7 million for the remaining nine months of 2000, $2.5 million for the year ending December 31, 2001, $2.5 million for the year ending December 31, 2002, $2.3 million for the year ending December 31, 2003, $1.3 million for the year ending December 31, 2004 and $108,000 thereafter. A substantial portion of our operating lease commitments relate to our headquarters and principal facility in San Mateo, California and our training facility in Redwood City, California. We expect to experience significant growth in our operating expenses for the foreseeable future in order to execute our business plan. As a result, we expect that operating expenses and planned capital expenditures will constitute a material use of our cash balances. In addition, we may use cash to fund acquisitions or invest in other businesses, technologies or product lines. We currently anticipate that the net proceeds from this offering, together with our available cash balances and credit facilities, will be sufficient to meet our presently anticipated working capital, capital expenditure and business expansion requirements for the next twelve to eighteen months. However, we may require additional funds within this time period. We may seek to raise these additional funds through public or private debt or equity financing to meet these additional working capital requirements. There can be no assurance that this additional financing will be available, or if available, will be on reasonable terms and not dilutive to our stockholders. If adequate funds are not available on acceptable terms, our business and operating results could be adversely affected. Qualitative and Quantitative Disclosures about Market Risk Foreign Currency Exchange Rate Risk Through March 31, 2000, all of our recognized revenues have been denominated in United States dollars and were primarily from customers in the United States. Our exposure to foreign currency exchange rate changes has been immaterial. We expect, however, that future license and service revenues may also be derived from international markets and may be denominated in the currency of the applicable market. In addition, as we expand our international operations and hire personnel in Europe and Asia Pacific, we will have operating expenses denominated in foreign currencies. As a result, our operating results may become subject to significant fluctuations based upon changes in the exchange rates of foreign currencies in relation to the United States dollar. Furthermore, to the extent that we engage in international sales denominated in United States dollars, an increase in the value of the United States dollar relative to foreign currencies could make our products less competitive in international markets. Although we will continue to monitor our exposure to currency fluctuations and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot assure you that exchange rate fluctuations will not adversely affect our financial results in the future. 29 Interest Rate Risk Our exposure to financial market risk, including changes in interest rates and marketable equity security prices, relates primarily to our investment portfolio. We typically do not attempt to reduce or eliminate our market exposure on our investment securities because a substantial majority of our investments are in fixed rate, short-term securities. We do not have any derivative instruments. The fair value of our investment portfolio or related income would not be significantly impacted by either a 100 basis point increase or decrease in interest rates due mainly to the fixed-rate, short-term nature of our available-for-sale investment portfolio. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards, or SFAS, No. 133, entitled Accounting for Derivative Instruments and Hedging Activities, SFAS No. 133. We are required to adopt SFAS No. 133, as amended, for the year ending December 31, 2001. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Because we currently hold no derivative financial instruments and do not currently engage in hedging activities, the adoption of SFAS No. 133 is not expected to have a material impact on our financial condition or results of operations. 30 BUSINESS Overview We provide e-business software and services that enable companies to build brand equity through direct customer interaction across Internet-related customer touch points, such as websites, mobile wireless devices and on-line trading exchanges and traditional customer touch points, such as stores and call centers. We believe that our software's integrated analytical and operational capabilities enable companies to increase revenues by coordinating customer interactions across these touch points. Our comprehensive, packaged application is designed to simplify deployment and accelerate our customers' time to benefit while reducing their total cost of ownership. We have targeted a number of large vertical markets where we believe brand is paramount such as retail, manufacturing, financial services, telecommunications, media and travel. Our customers range from Global 2000 companies that have adopted e-business strategies to rapidly growing Internet companies. As of March 31, 2000, we had licensed our software to 35 customers. Industry Background Growth of the Internet and e-Commerce The emergence of the Internet has enabled the delivery of diverse types of content and the sale of products and services to a worldwide audience. Moreover, unlike traditional media such as print, radio and television, the Internet can be used to deliver targeted information to specific constituencies and to receive real-time feedback from current and prospective customers. Consequently, the use and acceptance of the Internet as a medium for interacting with customers are growing at rates significantly faster than those experienced by traditional media. According to estimates by International Data Corporation, or IDC, 196 million people were connected to the Internet at the end of 1999, with that total expected to grow to 502 million by the end of 2003. During that same period, IDC expects on-line commerce transactions, including both business-to-business and business-to- consumer transactions, to grow from $111 billion to $1.3 trillion. With the widespread adoption of the Internet by traditional companies and the emergence of Internet-based businesses and on-line trading networks such as exchanges and marketplaces, competitors are becoming more plentiful and are often only a click away from a company's customers. As a result, we believe that companies need to be closer and more responsive to their customers than ever before and, to compete more effectively, must seamlessly integrate their on-line brand, marketing and merchandising efforts with their traditional sales channels. Traditional Approaches Fall Short With the advent of e-commerce in the mid-1990s, companies had few, if any, choices in building their software infrastructure for conducting business over the Internet. The first generation of e-business applications deployed by e- commerce pioneers were, therefore, typically developed internally. The software architectures underlying these applications were often insufficiently flexible, scalable or extensible to adapt readily to changing, and often increasing, customer requirements. Furthermore, large internal information technology, or IT, staffs evolved to maintain and enhance these applications. These IT staffs often proved difficult and expensive to hire, train and retain. The burden placed upon them from increasing traffic and complexity has also grown significantly over time. In addition, unlike third-party applications providers, individual companies are unable to spread the expense of substantial in-house development, integration and maintenance efforts across a broad customer base. The next generation of e-business applications were typically assembled from software components--transaction engines, personalization tools and content management--made available by tool and platform vendors. These components provide both in-house and independent developers with the tools and building blocks for assembling e-business applications, reducing the time, complexity and expense typically associated with fully customized approaches. Nevertheless, 31 building these applications continues to require extensive and ongoing customization and integration by staffs of highly specialized and expensive IT personnel. While a number of third-party applications offering transaction, content management, personalization and/or analytical capabilities have been introduced, none provides a solution to all of a company's needs on a fully integrated basis. Consequently, companies implementing these component, or point, solutions still face significant and costly integration challenges at the same time that they need to respond quickly to increasing competition and accelerating technological change. The challenge of component integration for a company's on-line e-business presence is further heightened by the ongoing demand for more functionality. The first generation of providers of e-commerce websites typically assembled a catalog of products and presented it via simple, static web pages. Subsequently, many companies revised their websites to include more sophisticated functionality, such as personalized recommendations, search and streamlined purchasing. As e-commerce websites evolved further, gift registries and loyalty programs appeared. As customer expectations have increased, this process of innovation and functionality enhancement has become a continuous cycle. The requirement of continually developing this new functionality internally compounds the burden on typically scarce and expensive IT resources of integrating, maintaining and upgrading point solutions. Need to Serve Customers Consistently Across Multiple Touch Points The advent of e-commerce has required many companies to interact with their customers, whether businesses or consumers, through both Internet-related touch points, such as websites, mobile wireless devices and on-line trading exchanges and traditional touch points, such as stores and call centers. In order to compete more effectively, many companies are taking a hybrid, or "clicks and mortar," approach to their marketing, sales and customer service functions, dividing them across these touch points. Ideally, each of these touch points should be consistent and coordinated with the others, providing companies with a unified, up-to-date view of the customer and providing customers with a consistent face that is personalized to their individual requirements and unique characteristics. Companies that are unable to serve customers consistently across multiple touch points run the risk of inefficient and ineffective marketing, sales, service and support efforts, which can lead to dissatisfied customers, damage to brand and reputation and ultimately lost revenues. Increasing Importance of Brand Equity and Awareness In most industries, a company's brand is its most strategic asset. A brand embodies a company's value proposition to its customers. For customers, brands simplify choice, thereby speeding purchase decisions and eliminating time- consuming rounds of competitive evaluation. A strong brand can enable a company to achieve premium pricing for its products and services, accelerate revenue and profitability growth rates, provide a barrier to entry to competitors and reduce marketing costs. In industries where companies do not sell directly to the end users of their products, brand is often the only means by which they can differentiate themselves and convey their value proposition. The increasing importance and prevalence of the Internet has further heightened the importance of brand equity and awareness. A powerful brand can attract and retain customers, generating higher revenues and increasing customer value. Conversely, mismanaging a brand can drive customer traffic elsewhere, particularly on the Internet where competitors are only a click away. To compete effectively, many companies are seeking a solution that enables them to manage a brand successfully across both new and traditional channels. The e-Business Application Opportunity We believe a significant market opportunity exists for a solution that enables companies to effectively integrate their e-business strategies with their other marketing, sales and customer service efforts. Additionally, an integrated solution is required that offers a wide range of functionality and 32 permits companies to interact on a consistent and personalized basis across multiple touch points. A comprehensive, easily deployed solution that integrates operational and analytical applications allows a company to leverage resources, build brand equity, enhance customer interactions and increase revenues. The Blue Martini Solution Our software and services enable e-businesses to interact more effectively with customers across multiple touch points. We provide an integrated suite of enterprise software applications that allow e-businesses to extend their brands across their Internet-based and traditional sales/marketing and merchandising efforts. Our software is designed to provide the following compelling business benefits to our customers: Build and Enhance Brand Equity and Awareness. Our software allows companies to interact directly with their customers on a consistent, coordinated and personalized basis irrespective of whether such customer interaction takes place on a website, at a store, through a call center or across on-line trading exchanges. This coordinated approach is designed to enable companies to effectively build and enhance brand equity and awareness across multiple touch points. Generate Revenues Through Sales Channels By Coordinating Across Multiple Touch Points. By coordinating interaction across multiple touch points, our software enables companies to increase revenues through multiple sales channels, such as stores, call centers, websites and on-line trading exchanges. This coordination allows companies to avoid channel conflict and reduce cannibalization. For example, a customer can browse, compare and purchase products on a company's website and then choose to pick up the items at the company's local store to avoid shipping costs and wait time. Similarly, a business-to-business customer could identify the appropriate product through an e-mail campaign by the seller, then establish mutually agreeable terms with a salesperson on the telephone and subsequently execute recurring transactions on the seller's website according to the negotiated terms. Convert Browsers into Long-Term and Profitable Customers. The dynamic publishing capabilities of our software are designed to enable companies to publish new content. Our software's fully-integrated analytical and personalization capabilities enable companies to specifically target each customer through interactions that are appropriate to the customer's preferences. We believe that this content and personalization attracts more customers to a website and encourages customers to visit more often and stay longer, creating a "stickier" website and increasing the likelihood of purchases. Additionally, our software enables companies to recognize and take advantage of cross-selling and up-selling opportunities by promoting related and complementary products to customers, with the goal of increasing the average size of transactions. Accelerate Time to Benefit through Rapid Deployment and Dynamic Updating. Our software is designed to enable companies to deploy their e- business solutions in as little as eight weeks and begin generating revenues substantially earlier than would be possible with other solutions. Deployments of in-house developed or third-party point solutions for e-business typically take many months and, in some cases, years to complete. By the time these solutions are deployed, competitors may have already captured the market. Additionally, the dynamic capabilities of our software enable companies to readily publish fresh content on an ongoing basis and to respond quickly to changing market conditions. Reduce Total Cost of Ownership. Our comprehensive, integrated suite of applications is designed to allow business users, who best know their customers, to manage the content of their websites, freeing up scarce and expensive IT professionals to focus on their core competencies. In addition, because our software fully integrates the business-critical functions for conducting e-business, customers should need to dedicate substantially fewer IT resources to development, integration and ongoing maintenance. 33 Our software integrates five key capabilities that we believe are required by companies employing e-business strategies: Product Management. Our software enables companies to richly, accurately and persuasively describe their products and product hierarchies, establish pricing and create promotions. Companies can specify as many product attributes as necessary, vary attributes by product or product type and change product attributes over time. This flexibility allows more accurate customer targeting and a more compelling presentation of products for sale. Content Management. Our software enables companies to author, manage, approve and track the development and use of content, such as text, graphics, audio and video. Companies can use this content for product presentation, information, entertainment and brand and community building. Transaction Execution. Our software enables companies to conduct business on their websites, over the phone, via wireless devices and through other sales channels, including taking orders and managing returns. Analysis. Our software's data analysis capabilities increase companies' ability to accurately identify market segments, deeply understand customer behavior, readily mine purchase histories and determine strategies to effectively target customers. Personalization. Our software's sophisticated algorithms enable companies to target customers across multiple touch points with meaningful and relevant products, promotions and content to increase website "stickiness" as well as the likelihood, size and profitability of a transaction. Our software features the following characteristics that we believe differentiate it from other software solutions: Open. Through adherence to open software standards as well as through the support of pre-built, pre-tested interfaces to leading packaged enterprise resource planning and customer relationship management software packages, our software is designed to be easy to implement within companies. Our software also interoperates with a wide variety of legacy applications, standards and protocols, thereby unifying the various aspects of IT infrastructure. Scalable. Our software architecture is designed to be highly scalable. The architecture may be fully distributed across any number of web and application servers, making it possible to support large amounts of content and products and large numbers of products and concurrent users. Our software provides support for replicated databases, for load balancing among web and application servers and for multi-tier content and data caching, all of which contribute to rapid response times. Flexible. Our architecture is modular, allowing customers to implement either our entire product or only selected portions critical to their businesses with the option to add our other modules easily and without time- consuming integration. Using a published Applications Programming Interface, or API, website developers can customize the behavior of Internet interactions and extend our business functionality to accommodate their unique business needs. Available. With support for automatic server failover and updates while in production, our software is designed to enable companies to maintain continuous customer interactions on-line in unstable hardware and networking environments, even as new product catalogs and content are published. Integrated. The adoption of applications software raises several integration issues. Point solutions or internally developed software that are integrated on an ad hoc basis can be difficult to deploy and maintain. Our integrated software matches and links operational and analytical capabilities, enabling both deeper analysis and faster reaction times in operations. 34 Strategy Our objective is to be the leading provider of enterprise e-business software applications and services that enable companies worldwide to build brand equity through direct customer interaction across multiple touch points. Key elements of our product strategy are to: Enable Consistent and Personalized Customer Interaction Across Multiple Touch Points. As the importance of consistent and personalized customer interaction for e-businesses continues to grow, we plan to continually enhance the distinctive capabilities of our software and develop new capabilities to expand our market opportunities and establish ourselves as the worldwide leader in providing enterprise e-business applications and services. We continue to focus on providing e-businesses with software to immerse their customers in their brand by providing their customers with a consistent and personalized experience across multiple touch points. Provide a Comprehensive Suite of e-Business Applications Targeted at Business Line Managers. To address the shortcomings of custom-developed and point-based e-business software products, we plan to continue to develop a comprehensive suite of software applications to conduct e-business throughout a company. We plan to continue to design our software to be usable by business line managers, who typically have little or no technical training, but are closest to customers and best able to ascertain their demands and desires. Integrate Operational and Analytical Applications to Enable Effective Customer Interaction and Ongoing Business Improvements. We plan to continue to support direct interaction between our operational and analytical applications. This enables a company to dynamically adapt and refine customer interactions on an ongoing basis, creating a powerful and personalized customer experience. It also permits adjustments to business processes in response to customer feedback and the success or failure of various sales and marketing initiatives. Key elements of our sales and marketing strategy are to: Target Large, Vertical Markets Where Brand Equity is Paramount. Initially, we are focusing our marketing and sales efforts on those large, vertical markets where brand equity and awareness are critical, such as retail, manufacturing, financial services, telecommunications, media and travel. Within these markets, we intend to target the leaders, both with respect to market share and business practices, in the belief that having these leaders as our customers will motivate other companies to use our software as well. Leverage Relationships with Systems Integrators to Focus on License Revenues. Our business model is predicated on the licensing of our software. We intend to continue to pursue additional relationships with systems integrators to enable us to achieve a high-margin, software-driven business model with a minimum investment in consulting and integration services over time. These relationships with systems integrators are also designed to enable us to extend the reach of our sales and marketing efforts. Initially, however, it is our intention to directly provide consulting services to both ensure customer satisfaction and to train other consultants in the implementation of our software. Expand Our International Presence. We intend to expand our sales and marketing operations in Europe, Asia and Latin America to take advantage of the growing penetration of the Internet in these geographies. We plan to localize our product for these markets. We also intend to focus on building distribution channels for our products in these markets, including entering into relationships with systems integrators. 35 Address Smaller, or Mid-Market, Companies Through a Subscription-Driven Business Model. We believe that there is a significant opportunity to sell specific modules of our product to smaller, or mid-market, companies who want to coordinate their different touch points. We intend to license our product to these companies using an applications software provider model to make the adoption of our product cheaper for these smaller companies. Products We offer both software and services. Our Customer Interaction System, or CIS, is a comprehensive software application for building brand across multiple touch points. We complement our software with training, deployment and support services, as well as assisting businesses in using the analytical capabilities provided by our software. Software The CIS consists of pre-integrated modules that can be implemented individually or together. Because we offer an integrated application rather than a tool kit, we expect our customers to enjoy faster time to benefit and lower total cost of ownership. The CIS is deployed by IT professionals and systems integrators and is used on an ongoing basis by business users within an organization to manage products and merchandise, to manage images and other rich media content, to perform data mining investigations and to administer customer profiles and transaction histories. The CIS provides our customers with the software necessary to operate high-volume websites as well as wireless and telephone interactions with their customers. The CIS is divided into four subsystems: Operations, Analysis and Targeting, Interaction and Tools and Integration. The four subsystems consist of thirteen modules which are shown below: [A three-dimensional diagram shows the relationship among the four subsystems, "Operations," "Analysis and Targeting," "Interaction," and "Integration," and our twelve modules: "Merchandise Management," "Content Management," "Customer Management," "Date Warehousing and Reporting," "Data Mining and Visualization," "Personalization," "Customer Collaboration," "Website," "Call Center," "Mobile Wireless," "Tools" and "Workflow." "Business Users" appears on an arrow that points to the left side of the diagram. "Customers" appears on an arrow that points to the right side of the diagram. Above the diagram appear two headed arrows and the words "POS Systems," "ERP Applications," "CRM Applications," "Fulfillment Applications," "Shopping Services," "Taxation Services," "Payment Services" and "Email Services."] Operations Subsystem The Operations subsystem allows business users to define products, create and manage content, price their offerings and manage customer information without dependence upon IT professionals. The Operations subsystem consists of the following modules: Product Management Module. The Product Management module manages product and product line hierarchies, product attributes, cross-sells, up-sells, assortments, promotions and pricing 36 data. Our customers may use an as many attributes as necessary to describe their products in full detail, allowing their customers to obtain the information they require to make informed decisions. This data can be imported from external systems or maintained entirely within the application. The Product Management module allows business users to create and implement promotions, to highlight products or categories or to assist with inventory level management. The Product Management module allows a product to inherit the attributes of products above it in the product hierarchy, minimizing the effort required for content tagging and targeting. In combination with the Content Management module, business users can link products and content together in one system for more effective, targeted merchandising. Content Management Module. The Content Management module stores and categorizes simple and rich media, provides versioning and configuration management and supports team-based development strategies for large and complex websites. The Content Management module manages and controls media assets such as website templates, product images and brand building content. Users can assign content-, product- and market-specific attributes to each item. The Content Management module supports images, text, HTML templates, audio, video and other types of content. In combination with the Product Management module, business users may link product and content in one system for more effective merchandising. Customer Management Module. The Customer Management module captures profiles across customer touch points via the Interaction subsystem and manages customer data. Profile data can be extracted from clickstream data, responses to survey questions, summaries of order history or external databases. The Customer Management module delivers value-added customer services including loyalty programs, gift registries, gift certificates, employee purchasing and express buying. The Customer Management module ensures there is a uniform view of the customer across touch points. The Customer Management module also ensures that customers are recognized when they return to the store, whether on-line or off, enabling organizations to treat a customer who returns every day differently than someone who returns less frequently. Companies can continue to learn about visitors to their websites and enhance profiling information as visitors transition from anonymous browsers to registered users to buyers. Analysis and Targeting Subsystem The Analysis and Targeting subsystem allows business users to obtain timely and critical information regarding which products are selling, which customers are more profitable and which merchandising or marketing strategies are more successful. With the results determined using the analytical tools, business users can better understand their customers and to personalize subsequent customer interactions. The Analysis and Targeting subsystem consists of the following modules: Data Warehousing and Reporting Module. The Data Warehousing and Reporting module provides tools for automatically extracting operational data obtained from multiple touch points. The extracted data is made available in a data warehouse to enable quick answers to complex questions about orders, customers, products and sources of revenues and to allow business users to understand the effectiveness of their decisions. The Data Warehousing and Reporting module allows business users to generate reports on customer orders based on attributes such as geographies, units and revenues of items sold. For example, reports describing conversion ratios of each promotion allow business users to make informed decisions about which promotions are most effective. Other reports list revenues, profits, visits, page views and browsing time for each customer session. With these reports, business users 37 can understand sources of revenue and profitability by aggregating values for groups such as new and returning customers, or registered and unregistered customers. Data Mining and Visualization Module. The Data Mining and Visualization module complements our reporting capabilities with sophisticated data transformation and analysis capabilities. While reports answer specific inquiries, data mining assists marketers in addressing issues that are difficult to articulate or quantify, such as determining which customer attributes are associated with buying behaviors. Data mining is also used to predict customer behavior, customer purchases or long-term value of the customer. Moreover, the results of mining on-line shopping data can be used across other channels to increase revenue and customer loyalty. Large amounts of data can be difficult to understand and interpret. Our integrated data visualization tools quickly render large amounts of data graphically in presentations that make sense not only to highly trained analysts, but also to marketers with key business insights. These advanced visualization tools present customer segmentations, operational characteristics and other results in three dimensional, easily navigable forms and facilitate interactive analysis by business users. Personalization Module. The Personalization module enables rules-based personalization and targeted selling to end customers through the Interaction subsystem. In addition, the Personalization module generates rules for personalized content, cross-sells, up-sells, product assortments and promotional campaigns based upon the results of data mining analyses. Businesses can create or modify rules manually to leverage their own expertise and understanding of customer requirements. Interaction Subsystem The Interaction subsystem Internet-related touch points such as websites, mobile wireless devices and on-line trading exchanges, and targets customers across traditional touch points such as stores and call centers. Built-in collaboration enables customers to work and shop together as well as allowing sales representatives and call center agents to guide customers. Because all modules of the Interaction subsystem share the same underlying architecture, product catalog, content, customer database and personalization capabilities, customers can move easily between the touch points, maintaining their contact information, preferences, order history and inferred profiles. The Interaction subsystem consists of the following modules. Website Module. The Website module is designed to run large webstores securely and reliably. The system is designed to handle spikes in demand by offering two levels of web server and application server load balancing. The distributed architecture of the Interaction subsystem is designed to manage large numbers of users. By adding additional servers, the capacity of the system can be increased. This distributed architecture also improves system availability, by allowing sessions to continue uninterrupted in the event of web, applications or catalog database server failure or in the event of website updates. Full text and parametric search help end customers locate products quickly, increasing sales and reducing requirements for support. Call Center Module. The Call Center module empowers customer service representatives to serve customers better by allowing them to place or modify product orders received by telephone by using the customer profile and preferences submitted by customers from the website or other touch points. With Call Center, contact center representatives create and edit orders, deepen customer profiles, check on customer order status or history, process returns, recommend cross-sells and up-sells and provide customer accommodations. The browser-based interface allows for remote operation and provides a familiar interface, thereby minimizing training. Mobile Wireless Module. The Mobile Wireless module offers the capabilities of the CIS in a wireless device. With in-store wireless handheld devices, shoppers can browse the bricks and mortar 38 Mobile Wireless Module. The Mobile Wireless module offers the capabilities of the CIS in a wireless device. With in-store wireless handheld devices, shoppers can browse the bricks and mortar store while scanning items. Scanned items can be captured for gift and wedding registries, permanent shopping lists or for immediate sale. In addition, the cross-sell and up-sell information in our Product Management module can be combined with personalization to target promotions and other products and services to browsing customers. Our Mobile Wireless module also enables sales staff to merchandise goods more effectively by providing them with customer-specific preferences and relevant cross-sell and up-sell promotions. For example, as a customer heads to a dressing room with a product, a salesperson can scan the tag on the item to suggest additional information and complementary products, increasing both the likelihood and potential size of the sale. The Mobile Wireless module currently supports PalmOS-based devices from Symbol Technologies. Customer Collaboration Module. The Customer Collaboration module, scheduled to be commercially available in July 2000, will allow a customer to link browsers with a friend or a sales or support person to conduct online shopping together on a website. The Browse Together functionality will support collaborative browsing between two customers in different locations, or between a salesperson and a customer. For example, two friends can browse and purchase clothes together, despite the fact that they may be located in different cities. Similarly, a salesperson or customer service representative can lead a customer through a website to help her locate the content or products in which she is interested. The Chat functionality will allow linked users to communicate through a text-based chat feature. Participants will be able to exchange opinions and ideas easily as they navigate through the website. Customer service representatives will be able to provide additional contextual information to the customer. Text-based chat is designed for customers who do not have access to a telephone while on-line. Tools and Integration Subsystem The Tools and Integration subsystem allows customization and configuration of the CIS, offers workflow capabilities to smooth operations and provides adapters to link our software to legacy systems, packaged applications and syndicated data providers. The Tools and Integration subsystem consist of the following modules: Tools Module. The Tools module enables our customers to adapt the CIS to their specific requirements. This module provides tools for operating a website and other customer touch points, enabling rapid response in changing environments and allowing for immediate error correction. This module also provides tools that enable rapid deployment of new products and content, remote website administration and emergency updates to production sites. For example, if a computer server is mistakenly priced at $899 rather than $8,990 on a website, an administrator can bypass the normal data publishing process and correct the error on the live website within minutes. Workflow Module. The Workflow module allows customers to graphically build and tune the business processes needed for day-to-day operations, from the creation of a new promotion to the addition of a new line of products. With our Workflow module, business users can define participants involved in a process and can specify the process via a simple graphical interface. This interface also allows business users to initiate and manage workflow processes, including user-specific tasks. Integration Module. The CIS is an open system designed for use in conjunction with both an organization's existing systems and complementary systems from third parties. All the modules of the CIS can be integrated with a company's existing customer relationship management software, 39 or CRM, enterprise resource planning software, or ERP, retail software and supply chain management software, or SCM, making possible real-time product availability checks, cross-platform content gathering, accurate tax calculation, fraud protected credit card authorization and precise determination of shipping costs. The Integration module provides a collection of adapters, each tuned to a particular integration challenge. The adapters offer both support for open standards as well as support for links to packaged applications like SAP and PeopleSoft. With the tools provided, customers can integrate systems in both a batch and interactive manner. Services While our business model focuses on the development and licensing of software, we also offer a comprehensive selection of services to our customers, including professional, technical support and training services, as well as value-added data analysis services. Professional Services. We offer professional services to our customers for the deployment of the CIS and the integration with third-party software such as CRM, ERP and SCM systems. Our service professionals work directly with our customers as well as with systems integrators such as Andersen Consulting, Inforte and Viant. In addition to working with systems integrators, we have relationships with a number of companies that provide website design as well as systems integration services such as marchFIRST, Inc. Technical Support Services. We offer a comprehensive collection of support services designed to respond to inquiries and rapidly resolve issues. Our technical support services are available to our customers worldwide under maintenance agreements. We field questions via our call center, through email and in person for customers that have our consultants on site. Our standard technical support services include responding to inquiries regarding installation, administration and basic usage. Our customers or their representatives may log product questions by phone or through the Internet via our Technical Support WebAccess module, and can track our responses in a similar fashion. Maintenance upgrades and release upgrades are also included with our standard technical support package. Training Services. We offer a comprehensive training curriculum designed for systems integrators and customers. Our courses not only train professionals in the use and implementation of our software, but also educate business users on key concepts such as personalization and data mining. We offer courses in our facilities in Redwood City, California. E-Business Intelligence Services. We offer our customers subscription-based, value-added data analysis services. Our E-Business Intelligence Services, or E- BIS, process and analyze transaction, clickstream, customer and product data to produce insights that can improve business results. These investigations are performed by a dedicated team of consultants trained in target marketing, merchandising, data mining technologies and statistical methods. Results are presented to clients in easy-to-understand Business Intelligence Briefings that combine statistics, business rules, customer profiles and plain-English business advice. These briefings provide information to enable critical sales and marketing decisions. E-BIS investigations are performed using the product management, targeting and analysis capabilities of our CIS. Our customers use E-BIS to target promotions, assortments, products and content more effectively to the right customers at the right time. E-BIS is available on a six-month renewable subscription basis. Our customers may choose from a number of subscription levels designed to meet their specific needs. 40 Alliances Our alliances include those with systems integrators, independent software vendors, or ISVs, platform vendors and other services providers. We have established a formal program that classifies alliance members into one of three tiers: "Strategic," "Premier" and "Certified." Systems Integrators. Systems integrator alliance members lead the integration projects at our customer sites. For systems integrator alliance members, we offer benefits including discounted training fees, dedicated account managers and access to our customers and prospects. In return, systems integrators pay a fee, commit to train their consultants and share their own customer and prospect lists with us. Our systems integrator alliance members help us develop customer relationships, and similarly we recommend our systems integrator alliance members to our customers. Our customers pay us directly for our product and pay our systems integrator alliance members directly for their services. By recruiting, training and managing personnel to deploy our software, systems integrator alliance members permit us to focus on developing and providing our software and on providing additional technical expertise periodically required during customer deployments. Our systems integrator alliance members are Andersen Consulting, eForce, CFT Consulting, Deloitte & Touche, Emerald Solutions, Ernst & Young, Inforte Corporation, marchFIRST, Inc., Techna and Viant Corporation. Independent Software Vendors. Our ISV alliance members deliver software products to our customers that complement our software. Our ISV alliance members provide fulfillment, SCM and CRM software. Our ISV alliance members help us develop customer relationships, and similarly we recommend our ISV alliance members to our customers. Our customers pay directly for our product and pay our ISV alliance members directly for their services. Our ISV program is designed to facilitate the delivery of packaged adapters that connect the CIS to our alliance members' software. Delivery of packaged adapters requires software development and validation of the packaged software for each release of the CIS. Our ISV alliance members are Commercialware, Cornerstone Retail Solutions, JDA Software Group, Inc., Siebel Systems, Inc. and Yantra Corporation. Platform Vendors. Platform vendor alliance members provide the hardware and software foundations to our customers for the deployment of our CIS. Our platform vendor alliance members sell hardware, operating system and database products. We perform all software development work to ensure that our software supports the platforms of our alliance members. Our customers pay us directly for our product and pay our platform vendor alliance members directly for their products. Our platform vendor alliance members are IBM, Microsoft Corporation, Oracle and Sun Microsystems. Services Providers. Our services provider alliance members provide on-line services that complement our CIS to our customers and include syndicated data providers, Internet delivery providers, taxation providers and payment providers. Our customers pay us directly for our product and pay our services provider alliance members directly for their services. Some of our services provider alliance members also pay us fees when our customers select their products. Our services provider alliance members are Acxiom Corporation, Akamai Technologies, Inc., Cybersource, QRS and Taxware International, Inc. Technology Our CIS is based on a distributed architecture that incorporates technologies for data analysis, visualization, personalization and workflow. Our engineering staff has focused on developing an architecture that is optimized for a high degree of flexibility, performance, scalability and availability. Our software incorporates technologies including a Java application server, a full-text retrieval engine, a rules induction engine, a rules execution engine, a workflow engine, a data transformation engine, an OLAP engine, visualization libraries and a reporting system. 41 Our software is built upon an open, three-tiered architecture designed to deliver consistent, high performance operation in an uncertain environment where demand imbalances and equipment failures are common. We use open software standards, including XML, Microsoft's COM, CORBA, IBM's MQ Series and Java's EJB. Website requests are handled by a load-balanced layer of web servers. These web servers return and cache static content but forward dynamic web requests to a layer of load-balanced application servers. These application servers execute business logic that typically requires access to data stored in read-only catalog databases. To improve performance, our architecture automatically caches catalog and session data in memory to avoid slow database access. These catalog databases can also be replicated to further improve availability and scalability. Customers can easily handle increased website volume by adding any combination of web, application or database servers. Read- write transaction databases record customer transactions as well as updates to end customer profiles. Our CIS is developed in the Java programming language to take advantage of the graphical user interface and functional libraries available in Java, as well as the speed of development made possible by other Java features such as pointer-less references and automatic memory management. Blue Martini Customer Interaction System Architecture A schematic diagram showing the relationship among two subsystems: "Operations and Analysis & Targeting Subsystems," and "Interaction Subsystem." The schematic shows the distributed architecture of our software. The distributed architecture of the Interaction Subsystem enables support for tens of thousands of concurrent users with sub-second response times. This same distributed architecture provides fault tolerance through server failover to enable non-stop operations. Customers Our customers range from Global 2000 companies that have adopted e-business strategies to rapidly growing Internet companies. As of March 31, 2000 we had licensed our software to 42 35 customers. We have targeted a number of large, vertical markets where we believe brand is paramount such as retail, manufacturing, financial services, telecommunications, media and travel. Levi Strauss & Co., Deluxe Corporation and Harley-Davidson, Inc. each accounted for more than ten percent of our total revenues in 1999. EighteenGlobal BVI and ibeauty.com, Inc. each accounted for more than ten percent of our total revenues for the quarter ended March 31, 2000. The following are case studies of customers in the retail and manufacturing industries. Harley-Davidson, Inc. With more than 600 authorized dealers throughout the United States, Harley-Davidson considers its dealership network to be critical to its success. To further support this dealer channel, Harley-Davidson wanted to leverage its existing content-based website and enhance the customer experience through a web storefront without creating channel conflict or cannibalization. The new Genuine Harley-Davidson RoadStore website was conceived to provide accessories to customers, with fulfillment by local dealers. According to Harley-Davidson, our product helps The RoadStore cross- sell products and drive dealer traffic while protecting the interests of the company's dealer channel. Saks Incorporated. Saks Incorporated, the parent company of the Saks Fifth Avenue stores, selected us to synchronize commerce across each of the company's channels, improve customer retention and build cross-brand recognition. Saks has announced its intent to launch its first major venture into the on-line retail presence. Saks intends that its new website will go beyond merely extending the company's catalog business to the Internet and will utilize our product to provide consistent interaction with customers across multiple synchronized channels: web store; catalog through SaksDirect, stores and call center. Saks intends to translate its existing in-store based customer interactions into rich on-line experiences for its customers. Sak's believes that our product, which is being deployed by systems integrator marchFIRST, Inc., will provide the foundation for it to transfer the company's brands on-line while maintaining the world-class service that is a hallmark of Saks stores. Gymboree Corporation. The Gymboree Corporation is a retailer of products and services for children from birth to age seven. With more than 600 stores around the world, the company uses our product to provide a personalized on-line shopping experience to complement its in-store service. Gymboree introduces over thirty new lines of clothing per year, and chose our product to help support the company's on-line merchandising and brand-building activities. Gymboree selected our software to replace a an existing platform because of CIS's broad functionality and rapid deployment capability. CFT Consulting is serving as systems integrator at Gymboree for the deployment of the CIS. Gloss.com. On-line beauty e-tailer Gloss.com, which was recently acquired by Estee Lauder Companies, Inc., chose our product for its website. The company currently offers a personalized on-line shopping experience tailored to the needs and interests of each individual customer. Gloss.com features 80 brands and 5,000 brand-name products as well as providing beauty, fashion and entertainment information to consumers. Gloss.com delivers features like gift registries, and personalized cross-sells and up-sells, and was integrated to PeopleSoft's ERP application by Inforte Corporation. Our product facilitates assortment management and e-merchandising for the company's website. ePearle/Pearle Europe. Pearle Europe BV, associated with the U.S. operations of Pearle Vision, operates three brands in five countries. Over 600 stores across Europe provide one-stop, total eye care. Pearle Europe teamed with Andersen Consulting to develop ePearle, a "Clicks and Bricks" initiative blending Pearle's off-line store fronts with a new on-line presence. Our software, implemented by Andersen Consulting, provides the foundation on which ePearle runs multiple websites and multiple language sites per country to support customer demand for localized content. Our product helps bring product assortment and eye care information for products to ePearle customers in an easy and user-friendly manner. 43 Sales and Marketing Our sales strategy is to pursue targeted accounts through a combination of our direct sales force and indirect selling efforts through systems integrators and ISVs. Our principal target accounts consist of Global 2000 companies and rapidly growing Internet companies for whom a powerful brand experience, close customer contact and customer knowledge are critical. These accounts include companies in the retail, manufacturing, financial services, telecommunications, media and travel vertical markets. As of March 31, 2000 our direct sales organization consisted of 46 managers, account executives, product consultants and business development professionals, divided into five regional teams. Our sales force works closely with customers to identify client-specific requirements and to tailor appropriate and flexible solutions. We have sales representatives throughout the United States and Europe. We intend to increase the size of our direct sales force domestically and internationally. Our direct sales force is complemented by the efforts of our systems integrator alliance members. Systems integrators have substantial influence with prospective clients in terms of the selection of software and applications providers, and are a significant source of lead generation for us. We intend to augment the number of market segments and the geographies in which we operate by expanding our relationships with our systems integrators alliance members, adding additional systems integrator alliance members and opening other channels such as entering relationships with application service providers to reach mid-market companies. In April 2000, we entered into a non-exclusive marketing and business development agreement with a systems integrator who will promote and market our product in Europe, the Middle East and Africa. Our marketing efforts are conducted by a marketing organization, which as of March 31, 2000 consisted of 15 professionals. Such efforts include management of alliances, as well as corporate, industry and product marketing. We plan to significantly increase such efforts in the near term. Research and Development Since inception, we have devoted significant resources to develop our product and technology. We believe that our future success will depend in large part on a strong development effort that enhances and extends the features of our software. Our product development organization is responsible for product architecture and technology, engineering, quality and production. As of March 31, 2000, we had 47 employees engaged in research and development and quality assurance. For the year ended December 31, 1999 our research and development expenses totaled $6.9 million. For the first quarter of 2000, research and development expenses totaled $4.4 million. We expect to continue to devote substantial resources to our research and development activities. Competition The market for our product is intensely competitive, evolving and subject to rapid technological change. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any one of which could reduce our future revenues or earnings. The intensity of competition is expected to increase in the future. We compete with providers of stand-alone point solutions, component vendors and ERP, CRM and SCM vendors as well as with internal IT departments. 44 Many of our competitors have greater resources and broader customer relationships than we do. In addition, many of these competitors have extensive knowledge of our industry. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to offer a single solution and increase the ability of their products to address customer needs. Furthermore, our competitors may combine with each other and other companies may enter our markets by acquiring or entering into strategic relationships with our competitors. We believe that the principal competitive factors affecting our market include: . product functionality and features; . availability of global support; . incumbency of vendors; . coverage of direct sales force; . ease and speed of product implementation; . vendor and product reputation; . scalability of products; and . price. Although we believe that we currently compete favorably with respect to most of these factors, our market is relatively new and is evolving rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with greater financial, sales, marketing, professional services, technical support, training and other resources. Intellectual Property and Other Proprietary Rights Our success depends in part on the development and protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. To protect our proprietary technology, we rely primarily on a combination of trade secret, copyright, trademark and patent laws, as well as confidentiality procedures and contractual restrictions. We license technologies from several software providers that are incorporated in our product. We anticipate that we will continue to license technology from third parties in the future. In particular, we license application server technology from BEA Systems, Inc. and a rules engine from Blaze Software, Inc. The license agreement with BEA expires in July 2003 and the license agreement with Blaze expires in March 2004. We may not be able to renew our licenses for these technologies on commercially reasonable terms, if at all. The loss of these technologies or other technologies that we license could prevent sales of our product and increase our costs until equivalent technology, if available, is developed or licensed and successfully integrated into our product. We license the modules of our CIS and require our customers to enter into license agreements that impose restrictions on their ability to reproduce, distribute and utilize the modules. In addition, we seek to avoid disclosure of our trade secrets through a number of means, including but not limited to, generally restricting access to our source code and object code and requiring those entities and persons with access to our proprietary information to agree to confidentiality terms which restrict their use and disclosure. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. We cannot assure you that any of our proprietary rights with respect to our CIS will be viable, or of value, in the future since the validity, enforceability and type of protection of proprietary rights in Internet-related industries are uncertain and still evolving. 45 We presently have two United States patent applications pending. It is possible that either or both of the patents that we have applied for will not be issued, and even if issued, that either or both may be successfully defended. It is also possible that we may not develop proprietary products or technologies that are patentable, that any patent issued to us may not provide us with any competitive advantages or that the patents of others will harm our ability to do business. Despite our efforts to protect our proprietary rights and technology, unauthorized parties may attempt to copy aspects of our products or 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 may be or become a problem. Litigation may be necessary in the future to enforce 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. Any such resulting litigation could result in substantial costs and diversion of resources which could have a material adverse effect on our business, operating results and financial condition. There has been a substantial amount of litigation in the software and Internet industries regarding intellectual property rights. It is possible that in the future, third parties may claim that we or our current or future products infringe their intellectual property. Any claims, with or without merit, could be time-consuming to resolve, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all, which could harm our business. Employees As of March 31, 2000, we had 235 full-time employees, of whom 233 were based in North America and 2 were based in Europe. Of these employees, 61 are in sales and marketing, 47 are in product development, 109 were in professional services, technical support and training and 18 were in finance, human resources, information systems and administrative functions. Our employees are not represented by any collective bargaining agreements and we have never experienced a work stoppage. We believe our employee relations are good. Facilities Our headquarters and principal facility is located in approximately 26,000 square feet of office space in San Mateo, California under a lease that expires in August 2004. We conduct training in approximately 11,000 square feet of leased space in Redwood City, California under a lease that expires in March 2003 with an option to extend for one year and lease sales offices in Atlanta, Georgia; Milford, Massachusetts; and Newport Beach, California. We are seeking additional space in Northern California to meet our expansion plans. 46 MANAGEMENT Directors And Executive Officers The following table sets forth information about our directors and executive officers as of April 15, 2000:
Name Age Position ---- --- -------- Monte Zweben............ 36 Chairman, President and Chief Executive Officer John E. Calonico, Jr. .. 43 Vice President, Chief Financial Officer and Secretary Robert E. Cell.......... 31 Vice President of Corporate Development William H. Evans........ 41 Vice President of Marketing Scott D. Hanham......... 49 Vice President of Product Development and Services Jeffrey G. Johnson...... 42 Vice President of Sales James C. Gaither(1)..... 62 Director A. Michael Spence(2).... 56 Director Andrew W. Verhalen(1)... 43 Director Edward H. Vick(2)....... 56 Director William F. Zuendt(2).... 53 Director
- -------- (1) Member of Compensation Committee (2) Member of Audit Committee Monte Zweben has served as our Chairman, President and Chief Executive Officer since June 1998. From November 1997 to June 1998, Mr. Zweben was an Entrepreneur in Residence at Matrix Partners and Institutional Venture Partners, two venture capital firms. From October 1996 to November 1997, Mr. Zweben was Vice President and General Manager at PeopleSoft, Inc., a provider of enterprise applications. From 1992 to December 1996, Mr. Zweben was Chairman, President and Chief Executive Officer of Red Pepper Software Company. From September 1986 to December 1992, Mr. Zweben was the Deputy Branch Chief of the NASA Ames Research Center's Artificial Intelligence Branch. Mr. Zweben serves on the Board of Directors of Advent Software, Inc. John E. Calonico, Jr. has served as our Vice President, Chief Financial Officer and Secretary since March 2000. From February 1999 to February 2000, Mr. Calonico served as Vice President and Chief Financial Officer of GlobalCenter, Inc., a division of Global Crossing Ltd., a provider of complex web hosting and Internet access services. From November 1997 to January 1999, Mr. Calonico served as Vice President of Finance for BEA Systems, Inc, a provider of middleware for enterprise software applications. From April 1990 to November 1997, Mr. Calonico held various management positions at Autodesk, Inc., including Vice President of Finance. Robert E. Cell has served as our Vice President of Corporate Development since March 2000. From November 1997 to March 2000, Mr. Cell served in various management positions at Kellogg Company, including Vice President, Corporate Development and Vice President, General Manager of Lender's, a division of Kellogg. From March 1996 to November 1997, Mr. Cell served in various management positions at Deloitte & Touche LLP, an accounting firm, including Managing Director of Deloitte & Touche's Great Lakes Corporate Finance practice. From June 1993 to March 1996, Mr. Cell held various management positions at Coopers & Lybrand LLP, an accounting firm. William H. Evans has served as our Vice President of Marketing since June 1998. From October 1997 to June 1998, Mr. Evans served as an independent consultant in the software industry. 47 From April 1995 to October 1997, Mr. Evans held various positions at Objectivity, Inc., a developer of database management software, including both Vice President of Marketing and Vice President and General Manager of the Aziza Business Unit. Scott D. Hanham has served as our Vice President of Product Development and Services since August 1998. From January 1995 to July 1998, Dr. Hanham was Director, Quality and Process Management at Sun Microsystems, Inc. Jeffrey G. Johnson has served as our Vice President of Sales since September 1998. From October 1997 to December 1997, Mr. Johnson was Vice President of National Accounts for the manufacturing business unit of PeopleSoft, Inc. From June 1996 to October 1997, Mr. Johnson was the Director of Sales for Red Pepper Software Company. From November 1993 to June 1996, Mr. Johnson was Director of Sales for SAP America's Western Region. James C. Gaither has served as a Director since August 1998. Since 1971, Mr. Gaither has been a Partner at the law firm of Cooley Godward LLP. Mr. Gaither is a Director of Amylin Pharmaceuticals, Inc., Basic American, Inc., nVidia Corporation, Siebel Systems, Inc. and Levi Strauss & Co. A. Michael Spence, Ph.D. has served as a Director since August 1998. Dr. Spence currently serves as Professor of Management in the Graduate School of Business at Stanford University. From 1990 until 1999, Dr. Spence served as Phillip H. Knight Professor and Dean of the Graduate School of Business at Stanford University. Dr. Spence also serves as a Director of eGain Communications Corp., General Mills, Inc., Nike, Inc. and Siebel Systems, Inc. Andrew W. Verhalen has served as a Director since January 1999. Mr. Verhalen has been a general partner of entities associated with Matrix Partners since April 1992. From 1986 to 1991, Mr. Verhalen served as a divisional Vice President and General Manager at 3Com Corporation. Mr. Verhalen currently serves on the Board of Directors of Alteon WebSystems, Inc., Copper Mountain Networks, Inc., Phone.com, Inc., Turnstone Systems, Inc. and WatchGuard Technologies, Inc. Edward H. Vick has served as a Director since February 2000. Since January 1992, Mr. Vick has held various positions at Young & Rubicam Inc., an advertising company, including Chairman of the Board and Chief Creative Officer. William F. Zuendt has served as a Director since August 1998. Mr. Zuendt retired as President and Chief Operating Officer of Wells Fargo & Company, a bank holding company, and its principal subsidiary, Wells Fargo Bank in 1997 after serving in that position since 1994. Mr. Zuendt is a Director of 3Com Corporation, Advent Software, Inc. and Be, Incorporated. Board Composition We have authorized six directors. Upon the closing of this offering and as provided by the terms of our fourth amended and restated certificate of incorporation, our board of directors will be divided into three classes and each class will have a term of three years. As a result, a portion of our board of directors will be elected each year. The division of the three classes, their election dates and the directors in each class are as follows:
Class of Director Date of Election Directors in Class ----------------- ---------------- ------------------ I 2001 annual meeting of stockholders A. Michael Spence Andrew W. Verhalen II 2002 annual meeting of stockholders Edward H. Vick William F. Zuendt III 2003 annual meeting of stockholders James C. Gaither Monte Zweben
48 At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. 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 directors. This classification of the board of directors may have the effect of delaying or preventing changes of control or management of Blue Martini. Board Committees Audit Committee. Our audit committee currently consists of Dr. Spence and Messrs. Vick and Zuendt. The audit committee reviews our internal accounting procedures and consults with and reviews the services provided by our independent accountants. Compensation Committee. Our compensation committee currently consists of Messrs. Gaither and Verhalen. The compensation committee administers our stock option plans, reviews and approves the compensation and benefits of all our officers and establishes and reviews general policies relating to employee compensation and benefits. Director Compensation Directors currently receive no cash compensation from us for their services as members of the board or for attendance at committee meetings. Members of the board are reimbursed for their reasonable expenses in attending board and board committee meetings. Dr. Spence and Messrs. Gaither and Zuendt each purchased 381,844 shares of our common stock at a purchase price of $0.01 per share, including 206,833 shares subject to a right of repurchase. In February 2000, Mr. Vick was granted an option to purchase 200,000 shares of our common stock with an exercise price of $1.50 per share that will vest 25% after 1 year of service and 1/48th per month thereafter over three years. According to our 2000 non-employee directors' stock option plan, each current non-employee director will be granted an option to purchase up to 25,000 shares of our common stock on the effective date of this offering and each new non-employee director will receive the same option on a director's election or appointment to the board, if later. Non-employee directors will be granted an option to purchase up to 7,500 shares of our common stock on the day after each annual meeting of stockholders after the effective date of this offering. Also, non-employee directors who serve as committee members will be granted an option to purchase up to 5,000 shares of our common stock on the day after each of our annual meeting of stockholders. The exercise price of each option will be the fair market value of a share of our common stock on the date of grant of the option. Compensation Committee Interlocks and Insider Participation None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Messrs. Gaither and Verhalen serve as members of the compensation committee. 49 Executive Compensation The following table shows information concerning compensation earned in 1999 for our Chairman, President and Chief Executive Officer and our three other most highly compensated executive officers, whose compensation, as defined by the Securities and Exchange Commission, exceeded $100,000 in 1999. The information in the table includes salaries, bonuses, stock options granted and other miscellaneous compensation. The compensation table excludes other compensation in the form of perquisites and other personal benefits that constituted less than 10% of the total annual salary and bonus of each of the named executive officers in 1999. Summary Compensation Table
Long-Term Compensation Annual ------------ Compensation Securities ---------------- Underlying Other Name and Principal Position Salary Bonus Options Compensation --------------------------- -------- ------- ------------ ------------ Monte Zweben..................... $153,077 $75,000 -- -- Chairman, President and Chief Executive Officer Williams H. Evans................ 171,346 10,000 -- -- Vice President of Marketing Scott D. Hanham.................. 155,769 42,500 400,000 -- Vice President of Product Development and Services Jeffrey G. Johnson............... 135,000 73,928(1) -- -- Vice President of Sales
- -------- (1) Includes sales commissions of $39,628. Option Grants in Last Fiscal Year The following table shows each grant of stock options during 1999 to the individuals listed on the previous table. The exercise price of each option was equal to the fair market value of our common stock as valued by the board of directors on the date of grant. The exercise price may be paid in cash or by promissory notes. The potential realizable value is calculated based on the ten-year term of the option and the market value at the time of grant. Stock price appreciation of 5% and 10% is assumed pursuant to rules promulgated by the Securities and Exchange Commission and does not represent our prediction of our stock price performance. The potential realizable values at 5% and 10% appreciation are calculated by: . multiplying the number of shares of common stock subject to a given option by the assumed initial public offering price of $ per share; . assuming that the total stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table until the expiration of the options; and . subtracting from that result the total option exercise price. The shares listed in the following table under "Number of Securities Underlying Options Granted" have a ten-year term, subject to earlier termination if the optionee's service with us ceases. 50 Percentages shown under "Percent of Total Options Granted to Employees in 1999" are based on a total of approximately 6,310,000 options granted to our employees under our stock option plans during 1999.
Potential Realizable Value at Annual Rates of Price Appreciation for Individual Grants Option Term Number of Securities Percent of Total ------------------------- ------------- Underlying Options Options Granted to Exercise Price Expiration Name Granted Employees in 1999 per Share Date 5% 10% - ---- -------------------- ------------------ -------------- ---------- ------ ------ Monte Zweben(1)......... -- -- -- -- -- -- William H. Evans........ -- -- -- -- -- -- Scott D. Hanham......... 400,000 6.34% $0.25 11/16/09 Jeffrey G. Johnson...... -- -- -- -- -- --
- -------- (1) In April 2000, Mr. Zweben received an option to purchase 600,000 shares of our common stock at an exercise price of $6.00 per share, which the board of directors determined to be the fair market value of our common stock. This option will vest monthly over three years beginning June 5, 2002. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table presents the number of shares acquired and the value realized upon exercise of stock options during 1999 and the number of shares of our common stock subject to "exercisable" and "unexercisable" stock options held as of December 31, 1999 by our Chairman, President and Chief Executive Officer and each of the other executive officers on 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 $ per share.
Securities Value of Underlying Unexercised Number of Shares Unexercised In-The-Money Acquired Upon Options at Options at Exercise Value Realized December 31, 1999 December 31, 1999 ---------------- -------------- ----------------- ----------------- Name Vested Unvested Vested Unvested - ---- ----------------- ----------------- Monte Zweben............ -- -- -- -- -- -- William H. Evans........ -- -- -- -- -- -- Scott D. Hanham......... 1,200,000(1) -- -- -- -- Jeffrey G. Johnson...... -- -- -- -- -- --
- -------- (1) Includes 941,667 shares subject to a right of repurchase as of December 31, 1999. Employee Benefit Plans 2000 Equity Incentive Plan We adopted our 2000 equity incentive plan in April 2000. The incentive plan is an amendment and restatement of our 1998 equity incentive plan. Administration. The board administers the incentive plan unless it delegates administration to a committee. The board or this committee has the authority to construe, interpret and amend the incentive plan and determine: . the grant recipients; . the grant dates; . the number of shares subject to the award; 51 . the exercisability and vesting of the award; . the exercise price; . the type of consideration; and . the other terms of the award. Share Reserve. We have reserved a total of 30,000,000 shares of our common stock for issuance under the incentive plan. On January 1 of each year for 10 years, starting on January 1, 2001, the share reserve will automatically be increased by a number of shares equal to the greater of: . 5% of our outstanding shares on a fully-diluted basis; or . that number of shares subject to stock awards made under the incentive plan during the prior 12-month period. However, the automatic increase is subject to reduction by the board, and no more than 200,000,000 shares of the share reserve, as increased, may be used for incentive stock options. If the recipient of a stock award does not purchase the shares subject to the stock award before the stock award expires or terminates, the shares that are not purchased again become available for issuance under the incentive plan. Eligibility. The board may grant incentive stock options that qualify under Section 422 of the Internal Revenue Code to our employees. The board also may grant nonstatutory stock options, stock bonuses and restricted stock purchase awards to our employees, directors and consultants. . A stock option is a contractual right to purchase a specified number of our shares at a specified price, called the exercise price, for a specified period of time. . An incentive stock option is a stock option that has met the requirements of Section 422 of the Internal Revenue Code. This type of option is free from regular tax at both the date of grant and the date of exercise. However, the difference between the fair market value on date of exercise and the exercise price is an item of alternative minimum tax unless there is a disqualifying disposition in the year of exercise. If two holding period tests are met--two years between grant date and sale date and one year between exercise date and sale date--all profit on the sale of our shares acquired by exercising the incentive stock option is long-term capital gain income. However, if either of the holding periods is not met, there has been a disqualifying disposition, and a portion of any profit will be taxed at ordinary income rates. . A nonstatutory stock option is a stock option not meeting the Internal Revenue Code criteria for qualifying incentive stock options and, therefore, triggering a tax upon exercise. This type of option requires payment of state and federal income tax and, if applicable, other taxes on the difference between the exercise price and the fair market value on the exercise date. . A restricted stock purchase award is our offer to sell our shares at a price either at or near the fair market value of the shares. A stock bonus is a grant of our shares at no cost to the recipient in consideration for past services performed. The board may not grant an incentive stock option to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or the total combined voting power of an affiliate of ours, unless the exercise price is at least 110% of the fair market value of the stock on the grant date and the option term is five years or less. 52 Limits on Option Grants. There are limits on the number of shares that the board may grant under an option. . Section 162(m) of the Internal Revenue Code denies a deduction to publicly held corporations for compensation paid to the chief executive officer and the four highest compensated officers in a taxable year to the extent that the compensation for each officer exceeds $1,000,000. When we become subject to Section 162(m), to prevent options granted under the incentive plan from being included in compensation, the board may not grant options under the incentive plan to an employee covering an aggregate of more than 5,000,000 shares in any calendar year. . In addition, an employee may not receive incentive stock options that exceed the $100,000 per year limitation provide in Section 422(d) of the Internal Revenue Code. In calculating the $100,000 per year limitation, we determine the aggregate number of shares under all incentive stock options granted to that employee that will become exercisable for the first time during a calendar year. For this purpose, we include incentive stock options granted under the incentive plan as well as under any other stock plans that we maintain. We then determine the aggregate fair market value of the stock as of the grant date of the option. Taking the options into account in the order in which they were granted, we treat only the options covering the first $100,000 worth of stock as incentive stock options. We treat any options covering stock in excess of $100,000 as nonstatutory stock options. Option Terms. The board may grant incentive stock options with an exercise price of 100% or more of the fair market value of a share of our common stock on the grant date. It may grant nonstatutory stock options at a discount. If the value of our shares declines after the date of grant, the board may offer option holders the opportunity to replace their outstanding higher-priced options with new lower-priced options. To the extent required by Section 162(m) of the Internal Revenue Code, the repriced option is considered to be canceled and a new option granted, but both options will be counted against the Section 162(m) limit discussed above. The maximum option term is 10 years. The board may provide for exercise periods of any length in individual option grants. However, generally an option terminates three months after the option holder's service to us terminates. If this termination is due to the option holder's disability, the exercise period generally is extended to 12 months. If this termination is due to the option holder's death or if the option holder dies within three months after the option holder's service terminates, the exercise period generally is extended to 18 months following the option holder's death. The board may provide for the transferability of nonstatutory stock options but not incentive stock options. However, the option holder may designate a beneficiary to exercise either type of option following the option holder's death. If the option holder does not designate a beneficiary, the option holder's option rights will pass by will or by the laws of descent and distribution. Terms of Other Stock Awards. The board determines the purchase price of other stock awards. However, the board may award stock bonuses in consideration of past services without a purchase payment. Shares that we sell or award under the incentive plan may, but need not be, restricted and subject to a repurchase option in our favor based on with a vesting schedule that the board determines. The board, however, may accelerate the vesting of the restricted stock. Other Provisions. Transactions not involving our receipt of consideration, including a merger, consolidation, reorganization, stock dividend and stock split, may change the class and number of shares subject to the incentive plan and to outstanding awards. In that event, the board will appropriately adjust the incentive plan for the class and the maximum number of shares subject to the incentive plan, to the cap on the number of shares available for incentive stock options, and to 53 the Section 162(m) limit. It also will adjust outstanding awards for the class, number of shares and price per share subject to the awards. If a change in control happens, the surviving entity may either assume or replace outstanding awards under the incentive plan. If this does not occur, then generally the vesting and exercisability of the awards will accelerate, and unexercised awards will terminate immediately before the event. A change in control includes the following: . a dissolution, liquidation or sale of all or substantially all of our assets; . a merger or consolidation in which we are not the surviving corporation; . a reverse merger in which we are the surviving corporation but the shares of our common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property; and . after this initial public offering, generally the acquisition by any person, entity or group of the beneficial ownership of our securities representing at least 50% of the combined voting power permitted to vote in the election of directors. If there is a change in control, other than a merger or consolidation for the purpose of a change in domicile, then for options held by persons then performing services as an employee, director, or consultant to us, the vesting of the option will be accelerated by 50%. Stock Awards Granted. As of April 15, 2000, we had: . 14,443,500 shares upon the exercise of options under the incentive plan issued and outstanding; . options to purchase 5,906,400 shares at a weighted average exercise price of $2.32 per share outstanding; and . 9,650,100 shares available for future grant. As of April 15, 2000, the board had not granted any stock bonuses or restricted stock under the incentive plan. Plan Termination. The incentive plan will terminate in 2010 unless the board terminates it sooner. 2000 Non-Employee Directors' Stock Option Plan We adopted our 2000 non-employee directors' stock option plan in April 2000. The directors' plan provides for the automatic grant to our non-employee directors of options to purchase shares of our common stock. Share Reserve. We have reserved a total of 300,000 shares of our common stock for issuance under the directors' plan. On January 1 of each year for 10 years, starting on January 1, 2001, the share reserve will automatically be increased by a number of shares equal to the greater of: . 0.25% of our outstanding shares on a fully-diluted basis; or . that number of shares subject to options granted under the directors' plan during the prior 12-month period. However, the automatic increase is subject to reduction by the board. If an option holder does not purchase the shares subject to their option before the option expires or terminates, the shares that are not purchased again become available for issuance under the directors' plan. 54 Administration. The board administers the directors' plan. The board has the authority to construe, interpret and amend the directors' plan but the directors' plan specifies the essential terms of the options, including: . the option recipients; . the grant dates; . the number of shares subject to the option; . the exercisability and vesting of the option; . the exercise price; and . the type of consideration. Eligibility. We automatically will issue options to our non-employee directors under the directors' plan as follows: . Each person who is a non-employee director on the effective date of this offering or who is first elected or appointed after the date of the prospectus as a non-employee director will automatically receive an initial option for 25,000 shares. The initial option is exercisable immediately but one third of the shares will vest one year after the date of grant and 1/36th of the shares will vest each month thereafter for 2 years; . In addition, on the day after each of our annual meetings of the stockholders, starting with the annual meeting in 2001, each non- employee director will automatically receive an annual option for 7,500 shares. The annual option is exercisable immediately but will vest monthly over the next year. If the non-employee director is appointed to the board after the annual meeting, the annual option will be adjusted based on the time actually served by the director; . Finally, on the day after each of our annual meetings of the stockholders, starting with the annual meeting in 2001, each non- employee director who is serving on a board committee will automatically receive a committee option for 5,000 shares. The committee option is exercisable immediately but will vest monthly over the next year. If the non-employee director is appointed to the committee after the annual meeting, the committee option will be pro rated. As long as the option holder continues to serve with us, whether in the capacity of a director, an employee or a consultant, the option will continue to vest and be exercisable during its term. When the option holder's service terminates, we will have the right to repurchase any unvested shares at the original exercise price, without interest. Option Terms. Options have an exercise price equal to 100% of the fair market value of our common stock on the grant date. The option term is 10 years but it terminates three months after the option holder's service terminates. If this termination is due to the option holder's disability, the post-termination exercise period is extended to 12 months. If this termination is due to the option holder's death or if the option holder dies within three months after their service terminates, the post-termination exercise period is extended to 18 months following death. The option holder may transfer the option by gift to immediate family or for estate-planning purposes. The option holder also may designate a beneficiary to exercise the option following the option holder's death. Alternatively, the option exercise rights will pass by the option holder's will or by the laws of descent and distribution. Other Provisions. Transactions not involving our receipt of consideration, including a merger, consolidation, reorganization, stock dividend and stock split, may change the class and number of 55 shares subject to the directors' plan and to outstanding options. In that event, the board will appropriately adjust the directors' plan for the class and the maximum number of shares subject to the directors' plan and to the automatic option grants. It also will adjust outstanding options for the class, number of shares and price per share subject to the options. If a change in control happens, the surviving entity may either assume or replace outstanding options under the directors' plan. If this does not occur, then generally the vesting of the options will accelerate, and unexercised options will terminate immediately before the event. A change in control includes the following: . A dissolution, liquidation or sale of all or substantially all of our assets; . A merger or consolidation in which we are not the surviving corporation; . A reverse merger in which we are the surviving corporation but the shares of our common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property; . Generally the acquisition by any person, entity or group of the beneficial ownership of our securities representing at least 50% of the combined voting power permitted to vote in the election of directors; and . If there is a change in control, other than a merger or consolidation for the purpose of a change in domicile, then for options held by persons then performing services as an employee or director of, or consultant to, us, the vesting of the option will be accelerated by 50%. Options Issued. The directors' plan will not be effective until the effective date of this offering. We have not issued any options under the directors' plan. Plan Termination. The directors' plan has no set termination date. 2000 Employee Stock Purchase Plan We adopted our 2000 employee stock purchase plan in April 2000. Administration. The board administers the purchase plan unless it delegates administration to a committee. The board or this committee has the authority to construe, interpret and amend the purchase plan and determine the terms of rights granted under the purchase plan. Share Reserve. We reserved 4,000,000 shares of our common stock for issuance to eligible employees with purchase rights under the purchase plan. On January 1 of each year for 10 years, starting on January 1, 2001, the share reserve will automatically be increased by a number of shares equal to the greater of: . 2.5% of our outstanding shares on a fully-diluted basis; or . that number of shares issued under the purchase plan during the prior 12-month period. However, the automatic increase is subject to reduction by the board, and no more than 80,000,000 shares of the share reserve, as increased, may be used under the purchase plan. Eligibility. The purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. The purchase plan provides a means by which eligible employees may purchase our common stock through payroll deductions. We implement the purchase plan by offerings of purchase rights to eligible employees. Generally, all of our full- time employees in the United States and in the United Kingdom who have been employed 56 for at least 10 days may participate in offerings under the purchase plan. However, no employee may participate in the purchase plan if immediately after we grant the employee a purchase right, the employee has voting power over 5% or more of our outstanding capital stock. Offerings. Under the purchase plan, the board may specify offerings of up to 27 months. Unless the board determines differently, common stock is purchased for accounts of participating employees at a price per share equal to the lower of: . 85% of the fair market value of a share on the first day of the offering; or . 85% of the fair market value of a share on the purchase date. The first offering will begin on the effective date of this offering, and we expect to offer shares registered on a Form S-8 registration statement. The fair market value of the shares on the first date of this offering will be the price per share at which our shares are first sold to the public as specified in the final prospectus for this offering. Otherwise, fair market value generally means the closing sales price, rounded up where necessary to the nearest whole cent, for these shares, or the closing bid, if no sales were reported, as quoted on the Nasdaq National Market on the last trading day before the relevant determination date, as reported in The Wall Street Journal. The board may provide that employees who become eligible to participate after the offering period begins nevertheless may enroll in the offering. These employees will purchase our stock at the lower of: . 85% of the fair market value of a share on the day they began participating in the purchase plan; or . 85% of the fair market value of a share on the purchase date. Participating employees may authorize payroll deductions of up to 15% of their total compensation for the purchase of stock under the purchase plan. Employees may end their participation in the offering before a purchase period ends. Their participation ends automatically on termination of their employment. Other Provisions. The board may grant eligible employees purchase rights under the purchase plan only if the purchase rights together with any other purchase rights granted under other employee stock purchase plans established by us or by our affiliates, if any, do not permit the employee's rights to purchase our stock to accrue at a rate which exceeds $25,000 of fair market value of our stock for each calendar year in which the purchase rights are outstanding. Upon a change in control, the board may provide that the successor corporation either will assume or replace outstanding purchase rights. Alternatively, the board may shorten the ongoing offering period and provide that our stock will be purchased for the participants immediately before the change in control. Shares Issued. The purchase plan will not be effective until the effective date of this initial public offering of our stock. Therefore, as of the date of this prospectus, no shares of common stock have been purchased under the purchase plan. Plan Termination. The purchase plan has no set termination date. 401(k) Plan Effective February 1, 2000, we adopted a 401(k) plan to provide eligible employees with a tax preferential savings and investment program. Employees become eligible to participate in the 401(k) 57 plan on the first day they perform an hour of service for us, at which point we classify them as participants. They may elect to reduce their current compensation by up to the lesser of 20% of eligible compensation or the statutorily prescribed annual limit, $10,500 in 2000, and have this reduction contributed to the 401(k) plan. At the direction of each participant, the trustee of the 401(k) plan invests the assets of the 401(k) plan in selected investment options. Contributions by participants or by us to the 401(k) plan, and income earned on plan contributions, are generally not taxable to the participants until withdrawn. We have not made any contributions to the 401(k) plan to date. Limitation of Liability and Indemnification Our certificate of incorporation and bylaws contain provisions permitted under Delaware law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving wrongful acts, including: . 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; . for any acts under section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate our rights or any stockholder's rights to seek non-monetary relief, including an injunction or rescission, in the event of a breach of the director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. In addition, we intend to enter into separate indemnification agreements with our directors and executive officers that provide each of them indemnification protection in the event the amended and restated certificate of incorporation and amended and restated bylaws are subsequently amended. We believe that these provisions and agreements will assist us in attracting and retaining qualified individuals to serve as directors and officers. Indemnification Agreements Our certificate of incorporation includes a provision that eliminates the personal liability of a director for monetary damages resulting from breach of his 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. Our bylaws provide that: . we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; . we may indemnify our employees and agents to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; 58 . we are required to advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding; . we may advance expenses, as incurred, to our employees and agents in connection with a legal proceeding; and . the rights conferred in the bylaws are not exclusive. In addition to the indemnification required in our certificate of incorporation and bylaws, we have entered into indemnity agreements with each of our current directors and executive officers. These agreements provide for the indemnification of our officers and directors for all expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We also intend to obtain directors' and officers' insurance to cover our directors, officers and some of our employees for liabilities, including liabilities under securities laws. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. 59 CERTAIN TRANSACTIONS Blue Martini was established as a limited liability company in June 1998. In January 1999, the limited liability company was merged into Blue Martini Software, Inc., a Delaware corporation. As a result of the merger, each class B unit of the limited liability company was converted into one share of common stock of the corporation and each class A unit of the limited liability company was converted into one share of series A preferred stock of the corporation. The table below reflects the units issued by the limited liability company as if issued by the corporation. The following executive officers, directors, former directors or holders of more than five percent of our voting securities purchased securities for a purchase price in excess of $60,000 in the amounts and as of the dates set forth below.
Shares of Preferred Stock -------------------------------- Common Series Stock A(1) Series B Series C ----------- --------- ------------ --------- Directors and Executive Officers Monte Zweben(2)............... 20,892,000(1) 3,571,432 2,105,264 666,668 John E. Calonico, Jr.......... 66,666 -- -- -- Thomas M. Siebel(3)........... 79,552(1) 714,284 -- -- William F. Zuendt............. 381,844(1) -- 842,104 -- Entities Affiliated with Directors Entities affiliated with Matrix Partners V, L.P.(4)... -- -- 6,315,788 973,332 Other 5% Stockholders Entities affiliated with U.S. Venture Partners............. -- -- -- 5,666,664 Price Per Share............... $0.01-$1.50 $0.28 $0.48 $1.50 Date(s) of Purchase........... Various June 1998 January 1999 July 1999
- -------- (1) Represents shares issued upon the merger of Blue Martini LLC into Blue Martini Software, Inc. (2) Includes 2,892,000 shares of common stock held by the Zweben Family Limited Partnership and 3,571,432 shares of series A preferred stock, 2,105,264 shares of series B preferred stock and 666,668 shares of series C preferred stock held by the Zweben Family Revocable Trust. (3) Former director. (4) Andrew W. Verhalen, one of our directors, is a general partner of entities associated with Matrix Partners. Blue Martini and the preferred stockholders described above have entered into an agreement, pursuant to which these and other preferred stockholders will have registration rights with respect to their shares of common stock following this offering. Cooley Godward LLP performs legal services for us. James C. Gaither, one of our directors, is a partner of Cooley Godward LLP. In 1999, license and service revenues from Levi Strauss & Co. accounted for 19% of our total revenues. James C. Gaither, one of our directors, is a director of Levi Strauss & Co. In the first quarter of 2000, we have incurred expenses of $722,000 to Young & Rubicam, Inc. for advertising services. Edward H. Vick, one of our directors, is chairman and chief creative officer of Young & Rubicam. 60 In February 2000, we granted to Edward H. Vick, one of our directors, an option to purchase 200,000 shares of our common stock at an exercise price of $1.50. We have entered into an agreement with John E. Calonico, Jr., our Vice President, Chief Financial Officer and Secretary. Under this agreement we have agreed to pay Mr. Calonico a lump sum equal to six months of his base salary if we terminate his employment without cause. We intend to enter into indemnification agreements with our directors and officers for the indemnification of and advancement of expenses to these persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and officers. 61 PRINCIPAL STOCKHOLDERS The following table presents information as to the beneficial ownership of our common stock as of April 15, 2000 and as adjusted to reflect the sale of our 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 of the executive officers in our summary compensation table; and . all of our directors and executive officers as a group. 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 below, 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 that are currently exercisable or exercisable prior to August 31, 2000 are deemed to be outstanding and to be beneficially owned by the person holding the options 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 below, the address for each listed stockholder is c/o Blue Martini Software, Inc., 2600 Campus Drive, San Mateo, CA 94403. The percentage of common stock outstanding as of April 15, 2000 is based on 59,289,138 shares of common stock outstanding on that date, assuming that all outstanding preferred stock has been converted into common stock.
Percent Beneficially Owned Number of Shares ------------------------------ Name of Beneficial Owner Beneficially Owned Before Offering After Offering - ------------------------ ------------------ --------------- -------------- Directors and Executive Officers Monte Zweben(1)............. 27,235,364 45.9% William H. Evans(2)......... 1,527,372 2.6% Scott D. Hanham(3).......... 1,200,000 2.0% Jeffrey G. Johnson(4)....... 1,527,372 2.6% James C. Gaither(5)......... 381,844 * * A. Michael Spence(5)........ 381,844 * * Andrew W. Verhalen(6)....... 7,289,120 12.3% Edward H. Vick.............. -- * William F. Zuendt(5)........ 1,223,948 2.1% All Directors and Executive Officers as a Group (11 Persons)(6)............ 40,833,530 68.9% Other Stockholders Entities Affiliated with Matrix Partners(7)......... 7,289,120 12.3% Entities Affiliated with U.S. Venture Partners(8)... 5,666,664 9.6%
- -------- * Represents beneficial ownership of less than 1%. (1) Includes 2,892,000 shares held by the Zweben Family Partnership and 6,343,364 shares held by the Zweben Family Revocable Trust. (2) Includes 700,046 shares subject to a right of repurchase at the purchase price for such shares. (3) Includes 741,667 shares subject to a right of repurchase at the purchase price for such shares. Includes 316,666 shares held by the Hanham Family Trust. (4) Includes 854,904 shares subject to a right of repurchase at the purchase price for such shares. (5) Includes 206,833 shares subject to a right of repurchase at the purchase price for such shares. 62 (6) Includes 2,917,116 shares subject to a right of repurchase and 7,289,120 shares held by affiliates of our directors. (7) Represents 6,560,208 shares held by Matrix Partners V, L.P. and 728,912 shares held by Matrix V Entrepreneurs Fund, L.P. Mr. Verhalen is a general partner of entities associated with Matrix Partners and disclaims beneficial ownership of the shares held by Matrix Partners V, L.P. except to the extent of his pecuniary interest therein. (8) Represents 5,184,996 shares held by U.S. Venture Partners VI, L.P., 238,000 shares held by USVP VI Affiliates Fund, L.P., 153,000 shares held by USVP VI Entrepreneur Partners, L.P. and 90,668 shares held by 2180 Associates Fund VI, L.P. 63 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering, our authorized capital stock will consist of 500,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. Common Stock As of April 15, 2000, there were 59,289,138 shares of common stock outstanding that were held of record by approximately 180 stockholders after giving effect to the conversion of our preferred stock into common stock at a four-to-one ratio. There will be shares of common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options, after giving effect to the sale of the shares of common stock offered by this prospectus. Voting rights. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders. In addition, our certificate of incorporation and bylaws require the approval of two-thirds, rather than a majority, of the shares entitled to vote for certain matters. For a description of these matters, see "Anti-Takeover Provisions." Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive ratably any dividends out of assets legally available therefor as our board of directors may from time to time determine. Upon liquidation, dissolution or winding up of Blue Martini, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassesable. Dividend rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available at the times and in the amounts as our board of directors may determine. No preemptive or similar rights. Our 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 Blue Martini, the holders of our common stock are entitled to share ratably among themselves in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock. Each outstanding share of our common stock is, and all shares of our 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 our preferred stock will be converted into four shares of our common stock. See Note 9 of notes to financial statements for a description of our preferred stock. Following the offering, we will be authorized, subject to limitations 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, and 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 of directors can 64 also increase or decrease the number of shares of any series, but not below the number of shares of such 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 of Blue Martini and may adversely affect the market price of the our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock. Registration Rights As a result of an investors' rights agreement dated January 13, 1999 as amended July 20, 1999, among us and some of our stockholders, the holders of 23,297,264 shares of our common stock will be entitled to rights with respect to the registration of these shares under the Securities Act, as described below. Demand Registration Rights. At any time after six months following this offering, the holders of at least 50% of the shares having registration rights can request that we register all or a portion of their shares, so long as such registration covers at least 40% of their shares and the total offering price of the shares to the public is at least $10 million. We will only be required to file two registration statements in response to these demand registration rights. We may postpone the filing of a registration statement for up to 120 days twice in a 12 month period if we determine that the filing would be seriously detrimental to us and our stockholders. Piggyback Registration Rights. If we register any securities for public sale, the stockholders with registration rights will have the right to include their shares in the registration statement. The managing underwriter of any underwritten offering will have the right to limit the number of shares registered by these holders to be included in the registration statement due to marketing reasons. Form S-3 Registration Rights. The holders of the shares having registration rights can request that we register their shares if we are eligible to file a registration statement on Form S-3 and if the total price of the shares offered to the public is at least $3 million. We will only be required to file two registration statements in response to these S-3 registration rights. 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 and our stockholders. We will pay all expenses incurred in connection with the registrations described above, except for underwriters' and brokers' discounts and commissions, which will be paid by the selling stockholders. The registration rights described above will expire with respect to a particular stockholder if it can sell all of its shares in a three month period under Rule 144 of the Securities Act. In any event, the registration rights described above will expire three years after this offering is completed. Holders of these registration rights have waived the exercise of these registration rights for 180 days following the date of this prospectus. Anti-Takeover Provisions The provisions of Delaware law, our certificate of incorporation and our bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. 65 Delaware Law We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents some Delaware corporations from engaging, under some circumstances, in a "business combination," which includes a merger or sale of more than 10% of the corporation's assets with any "interested stockholder," meaning a stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of the stockholder, for three years following the date that the stockholder became an "interested stockholder" unless: . the transaction is approved by the board of directors prior to the date the interested stockholder attained that status; . upon consummation 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 such date the business combination is approved by the board of directors 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 or 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. The statute 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 certificate of incorporation and bylaws provide that: . following the completion of this offering, no action shall be taken by stockholders except at an annual or special meeting of the stockholders called in accordance with our bylaws and that stockholders may not act by written consent; . following the completion of this offering, the approval of holders of two-thirds of the shares entitled to vote at an election of directors shall be required to adopt, amend or repeal our bylaws or amend or repeal the provisions of our certificate of incorporation regarding the election and removal of directors and ability of stockholders to take action; . stockholders may not call special meetings of the stockholders without advance notice and approval of the stockholders holding at least a majority of the outstanding shares of stock; . stockholders may not fill vacancies on the board; . following the completion of this offering, our board of directors will be divided into three classes, each serving staggered three-year terms, which means that only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective terms, and directors may only be removed for cause by the holders of two-thirds of the shares entitled to vote at an election of directors; and . 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. 66 These provisions of our certificate of incorporation and bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. Transfer Agent The transfer agent and registrar for our common stock is Computershare Investor Services, LLC. Listing We have applied for quotation of our common stock on the Nasdaq National Market under the trading symbol "BLUE." 67 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities. Upon the completion of this offering, we will have shares of our common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Of the outstanding shares, all of the shares sold in this offering will be freely tradable, except that any shares held by directors, officers or owners of ten percent or more of our stock, may only be sold in compliance with the limitations described below. The remaining 59,289,138 shares of our common stock will be deemed "restricted securities" as defined under Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below, the provisions of Rules 144, 144(k) and 701 and a right of repurchase in favor of Blue Martini applicable to some of our common stock, additional shares will be available for sale in the public market as follows: . no shares will be eligible for sale within 90 days from the date of this prospectus; up to 6,744,121 shares will be eligible for sale 90 days from the date of this prospectus in the event that the locked-up shares are released early, as described below; . an additional 1,769,732 shares will be eligible for sale 120 days from the date of this prospectus in the event that the locked-up shares are released early, as described below; . 46,075,619 shares will be eligible for sale upon the expiration of the 180-day lock-up period; and . 4,699,666 shares will be eligible for sale at various times after the 180-day lock-up period. Lock-Up Agreements Our directors, officers and substantially all of our stockholders have entered into lock-up agreements in connection with this offering. These lock-up agreements provide that these persons will not offer, sell, contract to sell, grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. or pursuant to the earlier releases described below. These lock-up agreements do not restrict the transfer of shares of our common stock purchased under the directed share program in connection with this offering or in the open market following the date of this prospectus. 68 If our stock price is greater than twice the initial public offering price per share for the time periods set forth below, then a percentage of the securities subject to lock-up agreements will be released from the transfer restrictions of the lock-up agreements at the time set forth below.
Time Period Amount Released Time Released - ---------------------------------------------------------------------------------- 20 of the 40 consecutive 15% of the securities The 90th day after the trading days ending on subject to lock-up date of this prospectus. the last trading day agreements as of the date of preceding the 90th day this prospectus. after the date of this prospectus. - ---------------------------------------------------------------------------------- 20 of the 40 consecutive An additional 20% of the The 120th day after the trading days ending on securities subject to lock- date of this prospectus. the last trading day up agreements as of the date preceding the 120th day of this prospectus. after the date of this prospectus.
However, if the securities to be released above would be released during one of the Company's blackout periods, then if our stock price is greater than twice the initial public offering price per share for the time periods set forth below, a percentage of the securities subject to the lock-up agreements will be released from the transfer restrictions of the lock-up agreements at the time set forth below.
Scheduled Release Time Period Amount Released Actual Release - ---------------------------------------------------------------------------------------- The 90th day after the 20 of the 40 15% of the The 20th day after date of this prospectus consecutive trading securities subject the end of the is during a blackout days ending on the to lock-up blackout period. period. 20th day after the agreements as of the end of the blackout date of this period. prospectus. - ---------------------------------------------------------------------------------------- The 120th day after the 20 of the 40 An additional 20% of The first day after date of this prospectus consecutive trading the securities the end of the is during a blackout days ending on the subject to lock-up blackout period. period. first day after the agreements as of the end of the blackout date of this period. prospectus.
Blue Martini's blackout period begins on the last four weeks of each calendar quarter and ends three trading days after it announces its quarterly results. During the blackout period, we do not allow our directors, officers and key employees to trade our stock. Rule 144 In general, under Rule 144 as currently in effect, a person, or group of persons whose shares are required to be aggregated, including an affiliate of Blue Martini, who has beneficially owned shares for at least one year is entitled to sell within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of one percent of the then-outstanding shares of our common stock, which will be approximately shares immediately after this offering, or the average weekly trading volume in our common stock during the four calendar weeks preceding the date on which notice of the sale is filed. In addition, a person who is not deemed to have been an affiliate 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 would be entitled to sell these shares under Rule 144(k) without regard to the requirements described above. To the extent 69 that shares were acquired from one of our affiliates, a person's holding period for the purpose of effecting a sale under Rule 144 would commence on the date of transfer from the affiliate. Rule 701 In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors, other than affiliates, who purchases or receives shares from us in connection with a compensatory stock purchase plan or option plan or other written agreement will be eligible to resell their shares beginning 90 days after the date of this prospectus, subject only to the manner of sale provisions of Rule 144. Affiliates who purchase or receive shares from us in connection with a compensatory stock purchase plan or option plan or other written agreement will be eligible to sell their shares beginning 90 days after the date of this prospectus under Rule 701 without compliance with the Rule 144 holding period requirements. Registration Rights On the date 180 days after the date of this prospectus, the holders of 23,297,264 shares or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of their shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of this registration. Stock Options We intend to file a registration statement under the Securities Act covering the 30,300,000 shares reserved for issuance under our stock option plans and 4,000,000 shares reserved for issuance under our employee stock purchase plan. The registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under the registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale at various times as permitted under the lock-up provisions discussed above. 70 UNDERWRITING Blue Martini and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Dain Rauscher Incorporated, Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc. are the representatives of the underwriters:
Underwriters Number of Shares ------------ ---------------- Goldman, Sachs & Co. ....................................... Dain Rauscher Incorporated.................................. Thomas Weisel Partners LLC.................................. U.S. Bancorp Piper Jaffray Inc.............................. ---- Total..................................................... ====
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional shares from Blue Martini to cover such sales. They may exercise that option for 30 days. If any shares are purchased under this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by Blue Martini. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
Paid by Blue Martini ------------------------- No Exercise Full Exercise ----------- ------------- Per share.......................................... $ $ Total.............................................. $ $
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. Blue Martini has agreed with the underwriters not to dispose of or hedge any of its common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the 180 days after the date of this prospectus, except with the prior written consent of the representatives. This restriction does not apply to any existing employee benefits plans or securities issues in connection with acquisition transactions, provided that the recipients of such securities agree to be bound by the lock-up provisions applicable to other stockholders. Blue Martini's directors, officers and substantially all of its stockholders have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. This restriction shall terminate as to 15% of the locked-up shares after 90 days and an additional 20% of the locked-up shares after 120 days after the date of this prospectus, subject to delays as a result of the timing of Blue Martini's earnings releases and compliance with insider trading policies, in the event that the reported last sale price of Blue Martini's common stock on the Nasdaq National Market is at least twice the initial public offering price for predetermined periods ending on these dates. See "Shares Eligible for Future Sale" for a discussion of transfer restrictions. 71 At the request of Blue Martini, the underwriters have reserved for sale, at the initial public offering price, up to shares of common stock for certain directors, employees and friends of Blue Martini. There can be no assurance that any of the reserved shares will be so purchased. The number of shares available for sale to the general public in the offering will be reduced by the number of reserved shares sold. Any reserved shares not so purchased will be offered to the general public on the same basis as the other shares offered hereby. Prior to this offering, there has been no public market for the common stock. The initial public offering price for the common stock will be negotiated among Blue Martini and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be Blue Martini's historical performance, estimates of Blue Martini's business potential and earning prospects, an assessment of Blue Martini's management and the consideration of the above factors in relation to market valuation of companies in related businesses. Application has been made for quotation of the common stock on the Nasdaq National Market under the symbol "BLUE." In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on 166 filed public offerings of equity securities, of which 112 have been completed, and has acted as a syndicate member in an additional 91 public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with Blue Martini or any of its officers, directors or other controlling persons, except with respect to its contractual relationship with Blue Martini pursuant to the underwriting agreement entered into in connection with this offering. A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead managers to underwriters that may make Internet distributions on the same basis as other allocations. The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered. Blue Martini estimates that its share of the total expenses at the offering, excluding underwriting discounts and commissions, will be approximately $ million. Blue Martini has agreed to indemnify the several underwriters against liabilities, including liabilities under the Securities Act of 1933. 72 LEGAL MATTERS Cooley Godward LLP, Palo Alto, California will pass upon the validity of the shares of common stock offered by this prospectus. As of the date of this prospectus, partners and associates of Cooley Godward LLP beneficially own an aggregate of 178,568 shares of common stock through an investment partnership and James C. Gaither, a director of Blue Martini and a partner of Cooley Godward owns an aggregate of 381,844 shares of common stock. Shearman & Sterling, Menlo Park, California will pass upon the validity of the shares of common stock offered by this prospectus for the underwriters. EXPERTS The balance sheets of Blue Martini Software, Inc. as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity and cash flows for the period from June 5, 1998 (Inception) to December 31, 1998 and for the year ended December 31, 1999, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE 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 in all respects 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 website 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. 73 INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report................................................ F-2 Balance Sheets.............................................................. F-3 Statements of Operations.................................................... F-4 Statements of Stockholders' Equity.......................................... F-5 Statements of Cash Flows.................................................... F-6 Notes to Financial Statements............................................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Blue Martini Software, Inc.: We have audited the accompanying balance sheets of Blue Martini Software, Inc. (the Company) as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity, and cash flows for the period from June 5, 1998 (Inception) to December 31, 1998, and for the year ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blue Martini Software, Inc. as of December 31, 1998 and 1999, and the results of its operations and its cash flows for the period from June 5, 1998 (Inception) to December 31, 1998, and for the year ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Mountain View, California February 29, 2000, except as to Note 12, which is as of April 24, 2000 F-2 BLUE MARTINI SOFTWARE, INC. Balance Sheets (In thousands, except per share data)
Pro Forma Stockholders' December 31, Equity ----------------- March 31, March 31, 1998 1999 2000 2000 Assets ------- -------- --------- ------------- (Unaudited) Current assets: Cash and cash equivalents.......... $ 261 $ 10,362 $ 11,886 Short-term investments............. -- 2,562 1,746 Accounts receivable, net of allowance for doubtful accounts of $-, $225 and $459 as of December 31, 1998 and 1999 and March 31, 2000, respectively...... 130 3,649 6,527 Prepaid expenses and other current assets............................ 48 656 1,513 ------- -------- -------- Total current assets.............. 439 17,229 21,672 Property and equipment, net......... 136 2,761 5,152 Other assets........................ 167 370 964 ------- -------- -------- Total assets...................... $ 742 $ 20,360 $ 27,788 ======= ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable................... $ 170 $ 1,874 $ 1,994 Accrued employee compensation...... 19 2,578 4,379 Other current liabilities.......... 51 1,074 4,717 Deferred revenues.................. 130 3,577 9,059 Current portion of long-term obligations....................... 16 418 500 ------- -------- -------- Total current liabilities......... 386 9,521 20,649 Long-term obligations, less current portion............................ 39 544 602 ------- -------- -------- Total liabilities................. 425 10,065 21,251 ------- -------- -------- Commitments Stockholders' equity: Convertible preferred stock, $0.001 par value; actual--7,200 shares authorized; 1,116 shares issued and outstanding as of December 31, 1998 and 5,824 shares issued and outstanding as of December 31, 1999 and March 31, 2000; aggregate liquidation preference of $18,712 as of December 31, 1999 and March 31, 2000; pro forma--5,000 shares authorized; no shares issued and outstanding....................... 1 6 6 $ -- Common stock, $0.001 par value; actual--46,000 shares authorized; 30,253, 31,411 and 35,361 shares issued and outstanding as of December 31, 1998 and 1999 and March 31, 2000, respectively; pro forma--500,000 shares authorized; 58,657 shares issued and outstanding....................... 30 31 35 59 Additional paid-in-capital......... 1,856 29,365 67,086 67,068 Deferred stock compensation........ (425) (8,034) (38,136) (38,136) Accumulated deficit................ (1,145) (11,073) (22,454) (22,454) ------- -------- -------- ------- Total stockholders' equity........ 317 10,295 6,537 $ 6,537 ------- -------- -------- ======= Total liabilities and stockholders' equity............. $ 742 $ 20,360 $ 27,788 ======= ======== ========
See accompanying notes to financial statements. F-3 BLUE MARTINI SOFTWARE, INC. Statements of Operations (In thousands, except per share data)
June 5, 1998 (Inception) Three Months to Year Ended Ended March 31, December 31, December 31, ----------------- 1998 1999 1999 2000 ------------ ------------ ------- -------- (Unaudited) Revenues: License......................... $ -- $ 7,205 $ 25 $ 6,070 Service......................... -- 4,027 216 4,611 ------- -------- ------- -------- Total revenues............... -- 11,232 241 10,681 ------- -------- ------- -------- Cost of revenues: License......................... -- 719 3 561 Service......................... -- 5,429 110 6,218 ------- -------- ------- -------- Total cost of revenues....... -- 6,148 113 6,779 ------- -------- ------- -------- Gross profit................. -- 5,084 128 3,902 ------- -------- ------- -------- Operating expenses: Sales and marketing............. 407 7,177 366 8,473 Research and development........ 504 6,870 947 4,361 General and administrative...... 249 1,218 208 2,509 ------- -------- ------- -------- Total operating expenses..... 1,160 15,265 1,521 15,343 ------- -------- ------- -------- Loss from operations......... (1,160) (10,181) (1,393) (11,441) Interest and other, net.......... 15 253 31 60 ------- -------- ------- -------- Net loss..................... $(1,145) $ (9,928) $(1,362) $(11,381) ======= ======== ======= ======== Basic and diluted net loss per common share.................... $ (0.05) $ (0.43) $ (0.06) $ (0.45) ======= ======== ======= ======== Shares used in computing basic and diluted net loss per common share........................... 22,000 22,964 22,000 25,108 ======= ======== ======= ========
See accompanying notes to financial statements. F-4 BLUE MARTINI SOFTWARE, INC. Statements of Stockholders' Equity June 5, 1998 (Inception) to March 31, 2000 (In thousands)
Convertible Preferred Stock Common Stock Additional Deferred Total ----------------- -------------- Paid-In Stock Accumulated Stockholders' Shares Amount Shares Amount Capital Compensation Deficit Equity -------- ------- ------ ------ ---------- ------------ ----------- ------------- Issuance of common stock.................. -- $ -- 22,000 $ 22 $ 48 $ -- $ -- $ 70 Issuance of common stock for employee stock options................ -- -- 8,253 8 43 -- -- 51 Issuance of series A convertible preferred stock.................. 1,116 1 -- -- 1,249 -- -- 1,250 Deferred compensation relating to stock option grants.......... -- -- -- -- 516 (516) -- -- Amortization of stock compensation........... -- -- -- -- -- 91 -- 91 Net loss................ -- -- -- -- -- -- (1,145) (1,145) -------- ------- ------ ---- ------- -------- -------- ------- Balances, December 31, 1998................... 1,116 1 30,253 30 1,856 (425) (1,145) 317 Issuance of common stock.................. -- -- 24 -- 6 -- -- 6 Issuance of common stock for employee stock options................ -- -- 1,676 2 203 -- -- 205 Repurchase of common stock.................. -- -- (542) (1) (6) -- -- (7) Issuance of series B convertible preferred stock.................. 2,631 3 -- -- 4,997 -- -- 5,000 Issuance of series C convertible preferred stock.................. 2,077 2 -- -- 12,448 -- -- 12,450 Deferred compensation relating to stock option grants.......... -- -- -- -- 9,814 (9,814) -- -- Amortization of stock compensation........... -- -- -- -- -- 2,205 -- 2,205 Non-employee stock compensation........... -- -- -- -- 47 -- -- 47 Net loss................ -- -- -- -- -- -- (9,928) (9,928) -------- ------- ------ ---- ------- -------- -------- ------- Balances, December 31, 1999................... 5,824 6 31,411 31 29,365 (8,034) (11,073) 10,295 Issuance of common stock (unaudited)............ -- -- 66 -- 100 -- -- 100 Issuance of common stock for employee stock options (unaudited).... -- -- 3,884 4 1,768 -- -- 1,772 Warrant issued (unaudited)............ -- -- -- -- 176 -- -- 176 Deferred compensation relating to stock option grants (unaudited)............ -- -- -- -- 34,261 (34,261) -- -- Amortization of stock compensation (unaudited)............ -- -- -- -- -- 4,159 -- 4,159 Non-employee stock compensation (unaudited)............ -- -- -- -- 1,416 -- -- 1,416 Net loss (unaudited).... -- -- -- -- -- -- (11,381) (11,381) -------- ------- ------ ---- ------- -------- -------- ------- Balances, March 31, 2000 (unaudited)............ 5,824 $ 6 35,361 $ 35 $67,086 $(38,136) $(22,454) $ 6,537 ======== ======= ====== ==== ======= ======== ======== =======
See accompanying notes to financial statements. F-5 BLUE MARTINI SOFTWARE, INC. Statements of Cash Flows (In thousands)
June 5, 1998 (Inception) Three Months to Year Ended Ended March 31, December 31, December 31, ----------------- 1998 1999 1999 2000 ------------ ------------ ------- -------- (Unaudited) Cash flows from operating activities: Net loss......................... $(1,145) $(9,928) $(1,362) $(11,381) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.. 8 788 35 623 Stock compensation............. 91 2,252 114 5,575 Provision for doubtful accounts...................... -- 225 -- 234 Changes in operating assets and liabilities: Accounts receivable........... (130) (3,744) (802) (3,112) Prepaid expenses and other current assets............... (48) (608) (549) (857) Accounts payable, accrued employee compensation and other current liabilities.... 240 5,286 701 5,564 Deferred revenues............. 130 3,447 745 5,482 ------- ------- ------- -------- Net cash provided by (used in) operating activities... (854) (2,282) (1,118) 2,128 ------- ------- ------- -------- Cash flows from investing activities: Purchases of property and equipment....................... (82) (3,108) (300) (2,704) Purchases of available-for-sale short-term investments.......... -- (2,562) -- -- Sales and maturities of available-for-sale short-term investments..................... -- -- -- 816 Other assets..................... (167) (203) -- (462) ------- ------- ------- -------- Net cash used for investing activities................. (249) (5,873) (300) (2,350) ------- ------- ------- -------- Cash flows from financing activities: Net proceeds from issuance of convertible preferred stock..... 1,250 17,450 5,000 -- Net proceeds (payments) from issuance (repurchases) of common stock........................... 121 204 (2) 1,872 Proceeds from bank borrowings.... -- 750 -- -- Repayment of debt and capital lease obligations............... (7) (148) (29) (126) ------- ------- ------- -------- Net cash provided by financing activities....... 1,364 18,256 4,969 1,746 ------- ------- ------- -------- Net increase in cash and cash equivalents...................... 261 10,101 3,551 1,524 Cash and cash equivalents at beginning of period.............. -- 261 261 10,362 ------- ------- ------- -------- Cash and cash equivalents at end of period........................ $ 261 $10,362 $ 3,812 $ 11,886 ======= ======= ======= ======== Supplemental disclosures of noncash investing and financing activities: Property and equipment acquired under capital lease obligations.................... $ 62 $ 305 $ 302 $ 266 ======= ======= ======= ======== Deferred stock compensation..... $ 516 $ 9,814 $ 278 $ 34,261 ======= ======= ======= ======== Warrant issued in connection with lease financing........... $ -- $ -- $ -- $ 176 ======= ======= ======= ========
See accompanying notes to financial statements. F-6 BLUE MARTINI SOFTWARE, INC. Notes To Financial Statements December 31, 1998 and 1999 and March 31, 2000 (information as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 is unaudited) 1. The Company Blue Martini Software, Inc. (the "Company") develops, markets and supports a suite of enterprise software applications that allow e-businesses to extend their brands across their traditional and Internet-based sales and marketing and merchandising efforts. The Company's customers include manufacturers, retailers and other entities that do business on the Internet. Blue Martini LLC, a Delaware limited liability company, was founded on June 5, 1998. On January 12, 1999, Blue Martini LLC merged into Blue Martini Software, Inc., a Delaware corporation, with Blue Martini Software, Inc. being the surviving entity. 2. Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying unaudited balance sheet as of March 31, 2000, the statements of operations and cash flows for the three months ended March 31, 1999 and 2000 and the statement of stockholders' equity for the three months ended March 31, 2000 are unaudited. The unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles. In the opinion of the Company's management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company's results of operations and its cash flows for the three months ended March 31, 1999 and 2000. The results for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company has adopted Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, since its inception. To date, the Company has derived its revenues from licenses of its software product and the sale of professional services, technical support and training services. The Company sells its product primarily through a direct sales force. F-7 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) The Company's standard license agreement provides for an initial fee to use the software product in perpetuity. License revenues are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is considered fixed or determinable and collectibility is probable, assuming no significant future obligations or customer acceptance rights exists. If an acceptance period is contractually provided, license revenues are recognized upon the earlier of customer acceptance or the expiration of that period. In instances where delivery is electronic and all other criteria for revenue recognition has been achieved, the product is considered to have been delivered when the customer either takes possession of the software via a download or the access code to download the software from the Internet has been provided to the customer. The Company's software does not require significant production, customization or modification. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the relative fair values of the elements. The fair value of professional services, technical support and training have been determined based on the Company's specific objective evidence of fair value based on the price charged when the elements are sold separately. License revenues are recorded under the residual method described in SOP 98-9 for arrangements in which licenses are sold with these elements. However, the entire fee related to arrangements that require the Company to deliver specified additional upgrades is deferred until delivery of the specified upgrade has occurred, unless the Company has vendor-specific objective evidence of fair value for the upgrade. Fees related to contracts that require the Company to deliver unspecified additional products are deferred and recognized ratably over the contract term. Fees for technical support are deferred and recognized ratably over the term of the support period. Revenues from professional services and training are recognized when the services are performed. The Company considers all arrangements with payment terms extending beyond 12 months not to be fixed or determinable. If the contract fee is not fixed or determinable, revenues are recognized as payments become due from the customer. If collectibility is not considered probable, revenues are recognized when the fee is collected. Deferred revenues include amounts billed to customers for which revenues have not been recognized, which generally result from the following: deferred technical support; professional services not yet rendered; amounts billed to customers with extended payments terms which are not yet due; and amounts deferred relating to arrangements where the Company is required to deliver either specified upgrades or unspecified additional products. Cash and Cash Equivalents The Company considers all highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. Short-term Investments Short-term investments, consisting principally of commercial paper and corporate term notes, are stated at fair value. Short-term investments maturing within one year that are not restricted are classified as current assets. The Company determines the appropriate classification of its short-term investments at the time of purchase and re-evaluates such classification as of each balance sheet date. The Company has classified all of its short-term investments as available-for-sale and carries such securities at fair F-8 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) value, with unrealized gains and losses calculated using the specific identification method, net of tax, reported as a component of accumulated other comprehensive income. Concentration of Credit Risk The Company places its cash, cash equivalents and short-term investments with financial institutions with high credit ratings. The Company's accounts receivable are derived from licenses and services provided to customers principally in North America. The Company performs ongoing evaluations of its customers' financial condition and generally requires no collateral from its customers on accounts receivable. Revenues and accounts receivable from significant customers are summarized in Note 11. The Company had no write-offs of accounts receivable and, based on its ongoing evaluation of collectibility, had allowances for doubtful accounts receivable of $225,000 and $459,000 at December 31, 1999 and March 31, 2000, respectively. Property and Equipment Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets, generally 18 to 60 months. Leasehold improvements and assets recorded under capital leases are amortized over the estimated useful lives of the assets or the lease term, whichever is shorter. Impairment of Long-lived Assets The Company evaluates its long-lived assets to determine whether any impairment of these assets has occurred whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. In making such determination, the estimated future undiscounted cash flows associated with assets to be held and used would be compared to the asset's carrying amount to determine if a write-down to fair value is required. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. No impairments of long-lived assets have been experienced to date. Income Taxes Effective January 1999, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period the change is enacted. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts to be recovered. Prior to January 1999, the Company was taxed under the partnership provisions of the Internal Revenue Code. Under those provisions, the Company did not pay federal or state corporate income taxes on its taxable income. Instead, the Company's unit holders were individually responsible for federal and state income taxes. F-9 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) Software Development Costs Development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility has been established at which time such costs are capitalized, subject to recoverability. Technology feasibility is established on the release of a beta version of the software. To date, technological feasibility on software releases has coincided with the general availability of such software because no beta versions are developed. Accordingly, software development costs qualifying for capitalization have not been significant. Stock Compensation The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees and Statement of Financial Accounting Standard ("SFAS") Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock- Based Compensation. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price. SFAS No. 123 defines a fair-value based method of accounting for an employee stock option or similar equity investment. The pro forma disclosures of the difference between compensation expense included in net loss and the related cost measured by the fair value method are presented in Note 9. The Company accounts for equity instruments issued to non-employees using the fair value method in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. Comprehensive Income (Loss) The Company did not have any significant components of other comprehensive income (loss) for all periods presented. Net Loss Per Common Share Basic net loss per common share is computed using the weighted average number of outstanding shares of common stock during the period, excluding shares of restricted stock subject to repurchase. Dilutive net loss per common share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common shares from options and warrants to purchase common stock, and common stock subject to repurchase, using the treasury stock method, and from convertible preferred stock, using the "if-converted" method. Potential shares consist of convertible preferred stock, unvested restricted common stock, stock options and warrants. F-10 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) The following potential common shares have been excluded from the calculation of diluted net loss per share for all periods presented because the effect would have been anti-dilutive (in thousands):
June 5, 1998 Three Months (Inception) Ended March to Year Ended 31, December 31, December 31, ------------- 1998 1999 1999 2000 ------------ ------------ ------ ------ Shares issuable under stock options... -- 4,248 448 5,308 Shares of restricted stock subject to repurchase........................... 8,252 6,981 7,941 9,937 Shares issuable pursuant to warrants.. -- -- -- 45 Shares of convertible preferred stock on an "as-if-converted" basis........ 4,464 23,297 14,991 23,297
The weighted average exercise price of stock options was $0.21 for the year ended December 31, 1999 and $0.08 and $1.25 for the three months ended March 31, 1999 and 2000. The weighted average purchase price of restricted stock was $0.01 for the period ended December 31, 1998; $0.04 for the year ended December 31, 1999; and $0.01 and $0.20 for the three months ended March 31, 1999 and 2000. The exercise price of warrants was $1.50 for the three months ended March 31, 2000. Pro forma basic and diluted net loss per common share is presented for the year ended December 31, 1999 and the three months ended March 31, 2000 to reflect per share data assuming the conversion of all outstanding shares of convertible preferred stock into common stock on a four-for-one basis, as if the conversion had taken place at the beginning of 1999, or at the date of issuance, if later. The following data is unaudited (in thousands, except per share data):
Year Ended Three Months December 31, Ended March 31, 1999 2000 ------------ --------------- Net loss used in computing pro forma basic and diluted net loss per common share................. $(9,928) $(11,381) ======= ======== Shares used in computing pro forma basic and diluted net loss per common share:................ Shares used in net loss per common share calculation..................................... 22,964 25,108 Weighted average shares of convertible preferred stock and warrant assuming conversion........... 18,384 23,344 ------- -------- 41,348 48,452 ======= ======== Pro forma basic and diluted net loss per common share............................................. $ (0.24) $ (0.23) ======= ========
Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB SFAS No. 133. SFAS No. 133, as amended by SFAS No. 137, will be effective for fiscal years beginning after June 15, 2000. Because the Company does not currently hold any derivative instrument and does not currently engage in hedging activities, the Company expects that the adoption of SFAS No. 133 will not have a material impact on its financial position or operating results. F-11 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) 3. Short-term Investments All of the Company's investments consist of commercial paper and corporate term notes, and are due within one year. Investments totaling $7,068,000 and $7,964,000 as of December 31, 1999 and March 31, 2000 are included in cash and cash equivalents. Realized and unrealized gains and losses for available-for- sale securities were immaterial for all periods presented. 4. Accounts Receivable Accounts receivable consisted of the following (in thousands):
December 31 ------------- March 31, 1998 1999 2000 ------ ------ --------- Accounts receivable.................................. $ 130 $3,013 $4,736 Unbilled receivables................................. -- 861 2,250 ------ ------ ------ 130 3,874 6,986 Allowance for doubtful accounts...................... -- 225 459 ------ ------ ------ $ 130 $3,649 $6,527 ====== ====== ======
5. Property and Equipment Property and equipment consisted of the following (in thousands):
December 31, ------------- March 31, 1998 1999 2000 ------ ------ --------- Computer equipment.................................. $ 99 $2,996 $5,518 Furniture and office equipment...................... 45 344 730 Leasehold improvements.............................. -- 217 279 ------ ------ ------ 144 3,557 6,527 Less accumulated depreciation and amortization...... 8 796 1,375 ------ ------ ------ $ 136 $2,761 $5,152 ====== ====== ======
Equipment held under capital leases totaled $62,000, $367,000 and $633,000 as of December 31, 1998 and 1999 and March 31, 2000, respectively. Accumulated amortization for equipment under capital leases totaled $2,000, $107,000 and $137,000 as of December 31, 1998 and 1999, and March 31, 2000, respectively. 6. Other Current Liabilities Other current liabilities consisted of the following (in thousands):
December 31, ------------- March 31, 1998 1999 2000 ------ ------ --------- Customer deposits.................................... $ -- $ -- $1,800 Accrued marketing expenses........................... -- -- 850 Other accrued expenses............................... 51 1,074 2,067 ------ ------ ------ $ 51 $1,074 $4,717 ====== ====== ======
F-12 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) At March 31, 2000, accrued marketing expenses included $376,000 of accrued advertising expenses. The Company expenses advertising costs as incurred. Advertising costs expensed from June 5, 1998 (Inception) through December 31, 1998, the year ended December 31, 1999 and for the three months ended March 31, 1999 and 2000 were $8,000, $409,000, $31,000 and $722,000, respectively. All advertising expense for the three months ended March 31, 2000 were for services provided by a company whose chairman and chief creative officer is also a member of the Company's board of directors. 7. Borrowings The Company had $700,000 and $625,000 outstanding under a loan agreement with a bank as of December 31, 1999 and March 31, 2000. The loan agreement provides for borrowings of up to $750,000 and is collateralized by certain assets of the Company, including property and equipment and accounts receivables. Under the terms of the loan agreement, certain transactions, including payment of dividends, are prohibited without the bank's consent. The loan bears interest at the bank's prime rate (8.50% as of December 31, 1999 and 8.75% as of March 31, 2000), plus 0.50% per annum. The Company is required to make monthly payments of $25,000, plus interest, through April 2002. In January 2000, the Company signed an agreement with a leasing company for an equipment lease line of credit of $1,500,000. Amounts borrowed under this agreement bear interest at 8% and are collateralized by the leased assets. No borrowings are outstanding under this facility. In connection with this agreement, the Company issued a warrant to the leasing company for 11,250 shares of series C convertible preferred stock at an exercise price of $6.00 per share (see Note 9). 8. Lease Commitments The Company leases certain facilities, including its corporate headquarters, under operating leases. Rent expense for the period from inception through December 31, 1998, the year ended December 31, 1999 and for the three months ended March 31, 1999 and 2000, was $72,000, $434,000, $61,000 and $411,000, respectively. Future minimum lease payments as of December 31, 1999 were as follows (in thousands):
Year Ending Capital Operating December 31, Leases Leases ------------ ------- --------- 2000..................................................... $160 $1,036 2001..................................................... 139 1,144 2002..................................................... 24 1,177 2003..................................................... -- 1,208 2004..................................................... -- 1,238 Thereafter............................................... -- 119 ---- ------ Total.................................................... 323 $5,922 ====== Less amount representing interest........................ 61 ---- Present value of capital lease obligations............... 262 Less current portion..................................... 118 ---- Long-term portion........................................ $144 ====
F-13 BLUE MARTINI SOFTWARE, INC. Notes To Financial Statements--(continued) On March 1, 2000 the Company entered into a facility lease agreement in order to conduct employee, partner and customer training classes. The initial term of the lease is three years with a renewal option for one additional twelve month period. Total rent expense related to this operating lease was $120,750, for the three month period ended March 31, 2000. Future minimum lease payments are $988,000, $1,317,000, $1,317,000 and $329,000 for the years ended December 31, 2000, 2001, 2002 and 2003, respectively. The Company obtained a letter of credit from a financial institution totaling $182,000 in lieu of a security deposit for leased office space. No amounts have been drawn against the letter of credit. The letter is secured by a $182,000 certificate of deposit, which is included in other assets in the balance sheet as of December 31, 1999 and March 31, 2000. 9. Stockholders' Equity Blue Martini LLC, a Delaware limited liability company, was formed on June 5, 1998 with two classes of ownership: class A units and class B units. On January 12, 1999, Blue Martini LLC changed its legal form from a limited liability company to a corporation. This change was effected through a merger between Blue Martini Software, Inc. and Blue Martini LLC, with Blue Martini Software, Inc. being the surviving entity. In connection with this merger, the class A unit holders exchanged their units for an equal number of shares of series A convertible preferred stock and the class B unit holders exchanged their units for an equal number of shares of common stock of Blue Martini Software, Inc. The various rights and preferences of the two classes of ownership were identical before and after the merger. This action has been reflected in the accompanying financial statements as if it had occurred at the issuance of the original ownership units. Common Stock Split In February 2000, the Company's board of directors approved a two-for-one stock split of the Company's common stock. All common shares and per common share information presented in these financial statements has been adjusted to reflect this common stock split. Convertible Preferred Stock Convertible preferred stock outstanding as of December 31, 1999 is as follows (in thousands):
Shares ---------------------- Liquidation Carrying Authorized Outstanding Preference Value ---------- ----------- ----------- -------- Series: A............................. 2,000 1,116 $ 1,250 $ 1,250 B............................. 3,000 2,631 5,000 5,000 C............................. 2,200 2,077 12,462 12,462 ----- ----- ------- ------- 7,200 5,824 $18,712 $18,712 ===== ===== ======= =======
The rights, preferences and privileges of the holders of series A, B and C convertible preferred stock are as follows: Dividends The holders of Series A, B and C convertible preferred stock are entitled to receive dividends of $0.09, $0.15 and $0.48 per share, per annum, respectively (subject to appropriate adjustment, as F-14 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) defined). Such dividends, which are in preference to any common stock dividends, are payable whenever funds are legally available and when declared by the board of directors. The right of the holders of the convertible preferred stock to receive dividends is not cumulative. As of December 31, 1999 and March 31, 2000, no dividends have been declared. Liquidation In the event of any liquidation, dissolution or winding-up of the Company, a merger with a change in voting control and an asset sale, the holders of convertible preferred stock are entitled to receive a liquidation preference of $1.12, $1.90 and $6.00 for each outstanding share of series A, B and C convertible preferred stock, respectively, plus any declared and unpaid dividends. If the funds available for distribution are insufficient to cover the liquidation preference, then the entire assets and funds of the Company legally available for distribution are to be distributed ratably among the holders of convertible preferred stock. Voting Rights The holders of series A, B and C convertible preferred stock have voting rights equal to the number of shares of common stock into which the shares of series A, B and C convertible preferred stock are then convertible. Holders of series A, B and C convertible preferred stock are also entitled to vote together as a separate class to approve or reject certain transactions, including mergers and certain changes in equity. Conversion Each share of convertible preferred stock, at the option of the holder, is convertible into four shares of common stock, subject to adjustments in accordance with anti-dilution provisions. Conversion is automatic immediately upon the closing of a firm commitment underwritten public offering in which the gross proceeds raised exceed $25 million. Warrant In January 2000, the Company granted a fully exercisable warrant to purchase 11,250 shares of series C convertible preferred stock for $6.00 per share in connection with an equipment lease agreement (see Note 7). Such warrants were outstanding as of March 31, 2000 and expire 10 years after issuance. The fair value of the warrants was $176,000, calculated based upon the Black-Scholes option pricing model using $18.75 as the fair value of the underlying convertible preferred stock and the following weighted average assumptions: no dividends; contractual life of 10 years; risk-free interest rate of 6.6%; and expected volatility of 75%. This amount will be amortized ratably over the term of the equipment lease agreement. Stock Plans 1998 Equity Incentive Plan The Company is authorized to issue up to 19,520,000 shares of common stock in connection with its 1998 Equity Incentive Plan (the Incentive Plan) to directors, employees and consultants. The Incentive Plan provides for the issuance of stock purchase rights, incentive stock options or nonstatutory stock options. F-15 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) The stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock upon the voluntary or involuntary termination of the purchaser's employment from the Company at the original issuance price. The Company's repurchase right lapses at a rate determined by the board of directors, but at a minimum rate of 25% per year. Through March 31, 2000, the Company has issued 13,813,000 shares under restricted stock purchase agreements, of which 3,334,000 shares are no longer subject to repurchase rights, 542,000 shares have been repurchased and 9,937,000 shares are subject to repurchase at a weighted average price of $0.20 per share. Under the Incentive Plan, the exercise price for incentive stock options is at least 100% of the stock's fair market value on the date of grant for employees owning 10% or less of the voting power of all classes of stock, and at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock. For nonstatutory stock options, the exercise price is also at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock and no less than 85% for employees owning 10% or less of the voting power of all classes of stock. The Incentive Plan is administered by the board of directors, which has the authority to designate participants, determine the number and type of options to be granted, the time at which options are exercisable, the method of payment and any other terms or conditions of the options. Options generally have a term of 10 years and become exercisable immediately, and vest at 25% upon completion of one year of service from the vesting commencement date and ratably over the next 36 months. Activity under the Incentive Plan is as follows (in thousands, except per share amounts):
June 5, 1998 (Inception) to Year Ended Three Months Ended December 31, 1998 December 31, 1999 March 31, 2000 ------------------ ------------------ ------------------ Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price --------- -------- --------- -------- --------- -------- Outstanding, beginning of period/year......... -- $ -- -- $ -- 4,248 $0.21 Granted................. 8,253 0.01 6,316 0.19 4,984 1.50 Exercised............... (8,253) (0.01) (1,676) 0.13 (3,884) 0.45 Canceled................ -- -- (392) 0.16 (40) 0.25 ------ ------ ------ Outstanding, end of period/year............ -- -- 4,248 0.21 5,308 1.25 ====== ====== ====== Exercisable, end of period/year............ -- -- 10 0.13 52 0.15 ====== ====== ====== Weighted average fair value of options granted with exercise prices equal to fair value at date of grant.................. 3,668 -- -- -- -- -- Weighted average fair value of options granted with exercise price less than fair value at date of grant.................. 4,584 0.12 6,316 1.59 4,984 7.39
F-16 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) The following table summarizes information about stock options as of March 31, 2000 (option amounts in thousands):
Options Options Outstanding Exercisable --------------------------------- ------------------- Weighted Average Remaining Weighted Weighted Number Contractual Average Number Average Exercise of Life Exercise of Exercise Prices Options (Years) Price Options Price -------- ------- ----------- -------- ------- -------- $0.13 386 9.29 $0.13 44 $0.13 0.25 650 9.50 0.25 8 0.25 1.50 4,272 9.92 1.50 -- -- ----- --- 5,308 1.25 52 0.15 ===== ===
Stock Compensation During the period from inception through December 31, 1998, the year ended December 31, 1999, and during the three months ended March 31, 2000, the Company issued options to certain employees under the Incentive Plan with exercise prices below the amount subsequently determined to be the fair value of the common stock at the date of grant for financial reporting purposes. In accordance with the requirements of APB No. 25, the Company has recorded deferred stock compensation for the differences between the exercise price of the options and the deemed fair market value of the Company's stock at the date of grant. The Company recorded deferred stock compensation of $516,000 and $9,814,000 and $34,261,000 for the period from inception through December 31, 1998, the year ended December 31, 1999 and the three months ended March 31, 2000, respectively. The deferred stock compensation is being amortized on an accelerated basis over the vesting period, generally four years, consistent with the method described in FASB Interpretation No. 28. For the year ended December 31, 1999 and the three months ended March 31, 2000, the Company granted 90,000 and 172,000 immediately vested and exercisable common stock options, respectively, to non-employees and recorded related stock compensation of $47,000 and $1,416,000, respectively. The recorded amounts reflects the fair value of these stock options at their respective grant dates, calculated based upon the Black-Scholes option pricing model using the fair values of the underlying common stock on the grant dates and the following weighted-average assumptions: no dividends; contractual life of 10 years; risk free interest rate of 6.0%; and, expected volatility of 75%. The amortization of deferred stock compensation, combined with the expense associated with stock options granted to non-employees, relates to the following items in the accompanying statements of operations (in thousands):
Three June 5, 1998 Months (Inception) Ended to Year Ended March 31, December 31, December 31, ----------- 1998 1999 1999 2000 ------------ ------------ ---- ------ Cost of revenues.................... $-- $ 385 $ 4 $1,084 Sales and marketing................. 14 839 14 1,285 Research and development............ 33 882 59 2,126 General and administrative.......... 44 146 37 1,080 --- ------ ---- ------ $91 $2,252 $114 $5,575 === ====== ==== ======
F-17 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) The Company has adopted the disclosure only provisions of SFAS No. 123. Had compensation cost been determined based on the fair value at the grant date for the awards for the period from inception through December 31, 1998, the year ended December 31, 1999 and the three months ended March 31, 2000, the Company's net loss would have been as follows (in thousands, except per share amounts):
June 5, 1998 (Inception) Three Months to Year Ended Ended March 31, December 31, December 31, ----------------- 1998 1999 1999 2000 ------------ ------------ ------- -------- Net loss: As reported.................... $(1,145) $(9,928) $(1,362) $(11,381) Pro forma...................... $(1,147) $(9,972) $(1,364) $(11,493) Basic and diluted net loss per common share: As reported.................... $ (0.05) $ (0.43) $ (0.06) $ (0.45) Pro forma...................... $ (0.05) $ (0.43) $ (0.06) $ (0.46)
The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model, using the following assumptions: no dividends, expected five year lives, and zero expected volatility for the years ended December 31 1998 and 1999 and for the three months ended March 31, 2000; and risk-free interest rate of 4.9%, 5.7% and 6.6% for the period from June 5, 1998 through December 31, 1998, the year ended December 31, 1999 and the three months ended March 31, 2000, respectively. Because the determination of the fair value of all options granted after the Company becomes a public entity will include an expected volatility factor in addition to the factors noted above, and because additional option grants are expected to be made and options vest over several years, the above pro forma disclosures are not representative of the pro forma effects on reported net income or loss for future years. 10. Income Taxes The differences between the income tax expense (benefit) computed at the federal statutory rate and the Company's tax provision for all periods presented primarily relate to net operating losses not benefited. The individual components of the Company's deferred tax assets as of December 31, 1999 are as follows (in thousands): Deferred tax assets: Accruals and reserves................................................. $ 1,353 Net operating loss carryforwards...................................... 1,693 Credit carryforwards.................................................. 579 Other................................................................. 89 ------- Total deferred tax assets........................................... 3,714 Less valuation allowance.............................................. (3,714) ------- Net deferred tax assets............................................ $ -- =======
Management has established a valuation allowance for the portion of deferred tax assets for which realization is uncertain. The valuation allowance for deferred tax assets as of January 19, 1999 was zero. The net change in the total valuation allowance for the year ended December 31, 1999 was a increase of $3,714,000. F-18 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) The Company has net operating loss carryforwards for federal and California income tax purposes of approximately $4,287,000 and $2,172,000, respectively, available to reduce future income subject to income taxes. The Company can carryforward the net operating loss arising from the Subchapter C corporation period, which began January 19, 1999. For the period the Company operated as a limited liability company, the Company has elected to be treated as a partnership for tax purposes. Therefore net operating losses incurred as a flow-through entity prior to January 19, 1999 are not available to reduce future income subject to income taxes. As of December 31, 1999 the Company had research and other credit carryforwards for federal and California income tax purposes of approximately $374,000 and $205,000, respectively available to reduce future income taxes. These credits expire in 2019. The federal net operating loss carryforwards expire in 2019. The California net operating loss carryforwards expire in 2004. The Tax Reform Act of 1986 imposes restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership change" as defined by the Internal Revenue Code. The Company's ability to utilize its net operating loss and tax credit carryforwards is subject to restriction pursuant to these provisions. 11. Significant Customer Information and Segment Reporting SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision-maker is considered to be the chief executive officer ("CEO"). The CEO reviews financial information presented for purposes of making operating decisions and assessing financial performance. The financial information is identical to the information presented in the accompanying statements of operations and the Company had no significant foreign operations through December 31, 1999. For the three months ended March 31, 2000, revenues from a customer in the United Kingdom were $1,299,000 and revenues from a customer in the Netherlands were $738,000. On this basis, the Company is organized and operates in a single segment: the design, development and marketing of software solutions. Disaggregated product information is as follows (in thousands):
Three Months Ended March 31, December 31, --------------- 1999 1999 2000 ------------ ------- ------- Revenues: License.......................................... $ 7,205 $ 25 $ 6,070 Service: Consulting..................................... 3,664 216 4,083 Maintenance.................................... 363 -- 528 ------- ------- ------- $11,232 $ 241 $10,681 ======= ======= =======
F-19 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(continued) Significant customer information is as follows:
Percent of Total Revenues ---------------------------- Three Months Ended Percent of Net March 31, Accounts Receivable Year Ended --------------- ---------------------- December 31, December 31, March 31, 1999 1999 2000 1999 2000 ------------ ------ ------ ------------ --------- Customer: A......................... 19% 100% B......................... 19% C......................... 10% D......................... 12% 11% E......................... 30% F......................... 12% G......................... 10% H......................... 16% I......................... 10%
One of the Company's directors sits on the board of directors of customer A above. 12. Subsequent Events Issuance of Warrant On April 17, 2000, the Company issued a warrant to purchase 600,000 shares of series C convertible preferred stock at $20.00 per share to a third party in connection with a marketing arrangement. The warrant is exercisable at the end of eight years. The fair value of the warrant will be capitalized and amortized to sales and marketing expense over the four year term of the underlying marketing agreement. Stock Split and Amendment to Certificate of Incorporation On April 24, 2000, the Company's board of directors authorized a two-for-one common stock split in addition to the two-for-one common stock split described in Note 9. All common share and per share information presented in these financial statements have been retroactively adjusted to reflect this second stock split. On April 24, 2000, the Company's board of directors approved an increase to the number of common shares authorized to 500,000,000 and to establish an undesignated class of preferred stock with 5,000,000 authorized shares. Amended and Restated Equity Incentive Plan On April 24, 2000, the Company's board of directors approved the 2000 Equity Incentive Plan, an amendment and restatement of the 1998 Equity Incentive Plan, and increased the number of shares reserved by 9,480,000 shares of common stock. All options available for grant under the 1998 Plan will be transferred to the 2000 Plan on its effective date and will continue to have substantially the same terms. The share will increase automatically to the greater of 5% of the outstanding shares or the number of shares issued under the plan during the prior 12 months. F-20 BLUE MARTINI SOFTWARE, INC. Notes to Financial Statements--(Continued) 2000 Non-employee Directors' Stock Option Plan On April 24, 2000, the Company's board of directors approved the 2000 Non- employee Directors' Stock Option Plan under which 300,000 common shares have been reserved for issuance. The Plan provides for non-employee director option grants for 25,000 common shares upon the closing of the IPO or the date of first election if later, option grants of 7,500 common shares annually and annual option grants of 5,000 shares for committee members. The share will increase automatically to the greater of 0.25% of the outstanding shares or the number of shares issued under the plan during the prior 12 months. 2000 Employee Stock Purchase Plan On April 24, 2000, the Company's board of directors approved the 2000 Employee Stock Purchase Plan under which 4,000,000 shares have been reserved for issuance. The 2000 Employee Stock Purchase Plan contains successive six- month offering periods and the share price of stock purchased under the plan is 85% of the lower of the fair value of the common stock either at the beginning or the end of the period. The share reserve will increase automatically to the greater of 2.5% of outstanding shares or the number of shares issued under this plan during the prior 12 months. Initial Public Offering and Unaudited Pro Forma Balance Sheet Information On April 24, 2000, the Company's board of directors authorized the filing of a registration statement with the Securities and Exchange Commission that would permit the Company to sell shares of the Company's common stock in connection with a proposed initial public offering. If the offering is consummated under the terms presently anticipated, all the then outstanding shares of the Company's convertible preferred stock will automatically convert into shares of common stock on a four-for-one basis upon the closing of the proposed initial public offering. The unaudited pro forma stockholders' equity information presented in the historical balance sheet reflects the conversion of all of the convertible preferred stock as if it had occurred on March 31, 2000. F-21 [INSIDE BACK COVER ART WORK] Our software enables e-businesses to build their brands by interacting directly with customers across multiple touch points. Our software integrates capabilities to manage products and content, execute transactions, perform analyses and to subsequently utilize these analyses to personalize future customer interactions. Companies use our software to interact with customers across traditional and Internet-enabled touch points, such as websites, call centers, mobile wireless devices, bricks and mortar stores and on-line trading exchanges. We target our software to customers in the retail, manufacturing, financial services, telecom, media, and travel industries. A diagram depicts our product features, customer touch points and industries. in the center of a diagram is a pentagon listing our products features of "Merchandise," "Content," "Transaction," "Analysis" and "Personalization." The pentagon is in the middle of a square with "Websites," "Contact Centers," "Bricks & Mortar" and "Trading Networks" in each corner. The square is circumscribed by an outer circle containing the word "Brand." The outer circle has the labels "eMerchandising," "eMarketing," and "eService." The outer circle is surrounded by ovals listing our target markets: "Retail," " Financial Services," "Media," "Travel," "Telecom," and "Manufacturing." - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ---------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 Use of Proceeds.......................................................... 17 Dividend Policy.......................................................... 17 Capitalization........................................................... 18 Dilution................................................................. 19 Selected Financial Data.................................................. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 21 Business................................................................. 31 Management............................................................... 47 Certain Transactions..................................................... 60 Principal Stockholders................................................... 62 Description of Capital Stock............................................. 64 Shares Eligible for Future Sale.......................................... 68 Underwriting............................................................. 71 Legal Matters............................................................ 73 Experts.................................................................. 73 Where You Can Find More Information...................................... 73 Index to Financial Statements............................................ F-1
---------------- Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares Blue Martini Software, Inc. Common Stock ---------------- PROSPECTUS ---------------- Goldman, Sachs & Co. Dain Rauscher Wessels Thomas Weisel Partners LLC U.S. Bancorp Piper Jaffray Representatives of the Underwriters - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all expenses payable by the Registrant in connection with the sale of the common stock being registered. All of the amounts shown are estimates, except for the SEC registration fee, the NASD filing fee and the Nasdaq National Market application fee.
Amount to be Paid ---------- SEC Registration Fee............................................. $ 19,800 NASD Filing Fee.................................................. 8,000 Nasdaq National Market Listing Application Fee................... 90,000 Blue Sky Qualification Fees and Expenses......................... 5,000 Printing and Engraving Expenses.................................. 300,000 Legal Fees and Expenses.......................................... 800,000 Accounting Fees and Expenses..................................... 500,000 Transfer Agent and Registrar Fees................................ 25,000 Miscellaneous.................................................... 152,200 ---------- Total.......................................................... $1,900,000 ==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS Under Section 145 of the Delaware General Corporation Law, the Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Restated Certificate of Incorporation and Bylaws include provisions to (i) eliminate the personal liability of its directors and officers for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware Law") and (ii) require the Registrant to indemnify its directors and officers to the fullest extent permitted by Section 145 of the Delaware Law, including circumstances in which indemnification is otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a corporation generally has the power to indemnify its present and former directors, officers, employees and agents against expenses incurred by them in connection with any suit to which they are or are threatened to be made, a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. The Registrant believes that these provisions are necessary to attract and retain qualified persons as directors and officers. These provisions do not eliminate the directors' duty of care, and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware Law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for acts or omissions that the director believes to be contrary to the best interests of the Registrant or its stockholders, for any transaction from which the director derived an improper personal benefit, for acts or omissions involving a reckless disregard for the director's duty to the Registrant or its stockholders when the director was aware or should have been aware of a risk of serious injury to the Registrant or its stockholders, for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Registrant or its stockholders, for improper transactions between the director II-1 and the Registrant and for improper distributions to stockholders and loans to directors and officers. The provision also does not affect a director's responsibilities under any other law, such as the federal securities law or state or federal environmental laws. The Registrant intends to enter into indemnity agreements with each of its directors and officers that require the Registrant to indemnify such persons against expenses, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or an officer of the Registrant or any of its affiliated enterprises, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. At present, there is no pending litigation or proceeding involving a director or officer of the Registrant as to which indemnification is being sought nor is the Registrant aware of any threatened litigation that may result in claims for indemnification by any officer or director. The Registrant has an insurance policy covering the officers and directors of the Registrant with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Information presented in this section is on an as converted basis, and as if issued by the Registrant. Since the Registrant's inception in June 1998, the Company has issued and sold the following unregistered securities: (1) From June 1998 to January 12, 1999 the Company issued an aggregate of 30,252,500 shares of its common stock at a weighted average exercise price of $0.01 per share to employees, consultants, directors and other service providers pursuant to its 1998 Equity Incentive Plan. These sales were made in reliance on Rule 701 and Section 4(2). (2) From July 1998 through November 1998, the Company issued 4,464,284 shares of its series A preferred stock at a purchase price of $0.28 per share to Monte Zweben, Thomas M. Siebel and GC&H Investments. These sales were made in reliance on Regulation D and Section 4(2). (3) In January 1999, the Company issued 30,252,500 shares of its common stock to Monte Zweben, James C. Gaither, Thomas M. Siebel, A. Michael Spence, William F. Zuendt, William H. Evans, Scott D. Hanham, Jeffrey G. Johnson and 17 employees, consultants and directors and 4,464,284 shares of its series A preferred stock to Monte Zweben, Thomas M. Siebel and GC&H Investments. These issuances were made in reliance on Section 4(2). (4) In January 1999, the Company issued 10,526,316 shares of its series B preferred stock at a purchase price of $0.475 per share for an aggregate purchase price of $5,000,000 to Matrix Partners V, Matrix V Entrepreneurs Fund, the Zweben Family Revocable Trust, the Zuendt Family Trust and three other investors. These sales were made in reliance on Rule 506 of Regulation D and Section 4(2). (5) In July 1999, the Company issued 8,306,664 shares of its series C preferred stock at a purchase price of $1.50 per shares of an aggregate price of $12,459,996 to ACII Technology (ACT II) B.V., Matrix Partners V, Matrix V Entrepreneurs Fund, U.S. Venture Partners VI, USVP VI Affiliates Fund, USVP VI Entrepreneur Partners and the Zweben Family Revocable Trust. These sales were made in reliance on Rule 506 of Regulation D and Section 4(2). II-2 (6) In December 2000, the Company issued a warrant to purchase 45,000 shares of its series C preferred stock at an exercise price of $1.50 per share to Comdisco, Inc. This sale was made in reliance on Regulation D and Section 4(2). (7) From January 13, 1999 through April 15, 2000, the Company granted options to purchase 12,547,400 shares of common stock at a weighted average exercise price of $1.29 per share to employees, consultants, directors and other service providers pursuant to its 1998 Equity Incentive Plan and issued an aggregate of 6,294,500 shares of its common stock at a weighted average exercise price of $0.40 per share to employees, consultants, directors and other service providers pursuant to exercises of options granted under the 1998 Equity Incentive Plan. These shares were made in reliance on Rule 701 and Section 4(2). ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE (a) Exhibits
Exhibit Number Description of Document ------- ----------------------- 1.1* Form of Underwriting Agreement. 3.1 Third Amended and Restated Certificate of Incorporation of the Registrant. 3.2 Form of Fourth Amended and Restated Certificate of Incorporation of the Registrant to be filed immediately following the closing of the offering made hereby. 3.3 Bylaws of the Registrant. 3.4 Bylaws of the Registrant to be filed on the closing of the offering made hereby. 4.1* Specimen Stock Certificate. 4.2 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 hereof. 5.1* Opinion of Cooley Godward LLP. 10.1 2000 Equity Incentive Plan. 10.2 2000 Employee Stock Purchase Plan. 10.3 2000 Non-Employee Directors' Stock Option Plan. 10.4 Commercial Office Lease Agreement by and between Peninsula Office Park Associates, L.P. and Blue Martini, LLC, as Amended. 10.5 Agreement and Plan of Merger by and between the Registrant and Blue Martini LLC dated January 12, 1999. 10.6 Form of Class A Units Agreement by and between the Registrant and certain investors of the Registrant. 10.7 Form of Restricted Class B Units Agreement by and between the Registrant and certain investors of the Registrant. 10.8 Series B Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the Registrant dated January 13, 1999. 10.9 Series C Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the Registrant dated July 20, 1999. 10.10 Investor Rights Agreement by and between the Registrant and certain investors of the Registrant dated July 20, 1999. 10.11 Form of Indemnity Agreement by and between the Registrant and each of its directors and executive officers. 10.12+ License and Marketing Agreement by and between the Registrant and Neuron Data, Inc., now Blaze Software, Inc., dated March 31, 1999.
II-3
Exhibit Number Description of Document ------- ----------------------- 10.13+ ISV Software and License Agreement between the Registrant and BEA Systems, Inc. dated January 29, 1999. 10.14 Agreement by and between the Registrant and John E. Calonico, Jr. 10.15* Blue Martini Software Training Facility Agreement between the Registrant and Diversified Computer Consultants of California, Inc. dated March 1, 2000. 10.16* Master Lease Agreement between the Registrant and Comdisco, Inc. dated December 6, 1999. 23.1 Consent of KPMG LLP. 23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. 24.1 Power of Attorney. See Signature Page. 27.1 Financial Data Schedule.
- -------- + Confidential treatment requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. * To be filed by amendment. (b) Financial Statement Schedules Financial statement schedules are omitted as the information called for is not required or is shown either in the financial statements of the notes thereto. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements 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 of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 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 of 1933, 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 of 1933, 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-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of San Mateo, County of San Mateo, State of California, on May 2, 2000. /s/ Monte Zweben By: _________________________________ Monte Zweben POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Monte Zweben and John E. Calonico, Jr. and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments, exhibits thereto and other documents in connection therewith) to this Registration Statement and any subsequent registration statement filed by the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as amended, which relates to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Monte Zweben Chairman and President, May 2, 2000 ____________________________________ Chief Executive Officer Monte Zweben (Principal Executive Officer) /s/ John E. Calonico, Jr. Vice President, Chief May 2, 2000 ____________________________________ Financial Officer and John E. Calonico, Jr. Secretary (Principal Financial and Accounting Officer) /s/ James C. Gaither Director May 2, 2000 ____________________________________ James C. Gaither /s/ A. Michael Spence Director May 2, 2000 ____________________________________ A. Michael Spence /s/ Andrew W. Verhalen Director May 2, 2000 ____________________________________ Andrew W. Verhalen
II-5
Signature Title Date --------- ----- ---- /s/ Edward H. Vick Director May 2, 2000 ____________________________________ Edward H. Vick /s/ William F. Zuendt Director May 2, 2000 ____________________________________ William F. Zuendt
II-6 EXHIBIT INDEX
Exhibit Number Description of Document ------- ----------------------- 1.1* Form of Underwriting Agreement. 3.1 Third Amended and Restated Certificate of Incorporation of the Registrant. 3.2 Form of Fourth Amended and Restated Certificate of Incorporation of the Registrant to be filed immediately following the closing of the offering made hereby. 3.3 Bylaws of the Registrant. 3.4 Bylaws of the Registrant to be filed on the closing of the offering made hereby. 4.1* Specimen Stock Certificate. 4.2 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 hereof. 5.1* Opinion of Cooley Godward LLP. 10.1 2000 Equity Incentive Plan. 10.2 2000 Employee Stock Purchase Plan. 10.3 2000 Non-Employee Directors' Stock Option Plan. 10.4 Commercial Office Lease Agreement by and between Peninsula Office Park Associates, L.P. and Blue Martini, LLC. 10.5 Agreement and Plan of Merger by and between the Registrant and Blue Martini LLC dated January 12, 1999. 10.6 Form of Class A Units Agreement by and between the Registrant and certain investors of the Registrant. 10.7 Form of Restricted Class B Units Agreement by and between the Registrant and certain investors of the Registrant. 10.8 Series B Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the Registrant dated January 13, 1999. 10.9 Series C Preferred Stock Purchase Agreement by and between the Registrant and certain investors of the Registrant dated July 20, 1999. 10.10 Investor Rights Agreement by and between the Registrant and certain investors of the Registrant dated July 20, 1999. 10.11 Form of Indemnity Agreement by and between the Registrant and each of its directors and executive officers. 10.12+ License and Marketing Agreement by and between the Registrant and Neuron Data, Inc., now Blaze Software, Inc., dated March 31, 1999. 10.13+ ISV Software and License Agreement between the Registrant and BEA Systems, Inc. dated January 29, 1999. 10.14 Agreement by and between the Registrant and John E. Calonico, Jr. 10.15* Blue Martini Software Training Facility Agreement between the Registrant and Diversified Computer Consultants of California, Inc. dated March 1, 2000. 10.16* Master Lease Agreement between the Registrant and Comdisco, Inc. dated December 6, 1999. 23.1 Consent of KPMG LLP. 23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. 24.1 Power of Attorney. See Signature Page. 27.1 Financial Data Schedule.
- -------- + Confidential treatment requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. * To be filed by amendment. EX-3.1 2 3RD CERTIFICATE OF INCORPORATION Exhibit 3.1 THIRD RESTATED CERTIFICATE OF INCORPORATION OF BLUE MARTINI SOFTWARE, INC. Monte Zweben and John E. Calonico, Jr. hereby certify that: ONE: The original name of this corporation is Blue Martini Software, Inc. and the date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware is January 12, 1999. TWO: They are the duly elected and acting President and Secretary, respectively, of Blue Martini Software, Inc., a Delaware corporation. THREE: The Certificate of Incorporation of this corporation is hereby restated to read as follows: I. The name of the corporation is Blue Martini Software, Inc. (the "Corporation" or the "Company"). II. The address of the registered office of the Corporation in the State of Delaware is: 1013 Centre Road City of Wilmington, DE 19805 County of New Castle The name of the Corporation's registered agent at said address is Corporation Service Company. III. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. IV. A. This Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is one hundred ten million two hundred thousand (110,200,000) shares, one hundred three million (103,000,000) shares of which shall be Common Stock (the "Common Stock") and seven million two hundred thousand (7,200,000) shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall have a par value of one tenth of one cent ($0.001) per share, and the Common Stock shall have a par value of one tenth of one cent ($0.001) per share. 1. B. Upon the filing of this Third Restated Certificate of Incorporation, each outstanding share of Common Stock shall be split and reconstituted as two shares of Common Stock. C. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation (voting together on an as-if-converted basis). D. The Preferred Stock may be issued from time to time in one or more series. Subject to Section 2(b) below, the Board of Directors is hereby authorized, within the limitations and restrictions stated in this Certificate of Incorporation, to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series prior or subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. E. Two million (2,000,000) of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock ("Series A Preferred"). Three million (3,000,000) of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock ("Series B Preferred"). Two million two hundred thousand (2,200,000) of the authorized shares of Preferred Stock are hereby designated Series C Preferred Stock ("Series C Preferred"). The Series A Preferred, the Series B Preferred and the Series C Preferred are hereinafter collectively referred to as the "Series Preferred." F. The rights, preferences, privileges, restrictions and other matters relating to the Series Preferred are as follows: 1. Dividend Rights. (a) Subject to the rights of any series of Preferred Stock that may from time to time come into existence, the Holders of Series Preferred, in preference to the holders of any other stock of the Company ("Junior Stock"), shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). The "Original Issue Price" of the Series A Preferred shall be one dollar and twelve cents ($1.12), the "Original Issue Price" of the Series B Preferred shall be one dollar and ninety cents ($1.90) and the "Original Issue Price" of the Series C Preferred shall be six dollars ($6.00). Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. 2. (b) So long as any shares of Series Preferred shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Junior Stock, nor shall any shares of any Junior Stock of the Company be purchased, redeemed, or otherwise acquired for value by the Company (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Company's right of first refusal upon a proposed transfer) until all dividends (set forth in Section 1(a) above) on the Series Preferred shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Series Preferred in an amount equal per share (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock. The provisions of this Section 1(b) shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares of any Junior Stock in exchange for shares of any other Junior Stock, or (iii) any repurchase of any outstanding securities of the Company that is unanimously approved by the Company's Board of Directors. 2. Voting Rights. (a) General Rights. Except as otherwise provided herein or as required by law, the Series Preferred shall be voted equally with the shares of the Common Stock of the Company and not as a separate class, at any annual or special meeting of stockholders of the Company, and may act by written consent in the same manner as the Common Stock, in either case upon the following basis: each holder of shares of Series Preferred shall be entitled to such number of votes as shall be equal to the whole number of shares of Common Stock into which such holder's aggregate number of shares of Series Preferred are convertible (pursuant to Section 4 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent. (b) Separate Vote of Series Preferred. Subject to the rights of any series of Preferred Stock which may from time to time come into existence, for so long as at least twenty percent (20%) shares of the Series Preferred (subject to adjustment for any stock split, reverse stock split or other similar event affecting the Series Preferred) issued on or after the Original Issue Date (as defined below) remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the outstanding Series Preferred shall be necessary for effecting or validating the following actions: (i) Any amendment, alteration, or repeal of any provision of the Certificate of Incorporation or the Bylaws of the Company (including any filing of a Certificate of Designation), that adversely alters or changes the rights, preferences, or other special privileges or restrictions of the Series Preferred; (ii) Any increase or decrease (other than by redemption or conversion) in the authorized number of shares of Series Preferred; 3. (iii) Any authorization or any designation, whether by reclassification or otherwise, of any new class or series of stock or any other securities convertible into equity securities of the Company ranking senior to the Series Preferred in right of redemption, liquidation preference, voting or dividends or any increase in the authorized or designated number of any such new class or series; or (iv) Any redemption, repurchase, payment of dividends or other distributions with respect to Junior Stock (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Company's right of first refusal upon a proposed transfer). (c) Election of Board of Directors. For so long as at least twenty percent (20%) of the shares of the Series Preferred remain outstanding (subject to adjustment for any stock split, reverse stock split or similar event affecting the Series Preferred) and the authorized size of the Company's Board of Directors is six (6) or more, (i) the holders of Series B Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Company's Board of Directors at each meeting or pursuant to each consent of the Company's stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director; (ii) the holders of Common Stock, voting as a separate class, shall be entitled to elect one (1) member of the Board of Directors at each meeting or pursuant to each consent of the Company's stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director; and (iii) the holders of Common Stock and Series Preferred, voting together as a single class on an as-if-converted basis, shall be entitled to elect all remaining members of the Board of Directors at each meeting or pursuant to each consent of the Company's stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115 of the California General Corporation Law ("CGCL"). During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder desires. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. 4. (d) Removal. (i) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. (ii) At any time or times that the corporation is not subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section (d)(i) above shall not apply and the Board of Directors or any director may be removed from office at any time (a) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation entitled to vote at an election of directors or (b) without cause by the affirmative vote of the holders of sixty-six and two- thirds percent (66/2/3/%) of the voting power of all then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors. 3. Liquidation Rights. (a) Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Junior Stock, subject to the rights of any series of Preferred Stock that may from time to time come into existence, the holders of Series Preferred shall be entitled to be paid out of the assets of the Company an amount per share of Series Preferred equal to the applicable Original Issue Price plus all declared and unpaid dividends on the Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series Preferred held by them. If, upon any such liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference set forth in this Section 3(a), subject to the rights of any series of Preferred Stock that may from time to time come into existence, then such assets shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. (b) After the payment of the full liquidation preference of the Series Preferred as set forth in Section 3(a) above, and any other distribution that may be required with respect to any series of Preferred Stock that may from time to time come into existence, the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock. (c) The following events shall be considered a liquidation under this Section: 5. (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization or sale of voting control, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company (an "Acquisition"); or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company (an "Asset Transfer"). (iii) In any of such events, if the consideration received by this corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Board of Directors. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Board of Directors. 4. Conversion Rights. The holders of the Series Preferred shall have the following rights with respect to the conversion of the Series Preferred into shares of Common Stock (the "Conversion Rights"): (a) Optional Conversion. Subject to and in compliance with the provisions of this Section 4, any shares of Series Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of applicable Series Preferred shall be entitled 6. upon conversion shall be the product obtained by multiplying the applicable "Series Preferred Conversion Rate" then in effect (determined as provided in Section 4(b)) by the number of shares of Series Preferred being converted. (b) Series Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series Preferred (the "Series Preferred Conversion Rate") shall be the quotient obtained by dividing the applicable Original Issue Price of the Series Preferred by the applicable "Series Preferred Conversion Price," calculated as provided in Section 4(c). (c) Series Preferred Conversion Price. The conversion price for the Series Preferred shall initially be the applicable Original Issue Price of the Series Preferred (the "Series Preferred Conversion Price"). Such initial Series Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series Preferred Conversion Price herein shall mean the Series Preferred Conversion Price as so adjusted. (d) Mechanics of Conversion. Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stock's fair market value determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the shares of Series Preferred being converted and (ii) in cash (at the Common Stock's fair market value determined by the Board of Directors as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series Preferred. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series Preferred to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (e) Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the date that the first share of Series C Preferred Stock is issued (the "Original Issue Date") effect a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the applicable Series Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the applicable Series Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective. 7. (f) Adjustment for Common Stock Dividends and Distributions. If the Company at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the applicable Series Preferred Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the applicable Series Preferred Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Series Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Series Preferred Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution. (g) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3(c) or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event each holder of Series Preferred shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. (h) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock (other than an Acquisition or Asset Transfer as defined in Section 3(c) or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 4 (including adjustment of the applicable Series Preferred Conversion Price then in 8. effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable. (i) Certificate of Adjustment. In each case of an adjustment or readjustment of the applicable Series Preferred Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series Preferred, if the Series Preferred is then convertible pursuant to this Section 4, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series Preferred at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including, as applicable, a statement of (i) the applicable Series Preferred Conversion Price at the time in effect and (ii) the type and amount, if any, of other property which at the time would be received upon conversion of the Series Preferred. (j) Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation, or any Asset Transfer (as defined in Section 3(c)), or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of Series Preferred at least ten (10) days prior to the record date specified therein (or such shorter period approved by a majority of the outstanding Series Preferred) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up. (k) Automatic Conversion. (i) Each share of Series Preferred shall automatically be converted into shares of Common Stock, based on the then-effective applicable Series Preferred Conversion Price, (A) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Series Preferred, or (B) immediately upon the closing of a firmly 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 Company in which the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least twenty five million dollars ($25,000,000). Upon 9. such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d). (ii) Upon the occurrence of either of the events specified in Section 4(k)(i) above, the outstanding shares of Series Preferred 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 Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d). (l) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred 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 any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board of Directors) on the date of conversion. (m) Reservation of Stock Issuable upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, 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 the Series Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company 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. (n) Notices. Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written 10. verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company. (o) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered. (p) No Dilution or Impairment. Without the consent of the holders of then outstanding Series Preferred as required under Section 2(b), the Company shall not amend its Second Restated Certificate of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against dilution or other impairment. This provision shall not restrict the Company's right to amend its Certificate of Incorporation with the requisite stockholder consent. 5. No Reissuance of Series Preferred. No share or shares of Series Preferred acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued. V. A. The liability of the directors for monetary damages shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of Investors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as it may be so amended. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, at any time or times that the corporation is subject to Section 2115(b) of the CGCL, to the limits on such excess indemnification set forth in Section 204 of the CGCL. C. The holders of the Series Preferred expressly waive their rights, if any, as described in Sections 502, 503 and 506 of the CGCL as they relate to repurchases of shares upon termination of employment or service as a consultant or director. 11. D. Any repeal or modification of this Article V shall only be prospective and shall not effect the rights under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability. 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 management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by the Board of Directors in the manner provided in the Bylaws. B. Subject to the indemnification provisions in the Bylaws, the Board of Directors may from time to time make, amend, supplement or repeal the Bylaws; provided, however, that the stockholders may change or repeal any Bylaw adopted by the Board of Directors by the affirmative vote of the percentage of holders of capital stock as provided therein; and, provided further, that no amendment or supplement to the Bylaws adopted by the Board of Directors shall vary or conflict with any amendment or supplement thus adopted by the stockholders. C. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. **** FOUR: This Third Restated Certificate of Incorporation has been duly approved by the Board of Directors of this Corporation. FIVE: This Third Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors and the stockholders of the Corporation. The total number of outstanding shares entitled to vote or act by written consent was Seventeen Million Nine Hundred Sixteen Thousand Five Hundred (17,916,500) shares of Common Stock, One Million One Hundred Sixteen Thousand Seventy-One (1,116,071) shares of Series A Preferred, Two Million Six Hundred Thirty-One Thousand Five Hundred Seventy-Nine (2,631,579) shares of Series B Preferred and Two Million Seventy-Six Thousand Six Hundred Sixty-Six (2,076,666) shares of Series C Preferred. A majority of the outstanding shares of Common Stock and a majority of the outstanding shares of Preferred Stock approved this Third Restated Certificate of Incorporation by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware and written notice of such was given by the Corporation in accordance with said Section 228. 12. In Witness Whereof, this Certificate has been subscribed this 28th day of April, 2000 by the undersigned who affirms that the statements made herein are true and correct. /s/ Monte Zewben ----------------------------------------- Monte Zweben President /s/ John E. Calonico Jr. - --------------------------------- John E. Calonico, Jr. Secretary 13. EX-3.2 3 FORM OF 4TH CERTIFICATE OF INCORPORATION Exhibit 3.2 FORM OF FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BLUE MARTINI SOFTWARE, INC. MONTE ZWEBEN and JOHN CALONICO hereby certify that: ONE: The original name of this corporation is Blue Martini Software, Inc. and the date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware is January 12, 1999. TWO: They are the duly elected and acting President and Secretary, respectively, of Blue Martini Software, Inc., a Delaware corporation. THREE: The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows: I. The name of the corporation is Blue Martini Software, Inc. (the "Corporation" or the "Company"). II. The address of the registered office of the Corporation in the State of Delaware is: Corporation Service Company 1013 Centre Road Wilmington, DE 19805 County of New Castle The name of the Corporation's registered agent at said address is Corporation Service Company. III. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. IV. A. This Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is Five Hundred Five Million (505,000,000) shares, Five Hundred Million (500,000,000) shares of which shall be Common Stock (the "Common Stock") and Five Million (5,000,000) shares of which shall be Preferred Stock (the "Preferred Stock"). 1. The Preferred Stock shall have a par value of one-tenth of one cent ($0.001) per share and the Common Stock shall have a par value of one-tenth of one cent ($0.001) per share. B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a "Preferred Stock Designation") pursuant to the Delaware General Corporation Law ("DGCL"), to fix or alter from time to time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations, or restrictions of any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. V. 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. Management 1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors that shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors. 2. Board of Directors a. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock to the public (the "Initial Public Offering"), the directors shall be divided 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. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. During such time or times that the corporation is subject to Section 2. 2115(b) of the California General Corporation Law ("CGCL"), this Section A.2.a of this Article V shall not be effective and Section A.2.b of this Article shall apply. b. In the event that the corporation is subject to Section 2115(b) of the CGCL, Section A.2.a of this Article V shall not apply and all directors shall be shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. c. No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to be a "listed" corporation under Section 301.5 of the CGCL. During this time, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 3. Removal of Directors a. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. b. At any time or times that the corporation is not subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section A.3.a. above shall no longer apply and removal shall be as provided in Section 141(k) of the DGCL. 4. Vacancies 3. a. Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. b. If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the DGCL. c. At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then (i) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or (ii) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor. B. 1. Bylaw Amendments Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock of the corporation entitled to vote. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. 2. The directors of the corporation need not be elected by written ballot unless the Bylaws so provide. 3. No action shall be taken by the stockholders of the corporation except (i) at an annual or special meeting of stockholders called in accordance with the Bylaws or (ii) by 4. written consent of stockholders in accordance with the Bylaws prior to the closing of the Initial Public Offering, and following the closing of the Initial Public Offering no action shall be taken by the stockholders by written consent. 4. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation. VI. A. The liability of the directors for monetary damages shall be eliminated to the fullest extent under applicable law. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the corporation and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, at any time or times the corporation is subject to Section 2115(b) to the limits on such excess indemnification set forth in Section 204 of the CGCL. C. Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. VII. A. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation. B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, following the closing of the Initial Public Offering the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, shall be required to alter, amend or repeal Article V, VI or VII of this Certificate of Incorporation. * * * * FOUR: This Fourth Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of this Corporation. 5. FIVE: This Fourth Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors and the stockholders of the Corporation. 6. In Witness Whereof, Blue Martini Software, Inc. has caused this Fourth Amended and Restated Certificate of Incorporation to be signed by the President and the Secretary in San Mateo, California this _______ day of April 2000. Blue Martini Software, Inc. By:___________________________________ Monte Zweben President Attest: By:________________________ John Calonico Secretary 7. EX-3.3 4 BYLAW OF BLUE MARTINI EXHIBIT 3.3 BYLAWS OF BLUE MARTINI SOFTWARE, INC. (A DELAWARE CORPORATION) Table Of Contents
Page ARTICLE I OFFICES............................................... 1 Section 1. Registered Office..................................... 1 Section 2. Other Offices......................................... 1 ARTICLE II CORPORATE SEAL........................................ 1 Section 3. Corporate Seal........................................ 1 ARTICLE III STOCKHOLDERS' MEETINGS................................ 1 Section 4. Place of Meetings..................................... 1 Section 5. Annual Meeting........................................ 1 Section 6. Special Meetings...................................... 2 Section 7. Notice of Meetings.................................... 3 Section 8. Quorum................................................ 3 Section 9. Adjournment and Notice of Adjourned Meetings.......... 4 Section 10. Voting Rights......................................... 4 Section 11. Joint Owners of Stock................................. 4 Section 12. List of Stockholders.................................. 5 Section 13. Action Without Meeting................................ 5 Section 14. Organization.......................................... 5 ARTICLE IV DIRECTORS............................................. 6 Section 15. Number and Term of Office............................. 6 Section 16. Powers................................................ 6 Section 17. Term of Directors..................................... 6 Section 18. Vacancies............................................. 7 Section 19. Resignation........................................... 7 Section 20. Removal............................................... 8 Section 21. Meetings of the Board of Directors.................... 8 (a) Annual Meetings....................................... 8 (b) Regular Meetings...................................... 8 (c) Special Meetings...................................... 8 (d) Telephone Meetings.................................... 9 (e) Notice of Meetings.................................... 9 (f) Waiver of Notice...................................... 9
i. Table Of Contents (continued)
Page Section 22. Quorum and Voting.................................... 9 Section 23. Action Without Meeting............................... 9 Section 24. Fees and Compensation................................ 10 Section 25. Committees........................................... 10 (a) Executive Committee.................................. 10 (b) Other Committees..................................... 10 (c) Term................................................. 10 (d) Meetings............................................. 11 Section 26. Organization......................................... 11 ARTICLE V OFFICERS................................................ 11 Section 27. Officers Designated.................................. 11 Section 28. Tenure and Duties of Officers........................ 11 (a) General.............................................. 11 (b) Duties of Chairman of the Board of Directors......... 12 (c) Duties of President.................................. 12 (d) Duties of Vice Presidents............................ 12 (e) Duties of Secretary.................................. 12 (f) Duties of Chief Financial Officer.................... 12 Section 29. Delegation of Authority.............................. 13 Section 30. Resignations......................................... 13 Section 31. Removal.............................................. 13 ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION..................... 13 Section 32. Execution of Corporate Instruments................... 13 Section 33. Voting of Securities Owned by the Corporation........ 13 ARTICLE VII SHARES OF STOCK...................................... 14 Section 34. Form and Execution of Certificates................... 14 Section 35. Lost Certificates.................................... 14 Section 36. Transfers............................................ 15 Section 37. Fixing Record Dates.................................. 15 Section 38. Registered Stockholders............................... 16
ii. Table Of Contents (continued)
Page ARTICLE VIII OTHER SECURITIES OF THE CORPORATION................... 16 Section 39. Execution of Other Securities......................... 16 ARTICLE IX DIVIDENDS............................................. 17 Section 40. Declaration of Dividends.............................. 17 Section 41. Dividend Reserve...................................... 17 ARTICLE X FISCAL YEAR........................................... 17 Section 42. Fiscal Year........................................... 17 ARTICLE XI INDEMNIFICATION....................................... 17 Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents............ 17 (a) Directors and Executive Officers...................... 17 (b) Other Officers, Employees and Other Agents............ 17 (c) Expenses.............................................. 18 (d) Enforcement........................................... 18 (e) Non-Exclusivity of Rights............................. 19 (f) Survival of Rights.................................... 19 (g) Insurance............................................. 19 (h) Amendments............................................ 19 (i) Saving Clause......................................... 19 (j) Certain Definitions................................... 19 ARTICLE XII NOTICES............................................... 20 Section 44. Notices............................................... 20 (a) Notice to Stockholders................................ 20 (b) Notice to Directors................................... 20 (c) Affidavit of Mailing.................................. 21 (d) Time Notices Deemed Given............................. 21 (e) Methods of Notice..................................... 21 (f) Failure to Receive Notice............................. 21 (g) Notice to Person with Whom Communication Is Unlawful.. 21 (h) Notice to Person with Undeliverable Address........... 21
iii. Table Of Contents (continued)
Page ARTICLE XIII AMENDMENTS............................................ 22 Section 45. Amendments.......................................... 22 ARTICLE XIV RIGHT OF FIRST REFUSAL................................ 22 Section 46. Right of First Refusal.............................. 22 ARTICLE XV LOANS TO OFFICERS..................................... 24 Section 47. Loans to Officers................................... 24 ARTICLE XVI MISCELLANEOUS......................................... 25 Section 48. Annual Report....................................... 25
iv. BYLAWS OF BLUE MARTINI SOFTWARE, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL Section 3. Corporate Seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal- Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the principal office of the corporation required to be maintained pursuant to Section 2 hereof. Section 5. Annual Meeting. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise 1. properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received 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 no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received 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, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, 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. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (c) For purposes of this Section 5, "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 Section 13, 14 or 15(d) of the 1934 Act. Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), or (iv) by the holders of shares entitled to cast not less than fifty percent (50%) of the votes at the 2. meeting and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders as set forth in Section 18(c) herein. (b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons properly requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 7. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders 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, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast in all matters other than the election of directors, the affirmative vote of a majority of shares present in person or represented by 3. proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast by the holders of shares of such class or classes or series shall be the act of such class or classes or series. Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 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, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the Delaware General Corporation Law, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. 4. Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 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 specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. Section 13. Action Without Meeting. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may 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 in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the Delaware General Corporation Law if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the Delaware General Corporation Law. Section 14. Organization. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. 5. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS Section 15. Number and Term of Office. The authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. Section 17. Term of Directors. (a) Subject to the rights of the holders of any class of Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares 6. are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (a) the names of such candidate or candidates have been placed in nomination prior to the voting and (b) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. The candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Section 18. Vacancies. (a) Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (b) If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the Delaware General Corporation Law. (c) At any time or times that the corporation is subject to (S).2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then (i) any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or (ii) the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director shall terminate upon that election of a successor. Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a 7. particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. Section 20. Removal. (a) Subject to any limitations imposed by applicable law (and assuming the corporation is not subject to Section 2115 of the CGCL), the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation entitled to vote at an election of directors or (ii) without cause by the affirmative vote of the holders of sixty-six and two thirds percent (66 2/3%) of the voting power of all then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors. (b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. Section 21. Meetings of the Board of Directors. (a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors. No formal notice shall be required for a regular meeting of the Board of Directors. (c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place 8. within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors. (d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting 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 by such means shall constitute presence in person at such meeting. (e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty- four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, postage prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the 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. (f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. Quorum and Voting. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws. Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, 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 committee, as the case may be, consent thereto in writing, 9. and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. Section 25. Committees. (a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the 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 corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation. (b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (c) Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock, the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. 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, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. 10. (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special 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. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. Section 28. Tenure and Duties of Officers. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any 11. time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and 12. perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person 13. authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. 14. Section 36. Transfers. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law. Section 37. Fixing Record Dates. (a) 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, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 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) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date 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. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, 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, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to 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 law, the record date for determining stockholders entitled to consent to corporate action in writing without a 15. meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders 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 record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. 16. ARTICLE IX DIVIDENDS Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law. Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents. (a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the Delaware General Corporation Law or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (b) Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the 17. Delaware General Corporation Law or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except executive officers to such officers or other persons as the Board of Directors shall determine. (c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation, in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that 18. such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law or any other applicable law. (f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation or any other applicable law, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. (h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under applicable law. (j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, 19. arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (5) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. ARTICLE XII NOTICES Section 44. Notices. (a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by overnight delivery service, facsimile, telex 20. or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (d) Time Notices Deemed Given. All notices given by mail or by overnight delivery service, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person 21. shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENTS Section 45. Amendments. Subject to paragraph (h) of Section 43 of the Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by a majority of the stockholders entitled to vote. The Board of Directors shall also have the power, if such power is conferred upon the Board of Directors by the Certificate of Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors). ARTICLE XIV RIGHT OF FIRST REFUSAL Section 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of Common Stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw: (a) If the stockholder desires to sell or otherwise transfer any of his shares of Common Stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. (b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. 22. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholder's notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholder's notice; provided that if the terms of payment set forth in said transferring stockholder's notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholder's notice. (e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholder's notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring stockholder's notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholder's notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A stockholder's transfer of any or all shares held either during such stockholder's lifetime or on death by will or intestacy to such stockholder's immediate family or to any custodian or trustee for the account of such stockholder or such stockholder's immediate family or to any limited partnership of which the shareholder, members of such shareholder's immediate family or any trust for the account of such shareholder or such shareholder's immediate family will be the general of limited partner(s) of such partnership. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer. (2) A stockholder's bona fide pledge or mortgage of any shares with a commercial lending institution; provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw. (3) A stockholder's transfer of any or all of such stockholder's shares to the corporation or to any other stockholder of the corporation. (4) A stockholder's transfer of any or all of such stockholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate stockholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder. (6) A corporate stockholder's transfer of any or all of its shares to any or all of its stockholders. 23. (7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw. (g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation. (h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On January 11, 2009; (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended. (j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION." ARTICLE XV LOANS TO OFFICERS Section 47. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of 24. the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE XVI MISCELLANEOUS Section 48. Annual Report. (a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporation's shares, as determined by Section 605 of the CGCL, additional information as required by Section 1501(b) of the CGCL shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 25. EX-3.4 5 AMENDED & RESTATED BYLAWS OF BLUE MARTINI Exhibit 3.4 AMENDED AND RESTATED BYLAWS OF BLUE MARTINI SOFTWARE, INC. (A DELAWARE CORPORATION) Table Of Contents Page Article I. Offices.................................................... 1 Section 1. Registered Office....................................... 1 Section 2. Other Offices........................................... 1 Article II. Corporate Seal............................................. 1 Section 3. Corporate Seal.......................................... 1 Article III. Stockholders' Meetings..................................... 1 Section 4. Place of Meetings....................................... 1 Section 5. Annual Meeting.......................................... 1 Section 6. Special Meetings........................................ 3 Section 7. Notice of Meetings...................................... 3 Section 8. Quorum.................................................. 3 Section 9. Adjournment and Notice of Adjourned Meetings............ 4 Section 10. Voting Rights........................................... 4 Section 11. Joint Owners of Stock................................... 4 Section 12. List of Stockholders.................................... 5 Section 13. Action Without Meeting.................................. 5 Section 14. Organization............................................ 6 Article IV. Directors.................................................. 6 Section 15. Number and Term of Office............................... 6 Section 16. Powers.................................................. 6 Section 17. Term of Directors....................................... 6 Section 18. Vacancies............................................... 7 Section 19. Resignation............................................. 7 Section 20. Removal................................................. 7 Section 21. Meetings................................................ 7 (a) Annual Meetings......................................... 7 (b) Regular Meetings........................................ 7 (c) Special Meetings........................................ 8 (d) Telephone Meetings...................................... 8 (e) Notice of Meetings...................................... 8 (f) Waiver of Notice........................................ 8 Section 22. Quorum and Voting....................................... 8 Section 23. Action Without Meeting.................................. 9 Section 24. Fees and Compensation................................... 9 Section 25. Committees.............................................. 9 (a) Executive Committee..................................... 9 (b) Other Committees........................................ 9 i. Table Of Contents (CONTINUED) Page (c) Term.................................................... 10 (d) Meetings................................................ 10 Section 26. Organization............................................ 10 Article V. Officers................................................... 11 Section 27. Officers Designated..................................... 11 Section 28. Tenure and Duties of Officers........................... 11 (a) General................................................. 11 (b) Duties of Chairman of the Board of Directors............ 11 (c) Duties of President..................................... 11 (d) Duties of Vice Presidents............................... 11 (e) Duties of Secretary..................................... 12 (f) Duties of Chief Financial Officer....................... 12 Section 29. Delegation of Authority................................. 12 Section 30. Resignations............................................ 12 Section 31. Removal................................................. 12 Article VI. Execution Of Corporate Instruments And Voting Of Securities Owned By The Corporation........................ 13 Section 32. Execution of Corporate Instruments...................... 13 Section 33. Voting of Securities Owned by the Corporation........... 13 Article VII. Shares Of Stock............................................ 14 Section 34. Form and Execution of Certificates...................... 14 Section 35. Lost Certificates....................................... 14 Section 36. Transfers............................................... 14 Section 37. Fixing Record Dates..................................... 15 Section 38. Registered Stockholders................................. 16 Article VIII. Other Securities Of The Corporation........................ 16 Section 39. Execution of Other Securities........................... 16 Article IX. Dividends.................................................. 17 Section 40. Declaration of Dividends................................ 17 Section 41. Dividend Reserve........................................ 17 Article X. Fiscal Year................................................ 17 Section 42. Fiscal Year............................................. 17 Article XI. Indemnification............................................ 17 ii. Table Of Contents (CONTINUED) Page Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents....................... 17 (a) Directors and Officers..................................... 17 (b) Employees and Other Agents................................. 17 (c) Expenses................................................... 18 (d) Enforcement................................................ 18 (e) Non-Exclusivity of Rights.................................. 19 (f) Survival of Rights......................................... 19 (g) Insurance.................................................. 19 (h) Amendments................................................. 19 (i) Saving Clause.............................................. 19 (j) Certain Definitions........................................ 19 Article XII. Notices...................................................... 20 Section 44. Notices.................................................... 20 (a) Notice to Stockholders..................................... 20 (b) Notice to Directors........................................ 20 (c) Affidavit of Mailing....................................... 20 (d) Time Notices Deemed Given.................................. 21 (e) Methods of Notice.......................................... 21 (f) Failure to Receive Notice.................................. 21 (g) Notice to Person with Whom Communication Is Unlawful....... 21 (h) Notice to Person with Undeliverable Address................ 21 Article XIII. Amendments................................................... 22 Section 45. Amendments................................................. 22 Article XIV. Right Of First Refusal....................................... 22 Section 46. Right of First Refusal..................................... 22 Article XV. Loans To Officers............................................ 24 Section 47. Loans to Officers.......................................... 24 Article XVI. Miscellaneous................................................ 25 Section 48. Annual Report.............................................. 25 iii. AMENDED AND RESTATED BYLAWS OF BLUE MARTINI SOFTWARE, INC. (A DELAWARE CORPORATION) Article I Offices Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. (Del. Code Ann., tit. 8, (S) 131). Section 2. Other Offices.. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, (S) 122(8)) Article II Corporate Seal Section 3. Corporate Seal.. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal- Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, (S) 122(3)) Article III Stockholders' Meetings Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the principal office of the corporation required to be maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, (S) 211(a)) Section 5. Annual Meeting. 1 (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (Del. Code Ann., tit. 8, (S) 211(b)) (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received 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 no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received 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, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, 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. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (Del. Code Ann., tit. 8: (S) 211(b)) (c) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or 2 comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) by the holders of shares entitled to cast not less than fifty percent (50%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix. (b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 7. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders 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, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, (S)(S) 222, 229) Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock 3 entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, including abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series. (Del. Code Ann., tit. 8, (S) 216) Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 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, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8, (S) 222(c)) Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. (Del. Code Ann., tit. 8, (S)(S) 211(e), 212(b)) Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or 4 order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, (S) 217(b)) Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 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 specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. (Del. Code Ann., tit. 8, (S) 219(a)) Section 13. Action Without Meeting. (a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may 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 in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. (Del. Code Ann., tit. 8, (S) 228) (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of the State of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under 5 such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. Section 14. Organization. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. Article IV Directors Section 15. Number and Term of Office. The authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. (Del. Code Ann., tit. 8, (S)(S) 141(b), 211(b), (c)) Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. (Del. Code Ann., tit. 8, (S) 141(a)) 6 Section 17. Term of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 18. Vacancies. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (Del. Code Ann., tit. 8, (S) 223(a), (b)) Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, (S)(S) 141(b), 223(d)) Section 20. Removal. Subject to the rights of the holders of any series of Preferred Stock, the Board of Directors or any individual director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the "Voting Stock") or (ii) without cause by the affirmative vote of the holders of at least a majority of the voting power of all the then-outstanding shares of the Voting Stock. (Del. Code Ann., tit. 8, (S) 141(k)) Section 21. Meetings. (a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. 7 (b) Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors. (Del. Code Ann., tit. 8, (S) 141(g)) (c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors. (Del. Code Ann., tit. 8, (S) 141(g)) (d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting 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 by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, (S) 141(i)) (e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, postage prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the 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. (Del. Code Ann., tit. 8, (S) 229) (f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, (S) 229) Section 22. Quorum and Voting. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting 8 of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, (S) 141(b)) (b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, (S) 141(b)) Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, 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 committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. (Del. Code Ann., tit. 8, (S) 141(f)) Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, (S) 141(h)) Section 25. Committees. (a) Executive Committee. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the 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 corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (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 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, 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 the bylaws of the corporation. (Del. Code Ann., tit. 8, (S) 141(c)) 9 (b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, (S) 141(c)) (c) Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. 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, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (Del. Code Ann., tit. 8, (S)141(c)) (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special 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. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, (S)(S) 141(c), 229) Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a 10 chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. Article V Officers Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 122(5), 142(a), (b)) Section 28. Tenure and Duties of Officers. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, (S) 141(b), (e)) (b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit. 8, (S) 142(a)) (c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have 11 such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) (f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, (S) 142(a)) Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be 12 necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. (Del. Code Ann., tit. 8, (S) 142(b)) Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By The Corporation Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, (S)(S) 103(a), 142(a), 158) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock of the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8, (S)(S) 103(a), 142(a), 158) All checks and drafts drawn on banks or other depositories on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. (Del. Code Ann., tit. 8, (S)(S) 103(a), 142(a), 158). Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such 13. authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. (Del. Code Ann., tit. 8, (S) 123) Article VII Shares Of Stock Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. (Del. Code Ann., tit. 8, (S) 158) Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, (S) 167) Section 36. Transfers. 14. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 8, (S) 201, tit. 6, (S) 8-401(1)) (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8, (S) 160 (a)) Section 37. Fixing Record Dates. (a) 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, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 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) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, 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, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to 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 law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the 15. close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders 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 record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8, (S) 213) Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, (S)(S) 213(a), 219) Article VIII Other Securities Of The Corporation Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. 16. Article IX Dividends Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. (Del. Code Ann., tit. 8, (S)(S) 170, 173) Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8, (S) 171) Article X Fiscal Year Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Article XI Indemnification Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents. (a) Directors and Officers. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d). (b) Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the Delaware General Corporation Law. 17. (c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual 18. determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. (h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. (j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply: (i) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (ii) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) 19. absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. Article XII Notices Section 44. Notices. (a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8, (S) 222) (b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. (c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses 20. of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, (S) 222) (d) Time Notices Deemed Given. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to 21. persons to whom notice was not required to be given pursuant to this paragraph. (Del. Code Ann, tit. 8, (S) 230) Article XIII Amendments Section 45. Amendments. Subject to paragraph (h) of Section 43 of the Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the stockholders entitled to vote. The Board of Directors shall also have the power, if such power is conferred upon the Board of Directors by the Certificate of Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors). (Del. Code Ann., tit. 8, (S)(S) 109(a), 122(6)). Article XIV Right Of First Refusal Section 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this bylaw: (a) If the stockholder desires to sell or otherwise transfer any of his shares of stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. (b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for said shares shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in said transferring stockholder's notice, 22. the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholder's notice; provided that if the terms of payment set forth in said transferring stockholder's notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares on the same terms and conditions set forth in said transferring stockholder's notice. (e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholder's notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares specified in said transferring stockholder's notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholder's notice. All shares so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A stockholder's transfer of any or all shares held either during such stockholder's lifetime or on death by will or intestacy to such stockholder's immediate family or to any custodian or trustee for the account of such stockholder or such stockholder's immediate family. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer. (2) A stockholder's bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this bylaw. (3) A stockholder's transfer of any or all of such stockholder's shares to the corporation or to any other stockholder of the corporation. (4) A stockholder's transfer of any or all of such stockholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate stockholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder. (6) A corporate stockholder's transfer of any or all of its shares to any or all of its stockholders. (7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners. 23. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw. (g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation. (h) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this bylaw are strictly observed and followed. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On October 1, 2007; or (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended. (j) The certificates representing shares of stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION." Article XV Loans To Officers Section 47. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. (Del. Code Ann., tit. 8, (S)143) 24. Article XVI Miscellaneous Section 48. Annual Report. (a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporation's fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporation's shares, as determined by Section 605 of the California Corporations Code, additional information as required by Section 1501(b) of the California Corporations Code shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporation's shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 25. EX-10.1 6 2000 EQUITY INCENTIVE PLAN EXHIBIT 10.1 Blue Martini Software, Inc. 2000 Equity Incentive Plan Adopted April 24, 2000 Approved By Stockholders _______________, 2000 Termination Date: April 23, 2010 1. Purposes. (a) Amendment and Restatement of Initial Plan. The Plan initially was established as the Amended and Restated 1998 Equity Incentive Plan (the "Initial Plan"). The Initial Plan, as amended, hereby is amended and restated in its entirety and renamed the 2000 Equity Incentive Plan, effective as of its adoption. (b) Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates. (c) Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. (d) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. Definitions. (a) "Affiliate" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c). (e) "Common Stock" means the common stock of the Company. (f) "Company" means Blue Martini Software, Inc., a Delaware corporation. 1 (g) "Consultant" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director's fee by the Company for their services as Directors. (h) "Continuous Service" means that the Participant's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (i) "Covered Employee" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (j) "Director" means a member of the Board of Directors of the Company. (k) "Disability" means (i) before the Listing Date, the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person's position with the Company or an Affiliate of the Company because of the sickness or injury of the person and (ii) after the Listing Date, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (l) "Employee" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the value of the Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day 2 of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (iii) Prior to the Listing Date, the value of the Common Stock shall be determined in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. (o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (p) "Listing Date" means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate Securities Law of 1968. (q) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (r) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (s) "Officer" means (i) before the Listing Date, any person designated by the Company as an officer and (ii) on and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (t) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. (u) "Option Agreement" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. 3 (v) "Optionholder" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (w) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (x) "Participant" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (y) "Plan" means this Blue Martini Software, Inc. 2000 Equity Incentive Plan. (z) "April Stock Split" means the 2-for-1 stock split approved by the Board of Directors on April 24, 2000 and effective April 28, 2000. (aa) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (bb) "Securities Act" means the Securities Act of 1933, as amended. (cc) "Stock Award" means any right granted under the Plan, including an Option, a stock bonus and a right to acquire restricted stock. (dd) "Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (ee) "Ten Percent Stockholder" means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 3. Administration. (a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock 4 Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan or a Stock Award as provided in Section 12. (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) Delegation to Committee. (i) General. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (ii) Committee Composition when Common Stock is Publicly Traded. At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non- Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or) (2) delegate to a committee of one or more members of the Board who are not Non- Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. (d) Effect of Board's Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 5 4. Shares Subject to the Plan. (a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Thirty Million (30,000,000) shares of Common Stock upon the effectiveness of, and after giving effect to, the April Stock Split). (b) Evergreen Share Reserve Increase. (i) Notwithstanding subsection 4(a) hereof, on January 1 of each year (the "Calculation Date") for a period of ten (10) years, commencing on January 1, 2001, the aggregate number of shares of Common Stock that is available for issuance under the Plan shall automatically be increased by that number of shares equal to the greater of (1) five percent (5%) of the Diluted Shares Outstanding or (2) the number of shares of Common Stock subject to Stock Awards granted during the prior 12-month period; provided, however, that the Board, from time to time, may provide for a lesser increase in the aggregate number of shares of Common Stock that is available for issuance under the Plan (ii) Subject to the provisions of Section 11 hereof relating to adjustments upon changes in securities, the increase in the maximum aggregate number of shares of Common Stock that is available for issuance pursuant to Incentive Stock Options granted under the Plan shall not exceed Two Hundred Million (200,000,000) shares of Common Stock upon the effectiveness of, and after giving effect to, the April Stock Split). (iii) "Diluted Shares Outstanding" shall mean, as of any date, (1) the number of outstanding shares of Common Stock of the Company on such Calculation Date, plus (2) the number of shares of Common Stock issuable upon such Calculation Date assuming the conversion of all outstanding Preferred Stock and convertible notes, plus (3) the additional number of dilutive Common Stock equivalent shares outstanding as the result of any options or warrants outstanding during the fiscal year, calculated using the treasury stock method. (c) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. If the Company repurchases unvested shares acquired pursuant to a Stock Award, the shares of Common Stock so repurchased shall revert to and again become available for issuance under the Plan for all Stock Awards other than Incentive Stock Options. (d) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. (e) Share Reserve Limitation. Prior to the Listing Date and to the extent then required by Section 260.140.45 of Title 10 of the California Code of Regulations, the total number of shares of Common Stock issuable upon exercise of all outstanding Options and the 6 total number of shares of Common Stock provided for under any stock bonus or similar plan of the Company shall not exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of Title 10 of the California Code of Regulations, based on the shares of Common Stock of the Company that are outstanding at the time the calculation is made. 5. Eligibility. (a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. (b) Ten Percent Stockholders. (i) A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (ii) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless the exercise price of such Option is at least (i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option. (iii) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (i) one hundred percent (100%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option. (c) Section 162(m) Limitation. Subject to the provisions of Section 11 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options covering more than [Ten Million (10,000,000) shares of Common Stock upon the effectiveness of, and after giving effect to, the April Stock Split)] during any calendar year. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(c) shall not apply until (i) the earliest of: (1) the first material 7 modification of the Plan (including any increase in the number of shares of Common Stock reserved for issuance under the Plan in accordance with Section 4); (2) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) the first meeting of stockholders at which Directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. (d) Consultants. (i) Prior to the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or the sale of the Company's securities to such Consultant is not exempt under Rule 701 of the Securities Act ("Rule 701") because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions. (ii) From and after the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. (iii) Rule 701 and Form S-8 generally are available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer's securities. 6. Option Provisions. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: 8 (a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option granted prior to the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted, and no Incentive Stock Option granted on or after the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option granted prior to the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. The Board shall determine the exercise price of each Nonstatutory Stock Option granted on or after the Listing Date. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (d) Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. 9 (e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option granted prior to the Listing Date shall not be transferable except by will or by the laws of descent and distribution and, to the extent provided in the Option Agreement, to such further extent as permitted by Section 260.140.41(d) of Title 10 of the California Code of Regulations at the time of the grant of the Option, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or after the Listing Date shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (g) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised. (h) Minimum Vesting Prior to the Listing Date. Notwithstanding the foregoing subsection 6(g), to the extent that the following restrictions on vesting are required by Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then: (i) Options granted prior to the Listing Date to an Employee who is not an Officer, Director or Consultant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment; and (ii) Options granted prior to the Listing Date to Officers, Directors or Consultants may be made fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company. (i) Termination of Continuous Service. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder 10 may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement, which period shall not be less than thirty (30) days for Options granted prior to the Listing Date unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (j) Extension of Termination Date. An Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (k) Disability of Optionholder. In the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (l) Death of Optionholder. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (m) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to 11 exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. (n) Right of Repurchase. Subject to the "Repurchase Limitation" in subsection 10(h), the Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option. (o) Right of First Refusal. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option. Except as expressly provided in this subsection 6(o), such right of first refusal shall otherwise comply with any applicable provisions of the Bylaws of the Company. (p) Re-Load Options. (i) Without in any way limiting the authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionholder to a further Option (a "Re-Load Option") in the event the Optionholder exercises the Option evidenced by the Option Agreement in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Unless otherwise specifically provided in the Option, the Optionholder shall not surrender shares of Common Stock acquired, directly or indirectly from the Company, unless such shares have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). (ii) Any such Re-Load Option shall (1) provide for a number of shares of Common Stock equal to the number of shares of Common Stock surrendered as part or all of the exercise price of such Option; (2) have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (3) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions heretofore described for Options under the Plan. (iii) Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on the exercisability of Incentive Stock Options described in subsection 10(d) and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option 12 shall be subject to the availability of sufficient shares of Common Stock under subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options under subsection 5(c) and shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 7. Provisions of Stock Awards other than Options. (a) Stock Bonus Awards. Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (i) Consideration. A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. (ii) Vesting. Subject to the "Repurchase Limitation" in subsection 10(h), shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iii) Termination of Participant's Continuous Service. Subject to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement. (iv) Transferability. For a stock bonus award made before the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a stock bonus award made on or after the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the stock bonus agreement remains subject to the terms of the stock bonus agreement. (b) Restricted Stock Awards. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: 13 (i) Purchase Price. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. For restricted stock awards made prior to the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stock's Fair Market Value on the date such award is made or at the time the purchase is consummated. For restricted stock awards made on or after the Listing Date, the Board shall determine the purchase price. (ii) Consideration. The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. (iii) Vesting. Subject to the "Repurchase Limitation" in subsection 10(h), shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iv) Termination of Participant's Continuous Service. Subject to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase agreement. (v) Transferability. For a restricted stock award made before the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a restricted stock award made on or after the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. 8. Covenants of the Company. (a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards. (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of 14 the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 9. Use of Proceeds from Stock. Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 10. Miscellaneous. (a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and 15 business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock. (g) Information Obligation. Prior to the Listing Date, to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Participants at least annually. This subsection 10(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information. (h) Repurchase Limitation. The terms of any repurchase option shall be specified in the Stock Award and may be either at Fair Market Value at the time of repurchase or at not less than the original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award granted prior to the Listing Date to a person who is not an Officer, Director or Consultant shall be upon the terms described below: (i) Fair Market Value. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of employment at not less than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of 16 purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the right terminates when the shares of Common Stock become publicly traded. (ii) Original Purchase Price. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the original purchase price, then (i) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (ii) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock"). 11. Adjustments upon Changes in Stock. (a) Capitalization Adjustments. In the event that any change is made in the Common Stock subject to the Plan, or subject to any Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, incorporation, combination of stock, exchange of stock, change in business structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares of Common Stock subject to the Plan pursuant to Section 4 and the maximum number of shares of Common Stock subject to award pursuant to subsection 5(c), and the Awards will be appropriately adjusted in the class(es) and number of shares of Common Stock and exercise price per share of Common Stock subject to such Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company".) (b) Change in Control. In the event of: (1) a dissolution, liquidation, or sale of all or substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving entity; or (3) a reverse merger in which the Company is the surviving entity but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (individually, a "Change in Control"), then: (i) any surviving or acquiring entity shall assume Awards outstanding under the Plan or shall substitute similar awards (including an award to acquire the same consideration paid to stockholders in the transaction described in this subsection 11(b)) for those outstanding under the Plan, or (ii) in the event any surviving or 17 acquiring entity refuses to assume such Awards or to substitute similar awards for those outstanding under the Plan, (1) with respect to Awards held by persons whose Continuous Service has not terminated, the vesting of such Awards and the time during which such Awards may be exercised shall be accelerated prior to such Change in Control and the Awards terminated if not exercised after such acceleration and at or prior to such Change in Control, and (2) with respect to any other Awards outstanding under the Plan, such Awards shall be terminated if not exercised prior to such Change in Control. (c) Securities Acquisition. In the event of (i) any consolidation or merger of the Company with or into any corporation or other entity or person, or any other reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the surviving entity's voting power immediately after such consolidation, merger or reorganization, (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company, then with respect to Awards held by Participants whose Continuous Service has not terminated, the vesting of fifty percent (50%) of the remaining unvested portion of such Awards (and, if applicable, the time during which such Awards may be exercised) shall be accelerated. 12. Amendment of the Plan and Stock Awards. (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. (e) Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under 18 any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. 13. Termination or Suspension of the Plan. (a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant. 14. Effective Date of Plan. The Plan shall become effective upon adoption by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 15. Choice of Law. The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws rules. 19 EX-10.2 7 2000 EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.2 Blue Martini Software, Inc. 2000 Employee Stock Purchase Plan Adopted April 24, 2000 Approved By Stockholders ______________, 2000 Termination Date: None 1. Purpose. (a) The purpose of the Plan is to provide a means by which Employees of the Company and certain designated Affiliates may be given an opportunity to purchase Shares of the Company. (b) The Company, by means of the Plan, seeks to retain the services of such Employees, to secure and retain the services of new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Rights to purchase Shares granted under the Plan be considered options issued under an "employee stock purchase plan," as that term is defined in Section 423(b) of the Code. 2. DEFINITIONS. (a) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the United States Internal Revenue Code of 1986, as amended. (d) "Committee" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (e) "Company" means Blue Martini Software, Inc., a Delaware corporation. (f) "Director" means a member of the Board. (g) "Eligible Employee" means an Employee who meets the requirements set forth in the Offering for eligibility to participate in the Offering. (h) "Employee" means any person, including Officers and Directors, employed by the Company or an Affiliate of the Company. Neither service as a Director nor payment of a director's fee shall be sufficient to constitute "employment" by the Company or the Affiliate. -1- (i) "Employee Stock Purchase Plan" means a plan that grants rights intended to be options issued under an "employee stock purchase plan," as that term is defined in Section 423(b) of the Code. (j) "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" means the value of a security, as determined in good faith by the Board. If the security is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, then, except as otherwise provided in the Offering, the Fair Market Value of the security shall be the closing sales price (rounded up where necessary to the nearest whole cent) for such security (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the relevant security of the Company) on the trading day prior to the relevant determination date, as reported in The Wall Street Journal or such other source as the Board deems reliable. (l) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non- employee director" for purposes of Rule 16b-3. (m) "Offering" means the grant of Rights to purchase Shares under the Plan to Eligible Employees. (n) "Offering Date" means a date selected by the Board for an Offering to commence. (o) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (p) "Participant" means an Eligible Employee who holds an outstanding Right granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Right granted under the Plan. -2- (q) "Plan" means this 2000 Employee Stock Purchase Plan. (r) "Purchase Date" means one or more dates established by the Board during an Offering on which Rights granted under the Plan shall be exercised and purchases of Shares carried out in accordance with such Offering. (s) "Right" means an option to purchase Shares granted pursuant to the Plan. (t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3 as in effect with respect to the Company at the time discretion is being exercised regarding the Plan. (u) "Securities Act" means the United States Securities Act of 1933, as amended. (v) "Share" means a share of the common stock of the Company. 3. ADMINISTRATION. (a) The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board (or the Committee) shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how Rights to purchase Shares shall be granted and the provisions of each Offering of such Rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and Rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in Section 14. (v) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company and its Affiliates and to carry out the intent that the Plan be treated as an Employee Stock Purchase Plan. (c) The Board may delegate administration of the Plan to a Committee of the Board composed of two (2) or more members, all of the members of which Committee may be, in the discretion of the Board, Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the -3- Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 4. Shares Subject to the Plan. (a) Subject to the provisions of Section 13 relating to adjustments upon changes in securities, the Shares that may be sold pursuant to Rights granted under the Plan shall not exceed in the aggregate Four Million (4,000,000) shares of Common Stock. If any Right granted under the Plan shall for any reason terminate without having been exercised, the Shares not purchased under such Right shall again become available for the Plan. (b) The aggregate number of Shares that may be sold pursuant to Rights granted under the Plan as specified in Section 4(a) hereof automatically shall be increased as follows: (i) On January 1 of each year (the "Calculation Date") for a period of ten (10) years, commencing in 2001, the aggregate number of shares of Common Stock that is available for issuance under the Plan shall automatically be increased by that number of shares equal to the greater of (1) two and one-half percent (2.5%) of the Diluted Shares Outstanding or (2) the number of shares of Common Stock issued pursuant to Rights during the prior 12-month period; provided, however, that the Board, from time to time, may provide for a lesser increase in the aggregate number of shares of Common Stock that is available for issuance under the Plan (ii) Subject to the provisions of Section 13 hereof relating to adjustments upon changes in securities, the maximum aggregate number of shares of Common Stock that is available for issuance pursuant to Rights granted under the Plan shall not exceed Forty Million (40,000,000) shares of Common Stock. (iii) "Diluted Shares Outstanding" shall mean, as of any date, (1) the number of outstanding shares of Common Stock of the Company on such Calculation Date, plus (2) the number of shares of Common Stock issuable upon such Calculation Date assuming the conversion of all outstanding Preferred Stock and convertible notes, plus (3) the additional number of dilutive Common Stock equivalent shares outstanding as the result of any options or warrants outstanding during the fiscal year, calculated using the treasury stock method. (c) The Shares subject to the Plan may be unissued Shares or Shares that have been bought on the open market at prevailing market prices or otherwise. 5. Grant of Rights; Offering. (a) The Board may from time to time grant or provide for the grant of Rights to purchase Shares of the Company under the Plan to Eligible Employees in an Offering on an -4- Offering Date or Dates selected by the Board. Each Offering shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all Employees granted Rights to purchase Shares under the Plan shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in Sections 6 through 9, inclusive. (b) If a Participant has more than one Right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (i) each agreement or notice delivered by that Participant will be deemed to apply to all of his or her Rights under the Plan, and (ii) an earlier- granted Right (or a Right with a lower exercise price, if two Rights have identical grant dates) will be exercised to the fullest possible extent before a later-granted Right (or a Right with a higher exercise price if two Rights have identical grant dates) will be exercised. 6. ELIGIBILITY. (a) Rights may be granted only to Employees of the Company or, as the Board may designated as provided in subsection 3(b), to Employees of an Affiliate. Except as provided in subsection 6(b), an Employee shall not be eligible to be granted Rights under the Plan unless, on the Offering Date, such Employee has been in the employ of the Company or the Affiliate, as the case may be, for such continuous period preceding such grant as the Board may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. (b) The Board may provide that each person who, during the course of an Offering, first becomes an Eligible Employee will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an Eligible Employee or which occurs thereafter, receive a Right under that Offering, which Right shall thereafter be deemed to be a part of that Offering. Such Right shall have the same characteristics as any Rights originally granted under that Offering, as described herein, except that: (i) the date on which such Right is granted shall be the "Offering Date" of such Right for all purposes, including determination of the exercise price of such Right; (ii) the period of the Offering with respect to such Right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board may provide that if such person first becomes an Eligible Employee within a specified period of time before the end of the Offering, he or she will not receive any Right under that Offering. -5- (c) No Employee shall be eligible for the grant of any Rights under the Plan if, immediately after any such Rights are granted, such Employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subsection 6(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under all outstanding rights and options shall be treated as stock owned by such Employee. (d) An Eligible Employee may be granted Rights under the Plan only if such Rights, together with any other Rights granted under all Employee Stock Purchase Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase Shares of the Company or any Affiliate to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of the fair market value of such Shares (determined at the time such Rights are granted) for each calendar year in which such Rights are outstanding at any time. (e) The Board may provide in an Offering that Employees who are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. 7. Rights; Purchase Price. (a) On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, shall be granted the Right to purchase up to the number of Shares purchasable either: (i) with a percentage designated by the Board not exceeding fifteen percent (15%) of such Employee's Earnings (as defined by the Board in each Offering) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering; or (ii) with a maximum dollar amount designated by the Board that, as the Board determines for a particular Offering, (1) shall be withheld, in whole or in part, from such Employee's Earnings (as defined by the Board in each Offering) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering and/or (2) shall be contributed, in whole or in part, by such Employee during such period. (b) The Board shall establish one or more Purchase Dates during an Offering on which Rights granted under the Plan shall be exercised and purchases of Shares carried out in accordance with such Offering. (c) In connection with each Offering made under the Plan, the Board may specify a maximum amount of Shares that may be purchased by any Participant as well as a maximum aggregate amount of Shares that may be purchased by all Participants pursuant to such Offering. -6- In addition, in connection with each Offering that contains more than one Purchase Date, the Board may specify a maximum aggregate amount of Shares which may be purchased by all Participants on any given Purchase Date under the Offering. If the aggregate purchase of Shares upon exercise of Rights granted under the Offering would exceed any such maximum aggregate amount, the Board shall make a pro rata allocation of the Shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (d) The purchase price of Shares acquired pursuant to Rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the Shares on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the Shares on the Purchase Date. 8. Participation; Withdrawal; Termination. (a) An Eligible Employee may become a Participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board of such Employee's Earnings during the Offering (as defined in each Offering). The payroll deductions made for each Participant shall be credited to a bookkeeping account for such Participant under the Plan and either may be deposited with the general funds of the Company or may be deposited in a separate account in the name of, and for the benefit of, such Participant with a financial institution designated by the Company. To the extent provided in the Offering, a Participant may reduce (including to zero) or increase such payroll deductions. To the extent provided in the Offering, a Participant may begin such payroll deductions after the beginning of the Offering. A Participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the Participant has not already had the maximum permitted amount withheld during the Offering. (b) At any time during an Offering, a Participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided by the Board in the Offering. Upon such withdrawal from the Offering by a Participant, the Company shall distribute to such Participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire Shares for the Participant) under the Offering, without interest unless otherwise specified in the Offering, and such Participant's interest in that Offering shall be automatically terminated. A Participant's withdrawal from an Offering will have no effect upon such Participant's eligibility to participate in any other Offerings under the Plan but such Participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. -7- (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating Employee's employment with the Company or a designated Affiliate for any reason (subject to any post-employment participation period required by law) or other lack of eligibility. The Company shall distribute to such terminated Employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire Shares for the terminated Employee) under the Offering, without interest unless otherwise specified in the Offering. If the accumulated payroll deductions have been deposited with the Company's general funds, then the distribution shall be made from the general funds of the Company, without interest. If the accumulated payroll deductions have been deposited in a separate account with a financial institution as provided in subsection 8(a), then the distribution shall be made from the separate account, without interest unless otherwise specified in the Offering. (d) Rights granted under the Plan shall not be transferable by a Participant otherwise than by will or the laws of descent and distribution, or by a beneficiary designation as provided in Section 15 and, otherwise during his or her lifetime, shall be exercisable only by the person to whom such Rights are granted. 9. Exercise. (a) On each Purchase Date specified therefor in the relevant Offering, each Participant's accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of Shares up to the maximum amount of Shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional Shares shall be issued upon the exercise of Rights granted under the Plan unless specifically provided for in the Offering. (b) Unless otherwise specifically provided in the Offering, the amount, if any, of accumulated payroll deductions remaining in any Participant's account after the purchase of Shares that is equal to the amount required to purchase one or more whole Shares on the final Purchase Date of the Offering shall be distributed in full to the Participant at the end of the Offering, without interest. If the accumulated payroll deductions have been deposited with the Company's general funds, then the distribution shall be made from the general funds of the Company, without interest. If the accumulated payroll deductions have been deposited in a separate account with a financial institution as provided in subsection 8(a), then the distribution shall be made from the separate account, without interest unless otherwise specified in the Offering. (c) No Rights granted under the Plan may be exercised to any extent unless the Shares to be issued upon such exercise under the Plan (including Rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no Rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject -8- to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If, on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no Rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire Shares) shall be distributed to the Participants, without interest unless otherwise specified in the Offering. If the accumulated payroll deductions have been deposited with the Company's general funds, then the distribution shall be made from the general funds of the Company, without interest. If the accumulated payroll deductions have been deposited in a separate account with a financial institution as provided in subsection 8(a), then the distribution shall be made from the separate account, without interest unless otherwise specified in the Offering. 10. Covenants of the Company. (a) During the terms of the Rights granted under the Plan, the Company shall ensure that the amount of Shares required to satisfy such Rights are available. (b) The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell Shares upon exercise of the Rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Shares under the Plan, the Company shall be relieved from any liability for failure to issue and sell Shares upon exercise of such Rights unless and until such authority is obtained. 11. Use of Proceeds from Shares. Proceeds from the sale of Shares pursuant to Rights granted under the Plan shall constitute general funds of the Company. 12. Rights as a Stockholder. A Participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, Shares subject to Rights granted under the Plan unless and until the Participant's Shares acquired upon exercise of Rights under the Plan are recorded in the books of the Company. 13. Adjustments upon Changes in Securities. (a) If any change is made in the Shares subject to the Plan, or subject to any Right, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the -9- Company), the Plan will be appropriately adjusted in the class(es) and maximum number of Shares subject to the Plan pursuant to subsection 4(a), and the outstanding Rights will be appropriately adjusted in the class(es), number of Shares and purchase limits of such outstanding Rights. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction that does not involve the receipt of consideration by the Company.) (b) In the event of: (i) a dissolution, liquidation, or sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; or (iii) a reverse merger in which the Company is the surviving corporation but the Shares outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then: (1) any surviving or acquiring corporation shall assume Rights outstanding under the Plan or shall substitute similar rights (including a right to acquire the same consideration paid to Stockholders in the transaction described in this subsection 13(b)) for those outstanding under the Plan, or (2) in the event any surviving or acquiring corporation refuses to assume such Rights or to substitute similar rights for those outstanding under the Plan, then, as determined by the Board in its sole discretion such Rights may continue in full force and effect or the Participants' accumulated payroll deductions (exclusive of any accumulated interest which cannot be applied toward the purchase of Shares under the terms of the Offering) may be used to purchase Shares immediately prior to the transaction described above under the ongoing Offering and the Participants' Rights under the ongoing Offering thereafter terminated. 14. Amendment of the Plan. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 13 relating to adjustments upon changes in securities and except as to minor amendments to benefit the administration of the Plan, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for Participants or the Company or any Affiliate, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary for the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3 under the Exchange Act and any Nasdaq or other securities exchange listing requirements. Currently under the Code, stockholder approval within twelve (12) months before or after the adoption of the amendment is required where the amendment will: (i) Increase the amount of Shares reserved for Rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3; or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3. -10- (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Employee Stock Purchase Plans and/or to bring the Plan and/or Rights granted under it into compliance therewith. (c) Rights and obligations under any Rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such Rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or Rights granted under the Plan comply with the requirements of Section 423 of the Code. 15. Designation of Beneficiary. (a) A Participant may file a written designation of a beneficiary who is to receive any Shares and/or cash, if any, from the Participant's account under the Plan in the event of such Participant's death subsequent to the end of an Offering but prior to delivery to the Participant 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 the Plan in the event of such Participant's death during an Offering. (b) The Participant may change such designation of beneficiary 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 the Plan who is living at the time of such Participant's death, the Company shall deliver such Shares and/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 sole discretion, may deliver such Shares and/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. 16. Termination or Suspension of the Plan. (a) The Board in its discretion may suspend or terminate the Plan at any time. No Rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Rights granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such Rights were granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or Rights granted under the Plan comply with the requirements of Section 423 of the Code. -11- 17. Effective Date of Plan. The Plan shall become effective as determined by the Board, but no Rights granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board, which date may be prior to the effective date set by the Board. -12- EX-10.3 8 2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Exhibit 10.3 Blue Martini Software, Inc. 2000 Non-Employee Directors' Stock Option Plan Adopted April 24, 2000 Approved By Stockholders _______________, 2000 Effective Date: Initial Public Offering Date Termination Date: None 1. Purposes. (a) Eligible Option Recipients. The persons eligible to receive Options are the Non-Employee Directors of the Company. (b) Available Options. The purpose of the Plan is to provide a means by which Non-Employee Directors may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Nonstatutory Stock Options. (c) General Purpose. The Company, by means of the Plan, seeks to retain the services of its Non-Employee Directors, to secure and retain the services of new Non-Employee Directors and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. Definitions. (a) "Affiliate" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (b) "Annual Grant" means an Option granted annually to all Non-Employee Directors who meet the specified criteria pursuant to subsection 6(b) of the Plan. (c) "Annual Meeting" means the annual meeting of the stockholders of the Company. (d) "Board" means the Board of Directors of the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Common Stock" means the common stock of the Company. (g) "Committee Grant" means an Option granted to a member of the Board pursuant to subsection 6(c) of the Plan. (h) "Company" means Blue Martini Software, Inc., a Delaware corporation. (i) "Consultant" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the 1 term "Consultant" shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director's fee by the Company for their services as Directors. (j) "Continuous Service" means that the Optionholder's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Optionholder's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders such service, provided that there is no interruption or termination of the Optionholder's Continuous Service. For example, a change in status from a Non-Employee Director of the Company to a Consultant of an Affiliate or an Employee of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (k) "Director" means a member of the Board of Directors of the Company. (l) "Disability" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (m) "Employee" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (o) "Fair Market Value" means, as of any date, the value of the Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (p) "Initial Grant" means an Option granted to a Non-Employee Director who meets the specified criteria pursuant to subsection 6(a) of the Plan. 2 (q) "IPO Date" means the effective date of the initial public offering of the Common Stock. (r) "Non-Employee Director" means a Director who is not an Employee. (s) "Nonstatutory Stock Option" means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (t) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (u) "Option" means a Nonstatutory Stock Option granted pursuant to the Plan. (v) "Option Agreement" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (w) "Optionholder" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (x) "Plan" means this Blue Martini Software, Inc. 2000 Non-Employee Directors' Stock Option Plan. (y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (z) "Securities Act" means the Securities Act of 1933, as amended. 3. Administration. (a) Administration by Board. The Board shall administer the Plan. The Board may not delegate administration of the Plan to a committee. (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine the provisions of each Option to the extent not specified in the Plan. (ii) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan or an Option as provided in Section 12. 3 (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company that are not in conflict with the provisions of the Plan. (c) Effect of Board's Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 4. Shares Subject to the Plan. (a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in the Common Stock, the Common Stock that may be issued pursuant to Options shall not exceed in the aggregate Three Hundred Thousand (300,000) shares of Common Stock. (b) Evergreen Share Reserve Increase. (i) Notwithstanding subsection 4(a) hereof, on January 1 of each year (the "Calculation Date") for a period of ten (10) years, commencing on January 1, 2001, the aggregate number of shares of Common Stock that is available for issuance under the Plan shall automatically be increased by that number of shares equal to the greater of (1) one-quarter of one percent (0.25%) of the Diluted Shares Outstanding or (2) the number of shares of Common Stock subject to Options granted during the prior 12-month period; provided, however, that the Board, from time to time, may provide for a lesser increase in the aggregate number of shares of Common Stock that is available for issuance under the Plan (ii) "Diluted Shares Outstanding" shall mean, as of any date, (1) the number of outstanding shares of Common Stock of the Company on such Calculation Date, plus (2) the number of shares of Common Stock issuable upon such Calculation Date assuming the conversion of all outstanding Preferred Stock and convertible notes, plus (3) the additional number of dilutive Common Stock equivalent shares outstanding as the result of any options or warrants outstanding during the fiscal year, calculated using the treasury stock method. (c) Reversion of Shares to the Share Reserve. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Option shall revert to and again become available for issuance under the Plan. If the Company repurchases unvested shares acquired pursuant to an Option, the shares of Common Stock so repurchased shall revert to and again become available for issuance under the Plan. (d) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. Eligibility. The Options as set forth in section 6 automatically shall be granted under the Plan to all Non-Employee Directors. 4 6. Non-Discretionary Grants. (a) Initial Grants. Without any further action of the Board, each Non- Employee Director shall be granted the following Options: (i) On the IPO Date, each person who is then a Non-Employee Director automatically shall be granted an Initial Grant to purchase Twenty-five Thousand (25,000) shares of Common Stock on the terms and conditions set forth herein. (ii) After the IPO Date, each person who is elected or appointed for the first time to be a Non-Employee Director automatically shall, upon the date of his or her initial election or appointment to be a Non-Employee Director by the Board or stockholders of the Company, be granted an Initial Grant to purchase Twenty-five Thousand (25,000) shares of Common Stock on the terms and conditions set forth herein. (b) Annual Grants. On the day following each Annual Meeting commencing with the Annual Meeting in 2001, each person who is then a Non-Employee Director automatically shall be granted an Annual Grant to purchase Seven Thousand Five Hundred (7,500) shares of Common Stock on the terms and conditions set forth herein. (c) Committee Grants. On the day following each Annual Meeting commencing with the Annual Meeting in 2001, each Non-Employee Director who is then a member of a committee, an Option to purchase Five Thousand (5,000) shares of Common Stock on the terms and conditions set forth herein. If the Non-Employee Director is appointed to a committee mid-term (that is, after the Annual Meeting in question but before the next Annual Meeting), then the Five Thousand (5,000) shares subject to the Committee Grant shall be reduced by one-twelfth (1/12) for each full month that has elapsed between the Annual Meeting in question and the date of appointment to such committee. 7. Option Provisions. Each Option shall be in such form and shall contain such terms and conditions as required by the Plan. Each Option shall contain such additional terms and conditions, not inconsistent with the Plan, as the Board shall deem appropriate. Each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) Exercise Price. The exercise price of each Option shall be one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) Consideration. The purchase price of stock acquired pursuant to an Option may be paid, to the extent permitted by applicable statutes and regulations, in any combination of (i) cash or check, (ii) delivery to the Company of other Common Stock or (iii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. The purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from 5 the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). (d) Transferability. An Option is transferable by will or by the laws of descent and distribution. An Option also is transferable if, at the time of transfer, a Form S-8 registration statement under the Securities Act is available for the exercise of the Option and the subsequent resale of the underlying securities. In addition, Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (e) Exercise and Vesting. Options shall be exercisable immediately. Options shall vest as follows: (i) Initial Grants shall provide for vesting of 1/3rd of the shares one (1) year after the date of the grant and 1/36 of the shares each month thereafter over the next two (2) years. (ii) Annual Grants shall provide for vesting of 1/12th of the shares each month after the date of the grant for one (1) year. (iii) Committee Grants generally shall provide for vesting of 1/12th of the shares each months after the date of the grant for one (1) year. However, if the Non-Employee Director is appointed to a committee mid-term (that is, after the Annual Meeting in question but before the next Annual Meeting), then the vesting schedule shall be accelerated pro rata so that the entire option is fully vested one (1) year after the Annual Meeting in question. (f) Termination of Continuous Service. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service, or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (g) Extension of Termination Date. If the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on 6 the earlier of (i) the expiration of the term of the Option set forth in subsection 7(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (h) Disability of Optionholder. In the event an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (i) Death of Optionholder. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the three-month period after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder's death, but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. 8. Covenants of the Company. (a) Availability of Shares. During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options. (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 9. Use of Proceeds from Stock. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 7 10. Miscellaneous. (a) Stockholder Rights. No Optionholder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms. (b) No Service Rights. Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder any right to continue to serve the Company as a Non-Employee Director or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (c) Investment Assurances. The Company may require an Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholder's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is acquiring the stock subject to the Option for the Optionholder's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Option has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (d) Withholding Obligations. The Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock. 8 11. Adjustments upon Changes in Stock. (a) Capitalization Adjustments. If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject both to the Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified in Section 5, and the outstanding Options will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Options. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.) (b) Change in Control. In the event of: (1) a dissolution, liquidation, or sale of all or substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving entity; or (3) a reverse merger in which the Company is the surviving entity but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (individually, a "Change in Control"), then the vesting of outstanding Options shall be accelerated fifty percent (50%) prior to such Change in Control and the Options terminated if not exercised after such acceleration and at or prior to such Change in Control. (c) Securities Acquisition. In the event of (i) any consolidation or merger of the Company with or into any corporation or other entity or person, or any other reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty (50%) of the surviving entity's voting power immediately after such consolidation, merger or reorganization, (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company, then the vesting of outstanding Options shall be fully accelerated. 12. Amendment of the Plan and Options. (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval. 9 (c) No Impairment of Rights. Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing. (d) Amendment of Options. The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing. 13. Termination or Suspension of the Plan. (a) Plan Term. The Board may suspend or terminate the Plan at any time. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Option granted while the Plan is in effect except with the written consent of the Optionholder. 14. Effective Date of Plan. The Plan shall become effective on the IPO Date, but no Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 15. Choice of Law. All questions concerning the construction, validity and interpretation of this Plan shall be governed by the law of the State of Delaware, without regard to such state's conflict of laws rules. 10 EX-10.4 9 OFFICE LEASE AGREEMENT EXHIBIT 10.4 LEASE AGREEMENT between PENINSULA OFFICE PARK ASSOCIATES, L.P. as "Landlord" and BLUE MARTINI, LLC as "Tenant" TABLE OF CONTENTS
SECTION PAGE - ------- ---- 1. PREMISES......................................................... 3 2. TERM; POSSESSION................................................. 3 3. RENT............................................................. 3 4. SECURITY DEPOSIT................................................. 8 5. USE AND COMPLIANCE WITH LAWS..................................... 9 6. TENANT IMPROVEMENTS & ALTERATIONS................................ 12 7. MAINTENANCE AND REPAIRS.......................................... 13 8. TENANT'S TAXES................................................... 14 9. UTILITIES AND SERVICES........................................... 15 10. EXCULPATION AND INDEMNIFICATION.................................. 16 11. INSURANCE........................................................ 17 12. DAMAGE OR DESTRUCTION............................................ 19 13. CONDEMNATION..................................................... 20 14. ASSIGNMENT AND SUBLETTING........................................ 21 15. DEFAULT AND REMEDIES............................................. 24 16. LATE CHARGE AND INTEREST......................................... 26 17. WAIVER........................................................... 26 18. ENTRY, INSPECTION AND CLOSURE.................................... 27 19. SURRENDER AND HOLDING OVER....................................... 27 20. ENCUMBRANCES..................................................... 28 21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS................... 29 22. NOTICES.......................................................... 29 23. ATTORNEYS' FEES.................................................. 30 24. QUIET POSSESSION................................................. 30 25. SECURITY MEASURES................................................ 30 26. FORCE MAJEURE.................................................... 31 27. RULES AND REGULATIONS............................................ 31 28. LANDLORD'S LIABILITY............................................. 31 29. CONSENTS AND APPROVALS........................................... 31 30. WAIVER OF RIGHT TO JURY TRIAL.................................... 32 31. BROKERS.......................................................... 32 32. RELOCATION OF PREMISES........................................... 32 33. ENTIRE AGREEMENT................................................. 33 34. MISCELLANEOUS.................................................... 33 35. AUTHORITY........................................................ 33
-i- INDEX OF DEFINED TERMS Additional Rent..................................................... 7 Alterations......................................................... 13 Award............................................................... 22 Base Operating Costs................................................ 4 Base Taxes.......................................................... 4 Broker.............................................................. 35 Building............................................................ 3 Building Rules...................................................... 34 Building Systems.................................................... 10 Business Days....................................................... 16 Business Hours...................................................... 16 Claims.............................................................. 17 CommenCement Date................................................... 3 Condemnation........................................................ 22 Condemnor........................................................... 22 Controls............................................................ 15 Date of Condemnation................................................ 22 Encumbrance......................................................... 31 Environmental Losses................................................ 11 Environmental Requirements.......................................... 11 Event of Default.................................................... 26 Expiration Date..................................................... 3 Fees................................................................ 32 Handled by Tenant................................................... 11 Handling by Tenant.................................................. 11 Hazardous Materials................................................. 10 HVAC................................................................ 10 Interest Rate....................................................... 29 Landlord............................................................ 3 Mortgagee........................................................... 31 Operating Costs..................................................... 4 Parking Facility.................................................... 3 Permitted Hazardous Materials....................................... 11 Premises............................................................ 3 Project............................................................. 3 Property............................................................ 3 Property Manager.................................................... 19 Proposed Transferee................................................. 24 Rent................................................................ 9 Rental Tax.......................................................... 16 Representatives..................................................... 11 Security Deposit.................................................... 9 Service Failure..................................................... 17 Taxes............................................................... 7 Tenant.............................................................. 3 Tenant Improvements................................................. 13 Tenant's Share...................................................... 7 Tenant' s Taxes..................................................... 16 Term................................................................ 3 Trade Fixtures...................................................... 14 Transfer............................................................ 23 Transferee.......................................................... 24 Visitors............................................................ 11
-ii- BASIC LEASE INFORMATION Lease Date: For identification purposes only, the date of this Lease is September 1, 1998 Landlord: PENINSULA OFFICE PARK ASSOCIATES, L.P., a California limited partnership Tenant: BLUE MARTINI, LLC Project: Peninsula Office Park Building Address: 2600 Campus Drive San Mateo, California Rentable Area of Approximately 59,283 square feet Building: Premises: Floor: One Suite Number: 175 Rentable Area: Approximately 6,819 rentable square feet Term: 60 full calendar months (plus any partial month at the beginning of the Term) Commencement Date: The later of(a) September 15, 1998, or (b) the date Landlord delivers possession of the Premises to Tenant Expiration Date: September 30, 2003 Base Rent: Months 01 - 15: $3.00 per rentable square foot per month Months 16 - 27: $3.40 per rentable square foot per month Months 28 - 39: $3.50 per rentable square foot per month Months 40 - 51: $3.60 per rentable square foot per month Months 52 - 60: $3.70 per rentable square foot per month Base Year: The calendar year 1998 Tenant's Share: 11.5% Security Deposit: $151,381.80 (subject to possible reduction pursuant to the provisions of Section 4 of this Lease) Landlord's Address Peninsula Office Park for Payment of Rent: File 72882 P.O. Box 61000 San Francisco, CA 94161-2882 -1- Business Hours: 8:00 a.m. to 6:00 p.m. Monday - Friday (excluding Holidays) Landlord's Address PENINSULA OFFICE PARK ASSOCIATES, L.P. for Notices: c/o William Wilson & Associates 2929 Campus Drive, Suite 145 San Mateo, CA 94403 Attention: Property Management with a copy to: PENINSULA OFFICE PARK ASSOCIATES, L.P. c/o William Wilson & Associates 2929 Campus Drive, Suite 450 San Mateo, CA 94403 Attn: General Counsel Tenant's Address at the Premises for Notices: Broker(s): Wayne Mascia Associates Guarantor(s): (none) Property Manager: William Wilson & Associates Additional Provisions: 36. Parking Exhibits: - --------- Exhibit A: The Premises Exhibit B: Construction Rider Exhibit C: Building Rules Exhibit D: Additional Provisions The Basic Lease Information set forth above is part of the Lease. In the event of any conflict between any provision in the Basic Lease Information and the Lease, the Lease shall control. -2- THIS LEASE is made as of the Lease Date set forth in the Basic Lease Information, by and between the Landlord identified in the Basic Lease Information ("Landlord"), and the Tenant identified in the Basic Lease Information ("Tenant"). Landlord and Tenant hereby agree as follows: 1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon the terms and subject to the conditions of this Lease, the office space identified in the Basic Lease Information as the Premises (the "Premises"), in the Building located at the address specified in the Basic Lease Information (the "Building"). The approximate configuration and location of the Premises is shown on Exhibit A. Landlord and Tenant agree that the rentable area --------- of the Premises for all purposes under this Lease shall be the Rentable Area specified in the Basic Lease Information. The Building, together with the parking facilities serving the Building (the "Parking Facility"), and the parcel(s) of land on which the Building and the Parking Facility are situated (collectively, the "Property"), is part of the Project identified in the Basic Lease Information (the "Project"). 2. TERM; POSSESSION. The term of this Lease (the "Term") shall commence on the Commencement Date as described below and, unless sooner terminated, shall expire on the Expiration Date set forth in the Basic Lease Information (the "Expiration Date"). The "Commencement Date" shall be the later of (a) September 15, 1998, or (b) the date Landlord delivers possession of the Premises to Tenant. 3. RENT. 3.1 Base Rent. Tenant agrees to pay to Landlord the Base Rent set forth --------- in the Basic Lease Information, without prior notice or demand, on the first day of each and every calendar month during the Term, except that Base Rent for the first full calendar month in which Base Rent is payable shall be paid upon Tenant's execution of this Lease and Base Rent for any partial month at the beginning of the Term shall be paid on the Commencement Date. Base Rent for any partial month at the beginning or end of the Term shall be prorated based on the actual number of days in the month. If the Basic Lease Information provides for any change in Base Rent by reference to years or months (without specifying particular dates), the change will take effect on the applicable annual or monthly anniversary of the Commencement Date (which won't necessarily be the first day of a calendar month). 3.2 Additional Rent: Increases in Operating Costs and Taxes. ------------------------------------------------------- (a) Definitions. ----------- (1) "Base Operating Costs" means Operating Costs for the calendar year specified as the Base Year in the Basic Lease Information (excluding therefrom, however, any Operating Costs of a nature that would not ordinarily be incurred on an annual, recurring basis). (2) "Base Taxes" means Taxes for the calendar year specified as the Base Year in the Basic Lease Information. -3- (3) "Operating Costs" means all costs of managing, operating, maintaining and repairing the Property, including all costs, expenditures, fees and charges for: (A) operation, maintenance and repair of the Property (including maintenance, repair and replacement of glass, the roof covering or membrane, and landscaping); (B) utilities and services (including telecommunications facilities and equipment, recycling programs and trash removal), and associated supplies and materials; (C) compensation (including employment taxes and fringe benefits) for persons (at or below the level equivalent to senior property manager or senior engineering manager) who perform duties in connection with the operation, management, maintenance and repair of the Building, such compensation to be appropriately allocated for persons who also perform duties unrelated to the Building; (D) property (including coverage for earthquake and flood if carried by Landlord), liability, rental income and other insurance relating to the Property, and expenditures for deductible amounts paid under such insurance with expenditures for deductible amounts paid in connection with losses caused by earthquake amortized over a five year period, including interest on the unamortized balance at the rate paid by Landlord on funds borrowed to finance capital improvements (or, if Landlord finances such improvements out of Landlord's funds without borrowing, the rate that Landlord would have paid to borrow such funds, as reasonably determined by Landlord); (E) licenses, permits and inspections; (F) complying with the requirements of any law, statute, ordinance or governmental rule or regulation or any orders pursuant thereto (collectively "Laws"); (G) amortization of capital improvements required to comply with Laws, or which are intended to reduce Operating Costs or improve the utility, efficiency or capacity of any Building System, with interest on the unamortized balance at the rate paid by Landlord on funds borrowed to finance such capital improvements (or, if Landlord finances such improvements out of Landlord's funds without borrowing, the rate that Landlord would have paid to borrow such funds, as reasonably determined by Landlord), over such useful life as Landlord shall reasonably determine; (H) an office in the Project for the management of the Property, including expenses of furnishing and equipping such office and the rental value of any space occupied for such purposes; (I) property management fees not to exceed customary and commercially reasonable management fees for similar type properties in the general geographic area of the Project; (J) accounting, legal and other professional services incurred in connection with the operation of the Property and the calculation of Operating Costs and Taxes; (K) a reasonable allowance for depreciation on machinery and equipment used to maintain the Property and on other personal property owned by Landlord in the Property (including window coverings and carpeting in common areas); (L) contesting the validity or applicability of any Laws that may affect the Property; (M) the Building's share of any shared or common area maintenance fees and expenses (including costs and expenses of operating, managing, owning and maintaining the Parking Facility and the common areas of the Project and any fitness center or conference center in the Project): and (N) any other cost, expenditure, fee or charge, whether or not hereinbefore described, which in accordance with generally accepted property management practices would be considered an expense of managing, operating, maintaining and repairing the Property. Operating Costs for any calendar year during which average occupancy of the Building is less than one hundred percent (100%) shall be calculated based upon the Operating Costs that would have been incurred if the Building had an average occupancy of one hundred percent (100%) during the entire calendar year. -4- Operating Costs shall not include: 1) capital improvements (except as otherwise provided above); 2) costs of special services rendered to individual tenants (including Tenant) for which a special charge is made; 3) interest and principal payments, points, fees, expenses or other charges on account of any loans or indebtedness incurred in connection with the acquisition, ownership or operation of the Building, or ground lease rental payments (if any); 4) costs of improvements for Tenant or other tenants of the Building; 5) costs of services or other benefits of a type which are not available to Tenant but which are available to other tenants or occupants, and costs for which Landlord is reimbursed by other tenants of the Building other than through payment of tenants' shares of Operating Costs and Taxes; 6) leasing commissions, finders' fees, marketing costs, attorneys' fees and other expenses incurred in connection with leasing, renovating, decorating, improving or installing leasehold improvements in tenant space for tenants, occupants and prospective tenants in the Building or enforcing such leases costs, attorney's fees, costs, and disbursements and other expenses incurred in connection with negotiations or disputes with tenants, other occupants, or legal fees incurred in or the sale or refinancing of the Building or in connection with this Lease; 7) depreciation or amortization, other than as specifically enumerated in the definition of Operating Costs above; 8) costs, fines or penalties incurred due to Landlord's violation of any Law; 9) reserves for capital items, bad debts or rental losses; 10) repairs or other work occasioned by fire, windstorm or other casualty or hazed to the extent Landlord receives insurance proceeds; 11) repairs or rebuilding necessitated by condemnation to the extent Landlord receives proceeds from the applicable condemning authority; 12) expenses incurred in tenant buildout or renovations or otherwise improving or decorating, painting or redecorating space for tenants or other occupants of space, including permits, license, design, space planning, and inspection costs associated therewith; 13) Landlord's costs of electricity and other services sold or provided to tenants in the Building and for which Landlord is entitled to be reimbursed, whether or not collected, by such tenants as a separate additional charge or rental over and above the basic rent or escalation payment payable under the Lease with such tenant; -5- 14) expenses in connection with non-Building standard services or benefits of a type which are not provided to Tenant but which are provided to other tenants or occupants of the Building, or for which Tenant is charged directly but which are provided to another tenant or occupant of the Building without direct charge; 15) costs incurred due to violation by Landlord or any tenant or other occupant of the terms and conditions of any Lease or other rental arrangement covering space in the Building; 16) amounts paid to subsidiaries or other affiliates of Landlord (i.e., persons or companies controlled by, under common control with, or which control, Landlord) for services on or to the Land, the Building or the Premises (or any portion thereof), to the extent only that the costs of such services exceed competitive costs of such services were they not so rendered by a subsidiary, or other affiliate of Landlord; 17) all items and services for which Tenant pays third parties directly; 18) charitable or political contributions; 19) costs associated with the operation of the business of the partnership or entity which constitutes Landlord, or the operation of any parent, subsidiary or affiliate of Landlord, as the same are distinguished from the costs of operation of the Building, including without limitation partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee, and costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord's interest in the Building; 20) costs of signs in or on the Building (other than the Building directory in the lobby of the Building) identifying other tenants of the Building or their employees, divisions, subsidiaries, subtenants or assignees; and 21) capital costs of acquisition, of painting, sculpture or other art objects for the Project. (4) "Taxes" means: all real property taxes and general, special or district assessments or other governmental impositions, of whatever kind, nature or origin, imposed on or by reason of the ownership or use of the Properly; governmental charges, fees or assessments for transit or traffic mitigation (including area-wide traffic improvement assessments and transportation system management fees), housing, police, fire or other governmental service or purported benefits to the Property; personal property taxes assessed on the personal property of Landlord used in the operation of the Properly; service payments in lieu of taxes and taxes and assessments of every kind and nature whatsoever levied or assessed in addition to, in lieu of or in substitution for existing or additional real or personal property taxes on the Property or the personal property described above; any increases in the foregoing caused by changes in assessed valuation, tax rate or other factors or circumstances; and the reasonable cost of contesting by appropriate proceedings the amount or validity of any taxes, assessments or charges described above. Taxes shall not include any state and federal personal or corporate -6- income taxes measured by the income of Landlord from all sources (other than taxes on rent at the Property), as well as any franchise, inheritance, or estate, succession, gift tax, or capital levy, or any penalties, or interest for late payment of Taxes. To the extent paid by Tenant or other tenants as "Tenant's Taxes" (as defined in Section 8 - Tenant's Taxes), "Tenant's Taxes" shall be excluded from Taxes. (5) "Tenant's Share" means the Rentable Area of the Premises divided by the total Rentable Area of the Building, as set forth in the Basic Lease Information. If the Rentable Area of the Building is changed or the Rentable Area of the Premises is changed by Tenant's leasing of additional space hereunder or for any other reason, Tenant's Share shall be adjusted accordingly. (b) Additional Rent. --------------- (1) Tenant shall pay Landlord as "Additional Rent" for each calendar year or portion thereof during the Term Tenant's Share of the sum of(x) the amount (if any) by which Operating Costs for such period exceed Base Operating Costs, and (y) the amount (if any) by which Taxes for such period exceed Base Taxes. (2) Prior to the end of the Base Year and each calendar year thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating Costs, Taxes and Tenant's Additional Rent for the following calendar year. Commencing on the first day of January of each calendar year and continuing on the first day of every month thereafter in such year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Additional Rent. If Landlord thereafter estimates that Operating Costs or Taxes for such year will vary from Landlord's prior estimate, Landlord may, by notice to Tenant, revise the estimate for such year (and Additional Rent shall thereafter be payable based on the revised estimate). (3) As soon as reasonably practicable after the end of the Base Year and each calendar year thereafter, Landlord shall furnish Tenant a statement with respect to such year, showing Operating Costs, Taxes and Additional Rent for the year, and the total payments made by Tenant with respect thereto. Unless Tenant raises any objections to Landlord's statement within ninety (90) days after receipt of the same, such statement shall conclusively be deemed correct and Tenant shall have no right thereafter to dispute such statement or any item therein or the computation of Additional Rent based thereon. If Tenant does object to such statement, then Landlord shall provide Tenant with reasonable verification of the figures shown on the statement and the parties shall negotiate in good faith to resolve any disputes. Any objection of Tenant to Landlord's statement and resolution of any dispute shall not postpone the time for payment of any amounts due Tenant or Landlord based on Landlord's statement, nor shall any failure of Landlord to deliver Landlord's statement in a timely manner relieve Tenant of Tenant's obligation to pay any amounts due Landlord based on Landlord's statement. (4) If Tenant's Additional Rent as finally determined for any calendar year exceeds the total payments made by Tenant on account thereof, Tenant shall pay Landlord the deficiency within ten (10) days of Tenant's receipt of Landlord's statement. If the total payments made by Tenant on account thereof exceed Tenant's Additional Rent as finally determined for such year, Tenant's excess payment shall be credited toward the rent next due -7- from Tenant under this Lease. For any partial calendar year at the beginning or end of the Term, Additional Rent shall be prorated on the basis of a 365-day year by computing Tenant's Share of the increases in Operating Costs and Taxes for the entire year and then prorating such amount for the number of days during such year included in the Term. Notwithstanding the termination of this Lease, Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may be, within ten (10) days after Tenant's receipt of Landlord's final statement for the calendar year in which this Lease terminates, the difference between Tenant's Additional Rent for that year, as finally determined by Landlord, and the total amount previously paid by Tenant on account thereof. If for any reason Base Taxes or Taxes for any year during the Term are reduced, refunded or otherwise changed, Tenant's Additional Rent shall be adjusted accordingly. If Taxes are temporarily reduced as a result of space in the Building being leased to a tenant that is entitled to an exemption from property taxes or other taxes, then for purposes of determining Additional Rent for each year in which Taxes are reduced by any such exemption, Taxes for such year shall be calculated on the basis of the amount the Taxes for the year would have been in the absence of the exemption. The obligations of Landlord to refund any overpayment of Additional Rent and of Tenant to pay any Additional Rent not previously paid shall survive the expiration of the Term. Notwithstanding anything to the contrary in this Lease, if there is at any time a decrease in Taxes below the amount of the Taxes for the Base Year, then for purposes of calculating Additional Rent for the year in which such decrease occurs and all subsequent periods, Base Taxes shall be reduced to equal the Taxes for the year in which the decrease occurs. 3.3 Payment of Rent. All amounts payable or reimbursable by Tenant --------------- under this Lease, including late charges and interest (collectively, "Rent"), shall constitute rent and shall be payable and recoverable as rent in the manner provided in this Lease. All sums payable to Landlord on demand under the terms of this Lease shall be payable within ten (10) days after notice from Landlord of the amounts due. All rent shall be paid without offset, recoupment or deduction in lawful money of the United States of America to Landlord at Landlord's Address for Payment of Rent as set forth in the Basic Lease Information, or to such other person or at such other place as Landlord may from time to time designate. 4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with Landlord the amount specified in the Basic Lease Information as the Security Deposit, if any (the "Security Deposit"), as security for the performance of Tenant's obligations under this Lease. Landlord may (but shall have no obligation to) use the Security Deposit or any portion thereof to cure any Event of Default under this Lease or to compensate Landlord for any damage Landlord incurs as a result of Tenant's failure to perform any of Tenant's obligations hereunder. In such event Tenant shall pay to Landlord on demand an amount sufficient to replenish the Security Deposit. If Tenant is not in default at the expiration or termination of this Lease, then within thirty (30) days following the expiration or termination of this Lease Landlord shall return to Tenant the Security Deposit or the balance thereof then held by Landlord and not applied as provided above. Landlord may commingle the Security Deposit with Landlord's general and other funds. Landlord shall not be required to pay interest on the Security Deposit to Tenant. If, and only if, (x) there has been no Event of Default under the Lease during the eighteen (18) months prior to Reduction Date (as hereinafter defined) and (y) during each of Tenant's four -8- (4) most recent accounting quarters immediately prior to the Reduction Date Tenant has audited financial statements showing positive net income equal to three (3) times the sum of (A) the Base Rent, and (B) the actual Additional Rent (as such Base Rent and Additional Rent may from time to time change) for each of the same four (4) accounting quarters for which net income is being compared, then when all of the preceding conditions contained in this paragraph have been satisfied (the "Reduction Date"), then the amount of the Security Deposit shall be reduced in twelve month increments, beginning twenty-four months after the Commencement Date, so the amount Security Deposit shall be as follows:
Months (counting from the Commencement Date through Amount of applicable monthly anniversary of Commencement Date) Security Deposit - ---------------------------------------------------- ---------------- 01 - 24 $151,381.80 25 - 36 $113,536.35 37 - 48 $ 75,690.90 49 - 60 $ 37,845.45
5. USE AND COMPLIANCE WITH LAWS. 5.1 Use. The Premises shall be used and occupied for general business --- office purposes and for no other use or purpose. Tenant shall comply with all present and future Laws relating to Tenant's use or occupancy of the Premises (and make any repairs, alterations or improvements as required to comply with all such Laws), and shall observe the "Building Rules" (as defined in Section 27 -Rules and Regulations) except that repairs or alterations required to comply with Laws generally applicable to the condition of the Premises for use as office space, and not required or caused by Tenant's particular use or activities or by any Alterations made or proposed by Tenant. shall be made by Landlord (and the cost thereof shall be included in or excluded from Operating Costs as provided in Section 3.2(a)(3) above). Tenant shall not do, bring, keep or sell anything in or about the Premises that is prohibited by, or that will cause a cancellation of or an increase in the existing premium for, any insurance policy covering the Property or any part thereof. Tenant shall not permit the Premises to be occupied or used in any manner that will constitute waste or a nuisance, or disturb the quiet enjoyment of or otherwise annoy other tenants in the Building. Without limiting the foregoing, the Premises shall not be used for educational activities, practice of medicine or any of the healing arts, providing social services, for any governmental use (including embassy or consulate use), or for personnel agency, customer service office, studios for radio, television or other media, travel agency or reservation center operations or uses. Tenant shall not, without the prior consent of Landlord, (i) bring into the Building or the Premises anything that may cause substantial noise, odor or vibration, overload the floors in the Premises or the Building or any of the heating, ventilating and air-conditioning ("HVAC"), mechanical, elevator, plumbing, electrical, fire protection, life safety, security or other systems in the Building ("Building Systems"), or jeopardize the structural integrity of the Building or any part thereof; (ii) connect to the utility systems of the Building any apparatus, machinery or other equipment other than typical office equipment; or (iii) connect to any electrical circuit in the Premises any equipment or other load with aggregate electrical power requirements in excess of 80% of the rated capacity of the circuit. -9- 5.2 Hazardous Materials. ------------------- (a) Definitions. ----------- (1) "Hazardous Materials" shall mean any substance: (A) that now or in the future is regulated or governed by, requires investigation or remediation under, or is defined as a hazardous waste, hazardous substance, pollutant or contaminant under any governmental statute, code, ordinance, regulation, rule or order, and any amendment thereto, including the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. (S) -- --- 6901 et seq., or (B) that is toxic, explosive, corrosive, flammable, -- --- radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline, diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos, radon and urea formaldehyde foam insulation. (2) "Environmental Requirements" shall mean all present and future Laws, orders, permits, licenses, approvals, authorizations and other requirements of any kind applicable to Hazardous Materials. (3) "Handled By Tenant" and "Handling By Tenant" shall mean and refer to any installation, handling, generation, storage, use, disposal, discharge, release, abatement, removal, transportation, or any other activity of any type by Tenant or its agents, employees, contractors, licensees, assignees, sublessees, transferees or representatives (collectively, "Representatives") or its guests, customers, invitees, or visitors (collectively, "Visitors"). at or about the Premises in connection with or involving Hazardous Materials. (4) "Environmental Losses" shall mean all costs and expenses of any kind, damages, including foreseeable and unforeseeable consequential damages, fines and penalties incurred in connection with any violation of and compliance with Environmental Requirements and all losses of any kind attributable to the diminution of value, loss of use or adverse effects on marketability or use of any portion of the Premises or Property. (b) Tenant's Covenants. No Hazardous Materials shall be Handled by ------------------ Tenant at or about the Premises or Property without Landlord's prior written consent, which consent may be granted, denied, or conditioned upon compliance with Landlord's requirements, all in Landlord's absolute discretion. Notwithstanding the foregoing, normal quantities and use of those Hazardous Materials customarily used in the conduct of general office activities, such as copier fluids and cleaning supplies ("Permitted Hazardous Materials"), may be used and stored at the Premises without Landlord's prior written consent, provided that Tenant's activities at or about the Premises and Property and the Handling by Tenant of all Hazardous Materials shall comply at all times with all Environmental Requirements. At the expiration or termination of the Lease, Tenant shall promptly remove from the Premises and Property all Hazardous Materials Handled by Tenant at the Premises or the Property. Tenant shall keep Landlord fully and promptly informed of all Handling by Tenant of Hazardous Materials other than Permitted Hazardous Materials. Tenant shall be responsible and liable for the compliance with all of the provisions of this Section by all of Tenant's Representatives and Visitors, and all of Tenant's obligations under this Section (including its indemnification obligations under paragraph (e) below) shall survive the expiration or termination of this Lease. -10- (c) Compliance. Tenant shall at Tenant's expense promptly take all ---------- actions required by any governmental agency or entity in connection with or as a result of the Handling by Tenant of Hazardous Materials at or about the Premises or Property, including inspection and testing, performing all cleanup, removal and remediation work required with respect to those Hazardous Materials, complying with all closure requirements and post-closure monitoring, and filing all required reports or plans. All of the foregoing work and all Handling by Tenant of all Hazardous Materials shall be performed in a good, safe and workmanlike manner by consultants qualified and licensed to undertake such work and in a manner that will not interfere with any other tenant's quiet enjoyment of the Property or Landlord's use, operation, leasing and sale of the Property. Tenant shall deliver to Landlord prior to delivery to any governmental agency, or promptly after receipt from any such agency, copies of all permits, manifests, closure or remedial action plans, notices, and all other documents relating to the Handling by Tenant of Hazardous Materials at or about the Premises or Property. If any lien attaches to the Premises or the Property in connection with or as a result of the Handling by Tenant of Hazardous Materials, and Tenant does not cause the same to be released, by payment, bonding or otherwise, within ten (10) days after the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released and any sums expended by Landlord (plus Landlord's administrative costs) in connection therewith shall be payable by Tenant on demand. (d) Landlord's Rights. Upon reasonable oral or written notice to ----------------- Tenant (and without notice in emergencies) Landlord shall have the right, but not the obligation, to enter the Premises at any reasonable time (i) to confirm Tenant's compliance with the provisions of this Section 5.2, and (ii) to perform Tenant's obligations under this Section if Tenant has failed to do so after reasonable notice to Tenant. Landlord shall also have the right to engage qualified Hazardous Materials consultants to inspect the Premises and review the Handling by Tenant of Hazardous Materials, including review of all permits, reports, plans, and other documents regarding same. If Tenant has failed to comply with the provisions of this Section 5.2, then Tenant shall pay to Landlord on demand the costs of Landlord's consultants' fees and all costs incurred by Landlord in performing Tenant's obligations under this Section. Landlord shall use reasonable efforts to minimize any interference with Tenant's business caused by Landlord's entry into the Premises, but Landlord shall not be responsible for any interference caused thereby. (e) Tenant's Indemnification. Tenant agrees to indemnify, defend, ------------------------ protect and hold harmless Landlord and its partners or members and its or their partners, members, directors, officers, shareholders, employees and agents from all Environmental Losses and all other claims, actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys', experts' and consultants' fees and costs, incurred at any time and arising from or in connection with the Handling by Tenant of Hazardous Materials at or about the Property or Tenant's failure to comply in full with all Environmental Requirements with respect to the Premises. (f) Landlord's Responsibilities. Landlord shall not use any of the --------------------------- Land or Building for any activities involving the use, generation, handling, release, threatened release, treatment, storage, discharge, disposal or transportation of any Hazardous Materials, except in such quantity or concentration that is customarily used, stored or disposed in the ordinary course of the business so long as such activity duly complies with applicable Laws and good business -11- practice. If Landlord violates the foregoing covenant resulting in an Environmental Claim (as hereinafter defined) with respect to the Premises, then Landlord agrees to (a) notify Tenant immediately of any such Environmental Claim and (b) clean up any contamination in to the extent required by applicable Laws, the costs of which shall not be included in Operating Costs, except that to the extent provided elsewhere in this Section 5.2, Tenant shall be responsible for the costs of any Handling by Tenant of Hazardous Materials at or about the Property or Tenant's failure to comply in full with all Environmental Requirements with respect to the Premises. The costs for any Environmental Claim for Hazardous Materials existing on the Project on the date of this Lease shall not be included in Operating Costs or otherwise be the responsibility of Tenant. "Environmental Claim" means any claim, demand, action, cause of action, suit, damage, punitive damage, fine, penalty, expense, liability, criminal liability, judgment, or governmental investigation relating to remediation or compliance with requirements of Laws covering Hazardous Materials. The term "Environmental Claim" also includes any costs incurred in responding to efforts to require remediation and any claim based upon any asserted or actual breach or violation of any requirements of any Laws covering Hazardous Materials. 6. TENANT IMPROVEMENTS & ALTERATIONS. 6.1 Landlord and Tenant shall perform their respective obligations with respect to design and construction of any improvements to be constructed and installed in the Premises (the "Tenant Improvements"), as provided in the Construction Rider. Except for any Tenant Improvements to be constructed by Tenant as provided in the Construction Rider, Tenant shall not make any alterations, improvements or changes to the Premises, including installation of any security system or telephone or data communication wiring, ("Alterations"), without Landlord's prior written consent. Notwithstanding any other provision contained herein, Tenant shall not be required to obtain Landlord's prior consent for minor, non-structural Alterations that (a) do not affect any. of the Building Systems, (b) are not visible from the exterior of the Premises, and (c) cost less than One Thousand Five Hundred Dollars ($1,500), so long as Tenant gives Landlord notice of the proposed Alterations at least ten (10) days prior to commencing the Alterations and complies with all of the following provisions (except that Tenant shall not be required to obtain Landlord's approval of any plans or specifications therefor). Any such Alterations shall be completed by Tenant at Tenant's sole cost and expense: (i) with due diligence, in a good and workmanlike manner, using new materials; (ii) in compliance with plans and specifications approved by Landlord; (iii) in compliance with the reasonable construction rules and regulations promulgated by Landlord from time to time; (iv) in accordance with all applicable Laws (including all work, whether structural or non-structural, inside or outside the Premises, required to comply fully with all applicable Laws and necessitated by Tenant's work); and (v) subject to all conditions which Landlord may in Landlord's reasonable discretion impose. Such conditions may include requirements for Tenant to: (i) provide payment or performance bonds or additional insurance (from Tenant or Tenant's contractors, subcontractors or design professionals); (ii) use contractors or subcontractors designated by Landlord; and (iii) remove all or part of the Alterations prior to or upon expiration or termination of the Term, as designated by Landlord at the time Tenant installs the Alterations. If any work outside the Premises, or any work on or adjustment to any of the Building Systems, is required in connection with or as a result of Tenant's work, such work shall be performed at Tenant's expense by contractors designated by Landlord. Landlord's right to review and approve (or withhold approval of) Tenant's plans, drawings, specifications, contractor(s) and other aspects of construction work proposed by -12- Tenant is intended solely to protect Landlord, the Property and Landlord's interests. No approval or consent by Landlord shall be deemed or construed to be a representation or warranty by Landlord as to the adequacy, sufficiency, fitness or suitability thereof or compliance thereof with applicable Laws or other requirements. Except as otherwise provided in Landlord's consent; all Alterations shall upon installation become part of the realty and be the property of Landlord. 6.2 Before making any Alterations, Tenant shall submit to Landlord for Landlord's prior approval reasonably detailed final plans and specifications prepared by a licensed architect or engineer, a copy of the construction contract, including the name of the contractor and all subcontractors proposed by Tenant to make the Alterations and a copy of the contractor's license. Tenant shall reimburse Landlord upon demand for any expenses incurred by Landlord in connection with any Alterations made by Tenant, including reasonable fees charged by Landlord's contractors or consultants to review plans and specifications prepared by Tenant and to update the existing as-built plans and specifications of the Building to reflect the Alterations. Tenant shall obtain all applicable permits, authorizations and governmental approvals and deliver copies of the same to Landlord before commencement of any Alterations. 6.3 Tenant shall keep the Premises and the Property free and clear of all liens arising out of any work performed, materials furnished or obligations incurred by Tenant. If any such lien attaches to the Premises or the Property, and Tenant does not cause the same to be released by payment, bonding or otherwise within ten (10) days after the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released, and any sums expended by Landlord (plus Landlord's administrative costs) in connection therewith shall be payable by Tenant on demand with interest thereon from the date of expenditure by Landlord at the Interest Rate (as defined in Section 16.2 -Interest). Tenant shall give Landlord at least ten (10) days' notice prior to the commencement of any Alterations and cooperate with Landlord in posting and maintaining notices of non-responsibility in connection therewith. 6.4 Subject to the provisions of Section 5 - Use and Compliance with Laws and the foregoing provisions of this Section, Tenant may install and maintain furnishings, equipment, movable partitions, business equipment and other trade fixtures ("Trade Fixtures") in the Premises, provided that the Trade Fixtures do not become an integral part of the Premises or the Building. Tenant shall promptly repair any damage to the Premises or the Building caused by any installation or removal of such Trade Fixtures. 7. MAINTENANCE AND REPAIRS. 7.1 By taking possession of the Premises Tenant agrees that the Premises are then in a good and tenantable condition. During the Term, Tenant at Tenant's expense but under the direction of Landlord, shall repair and maintain the Premises, including the interior walls, floor coverings, ceiling (ceiling tile's and grid), Tenant Improvements, Alterations, fire extinguishers, outlets and fixtures, and any appliances (including dishwashers, hot water heaters and garbage disposers) in the Premises, in a first class condition, and keep the Premises in a clean, safe and orderly condition. -13- 7.2 Landlord shall maintain or cause to be maintained in reasonably good order, condition and repair, the structural portions of the roof, foundations, floors and exterior walls of the Building, the Building Systems, and the public and common areas of the Property, such as elevators, stairs, corridors and restrooms; provided, however, that Tenant shall pay the cost of repairs for any damage occasioned by Tenant's use of the Premises or the Property or any act or omission of Tenant or Tenant's Representatives or Visitors, to the extent (if any) not covered by Landlord's property insurance. Landlord shall be under no obligation to inspect the Premises. Tenant shall promptly report in writing to Landlord any defective condition known to Tenant which Landlord is required to repair. As a material part of the consideration for this Lease, Tenant hereby waives any benefits of any applicable existing or future Law, including the provisions of California Civil Code Sections 1932(l ), 1941 and 1942, that allows a tenant to make repairs at its landlord's expense. 7.3 Landlord hereby reserves the right, at any time and from time to time, without liability to Tenant, and without constituting an eviction, constructive or otherwise, or entitling Tenant to any abatement of rent or to terminate this Lease or otherwise releasing Tenant from any of Tenant's obligations under this Lease: (a) To make alterations, additions, repairs, improvements to or in or to decrease the size of area of, all or any part of the Building, the fixtures and equipment therein, and the Building Systems (except that Landlord shall not have any right under this provision to materially reduce the size of the Premises, or to permanently, materially and adversely affect Tenant's access to and use of the Premises, except only as may be required to comply with Laws or as a result of any fire or other casualty or Condemnation); (b) To change the Building's name or street address; (c) To install and maintain any and all signs on the exterior and interior of the Building; (d) To reduce, increase, enclose or otherwise change at any time and from time to time the size, number, location, lay-out and nature of the common areas (including the Parking Facility) and other tenancies and premises in the Property and to create additional rentable areas through use or enclosure of common areas; and (e) If any governmental authority promulgates or revises any Law or imposes mandatory or voluntary controls or guidelines on Landlord or the Property relating to the use or conservation of energy or utilities or the reduction of automobile or other emissions or reduction or management of traffic or parking on the Property (collectively "Controls"), to comply with such Controls, whether mandatory, or voluntary, or make any alterations to the Property related thereto. (f) In exercising its rights under this Section 7.3, Landlord agrees to use reasonable efforts to minimize any interruption to or disruption of Tenant's use of the Premises. 8. TENANT'S TAXES. "Tenant's Taxes" shall mean (a) all taxes, assessments, license fees and other governmental charges or impositions levied or assessed against or with respect to Tenant's personal property or Trade Fixtures in the Premises, whether any such imposition is -14- levied directly against Tenant or levied against Landlord or the Property, (b) all rental, excise, sales or transaction privilege taxes arising out of this Lease (excluding, however, state and federal personal or corporate income taxes measured by the income of Landlord from all sources) imposed by any taxing authority upon Landlord or upon Landlord's receipt of any rent payable by Tenant pursuant to the terms of this Lease ("Rental Tax"), and (c) any increase in Taxes attributable to inclusion of a value placed on Tenant's personal property, Trade Fixtures or Alterations. Tenant shall pay any Rental Tax to Landlord in addition to and at the same time as Base Rent is payable under this Lease, and shall pay all other Tenant's Taxes before delinquency (and, at Landlord's request, shall furnish Landlord satisfactory evidence thereof). If Landlord pays Tenant's Taxes or any portion thereof, Tenant shall reimburse Landlord upon demand for the amount of such payment, together with interest at the Interest Rate from the date of Landlord's payment to the date of Tenant's reimbursement. 9. UTILITIES AND SERVICES. 9.1 Description of Services. Landlord shall furnish to the Premises: ----------------------- reasonable amounts of heat, ventilation and air-conditioning during the Business Hours specified in the Basic Lease Information ("Business Hours") on weekdays except public holidays ("Business Days"); reasonable amounts of electricity; and janitorial services five days a week (except public holidays). Landlord shall also provide the Building with .normal fluorescent tube replacement, window washing, elevator service, and common area toilet room supplies. Any additional utilities or services that Landlord may agree to provide (including lamp or tube replacement for other than Building Standard lighting fixtures) shall be at Tenant's sole expense. 9.2 Payment for Additional Utilities and Services. --------------------------------------------- (a) Upon request by Tenant in accordance with the procedures established by Landlord from time to time for furnishing HVAC service at times other than Business Hours on Business Days, Landlord shall furnish such service to Tenant and Tenant shall pay for such services on an hourly basis at the then prevailing rate established for the Building by Landlord. As of the date of this Lease, the prevailing rate for furnishing HVAC Service at times other than Business Hours on Business Days is $30.00 per hour per floor which may be changed from time to time in Landlord's sole discretion. (b) If the temperature otherwise maintained in any portion of the Premises by the HVAC systems of the Building is materially affected as a result of (i) any lights, machines or equipment used by Tenant in the Premises, or (ii) the occupancy of the Premises by more than one person per 150 square feet of rentable area, then Landlord shall have the right to install any machinery or equipment reasonably necessary to restore the temperature, including modifications to the standard air-conditioning equipment. The cost of any such equipment and modifications, including the cost of installation and any additional cost of operation and maintenance of the same, shall be paid by Tenant to Landlord upon demand. (c) If Tenant's usage of electricity, water or any other utility service exceeds the use of such utility Landlord reasonably determines to be typical, normal and customary for the Building, Landlord may determine the amount of such excess use by any reasonable means (including the installation at Landlord's request but at Tenant's expense of a separate meter or -15- other measuring device) and charge Tenant for the cost of such excess usage. In addition, Landlord may impose a reasonable charge for the use of any additional or unusual janitorial services required by Tenant because of any unusual Tenant Improvements or Alterations, the carelessness of Tenant or the nature of Tenant's business (including hours of operation). 9.3 Interruption of Services. In the event of an interruption in or ------------------------ failure or inability to provide any services or utilities to the Premises or Building for any reason (a "Service Failure"), such Service Failure shall not, regardless of its duration, impose upon Landlord any liability whatsoever, constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant's obligations under this Lease. Tenant hereby waives any benefits of any applicable existing or future Law, including the provisions of California Civil Code Section 1932(1), permitting the termination of this Lease due to such interruption, failure or inability. 10. EXCULPATION AND INDEMNIFICATION. 10.1 Landlord's Indemnification of Tenant. Landlord shall indemnify, ------------------------------------ protect, defend and hold Tenant harmless from and against any claims, actions, liabilities, damages, costs or expenses, including reasonable attorneys' fees and costs incurred in defending against the same ("Claims") asserted by any third party against Tenant for loss, injury or damage, to the extent such loss, injury or damage is caused by the willful misconduct or negligent acts or omissions of Landlord or its authorized representatives. 10.2 Tenant's Indemnification of Landlord. Tenant shall indemnify, ------------------------------------ protect, defend and hold Landlord and Landlord's authorized representatives harmless from and against Claims arising from (a) the acts or omissions of Tenant or Tenant's Representatives or Visitors in or about the Property, or (b) any construction or other work undertaken by Tenant on the Premises (including any design defects), or (c) any breach or default under this Lease by Tenant, or (d) any loss, injury or damage, howsoever and by whomsoever caused, to any person or property, occurring in or about the Premises during the Term, excepting only Claims described in this clause (d) to the extent they are caused by the willful misconduct or negligent acts or omissions of Landlord or its authorized representatives. 10.3 Damage to Tenant and Tenant's Property. Landlord shall not be liable -------------------------------------- to Tenant for any loss, injury or other damage to Tenant or to Tenant's property in or about the Premises or the Property from any cause (including defects in the Property or in any equipment in the Property; fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above, or about the Premises or the Property; or acts of other tenants in the Property). Tenant hereby waives all claims against Landlord for any such loss, injury or damage and the cost and expense of defending against claims relating thereto, including any loss, injury or damage caused by Landlord's negligence (active or passive) or willful misconduct. Notwithstanding any other provision of this Lease to the contrary, in no event shall Landlord be liable to Tenant for any punitive or consequential damages or damages for loss of business by Tenant. 10.4 Survival. The obligations of the parties under this Section 10 shall -------- survive the expiration or termination of this Lease. -16- 11. INSURANCE. 11.1 Tenant's Insurance. ------------------ (a) Liability Insurance. Tenant shall maintain in full force ------------------- throughout the Term, commercial general liability insurance providing coverage on an occurrence form basis with limits of not less than Two Million Dollars ($2,000,000.00) each occurrence for bodily injury and property damage combined, Two Million Dollars ($2,000,000.00) annual general aggregate, and Two Million Dollars ($2,000,000.00) products and completed operations annual aggregate. Tenant's liability insurance policy or policies shall: (i) include premises and operations liability coverage, products and completed operations liability coverage, broad form property damage coverage including completed operations, blanket contractual liability coverage including, to the maximum extent possible, coverage for the indemnification obligations of Tenant under this Lease, and personal and advertising injury coverage; (ii) provide that the insurance company has the duty to defend all insureds under the policy; (iii) provide that defense costs are paid in addition to and do not deplete any of the policy limits; (iv) cover liabilities arising out of or incurred in connection with Tenant's use or occupancy of the Premises or the Property; (v) extend coverage to cover liability for the actions of Tenant's Representatives and Visitors; and (vi) designate separate limits for the Property. Each policy of liability insurance required by this Section shall: (i) contain a cross liability endorsement or separation of insureds clause; (ii) provide that any waiver of subrogation rights or release prior to a loss does not void coverage; (iii) provide that it is primary to and not contributing with, any policy of insurance carried by Landlord covering the same loss; (iv) provide that any failure to comply with the reporting provisions shall not affect coverage provided to Landlord, its partners, property managers and Mortgagees; and (v) name Landlord, its partners, the Property Manager identified in the Basic Lease Information (the "Property Manager"), and such other parties in interest as Landlord may from time to time reasonably designate to Tenant in writing, as additional insureds. Such additional insureds shall be provided at least the same extent of coverage as is provided to Tenant under such policies. All endorsements effecting such additional insured status shall be at least as broad as additional insured endorsement form number CG 20 11 11 85 promulgated by the Insurance Services Office. (b) Property Insurance. Tenant shall at all times maintain in effect ------------------ with respect to any Alterations and Tenant's Trade Fixtures and personal property, commercial property insurance providing coverage, on an "all risk" or "special form" basis, in an amount equal to at least 90% of the full replacement cost of the covered property. Tenant may carry such insurance under a blanket policy, provided that such policy provides coverage equivalent to a separate policy. During the Term, the proceeds from any such policies of insurance shall be used for the repair or replacement of the Alterations, Trade Fixtures and personal property so insured. Landlord shall be provided coverage under such insurance to the extent of its insurable interest and, if requested by Landlord, both Landlord and Tenant shall sign all documents reasonably necessary or proper in connection with the settlement of any claim or loss under such insurance. Landlord ,,viii have no obligation to carry insurance on any Alterations or on Tenant's Trade Fixtures or personal property. (c) Requirements For All Policies. Each policy of insurance required ----------------------------- under this Section 11.1 shall: (i) be in a form, and written by an insurer, reasonably acceptable to -17- Landlord, (ii) be maintained at Tenant's sole cost and expense, and (iii) require at least thirty (30) days' written notice to Landlord prior to any cancellation, nonrenewal or modification of insurance coverage. Insurance companies issuing such policies shall have rating classifications of "A" or better and financial size category, ratings of "VII" or better according to the latest edition of the A.M. Best Key Rating Guide. All insurance companies issuing such policies shall be admitted carriers licensed to do business in the state where the Property is located. Any deductible amount under such insurance shall not exceed $5,000. Tenant shall provide to Landlord, upon request, evidence that the insurance required to be carried by Tenant pursuant to this Section, including any endorsement effecting the additional insured status, is in full force and effect and that premiums therefor have been paid. (d) Updating Coverage. Tenant shall increase the amounts of ----------------- insurance as required by any Mortgagee, and, not more frequently than once every three (3) years, as recommended by Landlord's insurance broker, if, in the opinion of either of them, the amount of insurance then required under this Lease is not adequate. Any limits set forth in this Lease on the amount or type of coverage required by Tenant's insurance shall not limit the liability of Tenant under this Lease. (e) Certificates of Insurance. Prior to occupancy of the Premises by ------------------------- Tenant, and not less than thirty (30) days prior to expiration of any policy thereafter, Tenant shall furnish to Landlord a certificate of insurance reflecting that the insurance required by this Section is in force, accompanied by an endorsement showing the required additional insureds satisfactory to Landlord in substance and form. Notwithstanding the requirements of this paragraph, Tenant shall at Landlord's request provide to Landlord a certified copy of each insurance policy required to be in force at any time pursuant to the requirements of this Lease or its Exhibits. 11.2 Landlord's Insurance. During the Term, to the extent such coverages -------------------- are available at a commercially reasonable cost, Landlord shall maintain in effect insurance on the Building with responsible insurers, on an "all risk" or "special form" basis, insuring the Building and the Tenant Improvements in an amount equal to at least 90% of the replacement cost thereof, excluding land, foundations, footings and underground installations. Landlord may, but shall not be obligated to, carry insurance against additional perils and/or in greater amounts. 11.3 Mutual Waiver of Right of Recovery & Waiver of Subrogation. Landlord ---------------------------------------------------------- and Tenant each hereby waive any right of recovery against each other and the partners, managers, members, shareholders, officers, directors and authorized representatives of each other for any loss or damage that is covered by any policy of property insurance maintained by either party (or required by this Lease to be maintained) with respect to the Premises or the Property or any operation therein, regardless of cause, including negligence (active or passive) of the party benefiting from the waiver. If any such policy of insurance relating to this Lease or to the Premises or the Property does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, the party maintaining such policy shall obtain from the insurer under such policy a waiver of all right of recovery by way of subrogation against either party in connection with any claim, loss or damage covered by such policy. -18- 12. DAMAGE OR DESTRUCTION. 12.1 Landlord's Duty to Repair. ------------------------- (a) If all or a substantial part of the Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty then, unless either party is entitled to and elects to terminate this Lease pursuant to Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to Terminate. Landlord shall, at its expense, use reasonable efforts to repair and restore the Premises and/or the Property, as the case may be, to substantially their former condition to the extent permitted by then applicable Laws; provided, however, that in no event shall Landlord have any obligation for repair or restoration beyond the extent of insurance proceeds received by Landlord for such repair or restoration, or for any of Tenant's personal property, Trade Fixtures or Alterations. (b) If Landlord is required or elects to repair damage to the Premises and/or the Property, this Lease shall continue in effect, but Tenant's Base Rent and Additional Rent shall be abated with regard to any portion of the Premises that Tenant is prevented from using by reason of such damage or its repair from the date of the casualty until substantial completion of Landlord's repair of the affected portion of the Premises as required under this Lease. In no event shall Landlord be liable to Tenant by reason of any injury to or interference with Tenant's business or property arising from fire or other casualty or by reason of any repairs to any part of the Property necessitated by such casualty. 12.2 Landlord's Right to Terminate. Landlord may elect to terminate this ----------------------------- Lease following damage by fire or Other casualty under the following circumstances: (a) If, in the reasonable judgment of Landlord, the Premises and the Property cannot be substantially repaired and restored under applicable Laws within one (1) year from the date of the casualty; (b) If, in the reasonable judgment of Landlord, adequate proceeds are not, for any reason, made available to Landlord from Landlord's insurance policies (and/or from Landlord's funds made available for such purpose, at Landlord's sole option) to make the required repairs; (c) If the Building is damaged or destroyed to the extent that, in the reasonable judgment of Landlord, the cost to repair and restore the Building would exceed twenty-five percent (25%) of the full replacement cost of the Building, whether or not the Premises are at all damaged or destroyed; or (d) If the fire or other casualty occurs during the last year of the Term. If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of this Section 12.2 occur or arise, Landlord shall give Tenant notice within one hundred and twenty (120) days after the date of the casualty, specifying whether Landlord elects to terminate this Lease as provided above and, if not. Landlord's estimate of the time required to complete Landlord's repair obligations under this Lease. -19- 12.3 Tenant's Right to Terminate. If all or a substantial part of the --------------------------- Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty, and Landlord does not elect to terminate as provided above, then Tenant may elect to terminate this Lease if Landlord's estimate of the time required to complete Landlord's repair obligations under this Lease is greater than one ( 1 ) year following the fire or other casualty, in which event Tenant may elect to terminate this Lease by giving Landlord notice of such election to terminate within thirty (30) days after Landlord's notice to Tenant pursuant to Section 12.2 - Landlord's Right to Terminate. 12.4 Waiver. Landlord and Tenant each hereby waive the provisions of ------ California Civil Code Sections 1932(2), 1933(4) and any other applicable existing or future Law permitting the termination of a lease agreement in the event of damage or destruction under any circumstances other than as provided in Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to Terminate. 13. CONDEMNATION. 13.1 Definitions. ----------- (a) "Award" shall mean all compensation, sums, or anything of value awarded, paid or received on a total or partial Condemnation. (b) "Condemnation" shall mean (i) a permanent taking (or a temporary taking for a period extending beyond the end of the Term) pursuant to the exercise of the power of condemnation or eminent domain by any public or quasi- public authority, private corporation or individual having such power ("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary sale or transfer by Landlord to any such authority, either under threat of condemnation or while legal proceedings for condemnation are pending. (c) "Date of Condemnation" shall mean the earlier of the date that title to the property taken is vested in the Condemnor or the date the Condemnor has the right to possession of the property being condemned. 13.2 Effect on Lease. --------------- (a) If the Premises are totally taken by Condemnation, this Lease shall terminate as of the Date of Condemnation. If a portion but not all of the Premises is taken by Condemnation. this Lease shall remain in effect; provided, however, that if the portion of the Premises remaining after the Condemnation will be unsuitable for Tenant's continued use, then upon notice to Landlord within thirty (30) days after Landlord notifies Tenant of the Condemnation, Tenant may terminate this Lease effective as of the Date of Condemnation. (b) If twenty-five percent (25%) or more of the Project or of the parcel(s) of land on which the Building is situated or of the Parking Facility or of the floor area in the Building is taken by Condemnation, or if as a result of any Condemnation the Building is no longer reasonably suitable for use as an office building, whether or not any portion of the Premises is taken, Landlord may elect to terminate this Lease, effective as of the Date of Condemnation, by notice to Tenant within thirty (30) days after the Date of Condemnation. -20- (c) If all or a portion of the Premises is temporarily taken by a Condemnor for a period not extending beyond the end of the Term, this Lease shall remain in full force and effect. 13.3 Restoration. If this Lease is not terminated as provided in Section ----------- 13.2- Effect on Lease, Landlord, at its expense, shall diligently proceed to repair and restore the Premises to substantially its former condition (to the extent permitted by then applicable Laws) and/or repair and restore the Building to an architecturally complete office building; provided, however, that Landlord's obligations to so repair and restore shall be limited to the amount of any Award received by Landlord and not required to be paid to any Mortgagee (as defined in Section 20.2 below), in no event shall Landlord have any obligation to repair or replace any improvements in the Premises beyond the amount of any Award received by Landlord for such repair or to repair or replace any of Tenant's personal property, Trade Fixtures, or Alterations. 13.4 Abatement and Reduction of Rent. If any portion of the Premises is ------------------------------- taken in a Condemnation or is rendered permanently untenantable by repairs necessitated by the Condemnation, and this Lease is not terminated, the Base Rent and Additional Rent payable under this Lease shall be proportionally reduced as of the Date of Condemnation based upon the percentage of rentable square feet in the Premises so taken or rendered permanently untenantable. In addition, if this Lease remains in effect following a Condemnation and Landlord proceeds to repair and restore the Premises, the Base Rent and Additional Rent payable under this Lease shall be abated during the period of such repair or restoration to the extent such repairs prevent Tenant's use of the Premises. 13.5 Awards. Any Award made shall be paid to Landlord, and Tenant hereby ------ assigns to Landlord, and waives all interest in or claim to, any such Award, including any claim for the value of the unexpired Term; provided, however, that Tenant shall be entitled to receive, or to prosecute a separate claim for, an Award for a temporary taking of the Premises or a portion thereof by a Condemnor where this Lease is not terminated (to the extent such Award relates to the unexpired Term), or an Award or portion thereof separately designated for relocation expenses or the interruption of or damage to Tenant's business or as compensation for Tenant's personal property, Trade Fixtures or Alterations. 13.6 Waiver. Landlord and Tenant each hereby waive the provisions of ------ California Code of Civil Procedure Section t 265.130 and any other applicable existing or future Law allowing either party to petition for a termination of this Lease upon a partial taking of the Premises and/or the Property. 14. ASSIGNMENT AND SUBLETTING. 14.1 Landlord's Consent Required. Tenant shall not assign this Lease or --------------------------- any interest therein, or sublet or license or permit the use or occupancy of the Premises or any part thereof by or for the benefit of anyone other than Tenant, or in any other manner transfer all or any part of Tenant's interest under this Lease (each and all a "Transfer"), without the prior written consent of Landlord, which consent (subject to the other provisions of this Section 14) shall not be unreasonably withheld. If Tenant is a business entity, any direct or indirect transfer of fifty percent (50%) or more of the ownership interest of the entity (whether in a single transaction or -21- in the aggregate through more than one transaction) shall be deemed a Transfer. Notwithstanding any provision in this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any part of Tenant's interest under this Lease. 14.2 Reasonable Consent. ------------------ (a) Prior to any proposed Transfer, Tenant shall submit in writing to Landlord (i) the name and legal composition of the proposed assignee, subtenant, user or other transferee (each a "Proposed Transferee"); (ii) the nature of the business proposed to be carried on in the Premises; (iii) a current balance sheet, income statements for the last two years and such other reasonable financial and other information concerning the Proposed Transferee as Landlord may request; and (iv) a copy of the proposed assignment, sublease or other agreement governing the proposed Transfer. Within ten (10) Business Days after Landlord receives all such information it shall notify Tenant whether it approves or disapproves such Transfer or if it elects to proceed under Section 14.7 - Landlord's Right to Space. (b) Tenant acknowledges and agrees that, among other circumstances for which Landlord could reasonably withhold consent to a proposed Transfer, it shall be reasonable for Landlord to withhold consent where (i) the Proposed Transferee does not intend itself to occupy the entire portion of the Premises assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed Transferee's business operating ability or history, reputation or creditworthiness or the character of the business to be conducted by the Proposed Transferee at the Premises, (iii) the Proposed Transferee is a governmental agency or unit or an existing tenant in the Project, unless, in the case of an existing tenant, Landlord does not have contiguous space in the Project available to lease to the existing tenant containing the same or more square feet than the existing tenant identifies in writing that the existing tenant requires, (iv) the proposed Transfer would violate any "exclusive" rights of any tenants in the Project, (v) Landlord or Landlord's agent has shown space in the Building to the Proposed Transferee or responded to any inquiries from the Proposed Transferee or the Proposed Transferee's agent concerning availability of space in the Building, at any time within the preceding nine months, or (vi) Landlord otherwise determines that the proposed Transfer would have the effect of decreasing the value of the Building or increasing the expenses associated with operating, maintaining and repairing the Property. In no event may Tenant publicly advertise all or any portion of the Premises for assignment or sublease at a rental less than that then sought by Landlord for a direct lease (non-sublease) of comparable space in the Project 14.3 Excess Consideration. If Landlord consents to the Transfer, Landlord -------------------- shall be entitled to receive as Additional Rent hereunder, fifty percent (50%) of all "Sublease Profits" (as defined below). "Sublease Profits" shall mean any consideration paid by the Transferee for the assignment or sublease and, in the case of a sublease, the excess of the rent and other consideration payable by the subtenant over the amount of Base Rent and Additional Rent payable hereunder applicable to the subleased space, less any and all direct, out-of-pocket expenses and cash concessions, including costs for necessary Alterations and brokerage commission, paid by Tenant to procure the assignee or subtenant. Tenant shall pay to Landlord as additional rent, within ten (10) days after receipt by Tenant, any such excess consideration paid by any transferee (the "Transferee") for the Transfer provided any capital expenditures and -22- brokerage commissions in connection with any sublease shall be amortized over the term of the sublease. 14.4 No Release Of Tenant. No consent by Landlord to any Transfer shall -------------------- relieve Tenant of any obligation to be performed by Tenant under this Lease, whether occurring before or after such consent, assignment, subletting or other Transfer. Each Transferee shall be jointly and severally liable with Tenant (and Tenant shall be jointly and severally liable with each Transferee) for the payment of rent (or, in the case of a sublease, rent in the amount set forth in the sublease) and for the performance of all other terms and provisions of this Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any such Transferee from the obligation to obtain Landlord's express prior written consent to any subsequent Transfer by Tenant or any Transferee. The acceptance of rent by Landlord from any other person (whether or not such person is an occupant of the Premises) shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any Transfer. 14.5 Expenses and Attorneys' Fees. Tenant shall pay to Landlord on demand ---------------------------- all costs and expenses (including reasonable attorneys' fees not to exceed One Thousand Five Hundred Dollars [$1,500.00] per request for Landlord's consent to a Transfer) incurred by Landlord in connection with reviewing or consenting to any proposed Transfer (including any request for consent to, or any waiver of Landlord's rights in connection with, any security interest in any of Tenant's property at the Premises). 14.6 Effectiveness of Transfer. Prior to the date on which any permitted ------------------------- Transfer (whether or not requiring Landlord's consent) becomes effective, Tenant shall deliver to Landlord a counterpart of the fully executed Transfer document and Landlord's standard form of Consent to Assignment or Consent to Sublease executed by Tenant and the Transferee in which each of Tenant and the Transferee confirms its obligations pursuant to this Lease. Failure or refusal of a Transferee to execute any such instrument shall not release or discharge the Transferee from liability as provided herein. The voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual cancellation by Landlord and Tenant, shall not work a merger, and any such surrender or cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any or all of such subleases. 14.7 Landlord's Right to Space. Notwithstanding any of the above ------------------------- provisions of this Section to the contrary, if Tenant notifies Landlord that it desires to enter into a Transfer, Landlord, in lieu of consenting to such Transfer, may elect (x) in the case of an assignment or a sublease of the entire Premises, to terminate this Lease, or (y) in the case of a sublease of less than the entire Premises, to terminate this Lease as it relates to the space proposed to be subleased by Tenant. In such event, this Lease will terminate (or the space proposed to be subleased will be removed from the Premises subject to this Lease and the Base Rent and Tenant's Share under this Lease shall be proportionately reduced) on the earlier of sixty (60) days after the date of Landlord's notice to Tenant making the election set forth in this Section 14.7 or the date the Transfer was proposed to be effective, and Landlord may lease such space to any party, including the prospective Transferee identified by Tenant. 14.8 Assignment of Sublease Rents. Tenant hereby absolutely and ---------------------------- irrevocably assigns to Landlord any and all rights to receive rent and other consideration from any sublease and -23- agrees that Landlord, as assignee or as attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant appointed on Landlord's application may (but shall not be obligated to) collect such rents and other consideration and apply the same toward Tenant's obligations to Landlord under this Lease; provided, however, that Landlord grants to Tenant at all times prior to occurrence of any breach or default by Tenant a revocable license to collect such rents (which license shall automatically and without notice be and be deemed to have been revoked and terminated immediately upon any Event of Default). 14.9 Transfer to Affiliate. Notwithstanding any provision contained in --------------------- the Section 14 to the contrary, Tenant shall have the right, without the consent of Landlord, upon ten (10) days prior written notice to Landlord, to transfer Tenant's interest in this Lease to either (i) a successor corporation related to Tenant by merger, consolidation, or non-bankruptcy reorganization, (ii) a purchaser of at least ninety percent (90%) of Tenant's assets as an ongoing concern, or (iii) an "Affiliate" of Tenant, and the provisions of Sections 14.2, 14.3 and 14.7 shall not apply with respect to the transfer to the Affiliate, but any transfer pursuant to the provisions of this Section 14.9 shall be subject to all other terms and conditions of this Lease, including the provisions of this Section 14.9. Tenant shall remain liable under this Lease after any such transfer. For the purposes of this Article 14, the term "Affiliate" of Tenant shall mean and refer to any entity controlling, controlled by or under common control with Tenant or Tenant's parent, as the case may be. "Control" as used herein shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such controlled entity; and the ownership, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty percent (50%) of the voting interest in any entity. Notwithstanding Tenant's right to Transfer to an Affiliate pursuant to the provisions of this Section 14.9, Tenant may not, through use of its rights under this Article 14 in two or more transactions (whether separate transactions or steps or phases of a single transaction), at one time or over time, whether by first assigning this Lease to a subsidiary and then merging the subsidiary into another entity or selling the stock of the subsidiary or by other means, assign or sublease the Premises, or transfer control of Tenant, to any person or entity which is not a subsidiary, affiliate or controlling corporation of the original Tenant, as then constituted, existing prior to the commencement of such transactions, without first obtaining Landlord's prior written consent pursuant to the provisions of Section 14.2. For purposes of this Lease, a sale of Tenant's capital stock through any public exchange shall not be deemed an assignment, subletting or other transfer of this Lease or the Premises requiring Landlord's consent. 15. DEFAULT AND REMEDIES. 15.1 Events of Default. The occurrence of any of the following shall ----------------- constitute an "Event of Default" by Tenant: (a) Tenant fails to make any payment of rent when due, or any amount required to replenish the security deposit as provided in Section 4 above, if payment in full is not received by Landlord within three (3) days after written notice that it is due. (b) Tenant abandons the Premises. -24- (c) Tenant fails timely to deliver any subordination document, estoppel certificate or financial statement requested by Landlord within the applicable time period specified in Sections 20 - Encumbrances - and 21 - Estoppel Certificates and Financial Statements - below. (d) Tenant violates the restrictions on Transfer set forth in Section 14 - Assignment and Subletting. (e) Tenant ceases doing business as a going concern; makes an assignment for the benefit of creditors; is adjudicated an insolvent, files a petition (or files an answer admitting the material allegations of a petition) seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors' rights; all or substantially all of Tenant's assets are subject to judicial seizure or attachment and are not released within 30 days, or Tenant consents to or acquiesces in the appointment of a trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant's assets. (f) Tenant fails, within ninety (90) days after the commencement of any proceedings against Tenant seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors' rights, to have such proceedings dismissed, or Tenant fails, within ninety (90) days after an appointment, without Tenant's consent or acquiescence, of any trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant's assets, to have such appointment vacated. (g) Tenant fails to perform or comply with any provision of this Lease other than those described in (a) through (f) above, and does not fully cure such failure within fifteen (15) days after notice to Tenant or, if such failure cannot be cured within such fifteen (15)-day period. Tenant tails within such fifteen (15)-day period to commence, and thereafter diligently proceed with, all actions necessary to cure such failure as soon as reasonably possible but in all events within ninety (90) days of such notice. 15.2 Remedies. Upon the occurrence of an Event of Default, Landlord shall -------- have the following remedies, which shall not be exclusive but shall be cumulative and shall be in addition to any other remedies now or hereafter allowed by law: (a) Landlord may terminate Tenant's right to possession of the Premises at any time by written notice to Tenant. Tenant expressly acknowledges that in the absence of such written notice from Landlord, no other act of Landlord, including re-entry into the Premises, efforts to relet the Premises, reletting of the Premises for Tenant's account, storage of Tenant's personal property and Trade Fixtures, acceptance of keys to the Premises from Tenant or exercise of any other rights and remedies under this Section, shall constitute an acceptance of Tenant' s surrender of the Premises or constitute a termination of this Lease or of Tenant's right to possession of the Premises. Upon such termination in writing of Tenant's right to possession of the Premises, as herein provided, this Lease shall terminate and Landlord shall be entitled to recover damages from Tenant as provided in California Civil Code Section 1951.2 and any other applicable existing or future Law providing for recovery of damages for such breach, including the worth at the time of award of the amount by which the rent which would be payable by Tenant hereunder for the remainder of the Term after the date of the award of damages, -25- including Additional Rent as reasonably estimated by Landlord, exceeds the amount of such rental loss as Tenant proves could have been reasonably avoided, discounted at the discount rate published by the Federal Reserve Bank of San Francisco for member banks at the time of the award plus one percent (1%). (b) Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations). (c) Landlord may cure the Event of Default at Tenant's expense. I f Landlord pays any sum or incurs any expense in curing the Event of Default, Tenant shall reimburse Landlord upon demand for the amount of such payment or expense with interest at the Interest Rate from the date the sum is paid or the expense is incurred until Landlord is reimbursed by Tenant. (d) Landlord may remove all Tenant's property from the Premises, and such property may be stored by Landlord in a public warehouse or elsewhere at the sole cost and for the account of Tenant. If Landlord does not elect to store any or all of Tenant's property left in the Premises, Landlord may consider such property to be abandoned by Tenant, and Landlord may thereupon dispose of such property in any manner deemed appropriate by Landlord. Any proceeds realized by Landlord on the disposal of any such property shall be applied first to offset all expenses of storage and sale, then credited against Tenant's outstanding obligations to Landlord under this Lease, and any balance remaining after satisfaction of all obligations of Tenant under this Lease shall be delivered to Tenant. 16. LATE CHARGE AND INTEREST. 16.1 Late Charge. If any payment of rent is not received by Landlord when ----------- due, Tenant shall pay to Landlord on demand as a late charge an additional amount equal to four percent (4%) of the overdue payment. A late charge shall not be imposed more than once on any particular installment not paid when due, but imposition of a late charge on any payment not made when due does not eliminate or supersede late charges imposed on other (prior) payments not made when due or preclude imposition of a late charge on other installments or payments not made when due. 16.2 Interest. In addition to the late charges referred to above, which -------- are intended to defray Landlord's costs resulting from late payments, any payment from Tenant to Landlord not paid when due shall at Landlord's option bear interest from the date due until paid to Landlord by Tenant at the rate of fifteen percent (15%) per annum or the maximum lawful rate that Landlord may charge to Tenant under applicable laws, whichever is less (the "INTEREST RATE"). Acceptance of any late charge and/or interest shall not constitute a waiver of Tenant's default with respect to the overdue sum or prevent Landlord from exercising any of its other tights and remedies under this Lease. 17. WAIVER. NO provisions of this Lease shall be deemed waived by Landlord unless such waiver is in a writing signed by Landlord. The waiver by Landlord of any breach of any -26- provision of this Lease shall not be deemed a waiver of such provision or of any subsequent breach of the same or any other provision of this Lease. No delay or omission in the exercise of any right or remedy of Landlord Upon any default by Tenant shall impair such right or remedy or be construed as a waiver. Landlord's acceptance of any payments of rent due under this Lease Shall not be deemed a waiver of any default by Tenant under this Lease (including Tenant's recurrent failure to timely pay rent) other than Tenant's nonpayment of the accepted sums, and no endorsement or statement on any check or payment or in any letter or document accompanying any check or payment shall be deemed an accord and satisfaction. Landlord' s consent to or approval of any act by Tenant requiting Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. 18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to Tenant (and without notice in emergencies), Landlord and its authorized representatives may enter the Premises at all reasonable times to: (a) determine whether the premises are in good condition, (b) determine whether Tenant is complying with its obligations under this Lease, (c) perform any maintenance or repair of the Premises or the Building that Landlord has the right or obligation to perform, (d) install or repair improvements for other tenants where access to the Premises is required for such installation or repair, (e) serve, post or keep posted any notices required or allowed under the provisions of this Lease, (f) show the Premises to prospective brokers, agents, buyers, transferees, Mortgagees or tenants, or (g) do any other act or thing necessary for the safety or preservation of the Premises or the Building. When reasonably necessary Landlord may temporarily close entrances, doors, corridors, elevators or other facilities in the Building without liability to Tenant by reason of such closure. Landlord shall conduct its activities under this Section in a manner that will minimize inconvenience to Tenant without incurring additional expense to Landlord. In no event shall Tenant be entitled to an abatement of rent on account of any entry by Landlord, and Landlord shall not be liable in any manner for any inconvenience, loss of business or other damage to Tenant or other persons arising out of Landlord's entry on the Premises in accordance with this Section. No action by Landlord pursuant to this paragraph shall constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant's obligations under this LEASE. 19. SURRENDER AND HOLDING OVER. 19.1 Surrender. Upon the expiration or termination of this Lease, Tenant --------- shall surrender the Premises and all Tenant Improvements and Alterations to Landlord broom-clean and in their original condition, except for reasonable wear and tear, damage from casualty or condemnation and any changes resulting from approved Alterations; provided, however, that prior to the expiration or termination of this Lease Tenant shall remove all telephone and other cabling installed in the Building by Tenant and remove from the Premises all Tenant's personal property and any Trade Fixtures and all Alterations that Landlord has elected to require Tenant to remove as provided in Section 6.1 - Tenant Improvements & Alterations, and repair any damage caused by such removal. If such removal is not completed before the expiration or termination of the Term, Landlord shall have the right (but no obligation) to remove the same, and Tenant shall pay Landlord on demand for all costs of removal and storage thereof and for the rental value of the Premises for the period from the end of the Term through the end of the time -27- reasonably required for such removal. Landlord shall also have the right to retain or dispose of all or any portion of such property if Tenant does not pay all such costs and retrieve the property within ten (10) days after notice from Landlord (in which event title to all such property described in Landlord's notice shall be transferred to and vest in Landlord). Tenant waives all Claims against Landlord for any damage or loss to Tenant resulting from Landlord's removal, storage, retention, or disposition of any such property. Upon expiration or termination of this Lease or of Tenant's possession, whichever is earliest, Tenant shall surrender all keys to the Premises or any other part of the Building and shall deliver to Landlord all keys for or make known to Landlord the combination of locks on all safes, cabinets and vaults that may be located in the Premises. Tenant's obligations under this Section shall survive the expiration or termination of this Lease. 19.2 Holding Over. If Tenant (directly or through any Transferee or other ------------ successor-in-interest of Tenant) remains in possession of the Premises after the expiration or termination of this Lease, Tenant's continued possession shall be on the basis of a tenancy at the sufferance of Landlord. No act or omission by Landlord, other than its specific written consent, shall constitute permission for Tenant to continue in possession of the Premises, and if such consent is given or declared to have been given by a court judgment, Landlord may terminate Tenant's holdover tenancy at any time upon seven (7) days written notice. In such event, Tenant shall continue to comply with or perform all the terms and obligations of Tenant under this Lease, except that the monthly Base Rent during Tenant's holding over shall be twice the Base Rent payable in the last full month prior to the termination hereof. Acceptance by Landlord of rent after such termination shall not constitute a renewal or extension of this Lease; and nothing contained in this provision shall be deemed to waive Landlord's right of re-entry or any other right hereunder or at law. Tenant shall indemnify, defend and hold Landlord harmless from and against all Claims arising or resulting directly or indirectly from Tenant's failure to timely surrender the Premises, including (i) any rent payable by or any loss, cost, or damages claimed by any prospective tenant of the Premises, and (ii) Landlord's damages as a result of such prospective tenant rescinding or refusing to enter into the prospective lease of the Premises by reason of such failure to timely surrender the Premises. 20. ENCUMBRANCES. 20.1 Subordination. This Lease is expressly made subject and subordinate ------------- to any mortgage, deed of trust, ground lease, underlying lease or like encumbrance affecting any part of the Property or any interest of Landlord therein which is now existing or hereafter executed or recorded ("Encumbrance"); provided, however, that such subordination shall only be effective, as to future Encumbrances, if the holder of the Encumbrance agrees that this Lease shall survive the termination of the Encumbrance by lapse of time, foreclosure or otherwise so long as Tenant is not in default under this Lease. Provided the conditions of the preceding sentence are satisfied, Tenant shall execute and deliver to Landlord, within ten (10) Business Days after written request therefor by Landlord and in a form reasonably requested by Landlord, any additional documents evidencing the subordination of this Lease with respect to any such Encumbrance and the nondisturbance agreement of the holder of any such Encumbrance. If the interest of Landlord in the Property is transferred pursuant to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall immediately and automatically attorn to the new -28- owner, and this Lease shall continue in full force and effect as a direct lease between the transferee and Tenant on the terms and conditions set forth in this Lease. 20.2 Mortgagee Protection. Tenant agrees to give any holder of any -------------------- Encumbrance covering any part of the Property ("Mortgagee"), by registered mail, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise)of the address of such Mortgagee. If Landlord shall have failed to cure such default within thirty (30) days from the effective date of such notice of default, then the Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary to cure such default (including the time necessary to foreclose or otherwise terminate its Encumbrance, if necessary to effect such cure), and this Lease shall not be terminated so long as such remedies are being diligently pursued. 21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS. 21.1 Estoppel Certificates. Within ten (10) Business Days after written --------------------- request therefor, Tenant shall execute and deliver to Landlord, in a form provided by or satisfactory to Landlord. a certificate stating that this Lease is in full force and effect, describing any amendments or modifications hereto, acknowledging that this Lease is subordinate or prior, as the case may be, to any Encumbrance and stating any other information Landlord may reasonably request, including the Term, the monthly Base Rent, the date to which Rent has been paid, the amount of any security deposit or prepaid rent. whether either party hereto is in default under the terms of the Lease, and whether Landlord has completed its construction obligations hereunder (if any). Tenant irrevocably constitutes, appoints and authorizes Landlord as Tenant's special attorney-in-fact for such purpose to complete, execute and deliver such certificate if Tenant fails timely to execute and deliver such certificate as provided above. Any person or entity purchasing, acquiring an interest in or extending financing with respect to the Property shall be entitled to rely upon any such certificate. If Tenant fails to deliver such certificate within ten (10) days after Landlord's second written request therefor, Tenant shall be liable to Landlord for any damages incurred by Landlord including any profits or other benefits from any financing of the Property or any interest therein which are lost or made unavailable as a result, directly or indirectly, of Tenant's failure or refusal to timely execute or deliver such estoppel certificate. 21.2 Financial Statements. Within ten (10) days after written request -------------------- therefor, but not more than once a year, Tenant shall deliver to Landlord a copy of the financial statements (including at least a year end balance sheet and a statement of profit and loss) of Tenant (and of each guarantor of Tenant's obligations under this Lease) for each of the three most recently completed years, prepared in accordance with generally accepted accounting principles (and, if such is Tenant's normal practice, audited by an independent certified public accountant), all then available subsequent interim statements, and such other financial information as may reasonably be requested by Landlord or required by any Mortgagee. 22. NOTICES. Any notice, demand, request, consent or approval that either party desires or is required to give to the other party under this Lease shall be in writing and shall be served personally, delivered by messenger or courier service, or sent by U.S. certified mail, return -29- receipt requested, postage prepaid, addressed to the other party at the party's address for notices set forth in the Basic Lease Information. Any notice required pursuant to any Laws may be incorporated into, given concurrently with or given separately from any notice required under this Lease. Notices shall be deemed to have been given and be effective on the earlier of(a) receipt (or refusal of delivery or receipt); or (b) one (1) day after acceptance by the independent service for delivery, if sent by independent messenger or courier service, or three (3) days after mailing if sent by mail in accordance with this Section. Either party may change its address for notices hereunder, effective fifteen (15) days after notice to the other party complying with this Section. If tenant sublets the Premises, notices from Landlord shall be effective on the subtenant when given to Tenant pursuant to this Section. 23. ATTORNEYS' FEES. In the event of any dispute between Landlord and Tenant in any way related to this Lease, and whether involving contract and/or tort claims, the non-prevailing party shall pay to the prevailing party all reasonable attorneys' fees and costs and expenses of any type, without restriction by statute, court rule or otherwise, incurred by the prevailing party in connection with any action or proceeding (including any appeal and the enforcement of any judgment or award), whether or not the dispute is litigated or prosecuted to final judgment (collectively, "Fees"). The "prevailing party" shall be determined based upon an assessment of which party's major arguments or positions taken in the action or proceeding could fairly be said to have prevailed (whether by compromise, settlement, abandonment by the other party of its claim or defense, final decision, after any appeals, or otherwise) over the other party's major arguments or positions on major disputed issues. Any Fees incurred in enforcing a judgment shall be recoverable separately from any other amount included in the judgment and shall survive and not be merged in the judgment. The Fees shall be deemed an "actual pecuniary loss" within the meaning of Bankruptcy Code Section 365(b)(1)(B), and notwithstanding the foregoing, all Fees incurred by either party in any bankruptcy case filed by or against the other party, from and after the order for relief until this Lease is rejected or assumed in such bankruptcy case, will be "obligations of the debtor" as that phrase is used in Bankruptcy Code Section 365(d)(3). 24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of Tenant's obligations under this Lease and subject to the terms of this Lease, including Section 20 - Encumbrances, Tenant shall have the quiet possession of the Premises throughout the Term as against any persons or entities lawfully claiming by, through or under Landlord. 25. SECURITY MEASURES. Landlord may, but shall be under no obligation to, implement security measures for the Property, such as the registration or search of all persons entering or leaving the Building, requiring identification for access to the Building, evacuation of the Building for cause, suspected cause, or for drill purposes, the issuance of magnetic pass cards or keys for Building or elevator access and other actions that Landlord deems necessary or appropriate to prevent any threat of property loss or damage, bodily injury or business interruption; provided, however, that such measures shall be implemented in a way as not to inconvenience tenants of the Building Unreasonably. If landlord uses an access card system, Landlord may require Tenant to pay Landlord a deposit for each after-hours Building access card issued to Tenant, in the amount specified in the Basic Lease Information. Tenant shall be responsible for any loss, theft or breakage of any such cards, which must be returned by Tenant to Landlord upon expiration or earlier termination of the Lease. Landlord may retain the deposit for any card not so returned. Landlord shall at all times have the right to change, alter or reduce -30- any such security services or measures. Tenant shall cooperate and comply with, and cause Tenant's Representatives and Visitors to cooperate and comply with, such security measures. Landlord, its agents and employees shall have no liability to Tenant or its Representatives or Visitors for the implementation or exercise of, or the failure to implement or exercise, any such security measures or for any resulting disturbance of Tenant's use or enjoyment of the Premises. 26. FORCE MAJEURE. If either Landlord or Tenant is delayed, interrupted or prevented from performing any of its obligations under this Lease (other than, with respect to Tenant the payment of Base Rent, Additional Rent or any other charge payable by Tenant to Landlord under this lease), including Landlord's obligations under the Construction Rider and such delay, interruption or prevention is due to fire, act of God, governmental act or failure to act, labor dispute, unavailability of materials or any cause outside the reasonable control of Landlord or Tenant, then the time for performance of the affected obligations of Landlord or Tenant, as the case may be, shall be extended for a period equivalent to the period of such delay, interruption or prevention. The inability to pay money shall in no event constitute force majeure. 27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the rules and regulations attached to and made A part of this Lease as Exhibit C to --------- the extent those rules and regulations are not in conflict with the terms of this Lease, as well as any reasonable rules and regulations hereafter adopted by Landlord for all tenants of the Building, upon notice to Tenant thereof (collectively, the "Building Rules"). Landlord shall not be responsible to Tenant or to any other person for any violation of, or failure to observe, the Building Rules by any other tenant or other person. 28. LANDLORD'S LIABILITY. THE term "Landlord," as used in this Lease shall mean only the owner or owners of the Building at the time in question. In the event of any conveyance of title to the Building, then from and after the date of such conveyance, the transferor Landlord shall be relieved of all liability with respect to Landlord's obligations to be performed under this Lease after the date of such conveyance. Notwithstanding any other term or provision of this Lease, the Liability of Landlord for its obligations under this Lease is limited solely to Landlord's interest in the building as the same may from time to time be encumbered, and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord's partners or members or its or their respective partners, shareholders, members, directors, officers or managers on account of any of Landlord's obligations or actions under this Lease. 29. CONSENTS AND APPROVALS. 29.1 Determination in Good Faith. Wherever the consent, approval, --------------------------- judgment or determination of Landlord is required or permitted under this Lease, Landlord may exercise its good faith business judgment in granting or withholding such consent or approval or in making such judgment or determination without reference to any extrinsic standard of reasonableness, unless the specific provision contained in this Lease providing for such consent, approval, judgment or determination specifies that Landlord's consent or approval is not to be unreasonably withheld, or that such judgment or determination is to be reasonable, or otherwise specifies the standards under which Landlord may withhold its consent. If it is determined that Landlord failed to give its consent where it was required to do so under this Lease, Tenant shall -31- be entitled to injunctive relief but shall not to be entitled to monetary damages or to terminate this Lease for such failure. 29.2 No Liability Imposed on Landlord. The review and/or approval by -------------------------------- Landlord of any item or matter to be reviewed or approved by Landlord under the terms of this Lease or any Exhibits or Addenda hereto shall not impose upon Landlord any liability for the accuracy or sufficiency of any such item or matter or the quality or suitability of such item for its intended use. Any such review or approval is for the sole purpose of protecting Landlord's interest in the Property, and no third parties, including Tenant or the Representatives and Visitors of Tenant or any person or entity claiming by, through or under Tenant, shall have any rights as a consequence thereof. 30. WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant waive their respective rights to trial by jury of any contract or tort claim, counterclaim, cross- complaint, or cause of action in any action, proceeding, or hearing brought by either party against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant's use or occupancy of the Premises, including any claim of injury or damage or the enforcement of any remedy under any current or future law, statute, regulation, code, or ordinance. 31. BROKERS. Landlord shall pay the fee or commission of the broker or brokers identified in the Basic Lease Information (the "Broker") in accordance with Landlord's separate written agreement with the Broker, if any. Tenant warrants and represents to Landlord that in the negotiating or making of this Lease neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Lease other than the Broker. Tenant shall indemnify and hold Landlord harmless from any claim or claims, including costs, expenses and attorney's fees incurred by Landlord asserted by any other broker or finder for a fee or commission based upon any dealings with or statements made by Tenant or Tenant's Representatives. Landlord agrees to indemnify and hold Tenant harmless from and against any claim by third parties claiming by, through, or under Landlord for commissions due or alleged to be due in connection with this Lease. 32. RELOCATION OF PREMISES. For the purpose of maintaining an economical and proper distribution of tenants acceptable to Landlord throughout the Project, Landlord shall have the right from time to time, not to exceed two (2) times during the Term, to relocate the Premises within the Project, provided that (a) the rentable and usable area of the new Premises is of equivalent size to the existing Premises, subject to a variation of up to ten percent (10%), (b) the new Premises shall be on the first floor of the Building, (c) Landlord shall pay the cost of providing tenant improvements in the new Premises, which shall be substantially comparable in layout to those in the existing Premises, (d) Landlord shall pay reasonable costs (to the extent such costs are submitted in writing to Landlord and approved in writing by Landlord prior to such move) of moving Tenant's Trade Fixtures and personal property, including cabling and wiring to the new Premises, and (e) any such relocation shall take place only over a week-end. Landlord shall deliver to Tenant written notice of Landlord's election to relocate the Premises, specifying the new location and the amount of rent payable therefor, at least sixty (60) days prior to the date the relocation is to be effective. -32- 33. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda attached hereto, and the documents referred to herein, if any, constitute the entire agreement between Landlord and Tenant with respect to the leasing of space by Tenant in the Building, and supersede all prior or contemporaneous agreements, understandings, proposals and other representations by or between Landlord and Tenant, whether written or oral, all of which are merged herein. Neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises, the Building, the Project or this Lease except as expressly set forth herein, and no rights. easements or licenses shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. The submission of this Lease for examination does not constitute an option for the Premises and this Lease shall become effective as a binding agreement only upon execution and delivery thereof by Landlord to Tenant. 34. MISCELLANEOUS. This Lease may not be amended or modified except by a writing signed by Landlord and Tenant. Subject to Section 14 - Assignment and Subletting and Section 28 - Landlord's Liability, this Lease shall be binding on and shall inure to the benefit of the parties and their respective successors, assigns and legal representatives. The determination that any provisions hereof may be void, invalid, illegal or unenforceable shall not impair any other provisions hereof and all such other provisions of this Lease shall remain in full force and effect. The unenforceability, invalidity or illegality of any provision of this Lease under particular circumstances shall not render unenforceable, invalid or illegal other provisions of this Lease, or the same provisions under other circumstances. This Lease shall be construed and interpreted in accordance with the laws (excluding conflict of laws principles)of the State in which the Building is located. The provisions of this Lease shall be construed in accordance with the fair meaning of the language used and shall not be strictly construed against either party, even if such party drafted the provision in question. When required by the context of this Lease, the singular includes the plural. Wherever the term "including" is used in this Lease, it shall be interpreted as meaning "including, but not limited to" the matter or matters thereafter enumerated. The captions contained in this Lease are for purposes of convenience only and are not to be used to interpret or construe this Lease. If more than one person or entity is identified as Tenant hereunder, the obligations of each and all of them under this Lease shall be joint and several. Time is of the essence with respect to this Lease, except as to the conditions relating to the delivery of possession of the Premises to Tenant. Neither Landlord nor Tenant shall record this Lease. 35. AUTHORITY. If Tenant is a corporation, partnership, limited liability company or other form of business entity, each of the persons executing this Lease on behalf of Tenant warrants and represents that Tenant is a duly organized and validly existing entity, that Tenant has full right and authority to enter into this Lease and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind Tenant to this Lease. Tenant shall provide Landlord upon request with evidence reasonably satisfactory to Landlord confirming the foregoing representations. Landlord represents and warrants that (i) Landlord is a validly formed limited liability company which is duly authorized and existing and is qualified to do business in the State of California; (ii) Landlord, and the individuals executing this Lease for Landlord, have the right and authority to enter into this Lease; and (iii) this Lease is binding upon Landlord in accordance with its terms. -33- IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of the date first above written. TENANT: LANDLORD: BLUE MARTINI, LLC PENINSULA OFFICE PARK ASSOCIATES, L.P., a California limited partnership By /s/ Monte Zweben By: Peninsula Office Park Investors, LLC ------------------------- a California limited liability company Name: Monte Zweben Sole General Partner ---------------------- Title: CEO By: Opportunity Capital Partners III, --------------------- LLC a California limited liability company, By: /s/ Robert Paratte ------------------------------- _______________________________ Manager -34- EXHIBIT A --------- ATTACHED TO AND FORMING A PART OF LEASE AGREEMENT DATED AS OF SEPTEMBER 1, 1998 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, INC., AS TENANT ("LEASE") [DIAGRAM OF THE PREMISES APPEARS HERE] 6,819 RSP -------------------------------------------------------- Peninsula Office Park - 2600 Campus Drive, San Mateo, CA Exhibit A, Page 1 EXHIBIT B --------- ATTACHED TO AND FORMING A PART OF LEASE AGREEMENT DATED AS OF SEPTEMBER l, 1998 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, LLC. AS TENANT ("LEASE") CONSTRUCTION RIDER ------------------ 1. No Work to be Performed by Landlord. Tenant has inspected and ----------------------------------- examined the Premises and has elected to lease the Premises as provided in the Lease on a strictly "AS IS" basis, except that Landlord shall (a) patch walls where necessary, (b) repaint the Premises using Building standard paint, and (c) remove the existing chain link fence within the existing storage. Except for (a) patching walls where necessary, (b) repainting the Premises using Building standard paint, and (c) removing the existing chain link fence in the existing storage room, Landlord shall have no obligation to perform any work to prepare the Premises for use or occupancy by Tenant. Tenant shall be solely responsible for making any alterations or improvements to the Premises required or desired by Tenant, subject to and in accordance with the provisions of Article 6 - Alterations - of the Lease. 2. Delivery of Premises. Landlord shall use reasonable efforts to -------------------- deliver possession of the Premises to Tenant on or before the scheduled Commencement Date specified in the Lease. If Landlord is unable for any reason to deliver possession of the Premises to Tenant on or before the scheduled Commencement Date, neither Landlord nor Landlord's representatives shall be liable to Tenant for any damage resulting from the delay in delivering possession to Tenant and the Lease shall remain in full force and effect unless and until it is terminated under the express provisions of this Paragraph. If the Commencement Date has not occurred within two (2) months after the scheduled Commencement Date, either party, by written notice to the other party given within ten (10) days after the expiration of such two (2) month period, may terminate the Lease without any liability to the other party. 3. Access to Premises. Landlord may allow Tenant and Tenant's ------------------ Representatives to enter the Premises prior to the Commencement Date to permit Tenant to make the Premises ready for Tenant's use and occupancy; provided, however, that prior to such entry of the Premises, Tenant shall provide evidence reasonably satisfactory to Landlord that Tenant's insurance, as described in Section 11.1 - Tenant's Insurance of the Lease, shall be in effect as of the time of such entry. Such permission may be revoked at any time upon twenty-four (24) hours' notice. Tenant agrees that Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant's property placed upon or installed in the Premises prior to the Commencement Date, the same being at Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to persons or property arising as a result of such entry into the Premises by Tenant or Tenant's Representatives. Exhibit B, Page 1 4. Ownership of Tenant Improvements. All Tenant Improvements, whether -------------------------------- installed by Landlord or Tenant, shall become a part of the Premises. shall be the property of Landlord and, subject to the provisions of the Lease, shall be surrendered by Tenant with the Premises, without any compensation to Tenant, at the expiration or termination of the Lease in accordance with the provisions of the Lease. INITIALS: Landlord ______ Tenant ______ Exhibit B, Page 2 EXHIBIT C --------- ATTACHED TO AND FORMING A PART OF LEASE AGREEMENT DATED AS OF SEPTEMBER 1, 1998 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, LLC., AS TENANT ("LEASE") BUILDING RULES -------------- The following Building Rules are additional provisions of the foregoing Lease to which they are attached. The capitalized terms used herein have the same meanings as these terms are given in the Lease. 1. Use of Common Areas. Tenant will not obstruct the sidewalks, halls, ------------------- passages, exits, entrances, elevators or stairways of the Building ("Common Areas"), and Tenant will not use the Common Areas for any purpose other than ingress and egress to and from the Premises. The Common Areas, except for the sidewalks, are not open to the general public and Landlord reserves the right to control and prevent access to the Common Areas of any person whose presence, in Landlord's opinion, would be prejudicial to the safety, reputation and interests of the Building and its tenants. 2. No Access to Roof. Tenant has no right of access to the roof of the ----------------- Building and will not install, repair or replace any antenna, aerial, aerial wires, fan, air-conditioner or other device on the roof of the Building, without the prior written consent of Landlord. Any such device installed without such written consent is subject to removal at Tenant's expense without notice at any time. In any event Tenant will be liable for any damages or repairs incurred or required as a result of its installation, use, repair, maintenance or removal of such devices on the roof and agrees to indemnify and hold harmless Landlord from any liability, toss, damage, cost or expense, including reasonable attorneys' fees, arising from any activities of Tenant or of Tenant's Representatives on the roof of the Building. 3. Signage. No sign, placard, picture, name, advertisement or notice ------- visible from the exterior of the Premises will be inscribed, painted, affixed or otherwise displayed by Tenant on or in any part of the Building without the prior written consent of Landlord. Landlord reserves the right to adopt and furnish Tenant with general guidelines relating to signs in or on the Building. All approved signage will be inscribed, painted or affixed at Tenant's expense by a person approved by Landlord, which approval will not be unreasonably withheld. 4. Prohibited Uses. The Premises will not be used for manufacturing, --------------- for the storage of merchandise held for sale to the general public, for lodging or for the sale of goods to the general public. Tenant will not permit any food preparation on the Premises except that Tenant may use Underwriters' Laboratory approved microwave ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages so long as such use is in accordance with ail applicable federal, state and city laws, codes, ordinances, rules and regulations. Exhibit C, Page 1 5. Janitorial Services. Tenant will not employ any person for the ------------------- purpose of cleaning the Premises or permit any person to enter the Building for such purpose other than Landlord's janitorial service, except with Landlord's prior written consent. Tenant will not necessitate, and will be liable for the cost of, any undue amount of janitorial labor by reason of Tenant's carelessness in or indifference to the preservation of good order and cleanliness in the Premises. Janitorial service will not be furnished to areas in the Premises on nights when such areas are occupied after 9:30 p.m., unless such service is extended by written agreement to a later hour in specifically designated areas of the Premises. 6. Keys and Locks. Landlord will furnish Tenant, free of charge, two -------------- keys to each door or lock in the Premises. Landlord may make a reasonable charge for any additional or replacement keys. Tenant will not duplicate any keys, alter any locks or install any new or additional lock or bolt on any door of its Premises or on any other part of the Building without the prior written consent of Landlord and, in any event, Tenant will provide Landlord with a key for any such lock. On the termination of the Lease, Tenant will deliver to Landlord all keys to any locks or doors in the Building which have been obtained by Tenant. 7. Freight. Upon not less than twenty-four hours prior notice to ------- Landlord, which notice may be oral, an elevator will be made available for Tenant's use for transportation of freight, subject to such scheduling as Landlord in its discretion deems appropriate. Tenant shall not transport freight in loads exceeding the weight limitations of such elevator. Landlord reserves the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building, and no property will be received in the Building or carried up or down the freight elevator or stairs except during such hours and along such routes and by such persons as may be designated by Landlord. Landlord reserves the right to require that heavy objects will stand on wood strips of such length and thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such property from any cause, and Tenant will be liable for all damage or injuries caused by moving or maintaining such property. 8. Nuisances and Dangerous Substances. Tenant will not conduct itself or ---------------------------------- permit Tenant's Representatives or Visitors to conduct themselves, in the Premises or anywhere on or in the Property in a manner which is offensive or unduly annoying to any other Tenant or Landlord's property managers. Tenant will not install or operate any phonograph, radio receiver, musical instrument, or television or other similar device in any part of the Common Areas and shall not operate any such device installed in the Premises in such manner as to disturb or annoy other tenants of the Building. Tenant will not use or keep in the Premises or the Property any kerosene, gasoline or other combustible fluid or material other than limited quantities thereof reasonably necessary for the maintenance of office equipment, or, without Landlord's prior written approval, use any method of heating or air conditioning other than that supplied by Landlord. Tenant will not use or keep any foul or noxious gas or substance in the Premises or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein. Tenant will not bring or keep any, animals in or about the Premises or the Property. Exhibit C, Page 2 9. Building Name and Address. Without Landlord's prior written consent, ------------------------- Tenant will not use the name of the Building in connection with or in promoting or advertising Tenant's business except as Tenant's address. 10. Building Directory. A directory for the Building will be provided ------------------ for the display of the name and location of tenants. Landlord reserves the right to approve any additional names Tenant desires to place in the directory and, if so approved, Landlord may assess a reasonable charge for adding such additional names. 11. Window Coverings. No curtains, draperies, blinds, shutters, shades, ---------------- awnings, screens or other coverings, window ventilators, hangings, decorations or similar equipment shall be attached to, hung or placed in, or used in or with any window of the Building without the prior written consent of Landlord, and Landlord shall have the right to control all lighting within the Premises that may be visible from the exterior of the Building. 12. Floor Coverings. Tenant will not lay or otherwise affix linoleum, --------------- tile, carpet or any other floor covering to the floor of the Premises in any manner except as approved in writing by Landlord. Tenant will be liable for the cost of repair of any damage resulting from the violation of this rule or the removal of any floor covering by Tenant or its contractors, employees or invitees. 13. Wiring and Cabling Installations. Landlord will direct Tenant's -------------------------------- electricians and other vendors as to where and how data, telephone, and electrical wires and cables are to be installed. No boring or cutting for wires or cables will be allowed without the prior written consent of Landlord. The location of burglar alarms, smoke detectors, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the written approval of Landlord. 14. Office Closing; Procedures. Tenant will see that the doors of the -------------------------- Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Tenant or its employees leave the Premises, so as to prevent waste or damage. Tenant will be liable for all damage or injuries sustained by other tenants or occupants of the Building or Landlord resulting from Tenant's carelessness in this regard or violation of this rule. Tenant will keep the doors to the Building corridors closed at all times except for ingress and egress. 15. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls ------------------- and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein. Tenant will be liable for any breakage, stoppage or damage resulting from the violation of this rule by Tenant, its employees or invitees. 16. Use of Hand Trucks. Tenant will not use or permit to be used in the ------------------ Premises or in the Common Areas any hand trucks, carts or dollies except those equipped with rubber tires and side guards or such other equipment as Landlord may approve. 17. Refuse. Tenant shall store all Tenant's trash and garbage within the ------ Premises or in other facilities designated By Landlord for such purpose. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary Exhibit C, Page 3 manner of removing and disposing of trash and garbage in the city in which the Building is located without being in violation of any law or ordinance governing such disposal. All trash and garbage removal shall be made in accordance with directions issued from time to time by Landlord, only through such Common Areas provided for such purposes and at such times as Landlord may designate. Tenant shall comply with the requirements of any recycling program adopted by Landlord for the Building. 18. Soliciting. Canvassing, peddling, soliciting and distribution of ---------- handbills or any other written materials in the Building are prohibited, and Tenant will cooperate to prevent the same. 19. Parking. Tenant will use, and cause Tenant's Representatives and ------- Visitors to use, any parking spaces to which Tenant is entitled under the Lease in a manner consistent with Landlord's directional signs and markings in the Parking Facility. Specifically, but without limitation, Tenant will not park, or permit Tenant's Representatives or Visitors to park, in a manner that impedes access to and from the Building or the Parking Facility or that violates space reservations for handicapped drivers registered as such with the California Department of Motor Vehicles. Landlord may use such reasonable means as may be necessary to enforce the directional signs and markings in the Parking Facility, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of non-compliance with such parking regulations. 20. Fire, Security and Safety Regulations. Tenant will comply with all ------------------------------------- safety, security, fire protection and evacuation measures and procedures established by Landlord or any governmental agency. 21. Responsibility for Theft. Tenant assumes any and all responsibility ------------------------ for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 22. Sales and Auctions. Tenant will not conduct or permit to be conducted ------------------ any sale by auction in, upon or from the Premises or elsewhere in the Property, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding. 23. Waiver of Rules. Landlord may waive any one or more of these Building --------------- Rules for the benefit of any particular tenant or tenants, but no such waiver by Landlord will be construed as a waiver of such Building Rules in favor of any other tenant or tenants nor prevent Landlord from thereafter enforcing these Building Rules against any or all of the tenants of the Building. 24. Effect on Lease. These Building Rules are in addition to, and shall --------------- not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. Violation of these Building Rules constitutes a failure to fully perform the provisions of the Lease, as referred to in Section 15.1 - "Events of Default". 25. Non-Discriminatory Enforcement. Subject to the provisions of the ------------------------------ Lease (and the provisions of other leases with respect to other tenants), Landlord shall use reasonable efforts to Exhibit C, Page 4 enforce these Building Rules in a non-discriminatory manner, but in no event shall Landlord have any liability for any failure or refusal to do so (and Tenant's sole and exclusive remedy for any such failure or refusal shall be injunctive relief preventing Landlord from enforcing any of the Building Rules against Tenant in a manner that discriminates against Tenant). 26. Additional and Amended Rules. Landlord reserves the right to rescind ---------------------------- or amend these Building Rules and/or adopt any other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and for the preservation of good order therein. INITIALS: Landlord ______ Tenant ______ Exhibit C, Page 5 EXHIBIT D ATTACHED TO AND FORMING A PART OF LEASE AGREEMENT DATED AS OF SEPTEMBER 1, 1998 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, LLC. AS TENANT ("LEASE") ADDITIONAL PROVISIONS RIDER --------------------------- 36. PARKING. (a) Tenant's Parking Rights. Landlord shall provide Tenant, on an ----------------------- unassigned and non-exclusive basis, for use by Tenant and Tenant's Representatives and Visitors, at the users' sole risk, twenty (20) parking spaces in the Parking Facility. If Tenant leases additional office space pursuant to this Lease, Landlord shall provide Tenant, also on an unassigned, non-exclusive and unlabelled basis, one (1) additional parking space in the Parking Facility for each three hundred thirty-three (333) rentable square feet of additional office space leased to Tenant. The parking spaces to be made available to Tenant hereunder may contain a reasonable mix of spaces for compact cars and up to ten percent (10%) of the unassigned spaces may also be designated by Landlord as Building visitors' parking. (b) Availability of Parking Spaces. Landlord shall take reasonable actions ------------------------------ to ensure the availability of the parking spaces leased by Tenant, but Landlord does not guarantee the availability of those spaces at all times against the actions of other tenants of the Building and users of the Parking Facility. Access to the Parking Facility may, at Landlord's option, be regulated by card, pass, bumper sticker, decal or other appropriate identification issued by Landlord. Landlord retains the right to revoke the parking privileges of any user of the Parking Facility who violates the rules and regulations governing use of the Parking Facility (and Tenant shall be responsible for causing any employee of Tenant or other person using parking spaces allocated to Tenant to comply with all parking rules and regulations). (c) Assignment and Subletting. Notwithstanding any other provision of the ------------------------- Lease to the contrary, Tenant shall not assign its rights to the parking spaces or any interest therein, or sublease or otherwise allow the use of all or any part of the parking spaces to or by any other person, except with Landlord's prior written consent, which may be granted or withheld by Landlord in its sole discretion. In the event of any separate assignment or sublease of parking space rights that is approved by Landlord, Landlord shall be entitled to receive, as additional Rent hereunder, one hundred percent (100%) of any profit received by Tenant in connection with such assignment or sublease. (d) Condemnation, Damage or Destruction. In the event the Parking Facility ----------------------------------- is the subject of a Condemnation, or is damaged or destroyed, and this Lease is not terminated, and if in such event the available number of parking spaces in the Parking Facility is permanently reduced, then Tenant's rights to use parking spaces hereunder may, at the election of Landlord, Exhibit D, Page 1 thereafter be reduced in proportion to the reduction of the total number of parking spaces in the Parking Facility. In such event, Landlord reserves the right to reduce the number of parking spaces to which Tenant is entitled or to relocate some or all of the parking spaces to which Tenant is entitled to other areas in the Parking Facility. INITIALS: Landlord ______ Tenant /s/ MZ ------ Exhibit D, Page 2 FIRST AMENDMENT TO LEASE ------------------------ This First Amendment to Lease (the "Agreement") is made and entered into as of May 12, 1999 by and between PENINSULA OFFICE PARK ASSOCIATES, L.P., a California limited partnership ("Landlord") and BLUE MARTINI, INC., a California limited liability company ("Tenant"). Recitals -------- A. Landlord and Tenant entered into a Lease Agreement dated September 1, 1998 (the "Lease") by which Tenant leases from Landlord Suite 175 (the "Existing Premises") containing approximately 6,819 rentable square feet on the first floor of the building known as Peninsula Office Park 6 located at 2600 Campus Drive, San Mateo, California (the "Building"). Capitalized terms not otherwise defined in this Agreement shall have the meaning given them in the Lease. B. The Term of the Lease is scheduled to expire September 30, 2003 (the "Expiration Date"). C. Landlord and Tenant desire to amend the Lease to provide for (i) Tenant to lease Suite 180 (the "Expansion Premises") containing approximately 5,108 rentable square feet on the first floor of the Building, and (ii) an extension of the Term of the Lease, all upon and subject to the terms and conditions set forth in this Agreement. The approximate configuration and location of the Expansion Premises is shown on Exhibit A attached hereto. NOW THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 Leasing. Landlord leases to Tenant and Tenant leases from Landlord the ------- Expansion Premises commencing on the date (the "Expansion Premises Commencement Date," also referred to as "EPCD") which is the earlier of (a) twenty (20) days after the date Landlord delivers possession of the Expansion Premises to Tenant after Landlord has obtained possession of the Expansion Premises from the Existing Tenant, or (b) the date upon which Tenant, with Landlord's written permission, actually occupies and conducts business in any portion of the Expansion Premises, and continuing until the Expiration Date (as hereinafter amended). Commencing on the Expansion Premises Commencement Date and continuing through the Term, as extended herein, the Expansion Premises shall be included in the "Premises" for all purposes under the Lease (and the "Premises" shall consist of both the Original Premises and the Expansion Premises, totaling approximately 11,927 rentable square feet). 45 2 Existing Tenant. The Expansion Premises are occupied by a tenant (the --------------- "Existing Tenant") pursuant to a lease which expires June 30, 1999. Landlord agrees to use good faith efforts to obtain possession of the Expansion Premises from the Existing Tenant upon expiration of the lease with the Existing Tenant, but shall not be liable for any claims, damages or liabilities if the Existing Tenant does not vacate the Expansion Premises upon expiration of the term of its lease, and Landlord is unable to deliver possession of the Expansion Premises to Tenant upon expiration of the lease with the Existing Tenant. 3 Term and Expiration Date. The Term of the Lease is hereby extended by ------------------------- approximately ten (10) calendar months to be sixty (60) full calendar months following the Expansion Premises Commencement Date. The Expiration Date shall be the last day of the sixtieth (60th) calendar month following the Expansion Premises Commencement Date. 4 Condition of Expansion Premises. Tenant hereby accepts the Expansion -------------------------------- Premises in their existing "AS IS" condition, agrees that the Expansion Premises is in good and tenantable condition, and acknowledges that Landlord has no obligation to improve or alter the Expansion Premises. Any Alterations Tenant makes to the Expansion Premises shall be made only in accordance with the provisions of Section 6 of the Lease. Tenant shall contract with Commercial Interior Contractors ("CIC") to construct any Alterations desired by Tenant in the Expansion Premises. Tenant acknowledges and agrees that CIC is an affiliate of Landlord. Landlord shall contribute up to $5.00 per rentable square foot in the Expansion Premises (the "Allowance") toward the cost of the design (including preparation of space plans and construction documents), construction and installation of the Alterations. The balance, if any, of the cost of the Alterations ("Additional Cost"), including, but not limited to, customary and reasonable usual markups for overhead, supervision and profit, shall be paid by Tenant to CIC. Upon completion of the Alterations, and upon Tenant presenting evidence to Landlord that the Alterations have been completed, and that Tenant has paid the Additional Cost to CIC, Landlord shall pay the Allowance to CIC. 5 Base Rent for Expansion Premises. In addition to the Base Rent payable by --------------------------------- Tenant for the Existing Premises, Tenant shall pay the following Base Rent for the Expansion Premises: Months Base Rent ------ --------- EPCD - 12/31/99: $3.20 per rentable square foot per month 01/01/00 - 12/31/00: $3.40 per rentable square foot per month 01/01/01 - 12/31/01: $3.50 per rentable square foot per month 01/01/02 - 12/31/02: $3.60 per rentable square foot per month 01/01/03 - 12/31/03: $3.70 per rentable square foot per month 01/01/04 - Expiration Date: $3.80 per rentable square foot per month 46 6. Base Rent for Existing Premises. Tenant shall pay Base Rent for the -------------------------------- Existing Premises through September 30, 2003 in accordance with the provisions of the Lease. Commencing October 1, 2003 and continuing until the Expiration Date Tenant shall pay $3.80 per rentable square foot per month as Base Rent for the Existing Premises. 7. Base Year and Tenant's Share. Effective on the Expansion Premises ----------------------------- Commencement Date the Base Year for the Premises shall be calendar year 1999. From and after the Expansion Premises Commencement Date Tenant's Share shall be 20.12%. 8. Additional Security Deposit. Upon execution and delivery of this Agreement ---------------------------- to by Tenant to Landlord, Tenant shall deposit with Landlord the sum of $16,345.60 to be held by Landlord as a Security Deposit, in addition to the existing Security Deposit, in accordance with the provisions of Section 4 of the Lease. 9. Sign on Existing Monument. So long as Blue Martini, Inc. has not assigned ------------------------- this Lease or sublet any of the Premises (it being intended that all rights pursuant to this provision are and shall be personal to the original Tenant under this Lease and shall not be transferable or exercisable for the benefit of any Transferee), and so long as Blue Martini, Inc. occupies at least 11,927 rentable square feet in the Building, Blue Martini, Inc. shall have the right to install and maintain in a first class condition a sign on the existing sign monument located adjacent to the Building, for no additional rent, subject to governmental approval of a separate signage application and subject to review and approval by Landlord, in Landlord's sole discretion, of the size, design, materials, color, illumination, and all other aspects of any proposed sign. All costs and expenses of processing governmental applications, permits, construction, installation and maintenance of Tenant's sign shall be borne by Tenant. 10. Broker. Tenant warrants and represents to Landlord that in the negotiating ------- or making of this Agreement neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Agreement. Tenant shall indemnify and hold Landlord harmless from any claim or claims, including costs, expenses and attorney's fees incurred by Landlord asserted by any broker or finder for a fee or commission based upon any dealings with or statements made by Tenant or Tenant's Representatives. Landlord agrees to indemnify and hold Tenant harmless from and against any claim by third parties claiming by, through, or under Landlord for commissions due or alleged to be due in connection with this Agreement. 11. Ratification of Lease. The Lease, as modified by this Agreement, remains ---------------------- in full force and effect, and Landlord and Tenant ratify the same. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. If Tenant is a corporation or a partnership, each of the persons executing this Agreement on behalf of Tenant warrants and represents that Tenant is a duly authorized and existing entity that Tenant has full right and authority to enter into this Agreement and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind 47 Tenant to this Agreement. Tenant shall provide Landlord, upon request, with evidence reasonably satisfactory to Landlord confirming the foregoing representations. Except as herein amended, the Lease remains unchanged and is in full force and effect in accordance with the terms and provisions contained therein. This First Amendment is hereby executed and delivered in multiple counterparts, each of which shall have the force and effect of an original.
LANDLORD: TENANT: PENINSULA OFFICE PARK ASSOCIATES, L.P., BLUE MARTINI, INC., a California limited partnership a California limited liability company By: CORNERSTONE HOLDINGS, INC., By: /s/ Monte Zweben Delaware limited liability company, --------------------------- general partner Name:______________________ Title:______________________ By: /s/ Robert Paratte By: -------------------------- -------------------------- Name: Robert Paratte Name: ------------------------ ------------------------ Title: Title: ----------------------- -----------------------
48 EXHIBIT A --------- ATTACHED TO AND FORMING A PART OF FIRST AMENDMENT TO LEASE DATED AS OF MAY 12, 1999 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, INC.., AS TENANT ("AGREEMENT") THE EXPANSION PREMISES ---------------------- [Floor plan showing location and configuration of Expansion Premises to be inserted.] INITIALS: Landlord ______ Tenant MZ ------ 49 SECOND AMENDMENT TO LEASE ------------------------- This Second Amendment to Lease (the "Agreement") is made and entered into as of August 5, 1999 by and between PENINSULA OFFICE PARK ASSOCIATES, L.P., a California limited partnership ("Landlord") and BLUE MARTINI, INC., a California corporation ("Tenant"). Recitals -------- A. Landlord and Tenant entered into a Lease Agreement (the "Original Lease") dated September 1, 1998 and a First Amendment to Lease (the "First Amendment") dated as of May 12, 1999 (as so amended, the "Amended Lease"). Under the terms of the Amended Lease, Tenant leases from Landlord Suite 175 (the "Initial Premises") containing approximately 6,819 rentable square feet on the first floor and Suite 180 (the "First Expansion Premises") containing approximately 5,108 rentable square feet on the first floor of the of the building known as Peninsula Office Park 6 located at 2600 Campus Drive, San Mateo, California (the "Building"). As of the date of this Agreement the Premises contain approximately 11,927 rentable square feet, consisting of the Initial Premises and the First Expansion Premises (together, the "Existing Premises"). B. The Term of the Amended Lease is scheduled to expire June 30, 2004 (the "Expiration Date"). C. Landlord and Tenant desire to amend the Amended Lease to provide for (i) Tenant to lease Suite 280 (the "Second Expansion Premises") containing approximately 7,370 rentable square feet on the second floor of the Building, (ii) an extension of the Term, and (iii) to make certain other changes in the Amended Lease, all upon and subject to the terms and conditions set forth in this Agreement. The approximate configuration and location of the Second Expansion Premises is shown on Exhibit A attached hereto. NOW THEREFORE, in consideration of the foregoing recitals, and mutual agreements contained herein, the parties hereto agree as follows: 1. Capitalized Terms. All capitalized terms not otherwise defined in this ------------------ Agreement shall have the meaning given them in the Amended Lease. 2. Definition of Lease. The Amended Lease, as further amended by this -------------------- Agreement, is herein called the "Lease." 3. Leasing of Second Expansion Premises. Landlord leases to Tenant and Tenant ------------------------------------- leases from Landlord the Second Expansion Premises commencing on September 1, 1999 (the "Second Expansion Premises Commencement Date"). Commencing on the Second Expansion Premises Commencement Date and continuing through the Term, as extended herein, the Second Expansion Premises shall be included in the "Premises" for all purposes under the Lease (and the "Premises" shall consist of both the Existing Premises and the Second Expansion Premises, totaling approximately 19,297 rentable square feet). 50 4. Existing Tenant. The Second Expansion Premises are occupied by a tenant ---------------- (the "Existing Tenant") pursuant to a lease which expires December 31, 1999. Landlord agrees to use good faith efforts to enter into a lease termination agreement with the Existing Tenant and to deliver possession of the Second Expansion Premises to Tenant on the Second Expansion Premises Commencement Date, but Landlord shall not be liable for any claims, damages or liabilities if Landlord does not enter into a lease termination agreement for the Second Expansion Premises with the Existing Tenant, and Landlord is unable to deliver possession of the Second Expansion Premises to Tenant prior to the Second Expansion Premises Commencement Date. 5. Term and Expiration Date. The Term of the Lease is hereby extended by ------------------------- approximately two (2) calendar months to be sixty (60) full calendar months following the Second Expansion Premises Commencement Date. The Expiration Date shall August 31, 2004 (the revised "Expiration Date"). 6. Condition of Second Expansion Premises. Tenant hereby accepts the Second --------------------------------------- Expansion Premises in their existing "AS IS" condition, agrees that the Second Expansion Premises is in good and tenantable condition, and acknowledges that Landlord has no obligation to improve or alter the Second Expansion Premises. Any Alterations Tenant makes to the Second Expansion Premises shall be made only in accordance with the provisions of Section 6 of the Original Lease. Tenant shall contract with Commercial Interior Contractors ("CIC") to construct any Alterations desired by Tenant in the Second Expansion Premises. Tenant acknowledges and agrees that CIC is an affiliate of Landlord. Landlord shall contribute up to $8.00 per rentable square foot in the Second Expansion Premises (the "Allowance") toward the cost of the design (including preparation of space plans and construction documents), construction and installation of the Alterations (which may be used for Alterations in the Existing Premises). The balance, if any, of the cost of the Alterations ("Additional Cost"), including, but not limited to, customary and reasonable usual markups for overhead, supervision and profit, shall be paid by Tenant to CIC. Upon completion of the Alterations, and upon Tenant presenting evidence to Landlord that the Alterations have been completed, and that Tenant has paid the Additional Cost to CIC, Landlord shall pay the Allowance to CIC. 7. Base Rent for Second Expansion Premises. In addition to the Base Rent ---------------------------------------- payable by Tenant for the Existing Premises, Tenant shall pay the following Base Rent for the Expansion Premises: Months Base Rent ------ --------- 09/01/99 - 12/31/99: $3.20 per rentable square foot per month 01/01/00 - 12/31/00: $3.45 per rentable square foot per month 01/01/01 - 12/31/01: $3.65 per rentable square foot per month 01/01/02 - 12/31/02: $3.75 per rentable square foot per month 01/01/03 - 08/31/04: $3.85 per rentable square foot per month 8. Base Rent for Existing Premises. Tenant shall pay Base Rent for the -------------------------------- Existing Premises through June 30, 2004 in accordance with the provisions of the Amended Lease. Commencing July 1, 2004 and continuing until the Expiration Date Tenant shall pay $3.85 per rentable square foot per month as Base Rent for the Existing Premises. 51 9. Base Year and Tenant's Share. The Base Year for the Second Expansion ----------------------------- Premises shall be calendar year 1999. From and after the Second Expansion Premises Commencement Date Tenant's Share shall be 32.55%. 10. Amendment of Section 4 of the Original Lease and Additional Security -------------------------------------------------------------------- Deposit. Effective as of the date of this Agreement, Section 4 of the ------- Original Lease is hereby deleted in its entirety and replaced with the following: "4. SECURITY DEPOSIT. On execution of this Agreement, Tenant shall deposit with Landlord the letter of credit identified in Paragraph 12 below and Landlord shall hold the cash amount specified in Paragraph 11 below as the Security Deposit (collectively, the "Security Deposit", which term shall include amounts drawn on the letter of credit), as security for the performance of Tenant's obligations under this Lease. Landlord may (but shall have no obligation to) use the Security Deposit or any portion thereof to cure any breach or default by Tenant under the Lease, to fulfill any of Tenant's obligations under the Lease, or to compensate Landlord for any damage it incurs as a result of Tenant's failure to perform any of Tenant's obligations under the Lease. In such event, Tenant shall pay to Landlord on demand an amount sufficient to replenish the Security Deposit to the full amount of the cash specified in the Basic Lease Information and the applicable Face Amount (defined in Section 12 below) of the letter of credit. If at the expiration or termination of this Lease, Tenant is not in default, has otherwise fully performed all of Tenant's obligations under this Lease, and there are no outstanding Claims (defined in Section 10.1 of the Original Lease, and including all existing and potential Claims) for which Tenant is responsible, Landlord shall return to Tenant the Security Deposit or the balance thereof then held by Landlord and not applied as provided above. Landlord may commingle the Security Deposit with Landlord's general and other funds. Landlord shall not be required to pay interest on the Security Deposit to Tenant. Tenant acknowledges that Landlord has agreed to accept a letter of credit in lieu of an additional cash deposit as an accommodation to Tenant and Tenant agrees that the letter of credit and all amounts drawn thereunder shall be treated for all purposes under this Lease as if a cash deposit had been tendered to Landlord upon the execution of this Lease." 11. Amount of Cash Security Deposit. As of the date of this Agreement Landlord -------------------------------- is holding a cash Security Deposit totaling $167,727.40 (the "Existing Security Deposit"). Upon Tenant's delivery of the L/C described in Paragraph 12 below, in the Face Amount shown in Paragraph 12 below, (a) Landlord shall continue to hold the sum of $65,620.00 as the cash portion of the Security Deposit, and (b) Landlord shall refund to Tenant the sum of $102,107.40 out of such existing Security Deposit. 12. Letter of Credit. ----------------- (a) Upon execution of this Agreement, Tenant shall deliver to Landlord an unconditional, irrevocable, transferable and negotiable standby letter of credit (the "L/C") in an amount equal to $182,107.40 ("Face Amount"), issued by a bank or trust company ("Issuer") and in form 52 and content acceptable to Landlord, in its sole and absolute discretion, as additional security for the performance of Tenant's obligations under this Lease. An L/C in the form attached hereto as Exhibit B is hereby approved --------- by Landlord. The L/C shall name Landlord as beneficiary thereunder and provide that draws, including partial draws, at Landlord's election, will be honored upon the delivery to the Issuer of a certificate signed by Landlord, or its authorized agent, that Tenant has failed to perform its obligations under the Lease. The L/C shall also provide that it will be automatically extended upon each renewal date unless the Issuer thereof delivers to Landlord, no later than forty-five (45) days prior to the stated expiration date of the L/C, written notice of Issuer's intent not to extend or renew the L/C. During any period that Tenant is required to maintain the L/C, Tenant shall, at least thirty (30) days prior to any expiration or termination of the L/C, provide Landlord either with written confirmation that the existing L/C will be automatically extended and renewed or with a new L/C that satisfies all of the requirements for the L/C in this Paragraph 12. In addition, upon a proposed sale or other transfer of any interest in the Building, the Land, this Lease or Landlord (including consolidations, mergers, or other entity changes), Tenant, at its sole cost and expense and upon ten (10) Business Days' notice, shall, concurrent with Landlord's delivery to Tenant of the then outstanding L/C, deliver to any such transferees, successors, or assigns a replacement L/C on identical terms (except for the stated beneficiary) from the same Issuer or another bank or trust company acceptable to Landlord, in Landlord's sole discretion, naming the new landlord as the beneficiary thereof. Tenant's failure to perform or observe any of the covenants set forth in this Paragraph 12 for any reason shall entitle Landlord to draw on the full amount of the L/C and shall constitute an Event of Default under this Lease without the requirement of any notice from Landlord. Any amount(s) drawn under the L/C shall be held or used by Landlord in accordance with the terms of Section 4 of the Lease. (b) If as of the first (1st), second (2nd), third (3rd) and fourth (4th) anniversary dates following the Second Expansion Premises Commencement Date, (i) no prior or current Event of Default has occurred, and no event or condition exists or has occurred which with the passage of time or delivery of notice by Landlord, or both, would constitute an Event of Default, and (ii) Tenant has delivered to Landlord, on or before such anniversary dates, audited financial statements prepared in accordance with generally accepted accounting principles consistently applied and certified by Tenant's chief financial officer as being complete and accurate which confirm that Tenant has achieved and sustained positive net earnings for each of the four consecutive calendar quarters immediately preceding each applicable anniversary date, the Face Amount of the L/C may be immediately reduced to (A) $145,685.92 on the first (1st) anniversary date of the Second Expansion Premises Commencement Date, (B) $109,264.41 on the second (2nd) anniversary date of the Second Expansion Premises Commencement Date, (C) $72,842.92 on the third (3rd) anniversary date of the Second Expansion Premises Commencement Date, and (D) $36,421.48 on the fourth (4th) anniversary date of the Second Expansion Premises Commencement Date, as applicable (the "L/C Burnoff").. 13. Broker. Tenant warrants and represents to Landlord that in the negotiating ------ or making of this Agreement neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Agreement. Tenant shall indemnify and hold Landlord harmless from any claim or claims, including costs, expenses and 53 attorney's fees incurred by Landlord asserted by any broker or finder for a fee or commission based upon any dealings with or statements made by Tenant or Tenant's Representatives. Landlord agrees to indemnify and hold Tenant harmless from and against any claim by third parties claiming by, through, or under Landlord for commissions due or alleged to be due in connection with this Agreement. 14. Ratification of Amended Lease. The Amended Lease, as modified by this ------------------------------ Agreement, remains in full force and effect, and Landlord and Tenant ratify the same. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. If Tenant is a corporation or a partnership, each of the persons executing this Agreement on behalf of Tenant warrants and represents that Tenant is a duly authorized and existing entity that Tenant has full right and authority to enter into this Agreement and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind Tenant to this Agreement. Tenant shall provide Landlord, upon request, with evidence reasonably satisfactory to Landlord confirming the foregoing representations. Except as herein amended, the Amended Lease remains unchanged and is in full force and effect in accordance with the terms and provisions contained therein. This Second Amendment is hereby executed and delivered in multiple counterparts, each of which shall have the force and effect of an original.
LANDLORD: TENANT: PENINSULA OFFICE PARK ASSOCIATES, L.P., BLUE MARTINI, INC., a California limited partnership a California corporation By: CORNERSTONE HOLDINGS, INC., By: /s/ Monte Zweben a Delaware limited liability company, -------------------------- general partner Name: Monte Zweben ---------------------- Title: CEO --------------------- By: /s/ Robert Paratte By: --------------------------- --------------------------- Name: Robert Paratte Name: ------------------------- ------------------------- Title: Title: ------------------------ ------------------------
54 EXHIBIT A --------- ATTACHED TO AND FORMING A PART OF SECOND AMENDMENT TO LEASE DATED AS OF AUGUST 5, 1999 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, INC.., AS TENANT ("AGREEMENT") THE SECOND EXPANSION PREMISES ----------------------------- [Floor plan showing location and configuration of Second Expansion Premises to be inserted.] INITIALS: Landlord ______ Tenant ______ 55 THIRD AMENDMENT TO LEASE ------------------------ This Third Amendment to Lease (the "Agreement") is made and entered into as of January 11, 2000 by and between PENINSULA OFFICE PARK ASSOCIATES, L.P., a California limited partnership ("Landlord") and BLUE MARTINI, INC., a California corporation ("Tenant"). Recitals -------- A. Landlord and Tenant entered into a Lease Agreement (the "Original Lease") dated September 1, 1998, a First Amendment to Lease (the "First Amendment") dated as of May 12, 1999, and a Second Amendment to Lease (the "Second Amendment") dated as of August 5, 1999 (as so amended, the "Amended Lease"). Under the terms of the Amended Lease, Tenant leases from Landlord Suite 175 (the "Initial Premises") containing approximately 6,819 rentable square feet on the first floor, Suite 180 (the "First Expansion Premises") containing approximately 5,108 rentable square feet on the first floor, and Suite 280 (the "Second Expansion Premises") containing approximately 7,370 rentable square feet on the second floor of the of the building known as Peninsula Office Park 6 located at 2600 Campus Drive, San Mateo, California (the "Building"). As of the date of this Agreement the Premises contain approximately 19,297 rentable square feet, consisting of the Initial Premises, the First Expansion Premises and Second Expansion Premises (collectively, the "Existing Premises"). B. The Term of the Amended Lease is scheduled to expire August 31, 2004 (the "Expiration Date"). C. Landlord and Tenant desire to amend the Amended Lease to provide for (i) Tenant to lease Suite 285 (the "Third Expansion Premises") containing approximately 8,342 rentable square feet on the second floor of the Building, (ii) an extension of the Term, and (iii) to make certain other changes in the Amended Lease, all upon and subject to the terms and conditions set forth in this Agreement. The approximate configuration and location of the Third Expansion Premises is shown on Exhibit A attached hereto. NOW THEREFORE, in consideration of the foregoing recitals, and mutual agreements contained herein, the parties hereto agree as follows: 1. Capitalized Terms. All capitalized terms not otherwise defined in this ------------------ Agreement shall have the meaning given them in the Amended Lease. 2. Definition of Lease. The Amended Lease, as further amended by this -------------------- Agreement, is herein called the "Lease." 3. Leasing of Third Expansion Premises. Subject to Landlord obtaining ------------------------------------ possession of the Third Expansion Premises from the Existing Tenant (as defined below), Landlord leases 56 to Tenant and Tenant leases from Landlord the Third Expansion Premises commencing on the date Landlord delivers possession of the Third Expansion Premises to Tenant (herein called either the "Third Expansion Premises Commencement Date" or "TEPCD") after Landlord has (a) obtained possession of the Third Expansion Premises from the Existing Tenant, and (b) constructed the Demising Wall (as defined below). Commencing on the Third Expansion Premises Commencement Date and continuing through the Term, as extended herein, the Third Expansion Premises shall be included in the "Premises" for all purposes under the Lease (and the "Premises" shall consist of both the Existing Premises and the Third Expansion Premises, totaling approximately 27,639 rentable square feet). 4. Existing Tenant. As of the date of this Agreement the Third Expansion ---------------- Premises are occupied by a tenant (the "Existing Tenant") pursuant to a lease which expires April 30, 2001. Landlord agrees to use good faith efforts to enter into a partial lease termination agreement with the Existing Tenant and to deliver possession of the Third Expansion Premises to Tenant on or before January 31, 2000 (the "Scheduled Third Expansion Premises Commencement Date"), but Landlord shall not be liable for any claims, damages or liabilities if Landlord does not enter into a partial lease termination agreement for the Third Expansion Premises with the Existing Tenant, and Landlord is unable to deliver possession of the Third Expansion Premises to Tenant prior to the Scheduled Third Expansion Premises Commencement Date. Notwithstanding anything to the contrary contained in this Agreement, if Landlord has not delivered possession of the Third Expansion Premises to Tenant on or before February 29, 2000, then Tenant may terminate this Agreement by written notice to Landlord, such notice of termination to be given, if at all, on or before March 10, 2000. If Tenant terminates this Agreement pursuant to the provisions of the immediately preceding sentence, then the L/C (as defined below) delivered by Tenant to Landlord in connection with this Agreement shall immediately become invalid, and within ten (10) days after Landlord receives such notice from Tenant terminating this Agreement, Landlord shall return to Tenant (a) the original L/C, and (b) all Base Rent paid by Tenant to Landlord under this Agreement. 5. Term and Expiration Date. If this Agreement is not terminated pursuant to ------------------------- the provisions of Paragraph 4 above, then the Term of the Lease is hereby extended by approximately five (5) calendar months to be sixty (60) full calendar months following the Third Expansion Premises Commencement Date. The Expiration Date is hereby changed to be January 31, 2005 (the "Revised Expiration Date"). 6. Condition of Third Expansion Premises. Tenant hereby accepts the Third -------------------------------------- Expansion Premises in their existing "AS IS" condition, agrees that the Third Expansion Premises is in good and tenantable condition, and acknowledges that Landlord has no obligation to improve or alter the Third Expansion Premises. Any Alterations Tenant makes to the Third Expansion Premises shall be made only in accordance with the provisions of Section 6 of the Original Lease. Tenant shall contract with Commercial Interior Contractors ("CIC") to construct any Alterations desired by Tenant in the Third Expansion Premises. The sums charged by CIC for any such Alterations shall be 57 competitive in the marketplace. Tenant acknowledges and agrees that CIC is an affiliate of Landlord. The cost of any Alterations shall be paid by Tenant to CIC. 7. Demising Wall. Landlord shall contribute up to $44,000.00 (the "Allowance") -------------- toward the cost of constructing and installing a demising wall (the "Demising Wall") between the Third Expansion Premises and Suite 200 in a good and workmanlike manner using Building standard materials. CIC shall construct such Demising Wall. Unless this Agreement is terminated by Tenant pursuant to the provisions of Paragraph 4 above, then Tenant shall be responsible for all costs in excess of the Allowance ("Additional Costs") to construct and install the Demising Wall. Tenant shall pay any Additional Costs to Landlord within ten (10) Business Days following Tenant's receipt of (a) an invoice for any such Additional Costs, and (b) evidence from Landlord that Landlord has paid to CIC the total costs of constructing and installing the Demising Wall. 8. Base Rent for Third Expansion Premises. In addition to the Base Rent --------------------------------------- payable by Tenant for the Existing Premises, Tenant shall pay the following Base Rent for the Third Expansion Premises: Months Base Rent ------ --------- TEPCD - 01/14/01: $3.45 per rentable square foot per month 01/15/01 - 01/14/02: $3.80 per rentable square foot per month 01/15/02 - 01/14/03: $3.90 per rentable square foot per month 01/15/03 - 01/14/04: $4.00 per rentable square foot per month 01/15/04 - 01/31/05: $4.10 per rentable square foot per month 9. Base Rent for Existing Premises. Tenant shall pay Base Rent for the -------------------------------- Existing Premises through August 31, 2004 in accordance with the provisions of the Amended Lease. Commencing September 1, 2004 and continuing until the Revised Expiration Date Tenant shall pay $4.10 per month per rentable square foot in the Existing Premises as Base Rent for the Existing Premises. 10. Base Year and Tenant's Share. The Base Year for the Third Expansion ----------------------------- Premises shall be calendar year 2000. From and after the Third Expansion Premises Commencement Date Tenant's Share shall be 46.62%. 11. Letter of Credit. ----------------- (a). Upon execution of this Agreement, Tenant shall deliver to Landlord an unconditional, irrevocable, transferable and negotiable standby letter of credit (the "L/C") in an amount equal to $96,350.10 ("Face Amount"), issued by a bank or trust company ("Issuer") and in form and content acceptable to Landlord, in its sole and absolute discretion, as additional security for the performance of Tenant's obligations under this Lease. An L/C in the form attached hereto as Exhibit B is hereby approved --------- by Landlord. The L/C shall name Landlord as beneficiary thereunder and provide that draws, including partial draws, at Landlord's election, will be honored upon the delivery 58 to the Issuer of a certificate signed by Landlord, or its authorized agent, that Tenant has failed to perform its obligations under the Lease. The L/C shall also provide that it will be automatically extended upon each renewal date unless the Issuer thereof delivers to Landlord, no later than forty- five (45) days prior to the stated expiration date of the L/C, written notice of Issuer's intent not to extend or renew the L/C. During any period that Tenant is required to maintain the L/C, Tenant shall, at least thirty (30) days prior to any expiration or termination of the L/C, provide Landlord either with written confirmation that the existing L/C will be automatically extended and renewed or with a new L/C that satisfies all of the requirements for the L/C in this Paragraph 12. In addition, upon a proposed sale or other transfer of any interest in the Building, the Land, this Lease or Landlord (including consolidations, mergers, or other entity changes), Tenant, at its sole cost and expense and upon ten (10) Business Days' notice, shall, concurrent with Landlord's delivery to Tenant of the then outstanding L/C, deliver to any such transferees, successors, or assigns a replacement L/C on identical terms (except for the stated beneficiary) from the same Issuer or another bank or trust company acceptable to Landlord, in Landlord's sole discretion, naming the new landlord as the beneficiary thereof. Tenant's failure to perform or observe any of the covenants set forth in this Paragraph 12 for any reason shall entitle Landlord to draw on the full amount of the L/C and shall constitute an Event of Default under this Lease without the requirement of any notice from Landlord. Any amount(s) drawn under the L/C shall be held or used by Landlord in accordance with the terms of Section 4 of the Lease. (b). If as of the first (1st), second (2nd), third (3rd) and fourth (4th) anniversary dates following the Third Expansion Premises Commencement Date, (i) no prior or current Event of Default has occurred, and no event or condition exists or has occurred which with the passage of time or delivery of notice by Landlord, or both, would constitute an Event of Default, and (ii) Tenant has delivered to Landlord, on or before such anniversary dates, audited financial statements prepared in accordance with generally accepted accounting principles consistently applied and certified by Tenant's chief financial officer as being complete and accurate which confirm that Tenant has achieved and sustained positive net earnings for each of the four consecutive calendar quarters immediately preceding each applicable anniversary date, the Face Amount of the L/C may be immediately reduced to (A) $77,080.10 on the first (1st) anniversary date of the Third Expansion Premises Commencement Date, (B) $57,810.06 on the second (2nd) anniversary date of the Third Expansion Premises Commencement Date, (C) $38,540.10 on the third (3rd) anniversary date of the Third Expansion Premises Commencement Date, and (D) $19,270.02 on the fourth (4th) anniversary date of the Third Expansion Premises Commencement Date, as applicable (the "L/C Burnoff"). 12. Broker. Tenant warrants and represents to Landlord that in the negotiating ------- or making of this Agreement neither Tenant nor anyone acting on Tenant's behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Agreement. Tenant shall indemnify and hold Landlord harmless from any claim or claims, including costs, expenses and attorney's fees incurred by Landlord asserted by any broker or finder for a fee or commission based upon any dealings with or statements made by 59 Tenant or Tenant's Representatives. Landlord agrees to indemnify and hold Tenant harmless from and against any claim by third parties claiming by, through, or under Landlord for commissions due or alleged to be due in connection with this Agreement. 13. Ratification of Amended Lease. The Amended Lease, as modified by this ------------------------------ Agreement, remains in full force and effect, and Landlord and Tenant ratify the same. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. If Tenant is a corporation or a partnership, each of the persons executing this Agreement on behalf of Tenant warrants and represents that Tenant is a duly authorized and existing entity that Tenant has full right and authority to enter into this Agreement and that the persons signing on behalf of Tenant are authorized to do so and have the power to bind Tenant to this Agreement. Tenant shall provide Landlord, upon request, with evidence reasonably satisfactory to Landlord confirming the foregoing representations. Except as herein amended, the Amended Lease remains unchanged and is in full force and effect in accordance with the terms and provisions contained therein. This Third Amendment is hereby executed and delivered in multiple counterparts, each of which shall have the force and effect of an original.
LANDLORD: TENANT: PENINSULA OFFICE PARK ASSOCIATES, L.P., BLUE MARTINI, INC., a California limited partnership a California corporation By: CORNERSTONE HOLDINGS, INC., By: /s/ Monte Zweben a Delaware limited liability company, -------------------------- general partner Name: Monte Zweben ---------------------- Title: CEO ---------------------- By: /s/ Robert Paratte By:__________________________ ------------------------------------ Name:______________________ Name: Robert Paratte Title:______________________ ---------------------------------- Title: Authorized Signature ---------------------------------
(For corporate entities, signature by TWO corporate officers is required: one by (x) the chairman of the board, the president, or any vice president; and the other by (y) the secretary, any assistant secretary, the chief financial officer, or any assistant treasurer.) 60 EXHIBIT A --------- ATTACHED TO AND FORMING A PART OF THIRD AMENDMENT TO LEASE DATED AS OF JANUARY 11, 2000 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, INC., AS TENANT ("AGREEMENT") THE THIRD EXPANSION PREMISES ---------------------------- [Floor plan showing location and configuration of Third Expansion Premises to be inserted.] INITIALS: Landlord AM ------ Tenant MZ ------ 61 EXHIBIT B --------- ATTACHED TO AND FORMING A PART OF THIRD AMENDMENT TO LEASE DATED AS OF JANUARY 11, 2000 BETWEEN PENINSULA OFFICE PARK ASSOCIATES, L.P., AS LANDLORD, AND BLUE MARTINI, INC., AS TENANT ("AGREEMENT") APPROVED LETTER OF CREDIT FORM ------------------------------ [Letterhead of Issuing Bank] [must be a Bank whose location, credit and practices Landlord has approved] RE: IRREVOCABLE COMMERCIAL LETTER OF CREDIT NO. _________ TO: [Name of project owner] ("Landlord"), ____________________________________ __________________ [Landlord's address] Gentlemen: We hereby issue our Irrevocable Commercial Letter of Credit in your favor, for the account of _____________________________ [name of tenant and type of entity (e.g. "ABC Corporation, a California corporation")] ("Tenant"), in the amount of ______________________________ Dollars ($__________). This amount is available to you on presentation of your sight draft drawn upon us referring to the above letter of credit number, date and amount being drawn hereunder, accompanied by the signed statement of you or your authorized agent, Cornerstone Properties Limited Partnership dba Wilson Cornerstone Properties Limited Partnership, that the amount drawn hereunder is being drawn pursuant to the terms of the _______________ [title of lease document (e.g. Office Lease, Lease Agreement, etc.)] dated as of __________, between Tenant, as tenant, and Landlord, as landlord, for certain premises located at _______________ __________________________ (the "Lease"). Any draft presented for payment must be presented on or before ________________ [term should be at least one year], the date this Letter of Credit expires. Partial drawings are permitted. If you sell or otherwise transfer any interest in the "Building" (as defined in the Lease) [be sure to use the defined terms used in the Lease (e.g. if the building is called the "Property" in the Lease, then use that term here)], in the land upon which the same is located, in the Lease, or in 62 Landlord (including consolidations, mergers or other entity changes), you shall have the right to transfer this Letter of Credit to your transferee(s), successors or assigns. We hereby certify that this is an unconditional and irrevocable Letter of Credit and agree that a draft drawn under and in compliance with the terms hereof will be honored upon presentation at our office at _________________________________ [it must be a location easily accessible to us (e.g. no country banks located in some tiny town in the Southeastern corner of Texas]. This Letter of Credit shall automatically be extended and renewed for successive one year periods at the end of the stated expiration date and each anniversary thereof unless we notify you in writing, no later than forty-five (45) days prior to the then applicable expiration date, that we will not extend and renew the Letter of Credit for another one year term. Except to the extent inconsistent with the express provisions hereof, this Letter of Credit is subject to and governed by Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce publication number 500. [Name of Bank] _________________________________ Authorized Signature INITIALS: Landlord AM ------ Tenant MZ ------ 63 EX-10.5 10 AGREEMENT PLAN OF MERGER DATED JANUARY 12, 1999 Exhibit 10.5 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER dated as of January 12, 1999 (this "Agreement"), is entered into between BLUE MARTINI SOFTWARE, INC., a Delaware corporation ("Blue Corp.") and BLUE MARTINI LLC, a Delaware limited liability company ("Blue LLC") (Blue LLC and Blue Corp. are collectively referred to herein as the "Constituent Entities"). W I T N E S S E T H WHEREAS, Blue LLC is a limited liability company duly organized and existing under the laws of the State of Delaware; WHEREAS, Blue Corp. is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, the Board of Directors of Blue Corp. and the Managers of Blue LLC deem it advisable and in the best interests of their respective entities and stockholders or members, as applicable, that Blue LLC be merged with and into Blue Corp. with Blue Corp. being the Surviving Entity (as defined below); and WHEREAS, it is intended that the Merger (as defined below) qualify as a tax-free transaction within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended; NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants and subject to the conditions herein set forth, the Constituent Entities agree as follows: 1. Merger. At the Effective Time of the Merger (hereinafter defined), Blue LLC shall be merged with and into Blue Corp. in a merger (the "Merger") to be consummated pursuant to and on the terms and conditions set forth in this Agreement and in accordance with the laws of the State of Delaware. Blue Corp. shall be the surviving entity of the Merger (the "Surviving Entity"), and shall continue its corporate existence as a corporation governed by the laws of the State of Delaware under the name "Blue Martini Software, Inc." Its principal office in the State of Delaware is located at 1209 Orange Street, Wilmington, Delaware. 2. Effective Time of the Merger. The time when the Merger shall become effective (the "Effective Time of the Merger") shall be at the time and date when a copy of a Certificate of Merger has been filed with the Secretary of State of the State of Delaware pursuant to Section 264 of the Delaware General Corporation Law (the "Delaware Act"). 3. Certificate of Incorporation and Bylaws. From and after the Effective Time of the Merger, the Certificate of Incorporation and Bylaws of Blue Corp., as in effect immediately prior to the Effective Time of the Merger, shall be the Certificate of Incorporation and Bylaws of the Surviving Entity, until changed or amended as provided herein. 4. Directors and Officers. From and after the Effective Time of the Merger, the directors on the Board of Directors and officers of Blue Corp. as of the Effective Time of the 1 Merger shall continue to serve as the directors on the Board of Directors and officers of the Surviving Entity, each of whom shall hold office subject to the provisions of the Delaware Act and the Certificate of Incorporation and Bylaws of the Surviving Entity from and after the Effective Time of the Merger. 5. Treatment of Membership Interests of Blue LLC. On or after the Effective Date, each membership interest designated as a Class A Unit of Blue LLC shall be exchanged for one (1) share of Series A Preferred Stock of Blue Corp. and shall be so registered on the books and records of the Surviving Entity or its transfer agents. On or after the Effective Date, each membership interest designated as a Class B Unit of Blue LLC shall be exchanged for one (1) share of Common Stock of Blue Corp. and shall be so registered on the books and records of the Surviving Entity or its transfer agent. 6. Effects of the Merger. At the Effective Time of the Merger: (i) the Constituent Entities shall be merged into a single entity, which shall be the Surviving Entity; (ii) the separate existence of Blue LLC shall cease; (iii) the Surviving Entity shall have all of the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under the Delaware Act; (iv) the Surviving Entity shall possess all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of the Constituent Entities; (v) all property, real, personal and mixed, and all debt due on whatever account, if any, and all other choses in action, due to each of the Constituent Entities, shall be taken and deemed to be transferred to and vested in the Surviving Entity without further act or deed; (vi) title to any real estate, or any interest therein vested in any of the Constituent Entities shall not revert or be in any way impaired by reason of the Merger; (vii) the Surviving Entity shall be responsible and liable for all of the liabilities and obligations of each of the Constituent Entities; (viii) any existing claim or pending action or proceeding by or against any of the Constituent Entities may be prosecuted as if the merger had not taken place or the Surviving Entity may be substituted in its place, and any judgment rendered against any of the Constituent Entities may be enforced against the Surviving Entity; and (ix) neither the rights of creditors nor any liens upon any property of any of the Constituent Entities shall be impaired by the Merger. 2 7. Termination. (a) Circumstances of Termination. This Agreement may be terminated (notwithstanding approval by the members or stockholders of any party hereto): (i) By the mutual consent in writing of the Managers or Board of Directors of the Constituent Entities hereto prior to the Effective Time of the Merger; or (ii) By the Board of Directors of any Constituent Entity if the Effective Time of the Merger has not occurred by February 28, 1999. (b) Effect of Termination. In the event of a termination of this Agreement pursuant to Section 7(a) hereof, each party shall pay the costs and expenses incurred by it in connection with this Agreement and no party (or any of its officers, directors and stockholders, managers or members) shall have any further liability to any other party for any costs, expenses, damages or loss of anticipated profits hereunder. 8. General Provisions. (a) Further Assurances. If at any time the Surviving Entity shall consider or be advised that any further assignment or assurance in law or other action is necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Entity the title to any property or rights of Blue LLC acquired or to be acquired as a result of the Merger, the proper officers and directors of Blue LLC and officers and directors of the Surviving Entity, shall be and they hereby are, severally and fully authorized to execute and deliver such deeds, assignments and assurances in law and to take such other action as may be necessary or proper in the name of Blue LLC or the Surviving Entity and otherwise to carry out the purpose of this Agreement. (b) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given if delivered in person or sent by prepaid first class registered or certified mail, return receipt requested at the principal executive offices of such person. (c) Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes and cancels any other agreement, representation or communication, whether oral or written, between the parties hereto relating to the transactions contemplated herein or the subject matter hereof. (d) Headings. The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (e) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. (f) Assignment. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns; provided, however, that any assignment 3 by any party of its rights under this Agreement without the written consent of the other parties shall be void. (g) Amendment. This Agreement may not be amended except pursuant to an instrument in writing signed on behalf of each of the parties hereto. (h) Counterparts. This Agreement may be executed simultaneously 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. (i) Tax Consequences. For federal income purposes, the Merger is intended to constitute a transaction within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended. 4 IN WITNESS WHEREOF, pursuant to authority duly given by their respective Board of Directors, the Constituent Entities have caused this Agreement to be signed in their respective corporate names by their respective corporate officers, as of the date first above written. BLUE MARTINI SOFTWARE, INC., a Delaware corporation By: /s/ Monte Zweben -------------------------------------- Monte Zweben President By: /s/ Eric Jensen ----------------------------------------- Eric Jensen Secretary BLUE MARTINI LLC, a Delaware limited liability company By: /s/ Monte Zweben ----------------------------------------- Monte Zweben President By: /s/ Eric Jensen ----------------------------------------- Eric Jensen Secretary 5 EX-10.6 11 FORM OF CLASS A UNITS AGREEMENT Exhibit 10.6 THE SECURITIES ACQUIRED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION THEREFROM IS AVAILABLE. CLASS A UNITS AGREEMENT This Class A Units Agreement (the "Agreement") is made as of the _____ day of __________, 199_, by and among Blue Martini LLC, a Delaware limited liability company (the "Company"), those individuals and entities whose names are set forth on Schedule I to this Agreement and such other persons who hereafter shall be admitted as additional purchasers ("Purchasers"). Witnesseth: Whereas, the Company desires to issue, and Purchasers desire to acquire Class A Units of the Company ("Units") of the Company as herein described, on the terms and conditions hereinafter set forth. Now, Therefore, it is agreed between the parties as follows: 1. Purchaser hereby agrees to acquire from the Company, and the Company agrees to issue to such Purchaser that certain number of Units at an agreed fair market value per Unit as set forth on Schedule I hereto. The purchase price for each Unit shall be payable in cash concurrently with the execution of this Agreement. 2. Each Purchaser acknowledges that he is aware that the Units to be issued to him by the Company pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the "Act"), and that the Units are deemed to constitute "restricted securities" under Rule 144 promulgated under the Act. In this connection, each Purchaser warrants and represents to the Company that he is purchasing the Units for his own account and that he has no present intention of distributing or selling said Units except as permitted under the Act and Section 25102(f) of the California Corporations Code. Each Purchaser further warrants and represents that he has either (i) preexisting personal or business relationships with the Company or any of its members, officers, directors or controlling persons, or (ii) the capacity to protect his own interests in connection with the purchase of the Units by virtue of the business or financial expertise of any professional advisors to such Purchaser who are unaffiliated with and who are not compensated by the Company or any of its affiliates, directly or indirectly. Each Purchaser further acknowledges that the exemption from registration under Rule 144 will not be available for at least two years from the date of sale of the Units unless at least one year from the date of sale (i) a public trading market then exists for securities of the Company, (ii) adequate information concerning the Company is then available to the public, and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Units may be made only in limited amounts in accordance with such terms and conditions. 1 3. Each Purchaser agrees that he shall in no event make any disposition of all or any portion of the Units issued hereunder unless and until: (i) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (ii) (a) Each Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (b) each Purchaser shall have furnished the Company with an opinion of Purchaser's own counsel to the effect that such disposition will not require registration of such Units under the Act, and (c) such opinion of Purchaser's counsel shall have been concurred in by counsel for the Company, such concurrence not to be unreasonably withheld, and the Company shall have advised Purchaser of such concurrence; and (iii) any such disposition complies with any and all restrictions on Transfer of Units contained in the Operating Agreement of the Company, effective as of June 5,1998 (the "Operating Agreement"). Each Purchaser acknowledges that he is aware that, under the terms of the Operating Agreement, certain restrictions may limit Purchaser's ability to transfer the Units. 4. The Company shall not be required (i) to transfer on its books any Units which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Units or to accord the right to vote as such owner or to make any distributions to any transferee to whom such Units shall have been so transferred. 5. Each Purchaser hereby agrees that for a period of not less than ninety (90) days and up to a maximum of one hundred eighty (180) days following the effective date of the first registration statement of the Company or any successor entity covering securities of the Company or such successor entity to be sold on its behalf in an underwritten public offering, Purchaser shall not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company (or securities of any successor entity) held by Purchaser at any time during such period except securities included in such registration; provided, however, that all members of the Company or successor entity who hold securities of the Company or options to acquire securities of the Company or successor entity enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop- transfer instructions with respect to the Units (or securities of any successor entity) held by Purchaser (and the securities of every other person subject to the foregoing restriction) until the end of such period. 6. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 7. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or delivery by express courier, or four (4) days after deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its 2 signature or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 8. This Agreement shall be governed by the laws of the State of California and interpreted and determined in accordance with the laws of the State of California, as such laws are applied by California courts to contracts made and to be performed entirely in California by residents of that state. 9. This Agreement may be executed in any number of counterparts and when so executed, all of such counterparts shall constitute a single instrument binding upon all parties notwithstanding the fact that all parties are not signatory to the original or to the same counterpart. 10. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, shall be binding upon Purchaser, Purchaser's heirs, executors, administrators, successors and assigns. 11. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. 3 In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written. Blue Martini LLC Purchasers ________________________ ________________________ Monte Zweben, President Name: Address: Schedule I Schedule of Purchasers
Aggregate Name & Address of Purchaser Date of Purchase Purchase Price Number of Class A Units ======================================================================================================
EX-10.7 12 FORM OF RESTRICTED CLASS B UNITS AGREEMENT EXHIBIT 10.7 THE MEMBERSHIP INTERESTS ("UNITS") ARE SUBJECT TO AN OPTION SET FORTH IN THIS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS LIMITED LIABILITY COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY UNITS SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE ISSUER OF THESE UNITS. THE SECURITIES ACQUIRED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR AN EXEMPTION THEREFROM IS AVAILABLE. RESTRICTED CLASS B UNITS AGREEMENT This Restricted Units Agreement (the "Agreement") is made as of the ____ day of __________, 1998, by and between Blue Martini LLC (the "Company") and the undersigned purchaser ("Purchaser"). Witnesseth: Whereas, the Company desires to issue, and Purchaser desires to acquire, Class B Units of the Company ("Units") of the Company as herein described, on the terms and conditions hereinafter set forth; and Whereas, the issuance of the Units hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees, directors, officers, consultants and advisors and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Now, Therefore, it is agreed between the parties as follows: 1. Purchaser hereby agrees to acquire from the Company, and the Company agrees to issue to Purchaser _______________ (__________) of the Company's Units, at an agreed fair market value of __________ ($_____) per Unit. The purchase price for each Unit shall be __________ ($_____) and shall be payable in cash concurrently with the execution of this Agreement. 2. (a) All of the Units being acquired by Purchaser pursuant to this Agreement shall be subject to the option set forth in this paragraph 2 ("Purchase Option"). In the event Purchaser shall cease to provide services as an employee, director, officer, consultant or advisor of the Company (as the case may be) as determined by a majority of the Managers of the Company in their sole discretion, to the Company (a "Termination") at any time on or after _____, 1998 (the "Commencement Date") through __________________, 2002, the fourth anniversary of the Commencement Date, for any reason, or no reason, the Company shall have the right, at any 1 time within ninety (90) days after the date of a Termination, to exercise the Purchase Option, which consists of the right to purchase from Purchaser or Purchaser's personal representative, as the case may be, at a purchase price in an amount equal to the purchase price initially paid by Purchaser as described in paragraph 1 ("the Option Price"), up to but not exceeding the number of Units which have not vested under the provisions of subparagraph (b) below, upon the terms hereinafter set forth. (b) The Company may exercise the Purchase Option as to the maximum portion of the Units specified in the following table:
Portion of the Units If Termination Occurs Subject to Purchase Option --------------------- -------------------------- Prior to the first anniversary 75% of the Commencement Date After the first anniversary and prior 75% - (x/48) 100% to the fourth anniversary of the x = whole number of months following Commencement Date the first anniversary of the Commencement Date prior to a Termination On or after the fourth anniversary of 0% the Commencement Date
3. The Purchase Option shall be exercised by written notice signed by an authorized officer of the Company and delivered or mailed as provided in paragraph 13. The Option Price shall be payable in cash. 4. The Company may assign its rights under paragraph 2 hereof. 5. Purchaser acknowledges that Purchaser is aware that the Units to be issued to Purchaser by the Company pursuant to this Agreement have not been registered under the Act, and that the Units are deemed to constitute "restricted securities" under Rule 701 and Rule 144 promulgated under the Act. In this connection, Purchaser warrants and represents to the Company that Purchaser is purchasing the Units for Purchaser's own account and that Purchaser has no present intention of distributing or selling said Units except as permitted under the Act and Section 25102(o) of the California Corporations Code. Purchaser further acknowledges that the exemption from registration under Rule 144 will not be available for at least two years from the date of sale of the Units unless at least one year from the date of sale (i) a public trading market then exists for securities of the Company, (ii) adequate information concerning the Company is then available to the public, and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Units may be made only in limited amounts in accordance with such terms and conditions, and that exemption from registration under Rule 701 will not be available until ninety (90) days after the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and that after such date the Units may be resold by persons other than affiliates in reliance on Rule 144 without 2 compliance with paragraphs (c), (d), (e) and (h) thereof, and by affiliates without compliance with paragraph (d) thereof. 6. As security for Purchaser's faithful performance of the terms of this Agreement and to insure the availability for delivery of Purchaser's Units upon exercise of the Purchase Option herein provided for, Purchaser agrees, at the closing hereunder (or as soon thereafter as practicable), to deliver to and deposit with the Company three (3) assignments duly endorsed (with date and number of Units left blank) in the form attached hereto as Exhibit A. 7. Purchaser shall not sell, transfer, assign or otherwise dispose of any of the Units then subject to the Purchase Option. Without in any way limiting the foregoing, Purchaser further agrees that Purchaser shall in no event make any disposition of all or any portion of the Units issued hereunder unless and until: (i) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or (ii) (a) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (b) Purchaser shall have furnished the Company with an opinion of Purchaser's own counsel to the effect that such disposition will not require registration of such Units under the Act, and (c) such opinion of Purchaser's counsel shall have been concurred in by counsel for the Company, such concurrence not to be unreasonably withheld, and the Company shall have advised Purchaser of such concurrence; and (iii) any such disposition complies with any and all restrictions on Transfer of Units contained in the Operating Agreement of the Company, effective as of June ___, 1998 (the "Operating Agreement"); and (iv) Member approval of the Agreement within 12 months before or after the execution of the Agreement is obtained. (The purchase of any Units pursuant the Agreement shall be rescinded if Member approval is not obtained within such period. Such Units shall not be counted in determining whether such approval is obtained.) 8. The Company shall not be required (i) to transfer on its books any Units which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Units or to accord the right to vote as such owner or to make any distributions to any transferee to whom such Units shall have been so transferred. 9. Some of the federal and California income tax consequences relating to the grant of the Units under this Agreement are set forth below. This summary is necessarily incomplete and the tax laws and regulations are subject to change. Purchaser should consult a tax adviser with respect to the specific tax consequences of the grant of the Units. Federal and California income tax consequences arising by reason of the grant by the Company of Units to Purchaser are governed by Section 83 of the Internal Revenue Code of 1986, as amended, (the "Code") and as incorporated into California law. 3 To the extent Purchaser acquires Units subject to the Company's Purchase Option, Purchaser will not be subject to income tax with respect to such Units at the time of grant unless Purchaser makes the election discussed below. Instead, as and when the Units vest, Purchaser will recognize ordinary income (subject to withholding) equal to the then fair market value of the Units. Practically speaking, this means that, unless Purchaser elects otherwise, each year at the time a portion of the Units vest during the term of the Purchase Option, Purchaser will be treated as having received taxable ordinary income, measured as just described. If Purchaser makes a proper and timely election under Section 83(b) of the Code WITHIN 30 DAYS OF THE DATE OF THIS AGREEMENT pursuant to a notice substantially in the form attached hereto as Exhibit B, Purchaser will not be taxed at the time the Units vest. However, if the fair market value of the Units at the date of this Agreement (determined without regard to the Company's Purchase Option) exceeds the price paid by Purchaser for the Units, such excess will be ordinary income subject to tax (and withholding). Thus, by making a Section 83(b) election, any appreciation in the value of the Units between the date of this Agreement and the date the Units vest will be taxed as capital gain at the time the Units are disposed of, rather than ordinary income at the time of vesting. Any such capital gain, or any loss, will be long-term, mid-term or short-term depending on how long Purchaser holds the Units from the date of their issuance to Purchaser. However, should the Company repurchase any of the Units pursuant to the Purchase Option, Purchaser will not be entitled to deduct any income recognized or taxes paid by reason of the Section 83(b) election. Purchaser acknowledges that the Company's determination of the fair market value of the Units is not binding on the Internal Revenue Service or California Franchise Tax Board and that if the Units are determined to have a greater value, Purchaser shall be responsible for the additional taxes, and, in any event, Purchaser shall be responsible for all taxes incurred by Purchaser in connection with the Units. 10. Subject to the provisions of paragraphs 6 and 7 above, Purchaser shall, during the term of this Agreement, exercise all rights and privileges of a Member, as defined in the Operating Agreement, with respect to the Units subject to the Purchase Option. Purchaser acknowledges that Purchaser is aware that, under the terms of the Operating Agreement, certain restrictions will limit Purchaser's ability to transfer the Units. Purchaser shall receive financial statements of the Company at least annually unless Purchaser is a person whose duties in connection with the Company assures Purchaser access to equivalent information. 11. Purchaser hereby agrees that for a period of not less than ninety (90) days and up to a maximum of one hundred eighty (180) days following the effective date of the first registration statement of the Company or any successor entity covering securities of the Company or such successor entity to be sold on its behalf in an underwritten public offering, Purchaser shall not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company (or securities of any successor entity) held by Purchaser at any time during such period except securities included in such registration; provided, however, that all members of the Company or successor entity who hold securities of the Company or options to acquire securities of the Company or successor entity enter into similar agreements. 4 In order to enforce the foregoing covenant, the Company may impose stop- transfer instructions with respect to the Units (or securities of any successor entity) held by Purchaser (and the securities of every other person subject to the foregoing restriction) until the end of such period. 12. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 13. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or delivery by express courier, or four (4) days after deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its signature or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 14. This Agreement shall be governed by the laws of the State of California and interpreted and determined in accordance with the laws of the State of California, as such laws are applied by California courts to contracts made and to be performed entirely in California by residents of that state. 15. This Agreement may be executed in any number of counterparts and when so executed, all of such counterparts shall constitute a single instrument binding upon all parties notwithstanding the fact that all parties are not signatory to the original or to the same counterpart. 16. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, shall be binding upon Purchaser, Purchaser's heirs, executors, administrators, successors and assigns. 17. This Agreement, together with the Exhibits hereto, constitutes the entire agreement of the parties with respect to the subject matter hereof. 5 In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written. Blue Martini LLC Purchaser ___________________________________ ____________________________________ Monte Zweben, President Name: Address: ____________________________________ ____________________________________ Attachments: Exhibit A Assignment of Units Exhibit B 83(b) Election Notice 6 Exhibit A Assignment of Units For Value Received and pursuant to that certain Restricted Units Purchase Agreement dated as of ____________, 1998 (the "Agreement"), the undersigned hereby sells, assigns and transfers unto Blue Martini LLC, a Delaware limited liability company (the "Company"), _________________________________ (_______) Units of the Company standing in the undersigned's name on the books of the Company herewith, and does hereby irrevocably constitute and appoint __________________________ attorney to transfer the said Units on the books of the Company with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Agreement, in connection with the repurchase of Units issued to the undersigned pursuant to the Agreement, and only to the extent that such Units remain subject to the Company's Purchase Option under the Agreement. Dated:_____________________________ Signature:____________________________ Name:_________________________________ i Exhibit B 83(b) Election Notice ii _______________________, 1998 Via Certified Mail - Return Receipt Requested - --------------------------------------------- Director of Internal Revenue Internal Revenue Service Center Fresno, CA 93888 Re: Election under Section 83(b) Ladies and Gentlemen: This statement constitutes an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended from time to time. Pursuant to Treasury Regulation Section 1.83-2, the following information is submitted: 1. Name: _____________________________________ ("Purchaser") Address: _____________________________________ _____________________________________ Social Security No.: _____________________________________ 2. Property Description: _____________________ (_____ Units of Blue Martini LLC (the "Company") 3. The date on which property was transferred is ________________, 1998. 4. The taxable year for which the election is made is the calendar year 1998. 5. Restrictions: "In the event Purchaser shall cease to provide services as a __________, as determined by a majority of the Managers of the Company in their sole discretion, to the Company (a "Termination") at any time on or after, 1998 (the "Commencement Date") through ____, 2002, the fourth anniversary of the Commencement Date, for any reason, or no reason, the Company shall have the right, at any time within one hundred twenty (120) days after the date of a Termination, to exercise the Purchase Option, which consists of the right to purchase from Purchaser or Purchaser's personal representative, as the case may be, at a purchase price in an amount equal to the purchase price initially paid by Purchaser as 1 described in paragraph 1 ("the Option Price"), up to but not exceeding the number of Units which have not vested under the provisions of subparagraph (b) below, upon the terms hereinafter set forth." 6. The fair market value at the time of transfer of the property with respect to which this election is being made, determined without regard to any restriction other than a restriction which by its terms will never lapse, is _____ cents ($0._____) per Unit. 7. The amount paid by the undersigned taxpayer for the property is __________ ($_____) ($_____ per Unit). 8. A copy of this statement has been furnished to Blue Martini LLC and the transferee of the property if different from the Purchaser. Dated: ______________, 1998 Very truly yours, _________________________________ Name: 2 EX-10.8 13 SERIES B PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.8 BLUE MARTINI SOFTWARE, INC. SERIES B PREFERRED STOCK PURCHASE AGREEMENT Table Of Contents
Page 1. Agreement To Sell And Purchase........................................ 1 1.1 Authorization of Shares......................................... 1 1.2 Sale and Purchase............................................... 1 2. Closing, Delivery And Payment......................................... 1 2.1 Closing......................................................... 1 2.2 Delivery........................................................ 2 2.3 Subsequent Sales of Shares...................................... 2 3. Representations And Warranties Of The Company......................... 2 3.1 Organization, Good Standing and Qualification................... 2 3.2 Subsidiaries.................................................... 2 3.3 Capitalization; Voting Rights................................... 2 3.4 Authorization; Binding Obligations.............................. 3 3.5 Liabilities..................................................... 3 3.6 Obligations to Related Parties.................................. 4 3.7 Title to Properties and Assets; Liens, Etc...................... 4 3.8 Patents and Trademarks.......................................... 4 3.9 Compliance with Other Instruments............................... 5 3.10 Litigation...................................................... 5 3.11 Tax Returns and Payments........................................ 5 3.12 Employees....................................................... 6 3.13 Proprietary Information and Inventions Agreements............... 6 3.14 Registration Rights............................................. 6 3.15 Offering Valid.................................................. 6 4. Representations And Warranties Of The Purchasers...................... 7 4.1 Requisite Power and Authority................................... 7 4.2 Investment Representations...................................... 7 4.3 Transfer Restrictions........................................... 8
i Table Of Contents (Continued)
Page 5. Conditions To Closing................................................ 8 5.1 Conditions to Purchasers' Obligations at the Closing........... 8 5.2 Conditions to Obligations of the Company....................... 10 6. Miscellaneous........................................................ 10 6.1 Governing Law.................................................. 10 6.2 Survival....................................................... 10 6.3 Successors and Assigns......................................... 11 6.4 Entire Agreement............................................... 11 6.5 Severability................................................... 11 6.6 Amendment and Waiver........................................... 11 6.7 Delays or Omissions............................................ 11 6.8 Waiver of Conflicts............................................ 12 6.9 Notices........................................................ 12 6.10 Expenses....................................................... 12 6.11 Attorneys' Fees................................................ 12 6.12 Titles and Subtitles........................................... 12 6.13 Counterparts................................................... 12 6.14 Broker's Fees.................................................. 12 6.15 Exculpation Among Purchasers................................... 13 6.16 Confidentiality................................................ 13 6.17 Pronouns....................................................... 13 6.18 California Corporate Securities Law............................ 13
ii BLUE MARTINI SOFTWARE, INC. SERIES B PREFERRED STOCK PURCHASE AGREEMENT This Series B Preferred Stock Purchase Agreement (the "Agreement") is entered into as of January 13, 1999, by and among Blue Martini Software, Inc., a Delaware corporation (the "Company") and each of those persons and entities, severally and not jointly, whose names are set forth on the Schedule of Purchasers attached hereto as Exhibit A (which persons and entities are hereinafter collectively referred to as "Purchasers" and each individually as a "Purchaser"). Recitals Whereas, the Company has authorized the sale and issuance of an aggregate of two million six hundred thirty-one thousand five hundred seventy-nine (2,631,579) shares of its Series B Preferred Stock (the "Shares"); Whereas, Purchasers desire to purchase the Shares on the terms and conditions set forth herein; and Whereas, the Company desires to issue and sell the Shares to Purchasers on the terms and conditions set forth herein; Now, Therefore, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Agreement To Sell And Purchase. 1.1 Authorization of Shares. On or prior to the Closing (as defined in Section 2 below), the Company shall have authorized (a) the sale and issuance to Purchasers of the Shares and (b) the issuance of such shares of Common Stock to be issued upon conversion of the Shares (the "Conversion Shares"). The Shares and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Certificate of Incorporation of the Company, in the form attached hereto as Exhibit B (the "Charter"). 1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the Closing (as hereinafter defined) the Company hereby agrees to issue and sell to each Purchaser, severally and not jointly, and each Purchaser agrees to purchase from the Company, severally and not jointly, the number of Shares set forth opposite such Purchaser's name on Exhibit A, at a purchase price of one dollar and ninety cents ($1.90) per share. 2. Closing, Delivery And Payment. 2.1 Closing. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at 5:00 p.m. on the date hereof, at the offices of Cooley Godward llp, 3000 Sand Hill Road, Building 3, Suite 230, Menlo Park, California 94025 1. or at such other time or place as the Company and Purchasers may mutually agree (such date is hereinafter referred to as the "Closing Date"). 2.2 Delivery. At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Purchaser a certificate representing the number of Shares to be purchased at the Closing by such Purchaser, against payment of the purchase price therefor by check, wire transfer made payable to the order of the Company, cancellation of indebtedness or any combination of the foregoing. 2.3 Subsequent Sales of Shares. At any time on or before the 120th day following the Closing, the Company may sell up to the balance of the authorized shares of Series B Preferred Stock not sold at the Closing to such persons as may be approved by the Board of Directors of the Company. All such sales shall be made on the terms and conditions set forth in this Agreement, including, without limitation, the representations and warranties by such Purchasers as set forth in Section 4. Any Shares of Series B Preferred Stock sold pursuant to this Section 2.3 shall be deemed to be "Shares" for all purposes under this Agreement and any purchasers thereof shall be deemed to be "Purchasers" for all purposes under this Agreement. 3. Representations And Warranties Of The Company. Except as set forth on a Schedule of Exceptions delivered by the Company to the Purchasers at the Closing, the Company hereby represents and warrants to each Purchaser as of the date of this Agreement as follows: 3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, the Investor Rights Agreement in the form attached hereto as Exhibit C (the "Investor Rights Agreement") and the Co-Sale Agreement in the form attached hereto as Exhibit D (the "Co-Sale Agreement") (collectively, the "Related Agreements"), to issue and sell the Shares and the Conversion Shares, and to carry out the provisions of this Agreement, the Related Agreements and the Charter and to carry on its business as presently conducted and as presently proposed to be conducted. 3.2 Subsidiaries. The Company does not own or control any equity security or other interest of any other corporation, limited partnership or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. 3.3 Capitalization; Voting Rights. The authorized capital stock of the Company, immediately prior to the Closing, will consist of twenty million (20,000,000) shares of Common Stock, (par value $0.001) per share, seven million five hundred sixty-three thousand one hundred twenty-five (7,563,125) shares of which are issued and outstanding and four million one hundred thirty thousand (4,130,000) shares of which are reserved for issuance to employees pursuant to the Company's Amended and Restated 1998 Equity Incentive Plan (the "Plan") and five million (5,000,000) shares of Preferred Stock (par value $0.001) per share, two million (2,000,000) shares of which are designated Series A Preferred Stock, one million one hundred 2. sixteen thousand seventy-one (1,116,071) of which are issued and outstanding and three million (3,000,000) shares of which are designated Series B Preferred Stock, none of which are issued and outstanding. All issued and outstanding shares of the Company's Common Stock and Preferred Stock (a) have been duly authorized and validly issued and (b) are fully paid and nonassessable. The rights, preferences, privileges and restrictions of the Shares are as stated in the Charter. Each series of Preferred Stock is convertible into Common Stock on a one-for-one basis. The Conversion Shares have been duly and validly reserved for issuance. Other than the four million one hundred thirty thousand (4,130,000) shares reserved for issuance under the Plan, and except as may be granted pursuant to the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or shareholder agreements, or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Of such reserved shares of Common Stock under the Plan, (i) two million sixty-three thousand one hundred twenty-five (2,063,125) shares have been issued pursuant to restricted stock purchase agreements and (ii) two million sixty-six thousand eight hundred seventy-five (2,066,875) shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to such Plan. When issued in compliance with the provisions of this Agreement and the Charter, the Shares and the Conversion Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon the Purchasers; provided, however, that the Shares and the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 3.4 Authorization; Binding Obligations. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company hereunder and thereunder at the Closing and the authorization, sale, issuance and delivery of the Shares pursuant hereto and the Conversion Shares pursuant to the Charter has been taken or will be taken prior to the Closing. The Agreement and the Related Agreements, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (b) general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of the indemnification provisions in Section 2.9 of the Investor Rights Agreement may be limited by applicable laws. The sale of the Shares and the subsequent conversion of the Shares into Conversion Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. 3.5 Liabilities. The Company has no material liabilities and, to the best of its knowledge, knows of no material contingent liabilities, except current liabilities incurred in the ordinary course of business subsequent which have not been, either in any individual case or in the aggregate, materially adverse. (a) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or to its knowledge by which it is bound which may involve (i) obligations (contingent or otherwise) 3. of, or payments to, the Company in excess of ten thousand dollars ($10,000) (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business), or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of "off the shelf" or other standard products), or (iii) indemnification by the Company with respect to infringements of proprietary rights (other than indemnification obligations arising from purchase or sale or license agreements entered into in the ordinary course of business). (b) For the purposes of subsection (a) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 3.6 Obligations to Related Parties. There are no obligations of the Company to officers, directors, shareholders, or employees of the Company other than (a) for payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company and (c) for other standard employee benefits made generally available to all employees (including stock option or purchase agreements outstanding under any stock option plan approved by the Board of Directors of the Company). 3.7 Title to Properties and Assets; Liens, Etc. The Company has good and marketable title to its properties and assets, including the properties and assets reflected in the most recent balance sheet, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes which have not yet become delinquent, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company, and (c) those that have otherwise arisen in the ordinary course of business. 3.8 Patents and Trademarks. To the best of its knowledge, the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. The Company has not received any communications alleging that the Company has violated or, by conducting its business as presently proposed in the Business Plan provided to the Purchasers (the "Business Plan"), would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any 4. nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company's business as presently proposed to be conducted in the Business Plan. Neither the execution nor delivery of this Agreement or the Related Agreements, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as presently proposed in the Business Plan, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company, except for inventions, trade secrets or proprietary information that have been assigned to the Company. 3.9 Compliance with Other Instruments. The Company is not in violation or default of any term of its Charter or Bylaws, or of any provision of any mortgage, indenture, contract, agreement, instrument or contract to which it is party or by which it is bound or of any judgment, decree, order, writ. The execution, delivery, and performance of and compliance with this Agreement, and the Related Agreements, and the issuance and sale of the Shares pursuant hereto and of the Conversion Shares pursuant to the Charter, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. 3.10 Litigation. There is no action, suit, proceeding or investigation pending or to the Company's knowledge currently threatened in writing against the Company that questions the validity of this Agreement, or the Related Agreements or the right of the Company to enter into any of such agreements, or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing. The foregoing includes, without limitation, actions pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.11 Tax Returns and Payments. The Company has filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company on or before the Closing, have been paid or will be paid prior to the time they become delinquent. The Company has not been advised (a) that any of its returns, 5. federal, state or other, have been or are being audited as of the date hereof, or (b) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 3.12 Employees. The Company has no collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company's knowledge, threatened with respect to the Company. To the Company's knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company; and to the Company's knowledge the continued employment by the Company of its present employees, and the performance of the Company's contracts with its independent contractors, will not result in any such violation. The Company has not received any notice alleging that any such violation has occurred. No employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate his, her or their employment with the Company, nor does the Company have a present intention to terminate the employment of any officer, key employee or group of key employees. 3.13 Proprietary Information and Inventions Agreements. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Agreement. No current employee, officer or consultant of the Company has excluded works or inventions made prior to his or her employment with the Company from his or her assignment of inventions pursuant to such employee, officer or consultant's Proprietary Information and Inventions Agreement. 3.14 Registration Rights. Except as required pursuant to the Investor Rights Agreement, the Company is presently not under any obligation, and has not granted any rights, to register (as defined in Section 1.1 of the Investor Rights Agreement) any of the Company's presently outstanding securities or any of its securities that may hereafter be issued. 3.15 Offering Valid. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale and issuance of the Shares and the Conversion Shares will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Shares to any person or persons so as to bring the sale of such Shares by the Company within the registration provisions of the Securities Act or any state securities laws. 6. 4. Representations And Warranties Of The Purchasers. Each Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): 4.1 Requisite Power and Authority. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (b) general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of the indemnification provisions of Section 2.9 of the Investor Rights Agreement may be limited by applicable laws. 4.2 Investment Representations. Purchaser understands that neither the Shares nor the Conversion Shares have been registered under the Securities Act. Purchaser also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement. Purchaser hereby represents and warrants as follows: (a) Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares (or the Conversion Shares) are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser understands that the Company has no present intention of registering the Shares, the Conversion Shares or any shares of its Common Stock. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Shares or the Conversion Shares under the circumstances, in the amounts or at the times Purchaser might propose. (b) Acquisition for Own Account. Purchaser is acquiring the Shares and the Conversion Shares for Purchaser's own account for investment only, and not with a view towards their distribution. (c) Purchaser Can Protect Its Interest. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement, and the Related Agreements. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. 7. (d) Accredited Investor. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (e) Company Information. Purchaser has received and read the Company's financial statements and Business Plan and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. (f) Rule 144. Purchaser acknowledges and agrees that the Shares, and, if issued, the Conversion Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. (g) Residence. If the Purchaser is an individual, then the Purchaser resides in the state or province identified in the address of the Purchaser set forth on Exhibit A; if the Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of the Purchaser in which its investment decision was made is located at the address or addresses of the Purchaser set forth on Exhibit A. 4.3 Transfer Restrictions. Each Purchaser acknowledges and agrees that the Shares and, if issued, the Conversion Shares are subject to restrictions on transfer as set forth in the Investor Rights Agreement. 5. Conditions To Closing. 5.1 Conditions to Purchasers' Obligations at the Closing. Purchasers' obligations to purchase the Shares at the Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date with the same force and effect as if they had been made as of the Closing Date, and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Closing. (b) Legal Investment. On the Closing Date, the sale and issuance of the Shares and the proposed issuance of the Conversion Shares shall be legally permitted by all laws and regulations to which Purchasers and the Company are subject. 8. (c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing). (d) Filing of Charter. The Charter shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date. (e) Corporate Documents. The Company shall have delivered to Purchasers or their counsel, copies of all corporate documents of the Company as Purchasers shall reasonably request. (f) Reservation of Conversion Shares. The Conversion Shares issuable upon conversion of the Shares shall have been duly authorized and reserved for issuance upon such conversion. (g) Compliance Certificate. The Company shall have delivered to Purchasers a Compliance Certificate, executed by the President of the Company, dated the Closing Date, to the effect that the conditions specified in subsections (a), (c), (d) and (f) of this Section 5.1 have been satisfied. (h) Investor Rights Agreement. An Investor Rights Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the parties thereto. (i) Co-Sale Agreement. The Co-Sale Agreement substantially in the form attached hereto as Exhibit D shall have been executed and delivered by the parties thereto. The stock certificates representing the shares subject to the Co-Sale Agreement shall have been delivered to the Secretary of the Company and shall have had appropriate legends placed upon them to reflect the restrictions on transfer set forth on the Co-Sale Agreement. (j) Board of Directors. Upon the Closing, the authorized size of the Board of Directors of the Company shall be six (6) members and the Board shall consist of James Gaither, Thomas Siebel, A. Michael Spence, Andrew Verhalen, William Zuendt and Monte Zweben. (k) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchasers and their special counsel, and the Purchasers and their special counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (l) Agreement and Plan of Merger. The Agreement and Plan of Merger substantially in the form attached hereto as Exhibit E shall have been executed and 9. delivered by the parties thereto and the Certificate of Merger shall have been filed with the Secretary of State of the State of Delaware. 5.2 Conditions to Obligations of the Company. The Company's obligation to issue and sell the Shares at each Closing is subject to the satisfaction, on or prior to such Closing, of the following conditions: (a) Representations and Warranties True. The representations and warranties in Section 4 made by those Purchasers acquiring Shares hereof shall be true and correct in all material respects at the date of the Closing, with the same force and effect as if they had been made on and as of said date. (b) Performance of Obligations. Such Purchasers shall have performed and complied with all agreements and conditions herein required to be performed or complied with by such Purchasers on or before the Closing. (c) Filing of Charter. The Charter shall have been filed with the Secretary of State of the State of Delaware. (d) Investor Rights Agreement. An Investor Rights Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the Purchasers. (e) Co-Sale Agreement. The Co-Sale Agreement substantially in the form attached hereto as Exhibit D shall have been executed and delivered by the parties thereto. (f) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing). 6. Miscellaneous. 6.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 6.2 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby for a period of one (1) year following the Closing. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 6.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, 10. heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time. 6.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Related Agreements and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 6.5 Severability. In case any provision of the 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. 6.6 Amendment and Waiver. (a) This Agreement may be amended or modified only upon the written consent of the Company and holders of at least a majority of the Shares (treated as if converted and including any Conversion Shares into which the Shares have been converted that have not been sold to the public). (b) The obligations of the Company and the rights of the holders of the Shares and the Conversion Shares under the Agreement may be waived only with the written consent of the holders of at least a majority of the Shares (treated as if converted and including any Conversion Shares into which the Shares have been converted that have not been sold to the public). 6.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, the Related Agreements or the Charter, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any Purchaser's part of any breach, default or noncompliance under this Agreement, the Related Agreements or under the Charter or any waiver on such party's part of any provisions or conditions of the Agreement, the Related Agreements, or the Charter must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, the Related Agreements, the Charter, by law, or otherwise afforded to any party, shall be cumulative and not alternative. 6.8 Waiver of Conflicts. Each party to this Agreement acknowledges that legal counsel for the Company, Cooley Godward LLP ("Cooley Godward"), has in the past performed and may continue in the future to perform legal services for one or more of the Purchasers or their affiliates in matters unrelated to the transactions contemplated by this Agreement, including, but not limited to, the representation of the Purchasers in matters of a similar nature to the transactions contemplated herein. Each party to this Agreement hereby (a) 11. acknowledges that they have had an opportunity to ask for and have obtained information relevant to such representation, including disclosure of the reasonably foreseeable adverse consequences of such representation; (b) acknowledges that with respect to the transactions contemplated herein, Cooley Godward has represented the Company and not any individual Purchaser or any individual shareholder, director or employee of the Company; and (c) gives its informed consent to Cooley Godward's representation of the Company in the transactions contemplated by this Agreement and Cooley Godward's previous or continuing representation of one or more of the Purchasers or their affiliates in matters unrelated to such transactions. 6.9 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address as set forth on the signature page hereof and to Purchaser at the address set forth on Exhibit A attached hereto or at such other address as the Company or Purchaser may designate by ten (10) days advance written notice to the other parties hereto. 6.10 Expenses. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of the Agreement. 6.11 Attorneys' Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 6.12 Titles and Subtitles. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 6.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6.14 Broker's Fees. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 6.14 being untrue. 12. 6.15 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm, or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Shares and Conversion Shares. 6.16 Confidentiality. Each party hereto agrees that, except with the prior written consent of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement or the Related Agreements, discussions or negotiations relating to this Agreement or the Related Agreements, the performance of its obligations hereunder or the ownership of the Shares purchased hereunder. The provisions of this Section 6.16 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto. 6.17 Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require. 6.18 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 13. In Witness Whereof, the parties hereto have executed this Series B Preferred Stock Purchase Agreement as of the date set forth in the first paragraph hereof. Company: Purchasers: Blue Martini Software, Inc. By: /s/ Monte Zweben By: /s/ All Series B Investors ------------------------------- ------------------------------------ President EXHIBIT A SCHEDULE OF PURCHASERS NAME AND ADDRESS - --------------------------------------- Marc Benioff Daniel T. Doles Peter Friedland and Rosalind Grymes- Friedland, Trustees FBO Peter Friedland and Rosalind Grymes-Freidland UTA Dated July 26, 1995 Matrix Partners V, L.P. 2500 Sand Hill Road, Suite 113 Menlo Park, CA 94025 Attn: Andrew Verhalen Matrix V Entrepreneurs Fund, L.P. 2500 Sand Hill Road, Suite 113 Menlo Park, CA 94025 Attn: Andrew Verhalen Zuendt Family Trust, UTA August 28, 1996 Zweben Family Revocable Trust Dated October 17, 1997 - -------------------------------------------------------------------------------- SERIES B PREFERRED STOCK PURCHASE AGREEMENT EX-10.9 14 SERIES C PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.9 BLUE MARTINI SOFTWARE, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT
Table Of Contents Page 1. Agreement To Sell And Purchase............................................... 1 1.1 Authorization of Shares............................................ 1 1.2 Sale and Purchase.................................................. 1 2. Closing, Delivery and Payment................................................ 1 2.1 Closing............................................................ 1 2.2 Delivery........................................................... 2 2.3 Subsequent Sales of Shares......................................... 2 3. Representations And Warranties Of The Company................................ 2 3.1 Organization, Good Standing and Qualification...................... 2 3.2 Subsidiaries....................................................... 2 3.3 Capitalization; Voting Rights...................................... 2 3.4 Authorization; Binding Obligations................................. 3 3.5 Financial Statements............................................... 3 3.6 Liabilities........................................................ 4 3.7 Agreements; Action................................................. 4 3.8 Obligations to Related Parties..................................... 4 3.9 Changes............................................................ 4 3.10 Title to Properties and Assets; Liens, Etc......................... 6 3.11 Patents and Trademarks............................................. 6 3.12 Compliance with Other Instruments.................................. 6 3.13 Litigation......................................................... 7 3.14 Tax Returns and Payments........................................... 7 3.15 Employees.......................................................... 7 3.16 Proprietary Information and Inventions Agreements.................. 8 3.17 Registration Rights................................................ 8 3.18 Offering Valid..................................................... 8 3.19 Qualified Small Business Stock..................................... 8 4. Representations And Warranties Of The Purchasers............................. 8 4.1 Requisite Power and Authority...................................... 8
i.
Table Of Contents (Continued) Page 4.2 Investment Representations......................................... 9 4.3 Transfer Restrictions.............................................. 10 5. Conditions To Closing........................................................ 10 5.1 Conditions to Purchasers' Obligations at the Closing............... 10 5.2 Conditions to Obligations of the Company........................... 11 6. Miscellaneous................................................................ 12 6.1 Governing Law...................................................... 12 6.2 Survival........................................................... 12 6.3 Successors and Assigns............................................. 12 6.4 Entire Agreement................................................... 12 6.5 Severability....................................................... 13 6.6 Amendment and Waiver............................................... 13 6.7 Delays or Omissions................................................ 13 6.8 Waiver of Conflicts................................................ 13 6.9 Notices............................................................ 14 6.10 Expenses........................................................... 14 6.11 Attorneys' Fees.................................................... 14 6.12 Titles and Subtitles............................................... 14 6.13 Counterparts....................................................... 14 6.14 Broker's Fees...................................................... 14 6.15 Exculpation Among Purchasers....................................... 14 6.16 Confidentiality.................................................... 15 6.17 Pronouns........................................................... 15 6.18 California Corporate Securities Law................................ 15
ii. BLUE MARTINI SOFTWARE, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT This Series C Preferred Stock Purchase Agreement (the "Agreement") is entered into as of July 20, 1999, by and among Blue Martini Software, Inc., a Delaware corporation (the "Company") and each of those persons and entities, severally and not jointly, whose names are set forth on the Schedule of Purchasers attached hereto as Exhibit A (which persons and entities are hereinafter collectively referred to as "Purchasers" and each individually as a "Purchaser"). Recitals Whereas, the Company has authorized the sale and issuance of an aggregate of two million seventy six thousand six hundred sixty seven (2,076,667) shares of its Series C Preferred Stock (the "Shares"); Whereas, Purchasers desire to purchase the Shares on the terms and conditions set forth herein; and Whereas, the Company desires to issue and sell the Shares to Purchasers on the terms and conditions set forth herein; Now, Therefore, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Agreement To Sell And Purchase. 1.1 Authorization of Shares. On or prior to the Closing (as defined in Section 2 below), the Company shall have authorized (a) the sale and issuance to Purchasers of the Shares and (b) the issuance of such shares of Common Stock to be issued upon conversion of the Shares (the "Conversion Shares"). The Shares and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate of Incorporation of the Company, in the form attached hereto as Exhibit B (the "Charter"). 1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the Closing (as hereinafter defined) the Company hereby agrees to issue and sell to each Purchaser, severally and not jointly, and each Purchaser agrees to purchase from the Company, severally and not jointly, the number of Shares set forth opposite such Purchaser's name on Exhibit A, at a purchase price of six dollars ($6.00) per share. 2. Closing, Delivery And Payment. 2.1 Closing. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at 5:00 p.m. on the date hereof, at the offices of Cooley Godward LLP, 3000 Sand Hill Road, Building 3, Suite 230, Menlo Park, California 94025 or at such other time or place as the Company and Purchasers may mutually agree (such date is hereinafter referred to as the "Closing Date"). 2.2 Delivery. At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Purchaser a certificate representing the number of Shares to be purchased at the Closing by such Purchaser, against payment of the purchase price therefor by check, wire transfer made payable to the order of the Company, cancellation of indebtedness or any combination of the foregoing. 2.3 Subsequent Sales of Shares. At any time on or before the 120th day following the Closing, the Company may sell up to the balance of the authorized shares of Series C Preferred Stock not sold at the Closing to such persons as may be approved by the Board of Directors of the Company. All such sales shall be made on the terms and conditions set forth in this Agreement, including, without limitation, the representations and warranties by such Purchasers as set forth in Section 4. Any Shares of Series C Preferred Stock sold pursuant to this Section 2.3 shall be deemed to be "Shares" for all purposes under this Agreement and any purchasers thereof shall be deemed to be "Purchasers" for all purposes under this Agreement. 3. Representations And Warranties Of The Company. Except as set forth on a Schedule of Exceptions delivered by the Company to the Purchasers at the Closing, the Company hereby represents and warrants to each Purchaser as of the date of this Agreement as follows: 3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, the Investor Rights Agreement in the form attached hereto as Exhibit C (the "Investor Rights Agreement") and the Co-Sale Agreement in the form attached hereto as Exhibit D (the "Co-Sale Agreement") (collectively, the "Related Agreements"), to issue and sell the Shares and the Conversion Shares, and to carry out the provisions of this Agreement, the Related Agreements and the Charter and to carry on its business as presently conducted and as presently proposed to be conducted. 3.2 Subsidiaries. The Company does not own or control any equity security or other interest of any other corporation, limited partnership or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. 3.3 Capitalization; Voting Rights. (a) The authorized capital stock of the Company, immediately prior to the Closing, will consist of: (i) Twenty three million (23,000,000) shares of Common Stock (par value $0.001 per share), seven million five hundred sixty eight thousand one hundred twenty five (7,568,125) shares of which are issued and outstanding; and (ii) Seven million two hundred thousand (7,200,000) shares of Preferred Stock (par value $0.001 per share), (1) two million (2,000,000) shares of which are designated Series A Preferred Stock, one million one hundred sixteen thousand seventy-one (1,116,071) of which are issued and outstanding, (2) three million (3,000,000) shares of which are designated Series B Preferred Stock, two million six hundred thirty one thousand five hundred seventy nine (2,631,579) of which are issued and outstanding, and (3) two million two hundred thousand (2,200,000) shares of which are designated Series C Preferred Stock, none of which were issued and outstanding prior to the Closing. (b) Four million one hundred thirty thousand (4,130,000) shares of shares of Common Stock have been reserved for issuance to employees pursuant to the Company's Amended and Restated 1998 Equity Incentive Plan (the "Plan"). Of such reserved shares of Common Stock under the Plan, (i) two million sixty-eight thousand one hundred twenty-five (2,068,125) shares have been issued pursuant to restricted stock purchase agreements and are included within the number of shares of Common Stock specified as being outstanding in subsection (a)(i) above, and (ii) two million sixty-one thousand eight hundred seventy five (2,061,875) shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to such Plan. (c) Other than outstanding options granted under the Plan for the purchase of up to three hundred seventy-two thousand five hundred (372,500) shares of Common Stock, and other than the balance of one million six hundred eighty-nine thousand three hundred seventy-five (1,689,375) shares of Common Stock still reserved for issuance under the Plan beyond those options, and except as may be granted pursuant to the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or shareholder agreements, or agreements of any kind for the purchase or acquisition from the Company of any of its securities. (d) All issued and outstanding shares of the Company's Common Stock and Preferred Stock (i) have been duly authorized and validly issued and (ii) are fully paid and nonassessable. The rights, preferences, privileges and restrictions of the Shares are as stated in the Charter. Each series of Preferred Stock is convertible into Common Stock on a one-for-one basis. The Conversion Shares have been duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and the Charter, the Shares and the Conversion Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances other than liens and encumbrances created by or imposed upon the Purchasers; provided, however, that the Shares and the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 3.4 Authorization; Binding Obligations. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company hereunder and thereunder at the Closing and the authorization, sale, issuance and delivery of the Shares pursuant hereto and the Conversion Shares pursuant to the Charter has been taken or will be taken prior to the Closing. The Agreement and the Related Agreements, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (b) general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of the indemnification provisions in Section 2.9 of the Investor Rights Agreement may be limited by applicable laws. The sale of the Shares and the subsequent conversion of the Shares into Conversion Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. 3.5 Financial Statements. The Company has made available to each Purchasers (a) its unaudited balance sheet as at March 31, 1999 and unaudited statement of income and cash flows for the three months ending March 31, 1999 (the "Statement Date") (collectively, the "Financial Statements"). The Financial Statements, together with the notes thereto, are complete and correct in all material respects, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except as disclosed therein, and present fairly the financial condition and position of the Company as of the Statement Date; provided, however, that the unaudited financial statements are subject to normal recurring year-end audit adjustments (which are not expected to be material), and do not contain all footnotes required under generally accepted accounting principles. 3.6 Liabilities. The Company has no material liabilities and, to the best of its knowledge, knows of no material contingent liabilities, except current liabilities incurred in the ordinary course of business subsequent to the Statement Date which have not been, either in any individual case or in the aggregate, materially adverse. 3.7 Agreements; Action. (a) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or to its knowledge by which it is bound which may involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of ten thousand dollars ($10,000) (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business), or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of "off the shelf" or other standard products), or (iii) indemnification by the Company with respect to infringements of proprietary rights (other than indemnification obligations arising from purchase or sale or license agreements entered into in the ordinary course of business). (b) For the purposes of subsection (a) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 3.8 Obligations to Related Parties. There are no obligations of the Company to officers, directors, shareholders, or employees of the Company other than (a) for payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company and (c) for other standard employee benefits made generally available to all employees (including stock option or purchase agreements outstanding under any stock option plan approved by the Board of Directors of the Company). 3.9 Changes. Since the Statement Date, there has not been to the Company's knowledge: (a) Any change in the assets, liabilities, financial condition or operations of the Company from that reflected in the Financial Statements, other than changes in the ordinary course of business, none of which individually or in the aggregate has had or is expected to have a material adverse effect on such assets, liabilities, financial condition, operations or prospects of the Company; (b) Any resignation or termination of any officer or key employee of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer of key employee; (c) Any material change, except the ordinary course of business, in the contingent obligations or the Company by way of guaranty, endorsement, indemnity, warranty or otherwise. (d) Any damage, destruction or loss, whether or not covered by insurance, materially and aversely affecting the properties, business or prospects or financial condition of the Company; (e) Any waiver by the Company of a valuable right or of a material debt owed to it; (f) Any direct or indirect loans made by the Company to any shareholder, employee, officer or director of the Company, other than advances made in the ordinary course of business; (g) Any material change in any compensation arrangement of agreement with any employee, officer, director or shareholder; (h) Any declaration or payment of any dividend or other distribution of the assets of the Company; (i) Any labor organization activity; (j) Any debt, obligation or liability incurred, assumed or guaranteed by the Company, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business; (k) Any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (l) Any change in any material agreement to which the Company is a party or by which it is bound which materially and adversely affects the business, assets, liabilities, financial condition, operations or prospects of the Company; (m) Any other event or condition of any character that, either individually or cumulatively, has materially and adversely affected the business, assets, liabilities, financial condition, operations or prospects of the Company; or (n) Any arrangement or commitment by the Company to do any of the acts described in subsection (a) through (m) above. 3.10 Title to Properties and Assets; Liens, Etc. The Company has good and marketable title to its properties and assets, including the properties and assets reflected in the most recent balance sheet, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes which have not yet become delinquent, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company, and (c) those that have otherwise arisen in the ordinary course of business. 3.11 Patents and Trademarks. To the best of its knowledge, the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. The Company has not received any communications alleging that the Company has violated or, by conducting its business as presently proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company's business as presently proposed to be conducted. Neither the execution nor delivery of this Agreement or the Related Agreements, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as presently proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company, except for inventions, trade secrets or proprietary information that have been assigned to the Company. 3.12 Compliance with Other Instruments. The Company is not in violation or default of any term of its Charter or Bylaws, or of any provision of any mortgage, indenture, contract, agreement, instrument or contract to which it is party or by which it is bound or of any judgment, decree, order, writ. The execution, delivery, and performance of and compliance with this Agreement, and the Related Agreements, and the issuance and sale of the Shares pursuant hereto and of the Conversion Shares pursuant to the Charter, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. 3.13 Litigation. There is no action, suit, proceeding or investigation pending or to the Company's knowledge currently threatened in writing against the Company that questions the validity of this Agreement, or the Related Agreements or the right of the Company to enter into any of such agreements, or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing. The foregoing includes, without limitation, actions pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.14 Tax Returns and Payments. The Company has filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company on or before the Closing, have been paid or will be paid prior to the time they become delinquent. The Company has not been advised (a) that any of its returns, federal, state or other, have been or are being audited as of the date hereof, or (b) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 3.15 Employees. The Company has no collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company's knowledge, threatened with respect to the Company. To the Company's knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company; and to the Company's knowledge the continued employment by the Company of its present employees, and the performance of the Company's contracts with its independent contractors, will not result in any such violation. The Company has not received any notice alleging that any such violation has occurred. No employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate his, her or their employment with the Company, nor does the Company have a present intention to terminate the employment of any officer, key employee or group of key employees. 3.16 Proprietary Information and Inventions Agreements. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Agreement. No current employee, officer or consultant of the Company has excluded works or inventions made prior to his or her employment with the Company from his or her assignment of inventions pursuant to such employee, officer or consultant's Proprietary Information and Inventions Agreement. 3.17 Registration Rights. Except as required pursuant to the Investor Rights Agreement, the Company is presently not under any obligation, and has not granted any rights, to register (as defined in Section 1.1 of the Investor Rights Agreement) any of the Company's presently outstanding securities or any of its securities that may hereafter be issued. 3.18 Offering Valid. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale and issuance of the Shares and the Conversion Shares will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Shares to any person or persons so as to bring the sale of such Shares by the Company within the registration provisions of the Securities Act or any state securities laws. 3.19 Qualified Small Business Stock. Upon the Closing, the Shares will be "qualified small business stock" as that term is defined in Section 1202 of the Internal Revenue Code. The Company covenants that for so long as any of the Shares or the Conversion Shares are held by a Purchaser (or a transferee in whose hands such shares would be eligible to qualify as "qualified small business stock"), it will comply with any applicable filing and reporting requirements imposed on issuers of "qualified small business stock." 4. Representations And Warranties Of The Purchasers. Each Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): 4.1 Requisite Power and Authority. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (b) general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of the indemnification provisions of Section 2.9 of the Investor Rights Agreement may be limited by applicable laws. 4.2 Investment Representations. Purchaser understands that neither the Shares nor the Conversion Shares have been registered under the Securities Act. Purchaser also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement. Purchaser hereby represents and warrants as follows: (a) Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares (or the Conversion Shares) are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser understands that the Company has no present intention of registering the Shares, the Conversion Shares or any shares of its Common Stock. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Shares or the Conversion Shares under the circumstances, in the amounts or at the times Purchaser might propose. (b) Acquisition for Own Account. Purchaser is acquiring the Shares and the Conversion Shares for Purchaser's own account for investment only, and not with a view towards their distribution. (c) Purchaser Can Protect Its Interest. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement, and the Related Agreements. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. (d) Accredited Investor. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (e) Company Information. Purchaser has received and read the Company's financial statements and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. (f) Rule 144. Purchaser acknowledges and agrees that the Shares, and, if issued, the Conversion Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. (g) Residence. If the Purchaser is an individual, then the Purchaser resides in the state or province identified in the address of the Purchaser set forth on Exhibit A; if the Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of the Purchaser in which its investment decision was made is located at the address or addresses of the Purchaser set forth on Exhibit A. 4.3 Transfer Restrictions. Each Purchaser acknowledges and agrees that the Shares and, if issued, the Conversion Shares are subject to restrictions on transfer as set forth in the Investor Rights Agreement. 5. Conditions To Closing. 5.1 Conditions to Purchasers' Obligations at the Closing. Purchasers' obligations to purchase the Shares at the Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (a) Representations and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date with the same force and effect as if they had been made as of the Closing Date, and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Closing. (b) Legal Investment. On the Closing Date, the sale and issuance of the Shares and the proposed issuance of the Conversion Shares shall be legally permitted by all laws and regulations to which Purchasers and the Company are subject. (c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing). (d) Filing of Charter. The Charter shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date. (e) Corporate Documents. The Company shall have delivered to Purchasers or their counsel, copies of all corporate documents of the Company as Purchasers shall reasonably request. (f) Reservation of Conversion Shares. The Conversion Shares issuable upon conversion of the Shares shall have been duly authorized and reserved for issuance upon such conversion. (g) Compliance Certificate. The Company shall have delivered to Purchasers a Compliance Certificate, executed by the President of the Company, dated the Closing Date, to the effect that the conditions specified in subsections (a), (c), (d) and (f) of this Section 5.1 have been satisfied. (h) Investor Rights Agreement. An Investor Rights Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the parties thereto. (i) Co-Sale Agreement. The Co-Sale Agreement substantially in the form attached hereto as Exhibit D shall have been executed and delivered by the parties thereto. The stock certificates representing the shares subject to the Co-Sale Agreement shall have been delivered to the Secretary of the Company and shall have had appropriate legends placed upon them to reflect the restrictions on transfer set forth on the Co-Sale Agreement. (j) Board of Directors. Upon the Closing, the authorized size of the Board of Directors of the Company shall be six (6) members and the Board shall consist of James Gaither, Thomas Siebel, A. Michael Spence, Andrew Verhalen, William Zuendt and Monte Zweben. (k) Management Rights Letter. A letter relating to management rights in the form heretofore delivered to the Company's counsel by counsel for U.S. Venture Partners shall have been executed and delivered by the Company to U.S. Venture Partners VI, L.P. (l) Company Representation re Investors. A representation by the Company relating to the identity of existing and proposed investors in the Company in the form heretofore delivered to the Company's counsel by counsel for U.S. Venture Partners shall have been executed and delivered by the Company to U.S. Venture Partners VI, L.P. (m) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchasers and their special counsel, and the Purchasers and their special counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 5.2 Conditions to Obligations of the Company. The Company's obligation to issue and sell the Shares at each Closing is subject to the satisfaction, on or prior to such Closing, of the following conditions: (a) Representations and Warranties True. The representations and warranties in Section 4 made by those Purchasers acquiring Shares hereof shall be true and correct in all material respects at the date of the Closing, with the same force and effect as if they had been made on and as of said date. (b) Performance of Obligations. Such Purchasers shall have performed and complied with all agreements and conditions herein required to be performed or complied with by such Purchasers on or before the Closing. (c) Filing of Charter. The Charter shall have been filed with the Secretary of State of the State of Delaware. (d) Investor Rights Agreement. An Investor Rights Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the Purchasers. (e) Co-Sale Agreement. The Co-Sale Agreement substantially in the form attached hereto as Exhibit D shall have been executed and delivered by the parties thereto. (f) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing) . 6. Miscellaneous. 6.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 6.2 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any Purchaser and the closing of the transactions contemplated hereby for a period of one (1) year following the Closing. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 6.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time. 6.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Related Agreements and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 6.5 Severability. In case any provision of the 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. 6.6 Amendment and Waiver. (a) This Agreement may be amended or modified only upon the written consent of the Company and holders of at least a majority of the Shares (treated as if converted and including any Conversion Shares into which the Shares have been converted that have not been sold to the public). (b) The obligations of the Company and the rights of the holders of the Shares and the Conversion Shares under this Agreement may be waived only with the written consent of the holders of at least a majority of the Shares (treated as if converted and including any Conversion Shares into which the Shares have been converted that have not been sold to the public). 6.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, the Related Agreements or the Charter, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any Purchaser's part of any breach, default or noncompliance under this Agreement, the Related Agreements or under the Charter or any waiver on such party's part of any provisions or conditions of this Agreement, the Related Agreements, or the Charter must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, the Related Agreements, the Charter, by law, or otherwise afforded to any party, shall be cumulative and not alternative. 6.8 Waiver of Conflicts. Each party to this Agreement acknowledges that legal counsel for the Company, Cooley Godward llp ("Cooley Godward"), has in the past performed and may continue in the future to perform legal services for one or more of the Purchasers or their affiliates in matters unrelated to the transactions contemplated by this Agreement, including, but not limited to, the representation of the Purchasers in matters of a similar nature to the transactions contemplated herein. Each party to this Agreement hereby (a) acknowledges that they have had an opportunity to ask for and have obtained information relevant to such representation, including disclosure of the reasonably foreseeable adverse consequences of such representation; (b) acknowledges that with respect to the transactions contemplated herein, Cooley Godward has represented the Company and not any individual Purchaser or any individual shareholder, director or employee of the Company; and (c) gives its informed consent to Cooley Godward's representation of the Company in the transactions contemplated by this Agreement and Cooley Godward's previous or continuing representation of one or more of the Purchasers or their affiliates in matters unrelated to such transactions. 6.9 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address as set forth on the signature page hereof and to Purchaser at the address set forth on Exhibit A attached hereto or at such other address as the Company or Purchaser may designate by ten (10) days advance written notice to the other parties hereto. 6.10 Expenses. The Company shall, promptly after the Closing, reimburse the reasonable fees of and expenses of one special counsel for the Purchasers, not to exceed ten thousand dollars ($10,000). 6.11 Attorneys' Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 6.12 Titles and Subtitles. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 6.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6.14 Broker's Fees. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 6.14 being untrue. 6.15 Exculpation Among Purchasers. Each Purchaser acknowledges that it is not relying upon any person, firm, or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Shares and Conversion Shares. 6.16 Confidentiality. Each party hereto agrees that, except with the prior written consent of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement or the Related Agreements, discussions or negotiations relating to this Agreement or the Related Agreements, the performance of its obligations hereunder or the ownership of the Shares purchased hereunder. The provisions of this Section 6.16 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto. 6.17 Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require. 6.18 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] In Witness Whereof, the parties hereto have executed this Series C Preferred Stock Purchase Agreement as of the date set forth in the first paragraph hereof. Company: Purchasers: Blue Martini Software, Inc. By: /s/ Monte Zweben By: /s/ All Series C Investors ----------------------------- -------------------------------- President EXHIBIT A SCHEDULE OF PURCHASERS NAME AND ADDRESS - ------------------------------------ AC II Technology (ACT II) B.V. c/o Anderson Consulting 1661 Page Mill Road Palo Alto, CA 94304 Attn: Chief Financial Officer Matrix Partners V, L.P. 2500 Sand Hill Road, Suite 113 Menlo Park, CA 94025 Attn: Andrew Verhalen Matrix V Entrepreneurs Fund, L.P. 2500 Sand Hill Road, Suite 113 Menlo Park, CA 94025 Attn: Andrew Verhalen U.S. Venture Partners VI, L.P. Attn: Chief Financial Officer 2180 Sand Hill Road, #300 Menlo Park, CA 94025 USVP VI Entrepreneur Partners, L.P. Attn: Chief Financial Officer 2180 Sand Hill Road, #300 Menlo Park, CA 94025 Zweben Family Revocable Trust Dated October 17, 1997 A-1 EX-10.10 15 INVESTOR RIGHTS AGREEMENT Exhibit 10.10 BLUE MARTINI SOFTWARE, INC. INVESTOR RIGHTS AGREEMENT July 20, 1999 Table Of Contents
Page SECTION 1. GENERAL......................................................................... 1 1.1 Definitions..................................................................... 1 SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.......................................... 2 2.1 Restrictions on Transfer........................................................ 3 2.2 Demand Registration............................................................. 4 2.3 Piggyback Registrations......................................................... 5 2.4 Form S-3 Registration........................................................... 6 2.5 Expenses of Registration........................................................ 7 2.6 Obligations of the Company...................................................... 8 2.7 Termination of Registration Rights.............................................. 9 2.8 Delay of Registration; Furnishing Information................................... 9 2.9 Indemnification................................................................. 9 2.10 Assignment of Registration Rights............................................... 11 2.11 Amendment of Registration Rights................................................ 11 2.12 "Market Stand-Off" Agreement; Agreement to Furnish Information.................. 12 2.13 Rule 144 Reporting.............................................................. 12 SECTION 3. COVENANTS OF THE COMPANY........................................................ 13 3.1 Basic Financial Information and Reporting....................................... 13 3.2 Inspection Rights............................................................... 13 3.3 Confidentiality of Records...................................................... 13 3.4 Reservation of Common Stock..................................................... 14 3.5 Stock Vesting................................................................... 14 3.6 Visitation Rights............................................................... 14 3.7 Proprietary Information and Inventions Agreement................................ 14 3.8 Termination of Covenants........................................................ 14 SECTION 4. RIGHTS OF FIRST REFUSAL......................................................... 14 4.1 Subsequent Offerings............................................................ 14 4.2 Exercise of Rights.............................................................. 15 4.3 Issuance of Equity Securities to Other Persons.................................. 15 4.5 Termination and Waiver of Rights of First Refusal............................... 15
i Table Of Contents (continued)
Page 4.6 Transfer of Rights of First Refusal............................................. 16 4.7 Excluded Securities............................................................. 16 SECTION 5. MISCELLANEOUS................................................................... 16 5.1 Governing Law................................................................... 17 5.2 Survival........................................................................ 17 5.3 Successors and Assigns.......................................................... 17 5.4 Entire Agreement................................................................ 17 5.5 Severability.................................................................... 17 5.6 Amendment and Waiver............................................................ 17 5.7 Delays or Omissions............................................................. 18 5.8 Notices......................................................................... 18 5.9 Attorneys' Fees................................................................. 18 5.10 Titles and Subtitles............................................................ 18 5.11 Additional Investors............................................................ 18 5.12 Counterparts.................................................................... 18 5.13 Amendment of Prior Agreement.................................................... 18
ii BLUE MARTINI SOFTWARE, INC. INVESTOR RIGHTS AGREEMENT This Investor Rights Agreement (the "Agreement") is entered into as of the 20/th/ day of July, 1999, by and among Blue Martini Software, Inc., a Delaware corporation (the "Company"), the holders of the Company's Series A Preferred Stock ("Series A Stock") set forth on Exhibit A, the holders of the Company's Series B Preferred Stock ("Series B Stock") set forth on Exhibit A and the purchasers of the Company's Series C Preferred Stock ("Series C Stock") set forth on Exhibit A of that certain Series C Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement") (such purchasers referred to as the "Series C Investors") and Exhibit A hereto. The holders of the Series A Stock, the holders of the Series B Stock, and the Series C Investors shall be referred to hereinafter as the "Investors" and each individually as an "Investor." Recitals Whereas, the Company granted certain purchasers (the "Prior Investors") of its Series A Preferred Stock (the "Series A Stock") and Series B Preferred Stock (the "Series B Stock") certain registration and other rights pursuant to the Restated Investor Rights Agreement, dated January 13, 1999 between the Company and the Prior Investors (the "Prior Agreement"); and Whereas, the Company proposes to sell and issue shares of its Series C Stock pursuant to the Purchase Agreement; and Whereas, as a condition of entering into the Purchase Agreement, the Series C Investors have requested that the Company extend to them registration rights, information rights and other rights as set forth below; and Whereas, the Company and the Prior Investors desire to amend the Prior Agreement to grant such rights to the Series C Purchasers. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows: SECTION 1. GENERAL 1.1 Definitions. As used in this Agreement the following terms shall have the following respective meanings: "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the 1. SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "Holder" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof. "Initial Offering" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act. "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "Registrable Securities" means (a) Common Stock of the Company issued or issuable upon conversion of the Shares; and (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "Registrable Securities then outstanding" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible securities. "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed fifteen thousand dollars ($15,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "Commission" means the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale. "Shares" shall mean the Company's Series A Stock, Series B Stock and Series C Stock issued pursuant to the Purchase Agreement and held by the Investors listed on Exhibit A hereto and their permitted assigns. 2. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 Restrictions on Transfer. (a) Each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a limited liability company to its members or former members in accordance with their interest in the limited liability company, (C) to the Holder's family member or trust for the benefit of an individual Holder or (D) AC II Technology (ACT II) B.V. or an AC Affiliate to any AC Affiliate (as defined below); provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder. For the purposes of this Section 2.1 "AC Affiliate" means any entity which is a member of the Andersen Consulting world-wide organization or any entity which is at the relevant time directly or indirectly controlled by any such entity or any entity which is otherwise part of the Andersen Consulting world-wide organization. (b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 3. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 Demand Registration. (a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Holders of a majority of the Registrable Securities then outstanding (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of at least forty percent (40%) of the Registrable Securities then outstanding and having an aggregate offering price, net of underwriting discounts and commissions, of not less than ten million dollars ($10,000,000) (a "Qualified Public Offering"), then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. (b) 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 2.2 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (c) The Company shall not be required to effect a registration pursuant to this Section 2.2: 4. (i) prior to one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; (ii) after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective; (iii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to a public offering; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective; (iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make a public offering within ninety (90) days; (v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than twice in any twelve (12) month period; or (vi) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below. 2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise 5. the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. (b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof. 2.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S- 3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: 6. (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than three million dollars ($3,000,000), or (iii) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make a public offering within ninety (90) days; or (iv) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or (v) if the Company has already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4, or (vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 2.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.2 or 2.3, respectively. 2.5 Expenses of Registration. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware at the time of such request or (b) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2 or Section 2.4, as applicable, in which event such right shall be forfeited by all Holders). If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of 7. securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable 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 thirty (30) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number 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 reasonable 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. (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(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, 8. (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of 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. 2.7 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect three (3) years after the date of the Company's Initial Offering. In addition, a Holder's registration rights shall expire if (a) the Company has completed its Initial Offering and is subject to the provisions of the Exchange Act, and (b) all Registrable Securities held by and issuable to such Holder (and its affiliates, partners, former partners, members and former members) may be sold under Rule 144 during any ninety (90) day period. 2.8 Delay of Registration; Furnishing Information. (a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. (c) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the operation of subsection 2.2(b), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in Section 2.2 or Section 2.4, whichever is applicable. 2.9 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any 9. amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) 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 qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.9 exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the 10. indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9. (d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability 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 Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law 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; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (a) is a subsidiary, parent, general partner, limited partner, retired partner, member, or retired member of a Holder, (b) is a Holder's family member or trust for the benefit of an individual Holder, or (c) acquires at least ten percent (10%) of the then outstanding Registrable Securities (as adjusted for stock splits and combinations); provided, however, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 11. 2.11 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities then outstanding, provided all Holders are affected substantially the same by such amendment or waiver. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.12 "Market Stand-Off" Agreement; Agreement to Furnish Information. Each Holder hereby agrees that such Holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act in connection with the Initial Offering and not to exceed ninety (90) days following the effective date of a registration statement of the Company filed under the Securities Act other than in connection with the Initial Offering; provided that in each case all officers and directors of the Company enter into similar agreements. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company's securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 2.13 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and 12. (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. SECTION 3. COVENANTS OF THE COMPANY 3.1 Basic Financial Information and Reporting. (a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. (b) As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, the Company will furnish each Investor an audited balance sheet of the Company, as at the end of such fiscal year, and an audited statement of income and statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Company's Board of Directors. (c) The Company will furnish each Investor, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within thirty (30) days thereafter, a balance sheet of the Company as of the end of each such quarterly period, and a statement of income and a statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. (d) So long as an Investor (with its affiliates) shall own not less than three hundred thousand (300,000) shares of Registrable Securities (as adjusted for stock splits and combinations) (a "Major Investor"), the Company will furnish each such Major Investor as soon as practicable after the end of each month, and in any event within twenty (20) days following the end of each such month, a balance sheet of the Company as of the end of each such month, and a statement of income and a statement of cash flows of the Company for such month, prepared in accordance with generally accepted accounting principles consistently applied, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. 3.2 Inspection Rights. Each Investor shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and 13. accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed. 3.3 Confidentiality of Records. Each Investor agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Investor for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section 3.3. 3.4 Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock, all Common Stock issuable from time to time upon such conversion. 3.5 Stock Vesting. Unless otherwise approved by the Board of Directors, all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants and other service providers shall be subject to vesting as follows: (a) twenty-five percent (25%) of such stock shall vest at the end of the first year following the earlier of the date of issuance or such person's services commencement date with the company, and (b) seventy-five percent (75%) of such stock shall vest over the remaining three (3) years. With respect to any shares of stock purchased by any such person, the Company's repurchase option shall provide that upon such person's termination of employment or service with the Company, with or without cause, the Company or its assignee (to the extent permissible under applicable securities laws and other laws) shall have the option to purchase at cost any unvested shares of stock held by such person. 3.6 Visitation Rights. The Company shall allow one representative designated by the U.S. Venture Partners from time to time to attend all meetings of the Company's Board of Directors in a nonvoting capacity, and in connection therewith, the Company shall give such representative copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to its Board of Directors; provided, however, that the Company reserves the right to exclude such representative from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonable necessary to preserve the attorney-client privilege, to protect highly confidential proprietary information or for other similar reasons. 3.7 Proprietary Information and Inventions Agreement. The Company shall require all employees and consultants to execute and deliver a Proprietary Information and Inventions Agreement. 14. 3.8 Termination of Covenants. All covenants of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Investor upon the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering, or (ii) upon (a) the sale, lease or other disposition of all or substantially all of the assets of the Company or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction, provided that this Section 3.8(ii)(b) shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company (a "Change in Control"). SECTION 4. RIGHTS OF FIRST REFUSAL 4.1 Subsequent Offerings. So long as an Investor (with its affiliate) shall own not less than two hundred fifty thousand (250,000) share of Registrable Securities (as adjusted for stock splits and contributions) (a "Significant Investor"), each Significant Investor shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.7 hereof. Each Significant Investor's pro rata share is equal to the ratio of (a) the number of shares of the Company's Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) which such Significant Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or upon the exercise of any outstanding warrants or options) immediately prior to the issuance of the Equity Securities. The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security or (iv) any such warrant or right. 4.2 Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each Significant Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Significant Investor shall have fifteen (15) days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Significant Investor who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 4.3 Issuance of Equity Securities to Other Persons. If not all of the Significant Investors elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the Significant Investors who do so elect and shall offer such Significant Investors the right to acquire such unsubscribed shares. The Significant Investors 15. shall have five (5) days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Significant Investors fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Significant Investor's rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Company's notice to the Significant Investors pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within ninety (90) days of the notice provided pursuant to Section 4.2, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Significant Investors in the manner provided above. 4.4 [Intentionally Omitted] 4.5 Termination and Waiver of Rights of First Refusal. The rights of first refusal established by this Section 4 shall not apply to, and shall terminate upon the earlier of (i) effective date of the registration statement pertaining to the Company's Initial Public Offering or (ii) a Change in Control. The rights of first refusal established by this Section 4 may be amended, or any provision waived with the written consent of Significant Investors holding a majority of the Registrable Securities held by all Significant Investors provided all Significant Investors are affected substantially the same by such amendment or waiver, or as permitted by Section 5.6. 4.6 Transfer of Rights of First Refusal. The rights of first refusal of each Significant Investor under this Section 4 may be transferred to the same parties, subject to the same restrictions as any transfer of registration rights pursuant to Section 2.10. 4.7 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: (a) shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued after the Original Issue Date (as defined in the Company's Certificate of Incorporation) to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors; (b) stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement; provided that the rights of first refusal established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements; (c) any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; (d) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; 16. (e) shares of Common Stock issued upon conversion of the Shares; (f) any Equity Securities issued pursuant to any equipment leasing or loan arrangement, or debt financing from a bank or similar financial or lending institution approved by the Board of Directors; (g) any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act; (h) shares of the Company's Common Stock or Preferred Stock issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, manufacturing, marketing or distribution arrangements or (ii) technology transfer or development arrangements; provided that such strategic transactions and the issuance of shares therein, has been approved by the Company's Board of Directors; and (i) bona fide gifts of securities to persons or entities unrelated to the Company not exceeding fifty thousand (50,000) shares of capital stock; provided that such gifts shall have been unanimously approved by the Company's Board of Directors. SECTION 5. MISCELLANEOUS 5.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 5.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 5.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 5.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 17. 5.5 Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.6 Amendment and Waiver. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least a majority of the Registrable Securities, provided all Holders are affected substantially the same by such amendment or waiver. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least a majority of the Registrable Securities, provided all Holders are affected substantially the same by such amendment or waiver. (c) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Shares as "Investors," "Holders" and parties hereto. 5.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 5.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 5.9 Attorneys' Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and 18. expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 5.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5.11 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of its Preferred Stock pursuant to the Purchase Agreement, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an "Investor" hereunder. 5.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 5.13 Amendment of Prior Agreement. Effective upon the execution of this Agreement by the Company and the Holders of a majority of the Registrable Securities covered by the Prior Agreement, the Prior Agreement shall be null and void and shall be superseded by the provisions of this Agreement. Each Investor that was a party to the Prior Agreement hereby waives all rights of the first refusal contained in Section 4 of the Prior Agreement with respect to the sale and issuance of the Series C Stock and the Common Stock issuable upon conversion thereof, including any notice requirements related to such rights of first refusal. [THIS SPACE INTENTIONALLY LEFT BLANK] 19. In Witness Whereof, the parties hereto have executed this Investor Rights Agreement as of the date set forth in the first paragraph hereof. COMPANY: INVESTORS: Blue Martini Software, Inc. By: /s/ Monte Zweben By: /s/ All Preferred Stock Investors ------------------------ ---------------------------------- President Member INVESTOR RIGHTS AGREEMENT SIGNATURE PAGE EX-10.11 16 FORM OF INDEMNITY AGREEMENT EXHIBIT 10.11 FORM OF INDEMNIFICATION AGREEMENT This Agreement is made and entered into this _____ day of ________________, 2000 by and between Blue Martini Software, Inc., a Delaware corporation (the "Corporation"), and ______________________ ("Agent"). This Agreement terminates any and all previous indemnification agreements entered into by and between the Corporation and Agent. Recitals Whereas, Agent performs a valuable service to the Corporation in the capacity as _________ of the Corporation; Whereas, the stockholders of the Corporation have adopted bylaws (the "Bylaws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the Delaware General Corporation Law, as amended (the "Code"); Whereas, the Bylaws and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons; and Whereas, in order to induce Agent to continue to serve as director of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent; Now, Therefore, in consideration of Agent's continued service as director after the date hereof, the parties hereto agree as follows: Agreement 1. Services to the Corporation. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as director of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no obligation under this Agreement to continue Agent in any such position. 2. Indemnity of Agent. The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Bylaws and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the Bylaws or the Code permitted prior to adoption of such amendment). 1. 3. Additional Indemnity. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 4 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent: (a) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and (b) otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of the Code and the Bylaws. 4. Limitations on Additional Indemnity. No indemnity pursuant to Section 3 hereof shall be paid by the Corporation: (a) on account of any claim against Agent solely for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (b) on account of Agent's conduct that is established by a final judgment as knowingly fraudulent or deliberately dishonest or that constituted willful misconduct; (c) on account of Agent's conduct that is established by a final judgment as constituting a breach of Agent's duty of loyalty to the Corporation or resulting in any personal profit or advantage to which Agent was not legally entitled; (d) for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement; (e) if indemnification is not lawful (and, in this respect, both the Corporation and Agent have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or (f) in connection with any proceeding (or part thereof) initiated by Agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers 2. vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof. 5. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein. 6. Partial Indemnification. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled. 7. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall have reasonably concluded, and so notified the Corporation, that there is an actual conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and 3. (c) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent, which may be given or withheld in Agent's sole discretion. 8. Expenses. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately that Agent is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the Code or otherwise. 9. Enforcement. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 3 hereof (other than an action brought to enforce a claim for expenses pursuant to Section 8 hereof, provided that the required undertaking has been tendered to the Corporation) that Agent is not entitled to indemnification because of the limitations set forth in Section 4 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this Agreement or otherwise. 10. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 11. Non-Exclusivity of Rights. The rights conferred on Agent by this Agreement shall not be exclusive of any other right which Agent may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation or Bylaws, agreement, vote of stockholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. 12. Survival of Rights. (a) The rights conferred on Agent by this Agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators. 4. (b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. 13. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the Bylaws, the Code or any other applicable law. 14. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 15. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 16. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement. 17. Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: (a) If to Agent, at the address indicated on the signature page hereof. (b) If to the Corporation, to: Blue Martini Software, Inc. 2600 Campus Drive, Suite #100 San Mateo, CA. 94403 or to such other address as may have been furnished to Agent by the Corporation. 19. This Agreement supercedes and terminates any previous agreement between Agent and the Corporation regarding the subject matter hereof. 5. In Witness Whereof, the parties hereto have executed this Agreement on and as of the day and year first above written. BLUE MARTINI SOFTWARE, INC. By: ____________________________________ Monte Zweben President and Chief Executive Officer Agent By: ____________________________________ Name:___________________________________ Address:________________________________ 6. EX-10.12 17 ISV LICENSE AND MARKETING AGREEMENT Exhibit 10.12 ISV LICENSE AND MARKETING AGREEMENT ----------------------------------- This License and Marketing Agreement ("Agreement"), is entered into as of [March ----- 3lst], 1999 ("Effective Date"), by and between [Blue Martini Software, Inc.] - ---- --------------------------- ("ISV"), located at [2600 Campus Drive, Suite 175, San Mateo, California, --------------------------------------------------- 94403], and Neuron Data, Inc. ("ND"), located at 13 I0 Villa Street, Mountain View, California, 94041 (each, a "Party"; collectively, the "Parties"), includes the terms hereof as well as those of the Exhibits attached hereto. WHEREAS, ND seeks to have certain of its software embedded in specified application programs and marketed and distributed as part of a complete package to third parties; and WHEREAS, ND shall not provide any support or maintenance services to end users, but shall only provide direct support and maintenance services to ISV: NOW, THEREFORE, in consideration of the foregoing and covenants below, it is agreed: 1. Certain Definitions. ------------------- "Application" means that computer software code, programs and/or applications created, enhanced, or modified by Developers and into which Licensed Software shall be embedded. "Application License Agreement" means a legally binding, executed, written agreement between each ISV Licensee and ISV, pursuant to which such ISV Licensee is granted certain rights to specified Application(s), and which contains each of the provisions required by ND as set forth in Exhibit B. "Confidential Information" means proprietary and other valuable information, regardless of form, communicated by one Party ("Disclosing Party") to the other Party ("Receiving Party), including, without limitation, technical information, trade secrets, know how, specifications, financial and pricing information, market research, and computer code. When marked as such or recorded as such within [...***...] of the initial disclosure. "Developer" means a professional computer application developer designated and engaged by ISV and authorized, pursuant to this Agreement, to develop Applications using the Licensed Software. If applicable, the total number of Developers is specified in Exhibit A. "Documentation" means the standard materials (regardless of format or medium), made available by ND in conjunction with Licensed Software. Documentation will be delivered in a FrameMaker format. "ISV Licensee" means an authorized Application end user to whom rights to Application(s) are granted pursuant to an Application License Agreement and this Agreement: "Export Laws" means applicable export laws and regulations (whether U.S. and foreign), [...***...]= 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. 1. prohibiting or restricting export of any item hereunder, including, without limitation, as to Group D! and E! countries (and/or nationals thereof) as defined by U.S. Export Administration Regulations, Part 746 (as updated or amended) as well as exemptions thereto such as U.S. Department of Commerce licenses, authorizations or otherwise. "License Fees" means fees paid to ND in consideration of rights granted to ISV with respect to Licensed Product as set forth in Exhibit A. "Licensed Products" means a software product developed by ND and licensed to ISV subject to this Agreement and is intended by the Parties to be embedded in the Applications listed in Exhibit A. "ND Trademarks" means such trademarks, service marks, trade names and/or logos adopted by ND in conjunction with the Licensed Products as listed in Exhibit D. "Solution" means a technology combination designed to meet the needs of ISV Licensees, which includes one or more Applications (into which Licensed Product is embedded), all designed by ISV subject to this Agreement. "Support and Maintenance Fee" means any fees paid by ISV in consideration for services provided by ND for Licensed Software and with respect to specified Supported Platforms, all in accordance with the Support and Maintenance Program. "Support and Maintenance Program" means the binding understanding between ND and ISV, pursuant to which ND is to provide certain services to ISV relative to Licensed Products for the Supported Platforms substantially in the form of Exhibit C. "Target Market(s)" means the category of potential ISV Licensees and/or Applications on which ISV shall focus its efforts hereunder, as described in Exhibit A. "Version" means the most recent, complete Version of a software product including the relevant softcopy Documentation appropriate to integration in ISV's own documentation [typically denoted: 1.0, 2.0, 3.0, etc.] as of the Effective Date. "Version Update" means any Version of any Licensed Product (including editions designed for new/revised Supported Platforms) released subsequent to the Effective Date. 2. Appointment; License. -------------------- 2.1 ISV Appointment. Subject to this Agreement, ND appoints ISV the --------------- nonexclusive, value-added reseller of Licensed Products to be embedded in Applications developed for and promoted to the Target Market(s). 2. 2.2 License Grant. Subject to this Agreement, ND hereby grants to ISV a ------------- non exclusive, non-transferable, non-sublicensable license to use, copy and distribute Licensed Products (including softcopy documentation) to be used on all Supported Platform(s) and according to the Documentation, and subject to payment of all current License Fees and Support and Maintenance Fees set forth in Exhibit A, and only for the following purposes: (a) to develop, market and --------- distribute Applications for the Target Market(s), and (b) to allow ISV to provide support services to ISV Licensees with respect to Applications (particularly, as to embedded Licensed Product). Other than as expressly provide in this Section 2, no grant of any right or license to any Licensed Product, ND Trademark, Confidential Information or other ND property is made or implied. 2.3 Trade Secret Protection. Recognizing that protection of ND trade ----------------------- secrets is in its best interests, ISV agrees not to utilize any Licensed Product or Confidential Information or any other material licensed, disclosed, or otherwise made available hereunder for any purpose not expressly permitted in this Agreement. In particular, ISV shall not, and shall not allow any third party, to: (a) reverse engineer, disassemble, de-compile or attempt to derive any source code or trade secrets contained in Licensed Product; (b) timeshare or lease rights to Licensed Product; or (c) copy, manufacture, adapt, create derivative works of, translate, localize, port, or otherwise improperly modify Licensed Product. 2.4 ND Trademarks. During the term of this Agreement, ND hereby grants ------------- to ISV, a non-exclusive, non-transferable, non-sublicensable, royalty-free license to use the ND Trademarks for the purpose of promoting and supporting Licensed Products and Applications (including with respect to any ISV website); provided that all use shall comply with the trademark requirements set forth in - -------- Exhibit D. - --------- 2.5 Ownership. As between the Parties, ND and its suppliers retain all --------- rights, title and interest in and to the Licensed Products and to any and all modifications and improvements thereto by whomever made, as well as to all copies and portions thereof, whether or not incorporated or embedded with other products. This Agreement does not constitute a sale of any Licensed Product, nor of any portion or copy thereof. As between the Parties, except for portions of Licensed Products which may be directly modified or otherwise incorporated into an Application (which belong to ND), ISV retains ownership of the Applications and all related documents, copies and portions thereof. 3. ISV Covenants. ------------- 3.1 ISV shall not distribute Licensed Product to an ISV Licensee on a stand alone basis; rather only embedded in an Application. Further, ISV shall not distribute Licensed Product, except pursuant to an Application License Agreement 3.2 At any point in time, over the life of this contract and consistent with Exhibit C, ND shall support and maintain software released in the past twelve months. 3. 3.3 ISV shall promptly report suspected defects in Licensed Product as well as customer complaints, demands and suggestions. ISV shall not make misleading or untrue statements with respect to Licensed Product. 3.4 On or before the thirtieth (30th) calendar day following the end of each quarter, ISV shall present a report (each, a "Quarterly Report") to ND containing, at a minimum a list of licenses of Applications granted by ISV in which Licensed Product is embedded. ISV and ND shall conduct regular technical meetings (at least twice annually) to review technical matters, develop technology, and continuously improve the Parties' working relationship. 3.5 The Parties, as mutually agreed, may engage in joint marketing efforts including, without limitation, joint press releases, joint materials and joint marketing campaigns, and as suggested in Exhibit F. ---------- 4. Confidentiality. --------------- 4.1 "Confidential Information" means the Software and all other non-public information which is marked as confidential or which should reasonably be expected to be treated as confidential, including without limitation, development plans, and non-public financial, customer and market information. Confidential Information does not include information (a) already lawfully known to the recipient prior to disclosure by the other party or developed by or for the recipient independently of and without access to the Confidential Information, (b) generally known to the public or (c) lawfully obtained by the recipient from any third party without breach of any confidentiality obligations. 4.2 Each party will safeguard Confidential Information with reasonable security means at least equivalent to measures that it uses to safeguard its own proprietary information. Each party will use the Confidential Information only as needed to fulfill its obligations hereunder. 4.3 If either party is required to disclose the other's Confidential Information by law, regulation or court order, the party will notify the owner promptly of the requirement, and will work with the owner to attempt to minimize the scope of required disclosure. 5. Discount; Payments. ------------------ Payment terms are specified in Exhibit I. 4. 6. Support and Maintenance. ----------------------- Support and Maintenance terms are specified in Exhibit C. 7. Limitation of Liability; Indemnification. ---------------------------------------- 7.1 NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT, EXCEPT FOR PAYMENTS UNDER SECTION 7.2, ND SHALL NOT BE LIABLE WITH RESPECT TO ANY CONTRACT, TORT, OR OTHER LEGAL OR EQUITABLE THEORY: (A) FOR ANY AMOUNTS IN EXCESS OF THE PRICE ACTUALLY PAD BY ISV WITH RESPECT TO ANY ALLEGEDLY DEFECTIVE LICENSED PRODUCT, (B) FOR ANY INCIDENTAL, DIRECT, INDIRECT, OR CONSEQUENTIAL DAMAGES, LOST DATA OR LOST PROFITS, OR (C) FOR PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES. In particular, ND shall have no liability for damage to any Application or as to any damage or harm suffered by any ISV Licensee or third party caused directly or indirectly by Licensed Product, including personal injury and/or property damage. 7.2 Subject to the terms and conditions of this Agreement, ND shall hold ISV, its officers, directors, agents and employees harmless from liability resulting from: (i) infringement of any United States patent or copyright by any Licensed Product; provided that ND is promptly notified of any and all threats, -------- claims and actions, (ii) is given all reasonable assistance requested, and (iii) ND controls the defense and all settlement or compromise; ND shall not be responsible for any settlement it does not approve in writing. THE FOREGOING IS IN LIEU OF ANY WARRANTY OF NON-INFRINGEMENT OF THIRD PARTY RIGHTS, WHICH ARE HEREBY FULLY DISCLAIMED. 8. Warranty Disclaimers and Limitations. ------------------------------------ 8.1 Subject to the following ND warrants for a period of [...***...] from delivery of the first copy of each Licensed Product (the "Warranty Period") that the media containing such Licensed Product shall be free from material defect. This warranty covers only problems reported to ND during the Warranty Period EXCEPT AS EXPRESSLY PROVIDED BELOW, ANY LIABILITY OF ND WITH RESPECT TO ANY LICENSED PRODUCT OR PERFORMANCE THEREOF SHALL BE LIMITED EXCLUSIVELY TO PRODUCT REPLACEMENT OR, IF IN THE SOLE OPINION OF ND, PRODUCT REPLACEMENT IS AN INADEQUATE OR IMPRACTICAL REMEDY, TO REFUND ALL OR A PORTION OF THE LICENSE FEES ACTUALLY PAD TO ND IN ANY GIVEN ANNUAL PERIOD DIRECTLY RELATED THERETO. EXCEPT FOR THE FOREGOING, LICENSED PRODUCTS ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, INCLUDING, WITHOUT LIMITATION, AS TO ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS. FURTHER, ND DOES NOT WARRANT, GUARANTEE, OR [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5. MAKE ANY REPRESENTATION REGARDING THE USE OR THE RESULTS OF THE USE OF ANY LICENSED PRODUCT OR MATERIALS SUPPLIED HEREUNDER AS TO CORRECTNESS, ACCURACY RELIABILITY, OR OTHERWISE. ND is not responsible for and shall assume no liability for hardware, software, or other items not directly sold or licensed by ND hereunder nor for services provided other than by ND. 8.2 Year 2000 Compliance Warranty. Year 2000 compliance is defined as ----------------------------- operating prior to, during, and after the calendar year 2000 AD without error relating to date data, specifically including but not limited to any error relating to calculations, sorting, interpretation, processing or acceptance of date data which represents or references different centuries or more than one century. Neuron Data represents and warrants that the Software listed in Exhibit G hereto when used with year 2000 compliant hardware, operating systems, compilers, interfaces and other related components, is year 2000 compliant. This representation and warranty is with respect to the Software listed in Exhibit G only and is not a representation or warranty that software applications using the Software are or will be year 2000 compliant. This Year 2000 Compliance Warranty shall begin as of the date of the License Agreement and end on the date after January I, 2000 subsequent to which the Software has operated without a breach of this Year 2000 Compliance Warranty for a consecutive six month period. Neuron Data recognizes the criticality of Year 2000 Compliance. In the event of any defect in the Software relating to Year 2000 compliance, Neuron Data, when notified of such defect through normal Technical Support procedures, will assign such defect the highest priority and will assign all necessary resources to correct the problem. 9. Term and Termination. -------------------- 9.1 Term; Renewal. This Agreement shall remain in force for five (5) ------------- years from the Effective Date, and be automatically renewed for a subsequent two (2) year term unless a Party notifies the other of its contrary intention at -- least sixty (60) days prior to the date this Agreement would otherwise expire. - ---------------- 9.2 Termination. The Agreement may be terminated: (a) By either Party: ----------- (i) in the event the other Party breaches any material obligation and such breach remains uncured thirty (30) days following receipt of appropriate written notice, or (ii) in the event that a Party declares bankruptcy, becomes insolvent, or the equivalent. 6. 9.3 Effects of Termination. Upon termination for any reason of this ---------------------- Agreement: (a) ISV shall immediately return all materials provided to it by ND hereunder, including, without limitation, Golden Master CDs, Confidential Information, Licensed Products, manuals, customer lists, license agreements, and marketing materials; (b) Licenses granted to ISV shall terminate immediately and ISV shall immediately cease use of all such rights; (c) ISV Licensee rights properly granted shall be unaffected; and (d) ISV has no expectation that the relationship with ND will continue beyond expiration or termination of this Agreement nor as to anticipated revenues or profits. 9.4 Survival. The following provisions shall survive termination of this -------- Agreement: Sections 2.3, 2.5, 4, 7, 8, 9.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10 arid this Section 9.4. 10. General Provisions. ------------------ 10.1 The Parties are independent entities; nothing in this Agreement creates or implies any employment, agency or other legal relationship. Neither Party has the right or authority to bind the other. This Agreement is entered into by the Parties on a non-exclusive basis; nothing restricts either Party from entering into any business relationship with any third party. 10.2 This Agreement constitutes the entire agreement between the Parties as to the subject matter hereof and supersedes all prior and contemporaneous communications and agreements, written or oral, relating to such subject. Amendments shall be in writing and executed by each Party. Waiver of performance required by this Agreement shall not constitute a subsequent waiver, unless so waived in writing. Neither Party may assign any portion of this Agreement without prior written consent of the non-assigning Party, except, in connection ------ with a merger or sale of substantially all of its assets. 10.3 Neither Party shall be responsible for any failure to perform obligations to the extent such failure is cause by natural disasters, wars, labor unrest, or other causes beyond its reasonable control. Obligations hereunder shall not be excused, but shall be suspended until the cessation of such cause. Should such cause persist for longer than thirty (30) days, the Parties shall meet to determine whether this Agreement should be modified. 10.4 Neither Party shall make any public disclosure of the terms of this Agreement without the prior approval of the other Party. Notwithstanding, the Parties shall cooperate to issue a joint press release and/or complementary press releases as soon as practicable after the Effective Date. Each Party mutually grants the other the right to use their respective trademarks, corporate names and logos (as necessary) in conjunction with the Parties' respective website(s). The Parties also agree to establish mutual links between their respective websites as soon as practicable and in a mutually acceptable form. 10.5 Should a provision be declared illegal or unenforceable, it shall be eliminated or replaced to preserve, wherever possible, the Parties' intent; all other provisions remain in force. 7. occur, according to the procedure described in the Escrow Deposit Agreement of Vendor: a, ceases doing business, or b, discontinues offering technical support for the Software and does not offer comparable support through a third, party under substantially similar terms. 10.6 Notices or other communications required or made hereunder shall be in writing and sent via express courier service (with tracking capabilities) or certified mail (return receipt requested) to the above address or as subsequently notified. 10.7 Both Parties shall, at all times, comply with all applicable laws, regulations and similar rules. Further, ISV shall obtain and maintain any and all permits, licenses, authorizations, and/or certificates which may be required in connection with the import, export, sale, or use of the Licensed Products as may be required by any legitimate government authority, agency or subdivision thereof including, without limitation all applicable Export Laws. 10.8 This Agreement shall be governed by California and U.S. federal law, without regard to conflicts of law principles. Except with respect to any injunctive action which may be brought by ND, any dispute arising hereunder shall be submitted to arbitration which shall take place in Mountain View, California, according to the Rules of the American Arbitration Association by a single arbitrator appointed in accordance with such rules. Such arbitration decision shall be final and may be enforced in any court of competent jurisdiction. The prevailing party may, in addition to its other remedies, recover its costs, including attorneys' and other professional fees, incurred to enforce this Agreement. 10.9 EACH PARTY AGREES THAT THE WARRANTY DISCLAIMERS AND LIABILITY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL, BARGAINED FOR BASES HEREOF AND HAVE BEEN TAKEN INTO ACCOUNT BY EACH PARTY IN DECIDING WHETHER AND ON WHAT TERMS TO ENTER INTO THIS AGREEMENT. 10.10 The Parties agree that any substantial threat to the legal and/or practical protection of those trade secrets and other proprietary material underlying the Licensed Products (particularly with regard to source or object code and sensitive Confidential Information disclosed hereunder) would cause irreparable injury to ND for which monetary damages would be inadequate. In such event, ND shall be entitled to seek equitable relief (e.g., injunctive relief) in addition to its other remedies at law or in equity. 11. Source Code Escrow. ------------------ 11.1 ND maintains and will continue to maintain during the term of this Agreement a source code escrow deposit for its Software, as described in the Escrow Deposit Agreement attached as Exhibit H and incorporated herein. Within --------- 30 days after the execution of this Agreement, Vendor will add ISV as a beneficiary of the Escrow Deposit Agreement. ISV will pay the escrow agents fees to be added and maintained as a beneficiary. 11.2 If ISV discontinues paying for product support for a Software product, ISV will immediately be removed as a beneficiary of the Escrow Deposit Agreement for such Software. The source code will be released from escrow if any of the following events 8. occur, according to the procedure described in the Escrow Deposit Agreement of Vendor: a. ceases doing business, or b. discontinues offering technical support for the Software and does not offer comparable support through a third party under substantially similar terms. IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed by its authorized representative as of the Effective Date. Neuron Data, Inc. [ Blue Martini Software] (as "ND") ------------------------------------ (As "ISV") By: /s/ Gary Shroyer By: /s/ William Evans --------------------------------- ---------------------------------- (Signature) (Signature) Name: Gary Shroyer Name: William Evans ------------------------------- -------------------------------- (Printed or Typed) (Printed or Typed) Title: CFO Title: VP, Marketing ------------------------------ ------------------------------- Date: 3-31-99 Date: March 31, 1999 ------------------------------- -------------------------------- 9. Exhibit A --------- AGREEMENT PARTICULARS INCLUDING: ND Product, ISV Application(s) and Target Market(s), ISV License Fees, ISV Support Fees Neuron Data Product(s) - ---------------------- - -------------------------------------------------------------------------------- Name of Application Description/Functionality - -------------------------------------------------------------------------------- Neuron Data Elements Advisor Builder Rules Development Environment - -------------------------------------------------------------------------------- Neuron Data Elements Advisor Run-Time Rules Run-Time Environment - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Neuron Data commits to supporting these products for the Sun Microsystems delivered Java Virtual Machine (JVM) on the Windows NT 4.0 and later, Solaris 2.6 and later, HP/UX 10.0 and later, IBM RS/6000, and SGI Irix platforms, if Sun provides commercial support for a JVM on these platforms. ISV Application(s) - -------------------------------------------------------------------------------------------- Name of Application Description/Functionality - -------------------------------------------------------------------------------------------- Blue Martini Merchandising Management Module Manages merchandise: products and services - -------------------------------------------------------------------------------------------- Blue Martini Customer Management Module Manager customers and customer relationships - -------------------------------------------------------------------------------------------- Blue Martini Micro Marketing Module Manages data analysis - -------------------------------------------------------------------------------------------- Blue Martini WebStore Operations Module Manages commerce store - -------------------------------------------------------------------------------------------- Blue Martini Tools Module Provides tools to support other modules - --------------------------------------------------------------------------------------------
Blue Martini may introduce new modules from time-to-time and, at the time that the new modules are introduced, may elect to append these new modules to the list of covered ISV applications of this appendix. Target Markets - -------------- ----------------------------------------------------- Target Markets ----------------------------------------------------- E-Commerce ----------------------------------------------------- ----------------------------------------------------- ISV License & Support Fees - -------------------------- See Exhibit I. ---------- 10. Exhibit B --------- Required Provision to be included in each End User License Agreement (this exact wording is not required) . Government Matters ------------------ Licensee shall comply with all export laws, restrictions and regulations of the U.S. Department of Commerce or other U.S. or foreign agency or authority, and shall not export, or allow the export or re-export of any material licensed hereunder or any portion thereof, in violation of any such restrictions, laws or regulations, or to any D: 1 or E:2 country (or any national thereof) specified in the then current Supplement No. I to Part 740, or in violation of the then current Part 740 or 746 of the U.S. Export Administration Regulations (or any successor regulations or supplement), except in compliance with all licenses and approvals required under applicable export laws and regulations. End User shall hold harmless and indemnify Neuron Data, Inc. for any damages from breach of this provision. . Restricted Use -------------- The Neuron Data, Inc. software licensed hereunder ("ND Software") shall be used by the Licensee(s) for internal purposes only and is not intended for resale. With respect to ND Software, Licensee agrees not to do any of the following, directly or through any third party: (i) decompile, disassemble, or otherwise reverse engineer or attempt to reconstruct or discover any source code, algorithm or programming or other interfaces by any means, or (iii) load or use it on any machine or system other than the specifically authorized platform(s)., . Limitation of Remedies and Damages ---------------------------------- Neuron Data, Inc. shall not be responsible or liable under any contract, tort, or other legal or equitable theory for: (a) loss or inaccuracy of data, (b) cost of procurement of substitute goods or services, (c) any indirect, incidental, or consequential damages, including, without limitation, loss of profits, (d) for any matter beyond its reasonable control, or (e) for any software or other product or services not provided directly by Neuron Data, Inc. Any liability of Neuron Data. Inc. shall be limited exclusively to replacement of ND Software. . Limitation of Warranties ------------------------ Neuron Data Software is provided on an "AS IS" basis and all warranties, express or implied, are hereby disclaimed, including, without limitation, any and all warranties of merchantability, fitness for particular purposes, and non-infringement of third party intellectual property rights. Further, Neuron Data. Inc. does not warrant, guarantee, or make any representations regarding the use, or the results of the use, of the-licensed material or written materials provided in terms of correctness. accuracy, reliability or otherwise. 11. Exhibit C --------- Support Services This Exhibit defines Level 3 Support and provides the statement of work required for this support level. 1. DEFINITIONS 1.1 Level 1 Support Services. Level I Support Services include call receipt and entitlement verification, call screening, product identification. 1.2 Level 2 Support Services. For incidents escalated beyond Level 1, Level 2 Support Services will include efforts to create a repeatable demonstration of the defect or error and to resolve all problem for which source code modification is not required. 1.3 Level 3 Support Services. Incidents not resolved through Level I and Level 2 will be escalated to Level 3 Support Services. These services will include efforts to identify the source code which is defective and provide correction, work-arounds and/or patches to correct the defect or errors. Blue Martini will use its commercially reasonable efforts to identify and resolve all errors and defect through Level I and Level 2 Support Services. 2. LEVEL 1, LEVEL 2 SUPPORT Level 1 and/or Level 2 support will be provided by Blue Martini and/or its Authorized Service Providers ("ASP"). ND shall not be obligated to provided Level I and Level 2 support services unless otherwise agreed to by the Parties. 3. LEVEL 3 SUPPORT 3.1 Priority Levels. Defects which are reported by Blue Martini to ND shall be classified, for the purposes of this agreement, in accordance with the following definitions: (a) Critical. (Priority 1) major System Impact (System down). This classification corresponds to "Severity I Defect", which is a reported defect in the ND product which cannot be reasonably circumvented, and which is an emergency condition that significantly restricts the use of the ND product by the customer to perform necessary business functions. Additionally, an escalation may be designated a meltdown if 1) Blue Martini may lose a significant amount of business if the problem is not resolved in a timely manner, 2) there 12. is a potential for a public relations disaster if the problem is not resolved in a timely manner, 3) or the problem is seriously impacting the customer's business. (b) High (Priority 2), Moderate System Impact (System crashing/hanging). This classification corresponds to "Severity 2 Defect", which is a reported defect in the ND product which restricts the use of one or more portions of features of the ND product by the customer to perform necessary business functions but does not completely restrict use of the ND product. (c) Medium (Priority 3) Minor System Impact (Performance/Operational Impact). This classification corresponds to "Severity 3 Defect" and/or "Severity 4 Defect". A Severity Level 3 Defect is reported defect in the ND product which restricts the use of one or more portions or features of the ND product by the customer to perform necessary business functions, but the defect can be reasonably circumvented; and Severity Level 4 Defect is reported defect in the ND product which does not substantially restrict the use of one or more portions or feature of the ND product by the customer to perform necessary business functions. (d) Low (Priority 4), Minor problem, observation, or `how to' inquiry. Blue Martini will establish, if possible, the priority level of each escalation based on their perception of the needs of each customer. As part of its initial action plan, ND will (i) respond as to whether it agrees with Blue Martini's defect classification, or (ii) classify the defect in accordance with the definitions set forth above. 3.2 Defect Reporting by Blue Martini ("Escalations"). ND will respond to all defects reported by Blue Martini. Escalations from Blue Martini Engineering will be communicated to ND via the following process: Escalations are reported to Blue Martini Engineering through the Blue Martini escalation tracking system. These escalations are submitted form the various Blue Martini Answer Centers and Authorized Support Providers (ASP's) and Blue Martini records them in a Blue Martini database ("Scopus" or equivalent, hereinafter referred to as "Scopus") and assigns each one a unique Scopus reference number (ID). Problems which Engineering is unable to resolve are given to the Blue Martini Designated Support Contact who reviews and communicates them, if appropriate, to ND for resolution. In all cases the Designated Support Contact (or alternate Designated Support contact) will initiate the Level 3 Support process by notifying ND that a problem is being escalated. In all cases the person notified by Blue Martini will be the ND designated Support Contact for Blue Martini (or Alternate Designated Support Contact). Notification may be by e- 13. mail or phone. The initial notification will include the Scopus reference number and a description of the problem being escalated. 3.3 Acknowledgement by ND. ND will acknowledge escalations by contacting the Blue Martini Designated Support Contact(s) via e-mail or phone. All incoming escalations shall be logged for tracking purposes by ND and the time of acknowledgement of each escalation will be logged by the Blue Martini Designated Support Contact(s). 3.4 Acceptance by ND. After acknowledging receipt of each escalation, ND will examine the contents of the Scopus escalation provided by Blue Martini Engineering to determine whether the information provided is sufficient for ND to begin work toward providing Blue Martini Engineering with a resolution. The Scopus escalation shall contain: (a) a reasonably detailed description of the problem, together with any supporting information which Blue Martini Engineering believes may assist ND in its diagnostic process; (b) ND product and version (including patch updates) against which of the escalation is being raised; (c) the operating system version (including patch updates) against which the escalation is being raised; (d) the hardware configuration required to reproduce the problem; (e) a test case or instructions necessary to demonstrate the problem; (f) the current priority and status proposed by Blue Martini; (g) an indication as to whether additional information such as dumps, logs, etc. are, or can be made, available; and (h) the date and time of assignment to ND. If ND determines that there is insufficient information to begin work on resolving the escalation, the Scopus escalation will be promptly assigned back to Blue Martini Engineering via notification to the Blue Martini Designated Support Contact(s). When a problem escalated to ND is found to consist of more than one customer problem or the Scopus escalation describes more than one customer problem, ND will report the situation to Blue Martini. If Blue Martini agrees with ND analysis, Blue Martini will determine which is 14. the primary problem to be worked by ND and Blue Martini may, at its option, report the second problem(s) to ND as a new escalation(s). ND will [...***...] establish an automatic acknowledgement of escalations for which Blue Martini is notified via phone, e-mail or access to NDDN. In the event that ND assesses the escalated call to be non vendor defect or failure, ND will contact Blue Martini Engineering with a detailed explanation so the escalation can properly be redirected within Blue Martini. 3.5 Response Times. ND will respond to Blue Martini with a corrective action and implementation in accordance with the following, which represent the response goals ND will strive to achieve using all cost-effective, reasonable standard practices: Priority Initial Action Plan Implementation of Fix [...***...] [...***...] [...***...] Note: Within [...***...] of escalated call, from Blue Martini, ND will acknowledge receipt of call. ND will provide initial assessment of the call within [...***...] of escalation from Blue Martini. The initial Action Plan is due [...***...] after its current assessment. [...***...] If the Customer's system is still down after [...***...] from the initial escalated call, ND will arrange to provide their resources on site at Blue Martini's request if no apparent progress is being made. Should Blue Martini decide that on-site resources are required, then Blue Martini will be billed at [...***...] or ND's then current consulting rate, whichever is greater, for travel within North America. Travel outside North America may take [...***...] to arrange and will be charged at then current consulting rates. Priority Initial Action Plan Implementation of Fix [...***...] [...***...] [...***...] Note: Within [...***...] of escalated call from Blue Martini, ND will acknowledge receipt of call. ND will provide initial assessment of the call within [...***...] of escalation from Blue Martini. The initial Action Plan is due [...***...] after [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 15. its current assessment. ND will work on a continuous effort based on the agreed to current Action Plan. If the Customer's system is still down after [...***...] from the initial escalated call, ND will arrange to provide their resource on site at Blue Martini's request if no apparent progress is being made. Should Blue Martini decide that on-site resources are required, then Blue Martini will be billed at [...***...] or ND's then current consulting rate, whichever is greater, for travel within North America. Travel outside North America may take [...***...] to arrange and will be charged at then current consulting rates. Priority Initial Action Plan Implementation of Fix [...***...] [...***...] [...***...] Note: Within [...***...] of escalated call from Blue Martini, ND will acknowledge receipt of call. ND will provide initial assessment of the call within [...***...] of escalation from Blue Martini. The initial Action Plan is due [...***...] after its current assessment. ND will work on a continuous effort based on the agreed to current Action Plan. Any on-site attendance by ND support personnel to resolve escalation must be requested by Blue Martini and will be managed by Blue Martini. ND must be able to provide on-site support both domestically and internationally and have at least [...***...] who can visit customer sites outside the U.S. on reasonable notice. In the vent where problem resolution cannot comply with the above time frames, ND will contact Blue Martini and both parties will use reasonable efforts to assist each other in resolving these escalations to the satisfaction of Blue Martini's customers. The times for response on individual escalations are defined in terms of ND normal business hours, as follows: 8:00 AM - 5:00 PM U.S. Pacific Standard Time Monday through Friday, excluding Blue Martini holidays which shall be published in advance at least annually and which in 1999 are: New Year's Day President's Day [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 16. Memorial Day Independence Day Labor Day Thanksgiving Christmas New Year's Eve 3.6 Action Plan. If ND determines that sufficient information has been provided and has notified Blue Martini that the escalation has been accepted, work on resolving the escalation that begins in accordance to ND standard business practices and an action plan ("action Plan") will be provided by ND to Blue Martini within the response times which have been set forth in the Agreement. Each Action Plan should include the following information. (a) problem statement, including early evaluation; (b) confirmation, when possible, that ND has reproduced the problem; (c) problem status; (d) action required; (e) who needs to perform the actions (where "how" may refer to ND Engineering, Blue Martini, etc. i.e. it does not necessarily require the identification of a specific engineer); (f) when the actions should occur and when they are expected to be completed; and (g) Projected date for resolution and confidence level, if possible, for such date (stated in percent form). ND will promptly notify Blue Martini of significant exceptions to each Action Plan, and will provide updates to specific Action Plans as reasonably requested by Blue Martini. In the event that an escalation must be returned to Blue Martini for more information, a revised Action Plan will be provided by ND when the escalation is re-assigned to ND with the requested information. 3.7 Escalation Status. The current status of each escalation will be tracked by ND in accordance with its standard business practices. Blue Martini will assign an escalation status category for its internal tracking purposes. Blue Martini's initial escalation status categories are as follows: 17. (a) OPEN AWAITING ENGINEERING: Acknowledged by Support Engineering, escalated to Development Engineering and waiting for a response. (b) OPEN - AWAITING FIELD INFO: ND has requested additional information from the field to continue working the problem. (c) OPEN - ON SITE SUPPORT: An engineer from ND is working on site to resolve the customer problem. (d) OPEN - UNDER INVESTIGATION: Accepted and being worked by a ND Engineer. (e) PENDING - FIELD ACTION: A proposed resolution has been supplied by ND, which must be related to the customer in order to close the escalation. Any such changes will be given to Blue Martini Engineering for passing on to the relevant site. Blue Martini Engineering is also responsible for conveying the test results back to ND. (f) PENDING FIX VERIFICATION: ND has provided a resolution to the escalations and is awaiting feedback. Any such fixes will be given to Blue Martini Engineering for passing on to the relevant site. Blue Martini Engineering is also responsible for conveying the test results back to ND. (g) CLOSED: Blue Martini Engineering has confirmed that the solution provided by ND resolves the customer's problem. 3.8 Resolution Within the specified response times, ND will [...***...] to resolve each reported defect, by providing either (i) a reasonable work around, which may consist of specific administrative steps or alternative programming calls, (ii) an object code patch to the ND products, or (iii) a specific Action Plan for how it will address the defect and an estimate on how long it will take to rectify the defect. Blue Martini Designated Support contact(s) will [...***...] to assist ND Designated Support Contact(s) to resolve escalation where problem determination is unclear and impacts the resolution time frames noted above. 3.9 Resolution Categories Blue Martini will assign a resolution category for its internal tracking purposes. Blue Martini's initial escalation resolution categories are as follows: (a) CODE CHANGE: revised Source Code is require and a patch kit will be made available to Blue Martini Engineering. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 18. (b) DUPLICATE: the escalation is a duplicate of an existing one. (c) DOCUMENTATION: the relevant documentation is in error and no Source Code change is needed. On-line documentation changes would be handled as source code changes. (d) USE: the problem was caused by incorrect usage. Blue Martini may request that a code change be made to resolve such escalation. (e) PERMANENT RESTRICTION: the escalation can be traced to a problem in the ND products which cannot be corrected in this version. (f) SUGGESTION: the software is operating to specification and the reported escalation is really an enhancement or a (non-compliant) suggest change. (g) NOT SUPPORTED: the problem has been determined to be caused by a defect in a portion of the ND products which is not supported by ND. (h) CONFIGURATION: the problem has been caused by the use of the ND products on an unsupported or invalid configuration. 3.10 Permanent Restrictions, Enhancements and Suggestions. ND may advise Blue Martini that for a particular escalation the resolution is likely to cause regression, break a standard, cause some other part of the ND products to fail, or for any other reason is ill advised. Blue Martini may either accept ND's recommendation or request that ND provide the resolution, and ND will consider such requests in good faith. Should Blue Martini require such a resolution it will be completed for [...***...]. Similarly, ND may advise Blue Martini that the resolution to a particular escalation would involve redesigning and/or rewriting a portion of the ND products. If ND determines not to carry out the resolution, Blue Martini shall have an option to require ND to carry out the resolution for [...***...]. 3.11 Resolution Testing Defect resolutions will be tested according to ND standard business practices, which includes unit testing on the release level of the ND products against which the escalation was reported and regression testing at the time the defect is resolved for all currently supported releases of the ND products. If a problem or regression is found to be caused by a patch previously created by ND such problem or regression will be corrected by ND and reported to Blue Martini. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 19. For each release of the licensed product, ND will provide to the Blue Martini Designated Support Contact(s) a list of the platforms and configurations on which ND tests defects and resolutions. 3.12 Patch Delivery ND shall provide all Patches to Blue Martini as soon as they are available, but in any event within the specified time frames set forth in Section 3.5. In all cases where possible, ND shall provide Patches on-line. ND shall conduct bug fix validation test (on standard base level system) and regression testing for Patch compatibility prior to sending the same to Blue Martini; unless such testing would cause ND to not comply with the relevant time frames require under Section 3.2 in which case ND shall inform Blue Martini and Blue Martini shall have the option to either waive the testing requirement, waive the time requirement or require that ND proceed under its obligations and pursue its available remedies should ND not meet its obligations. Whenever possible, ND shall send a test case or test procedure used to verify all Patches. Defect resolutions which are provided via patches shall be provided by ND to Blue Martini Engineering in a mutually agreement format for duplication and distribution. Each patch will consist of: (a) a README file describing the escalation and solution, and giving instructions for installing the correction; (b) a shell script to apply the correction or other appropriate instructions; and (c) the corrected object/binary file/libraries/scripts. 3.13 Documentation of Closed Escalations When an escalation is resolved and closed, ND will update its internal records in accordance with its standard business practices in order to provide a long-term audit trail. ND will provide Blue Martini with a reasonably detailed explanation of the resolution and any differences in hardware or software configuration which are relevant to the resolution. 3.14 Project Management Blue Martini will measure responsiveness and quality with respect to ND provision of Level 3 Support services by recording and monitoring a three- month rolling average of ND performance against the following criteria: (a) Responsiveness: acknowledges will be made, Action Plans will be provided, regular updates will be submitted and resolutions will be completed within the 20. response times set forth in Paragraph 3.5 of this Exhibit for at least [...***...] of the escalations in each Priority category. (b) Quality; at least [...***...] of resolutions will work first time. 3.14.1 Quality Objectives ND will [...***...] to supply Blue Martini with resolutions of escalations that work first time. Working first time is defined as: (a) Correcting the reported problem as described in the Scopus escalation; (b) Not introducing any regression following ND periodic regression testing; and (c) Not causing any performance degradation. Patches that fail to work first time will be reworked by ND. Any additional Services requested by Blue Martini will be processed by ND in all respects as new escalations. 3.14.2 Corrective Action Plan In the event that ND consistently fails to meet the response time, quality or consultation goals defined above, Blue Martini may request that ND provide a plan to address the causes of such failure (a "Corrective Action Plan"). Upon receipt of written notice of Blue Martini, wherein Blue Martini shall describe such failure in reasonable detail, ND shall have [...***...] to provide a Corrective Action Plan to Blue Martini and [...***...] to correct the failure. During the [...***...], progress in implementing the Corrective Action Plan shall be monitored on a weekly basis by senior management at Blue Martini and ND. If ND fails to achieve the performance, quality or consultation goals set forth in the Corrective Action Plan, Blue Martini may invoke the termination procedures set forth in Section 9 of the ISV License and Marketing Agreement. 3.14.3 Reports ND will use [...***...] to provide Blue Martini with the following status report: (a) Weekly Escalation Status: a detailed listing showing the current status and action plan for all open escalations and all escalations resolved for the week; and (b) Monthly Escalation Statistics: a summary report of all Escalations resolved by ND for the preceding months, by Release level and Component. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 21. (c) Daily Escalation Status: for Meltdown Escalations, a daily status report will be required in order to keep the customer up to date on progress of resolution. (Weekly escalation status required for Hot and Warm) 3.14.4 Meetings Blue Martini requires the following regular meetings or teleconferences as a guideline: (a) Daily Meltdown Escalation (Priority 1) status meetings, if specified in the escalation Action Plan inclusive of conference calls with the customer if necessary. (b) Weekly Escalation Status: teleconference held with ND Designated Support Contact and the Blue Martini Designated Support Contact to report on and discuss progress on all currently open escalations. 3.14.5 Late Resolutions When a resolution is more than [...***...] late, i.e., the normal resolution delivery goal for the priority of the escalation in question has been exceeded by more than [...***...], Blue Martini has the following options: (a) escalate the defect to the next higher Priority (e.g. High to Critical), and track progress daily and work the issue with ND senior management; (b) convene a meeting with ND to establish a Corrective Action Plan; and (c) if neither (a) or (b) resolves the escalation, then Blue Martini shall have the options set forth in Section 7.2(a) of the Agreement. 3.15 End of Life Support (EOL) ND will provide Blue Martini with product support for the duration of the Software Products' service life. This is defined as product support provided by ND to Blue Martini from commencement of the Software Product's warranty period through a period of not less than [...***...]. ND shall notify Blue Martini of a planned EOL announcement of its Software Products [...***...] before the published date or assignment of backline support of Software Products is planned to be transitioned to a third party company. In the latter event, ND will select a recognized company with a proven track record of success in providing EOL software support & maintenance. Vendor will provide Blue Martini with backline support from the commencement of the published EOL date of the Software Products as follows: [...***...]: Full support (respond to all escalated calls from Blue Martini, provide fixes and error corrections. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 22. [...***...]: Support (respond to Priority I and 2 escalated calls from Blue Martini provide fixes and error corrections; work-arounds may be used. [...***...]: Time and Material Support, [...***...]. 3.16 Software in Escrow In the event of (i) ND bankruptcy as provided in Section 11 of the ISV License and Marketing Agreement or (ii) ND inability to perform its support obligations after [...***...] prior written notice and an opportunity to correct such deficient support services, the deposited Escrow Material will be delivered to Blue Martini by the escrow agent, stating grounds upon which the request is made. On receipt of the request form from Blue Martini, the escrow agent shall mail a copy of the request to ND and shall then deliver the Escrowed Materials to Blue Martini [...***...] after the copy of the request is mailed to ND. Blue Martini may at its option use, copy and modify the Escrowed Material only to provide backline support to Customers. Blue Martini acknowledges and agrees that all Escrowed Material are confidential and proprietary to ND. Source Code may not be transferred to a third party under any circumstances. ND will own the sole, exclusive rights to any and all changes made by Blue Martini. The source code may be accessed only for providing Blue Martini customers with fixes to bugs which have been acknowledged as such in writing by ND. Blue Martini may make no enhancement or feature changes. Should ND elect to EOL the product(s) it has licensed to Blue Martini, Blue Martini will be give the opportunity to purchase the source code to these product(s) under terms no more or less favorable than those ND offers to it's best customers of the same product(s). 3.17 Distribution Binaries ND will deliver to Blue Martini two (2) copies of the Software (as defined in Exhibit A of the Agreement) and updates and upgrades thereto in binary form so that Blue Martini can make them available for its customers on distribution servers maintained by Blue Martini. 3.18 Vendor Documentation ND will provide, free of charge, an electronic version of the Documentation (such as, but not limited to, installation, programmer/developer, and support manuals) that is readable on Blue Martini workstations, which Blue Martini may copy and distribute to Blue Martini's service providers. This material will not, however, include training manuals and documentation, which will be made available as specified in Section 5.1. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 23. 4. MISCELLANEOUS 4.1 Shipment of Supported Updates and Upgrades ND shall promptly deliver Upgrades to Blue Martini as soon as commercial available, but in no event later than first customer shipment of Upgrades to the Software Product. ND shall supply Beta Versions Upgrades to Blue Martini prior to commercial shipment to permit Blue Martini to prepare to integrate the Upgrade into its products. Blue Martini shall have the right, but not the obligation, to provide input to ND regarding the content and characteristics of future versions and releases of the products; provided that ND shall have no obligation to incorporate any such suggestion. ND shall provide Upgrades to Blue Martini in separate shippable packages as follows: (a) Right to Use (RTU) licenses (b) Media (CDs) (c) Upgrade documentation 4.2 Secure Communications Link ND will be required to set up a secure communications link between ND and Blue Martini for the purposes of sending all non-disclosure information, patches, files, documentation as well as e-mail correspondence. 5. TRAINING AND CONSULTATION 5.1 Transfer of Information (TOI) This Section 5.1 shall not apply to Maintenance Releases. For each 'new Enhancement Release, ND shall ensure Blue Martini receives Transfer of Information (TOI) [...***...] prior to product release. The initial TOI will be completed by FCS Code Freeze. ND shall offer to train-the-trainer session at a central Blue Martini designated facility and agrees to allow Blue Martini to videotape the session for Blue Martini internal duplication and distribution. Blue Martini will be billed [...***...]. The initial TOI will be ready within [...***...] following FCS Code Freeze. Content of the final TOI must include the following to a sufficient level of detail: Product Overview Features Limitations [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 24. File Descriptions External Specification (Functional Spec) Theory of Operation - detail of installation, configuration Walk through of product install, config, deinstall Troubleshooting/Diagnostics Known Bugs & Work Arounds Common User Errors Troubleshooting Tools and Diagnostic Techniques Recommended Support Strategy 5.2 Customer Training Upon Blue Martini specific request with ND agreement, ND shall be available to participate in training of Blue Martini's distributors and resellers in providing support services for the Supported Products. Such training may include both creating and conducting training programs. Blue Martini will be billed at [...***...]. 5.3 E-mail and Phone Technical Support ND shall answer any related technical questions on the Supported Products from Blue Martini "support" alias, or other such restricted access aliases for support purposes. Until Blue Martini is provided access to such aliases Blue Martini shall monitor such aliases and provide ND the questions that require answers. ND agrees to use [...***...] to meet such response time guidelines that might exist for such aliases. On-line access to NDDN, Support@Neurondata.com and any access to ND's Customer Support Staff is - ----------------------- specifically limited to Blue Martini Tier Three support personnel. ND will maintain and make available to Blue Martini, telephone support accessible through a toll free line. ND support service center will be staffed by properly trained ND personnel between 8:00 a.m. and 5:00 p.m., Pacific Standard/Daylight Savings Time, Monday through Friday (excluding holidays). ND will use [...***...] to arrange for a qualified support engineer or support manager to return calls to Blue Martini within [...***...] of Blue Martini's first call to ND. ND shall provide a list of designated contacts, phone numbers, and pager numbers to Blue Martini. 5.4 Vendor Bug Reports ND shall permit Blue Martini to have access to ND's bug reports, [...***...] relevant to the Licensed Products. Access to the bug reports shall be limited by Blue Martini to its employees with a need to know and the information in the bug reports shall be considered and treated by Blue Martini as Proprietary Information in accordance with the provisions of Section 4 [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 25. (Confidential Information). ND grants Blue Martini the right to use, copy and distribute such data internally for purposes of resolving Customer Support requests with respect to the Supported Products. 5.5 Vendor Development Process Audit Blue Martini will provide at its option, rating feedback quarterly to which ND will take all reasonable actions to improve where deficiencies have been noted. A follow up audit will be scheduled for a later date to determine if the deficiencies have been corrected. 26. Attachment A ------------ Supported Software: Neuron Data Elements Advisor Builder & Run-Time Supported Platforms: All Application(s): See Exhibit A Support and Maintenance Fees: [...***...] Number of Authorized Named Contacts (Development Licenses): 3 Telephone Support Authorized: (Y/N) Yes. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 27. Exhibit D --------- ND Trademarks (C) 1998 Neuron Data, Inc. All rights reserved. Elements, Elements Enterprise, Elements Messenger, Elements Converter, Elements Accessor, Elements Tester, Elements Presenter, Elements Advisor, Elements Expert and OOScript 28. Exhibit E --------- Has been omitted. 29. Exhibit F --------- Marketing Efforts (Check appropriate boxes) Public Relations & Advertising - ------------------------------ [_] . Press Releases [_] . Speaking Engagements [_] . Mutual Press/Analyst Reference [_] . Joint Advertising Programs Events (Mutual Participation) - ------------------------------- [_] . Trade shows [_] . User Group Meetings [_] . Sales Meetings [_] . Seminars Other - ------------------------------- [_] . Exchange of Sales Account Manager Contacts [_] . Exchange of Collateral [_] . Development of Joint Collateral [_] . Mutual Web site Presence and Links [_] . Mutual Partner Catalog listing [_] . Integrated Demo(s) of parties products 30. EXHIBIT G --------- YEAR 2000 COMPLIANT SOFTWARE - ------------------------------------------------------------------------------ Product Previous Y2K- Release Name Name Compliant Date Release Level - ------------------------------------------------------------------------------ Elements Accessor/C & C++ Data Access Element 2.1 & later 06/1997 - ------------------------------------------------------------------------------ Elements Advisor Jewels 1.0 & later 05/1997 - ------------------------------------------------------------------------------ Elements Enterprise/C & C++ Elements Environment 2.1 & later 06/1997 - ------------------------------------------------------------------------------ Elements Expert/C & C++ Intelligent Rules Element 4.1 & later 06/1997 - ------------------------------------------------------------------------------ Distributed Messaging * Elements Messenger/C & Element 3.1 & later 06/1997 - ------------------------------------------------------------------------------ Elements Presenter/C & C++ en Interface Element 4.1 & later 06/1997 - ------------------------------------------------------------------------------ Elements Presenter/J Joy 1.0 & later 05/1997 - ------------------------------------------------------------------------------ Microline MCT, MVT & MWL None 3.0 & later 02/1997 - ------------------------------------------------------------------------------ Note: Information on Elements Messenger is provided for the convenience of customers using older releases. Neuron Data no longer markets or supports this product. For assistance with Messenger, please contact Modulus Technologies. 31. EXHIBIT H --------- Escrow Agreement ---------------- As of the effective date of this Agreement, Neuron Data has an escrow deposit agreement for the Source Code in place with Data Securities International, Inc., ("DSF') dated October 29, 1996 (the "Escrow Agreement"). Within 30 days after the execution of this Agreement, Neuron Data will add Blue Martini Software as a --------------------- beneficiary to the Escrow Agreement. Neuron Data will provide a copy of the Escrow Agreement to Blue Martini Software, with confidential information removed, upon written request. Neuron Data will maintain Blue Martini Software as a beneficiary of the Escrow --------------------- Agreement (or of a substantially similar successor escrow deposit agreement with a commercial source code escrow agent) at Blue Martini Software's expense, at ----------------------- all times for as long as source code escrow is required by Section 1 of the - Agreement. 32. EXHIBIT I --------- Pricing and Additional Terms ---------------------------- 1. The following terms are incorporated into the Agreement: 1.1. A five-year term from date of execution. 1.2. An unlimited license (as set forth in the Agreement} for internal use of Advisor Builder (a.k.a. the development environment) by your development and consulting organizations. 1.3. A limited license (as set forth in the Agreement) for external deployment of Advisor Engine (a.k.a. the run-time environment} in the named application. 1.4. A limited license (as set forth in the Agreement) for external deployment of Advisor Builder for the sole purpose of adding or modifying the rules that are an integral part of your application software. 1.5. A limited license (as set forth in the Agreement} for external deployment of Advisor Technical and Training material for the sole purpose of facilitating the use of the above licensed material within your application software. 2. Blue Martini will pay ND an initial, nonrefundable, license fee (the "Initial License Fee") of [...***...] due in two equal payments Net [...***...] and [...***...] from execution of this contract. 3. Blue Martini will calculate and pay royalties as a percentage of [...***...] for products containing the Licensed Product per the schedule outlined below: Contract year [...***...] [...***...] [...***...] [...***...] [...***...] % of [...***...] [...***...] [...***...] [...***...] [...***...] [...***...]
No royalties shall be due on licenses used for purposes of demonstration, evaluation, development, testing, or quality assurance. 4. ND understands that Blue Martini may require up to eight 1/2 day sessions with an ND architect to review various issues concerning the integration of ND's Advisor with the Blue Martini product suite. These sessions will be billed under separate PO's and scheduled at mutually convenient times as required. Consulting Services are available at ND's then current consulting rates. 5. Blue Martini will begin quarterly royalty payments to ND once the aggregate royalty & support, fees due ND under this agreement exceed the initial license & support fees. Royalty & Support fees are due ND as a result of Blue Martini' s revenue recognition of an application that embeds the software product(s} licensed from ND. 6. Royalty payments will be calculated and paid quarterly with an annual audited reconciliation. ND will pay the expense of these audits unless a discrepancy of [...***...] or more is found, in which case Blue Martini will bear the audit costs. The audit shall be conducted by an independent, nationally-recognized accounting firm and shall be limited to those records required for the auditor to determine the correctness of payments to ND hereunder. The auditor shall be required to sign a confidentiality agreement acceptable to Blue Martini. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 33. 7. ND will provide an Annual Support & Maintenance Agreement that will cover the current Advisor Builder (development environment) and Run-Time. This agreement will provide phone & web-based technical support, patches, maintenance (point) releases as well as upgrade (version) releases. 8. Support & Maintenance services for one year are calculated at [...***...] of the royalty fee paid to ND. Only licenses with an active Blue Martini Support & Maintenance agreement will be included in the calculation of Support & Maintenance renewals. Support & Maintenance renewal fees will be calculated and paid quarterly with an annual audited reconciliation, under the same procedures as set forth in paragraph 7. 9. Blue Martini will limit its support contacts to no more than three authorized Blue Martini employees. These names will be provided to ND and stored in ND's support database. Blue Martini will have the right to update and change these authorized contacts as necessary. 10. ND will be given mutually agreeable co-marketing and attribution within the Blue Martini product suite, consistent with what Blue Martini provides others technology providers. 11. Blue Martini will advise its customers of ND's offer to sell ND developer's licenses to Blue Martini customers for a reduced fee. It is acceptable that this be accomplished via a url to ND's website that will be placed in the `About' box of Blue Martini's applications. 12. With respect to press and public exposure the parties agree: 12.1. Blue Martini will provide quotes or select and acknowledge statements from ND's prepared copy for a joint press release announcing ND as a technology provider (due within 30 days of contract signing). Blue Martini shall have approval rights over the contents of the statement. 12.2. Blue Martini grants ND the right to publish a customer profile outlining the application in which ND's tools are employed (due when the product enters beta shipment, please see the examples on our Web site). 12.3. Blue Martini will [...***...] to participate in the development and placement of trade journal articles discussing the business benefits of ND's technology in your application. 13. This information represents a confidential disclosure between ND and Blue Martini Software and is not to be disclosed by either party outside their company without the other party's prior written consent. [...***...]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 34. EX-10.13 18 ISV SOFTWARE AGREEMENT EXHIBIT 10.13 ISV SOFTWARE LICENSE AGREEMENT This ISV Software License Agreement is entered into this 29th day of January, 1999 (the "Effective Date") by and between BEA WebXpress, Inc., a Delaware corporation with principal offices at 550 California Street, 10/th/ Floor, San Francisco, California 94104 ("WebXpress") and Blue Martini Software, a Delaware corporation with principal offices at 2600 Campus Drive, Suite 175, San Mateo, California 94403 ("Licensee"). Recitals Whereas, WebXpress desires to grant to Licensee, and Licensee desires to receive from WebXpress, a worldwide, non-exclusive license to integrate WebXpress's proprietary software in object code format into Integrated Products (as hereinafter defined), and to distribute such WebXpress software as integrated into Integrated Products, all in accordance with the terms of this Agreement. Now, Therefore, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: Agreement 1. Definitions. For purposes of this Agreement the following terms shall have the meanings set forth below: 1.1 "Affiliate" means an entity controlling, controlled by, or under common control with Licensee. For purposes of this definition, "control" or any correlative form thereof, means the ownership of more than fifty percent of the voting stock of such entity, or if such entity is not a corporation, the ability to control the day-to-day operations and business of such entity. 1.2 "Distributor" means an Affiliate, or third party distributor or reseller, appointed by Licensee under the terms of this Agreement, who acquires Integrated Products from Licensee solely for the purpose of distributing such Integrated Products to End-Users, and not for such party's internal business purposes. Any Distributor who seeks to make use of any Integrated Product for its own internal business purposes must do so under the terms of an End-User License Agreement. 1.3 "Distribution Agreement" means a written agreement between Licensee and a Distributor, signed by both parties, covering the distribution by such Distributor of any Integrated Product to End-Users, which agreement is consistent with, and no less protective of WebXpress's proprietary and intellectual property rights, than the terms of this Agreement. 1.4 "End-User" means a person or entity who acquires Integrated Products from Licensee or a Distributor for such person or entity's internal business purposes, and not for sale, resale, lease or any other form of distribution to third parties. [...***...] = 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. 1. 1.5 "End-User License Agreement" means a written agreement between either Licensee or a Distributor, and an End-User, which agreement is either signed by both parties or is in "shrinkwrap" or "clickwrap" form, covering the licensing of an Integrated Product to such End-User. Such agreement must be consistent with, and no less protective of WebXpress's proprietary and intellectual property rights in the WebXpress Software, than the terms of this Agreement. Without limitation, an End-User License Agreement must contain terms consistent with the applicable provisions of Section 2 of this Agreement. 1.6 "Integrated Product" means an application software product created by Licensee through the integration of WebXpress Software with application software programs proprietary to or licensed by Licensee ("Licensee Applications"). All Integrated Products are subject to the restrictions on development, use and distribution set forth in Section 2 of this Agreement. The Integrated Products covered by this Agreement are described in greater detail in Schedule B, attached hereto and made a part hereof. 1.7 "WebXpress Software" means the machine-readable, compiled, object code form of WebXpress's proprietary software and associated documentation. The specific WebXpress Software covered by this Agreement is set forth on Schedule A, attached hereto and made a part hereof. Provided that Licensee is not in material breach of this Agreement and is current in its payment of annual support fees, the WebXpress Software covered by this Agreement shall also include the object code form of any subsequent releases or successor products of the WebXpress Software set forth, on Schedule A, and any modifications (including bug fixes, error corrections, enhancements and updates) to which Licensee may be entitled pursuant to the terms Schedule E. 2. License Grant. 2.1 License To Reproduce And Distribute. Subject to the terms and conditions of this Agreement, WebXpress hereby grants to Licensee, under WebXpress's intellectual property rights in and to the WebXpress Software, a worldwide, non-exclusive, non-transferable license: (i) to integrate the WebXpress Software into Integrated Products; (ii) to reproduce the WebXpress Software as so integrated into Integrated Products; and (iii) to distribute the WebXpress Software as integrated into Integrated Products solely to End-Users who are subject to an End-User License Agreement. Licensee shall make no use of any copies of the WebXpress Software except as provided in this Section 2.1. Licensee may sublicense the distribution rights granted under this Section 2.1 solely as described in Section 2.2. WebXpress shall deliver to Licensee all license keys, consistent with Schedules A and C on the effective date. All rights not specifically granted herein shall be retained by WebXpress. 2.2 Sublicensing. WebXpress grants to Licensee the right to appoint Distributors to distribute the Integrated Products to End-Users. All Distributors appointed by Licensee must execute a Distribution Agreement. Licensee will use reasonable commercial efforts to ensure that such Distributors comply with the terms of their respective Distribution Agreements and will inform WebLogic promptly of any known violation, infringement or breach. 2.3 Restrictions. Licensee's rights under Section 2.1 are, without limitation on any other restrictions set forth in this Agreement, subject to the following limitations and restrictions: 2. (i) Each Integrated Product made available for distribution to End- Users must be developed so that the WebXpress Software and any of its API's are not directly accessible to the End-User, i.e. an End-User using the Integrated Product will have direct access only to the Licensee Application portion of such product; (ii) Each and every End-User Agreement and each and every Distributor Agreement shall provide that the End-User or Distributor, as the case may be, may not under any circumstances attempt, or knowingly permit or encourage others to attempt to decompile, decipher, disassemble, reverse engineer or otherwise decrypt or discover the source code of all or any portion of the Integrated Product, including the WebXpress Software embedded therein; (iii) Each and every End-User Agreement shall provide that the End- User may not under any circumstances use the WebXpress Software or any of its API's in any manner except indirectly in connection with the use of the Licensee Application portion of the Integrated Product, and that the End User may not run any third party software applications on the WebXpress Software or any of its API's, without first purchasing a license for such use from WebXpress; (iv) Licensee may not, under any circumstances, distribute the WebXpress Software or any of its API's as standalone products; (v) Licensee shall not integrate the WebXpress Software with any products other than the Integrated Products without first obtaining WebXpress's prior written consent. 2.4 Licensee Certification. Licensee represents and warrants to and for the benefit of WebXpress that each Integrated Product contains a significant enhancement of features and/or functionality to the WebXpress Software embedded therein, and that each Integrated Product is substantially different from any of WebXpress's products and does not compete with any WebXpress products. 2.5 Proprietary Notices. Licensee shall not remove, efface or obscure any copyright notices or other proprietary notices or legends from any WebXpress Software or WebXpress material provided hereunder, and shall reproduce all such notices and legends when incorporating the WebXpress Software into the Integrated Products. 2.6 Branding and Quality Control Provisions. 2.61 "WebXpress Charged" Seal. Licensee shall insert and maintain the "WebXpress Charged" seal (the "Seal") within the Integrated Product such that users of the Integrated Product are exposed to the Seal during normal use of the product. The Seal shall at least be featured under any "About" menu item describing the Integrated Product's release details. Licensee shall insert and maintain the Seal within related marketing materials for the Integrated Product including Licensee's website. The Seal is available to the Licensee from the WebXpress website at http://www.weblogic.com. ------------------------ 2.62 Quality Control Provisions. The use of WebXpress's marks pursuant to Sections 2.5 and 2.6 in the Licensee Application(s) shall be of at least the same quality as Licensee's use in their other products of 3. a similar nature, or, if Licensee has no other products of a similar nature, the use of WebXpress's marks pursuant to Sections 2.5 and 2.6 in the Licensee's Applications shall be of at least the same quality as the average quality of other products of a similar nature which are generally available to the public. 2.63 Licensee agrees to include a referral to the WebXpress website on the Licensee's website. 2.7 Ownership. The WebXpress Software is licensed, not sold to Licensee. Except as specifically licensed to Licensee hereunder, WebXpress retains all right, title and interest, including all intellectual property rights, in and to the WebXpress Software. 2.8 Evidence of Compliance. Upon reasonable request of WebLogic, Licensee shall promptly, and in any event within thirty (30) days, provide WebLogic with any and all evidence reasonably necessary to confirm Licensee's compliance with the provisions of Sections 2.1 through 2.6. 3. Royalties and Support Fees. 3.1 Royalty and Support Fees. Licensee shall owe to WebXpress royalties and support fees as set forth on Schedule C. All royalties and support fees will be paid on a calendar quarterly basis within 30 days after the end of the quarter. Included with the payment, Licensee will provide WebXpress a report containing the number of customers (including End-Users, ISV's and Distributors) receiving the Integrated Product and the quantity shipped in the previous quarter. 3.2 Audit. Licensee shall maintain complete and accurate accounting and distribution records, in accordance with generally accepted accounting practices, to support and document royalties payable in connection with this Agreement. Such records shall be retained for a period of three (3) years after the royalties which relate to such records have been accrued and paid. Licensee shall, upon written request from WebXpress, provide access to such records to an independent auditor chosen by WebXpress and reasonably acceptable to Licensee for the purposes of audit. If any such audit discloses a shortfall in payment to WebXpress of more than [...***...] for any quarter, Licensee agrees to pay or reimburse WebXpress for the expenses of such audit. If any such audit discloses a shortfall in payment to WebLogic, which is not related to an accounting error, of more than [...***...] and [...***...] for any quarter, WebLogic may terminate this Agreement. 3.3 Taxes. Licensee shall complete the Resale Certificate attached in Schedule D. Licensee agrees to provide WebXpress with further documentation, as reasonably necessary, supporting such status at WebXpress's expense. Licensee shall be responsible for any sales or use or other taxes (other than taxes based on WebXpress's net income) to the extent that any such taxes may arise in connection with this Agreement. Licensee agrees that the amounts to be remitted to WebXpress are to be the actual amounts due without withholding taxes or other assessments by authorities anywhere in the foreign location. If any withholding tax is imposed under the laws of a country or other taxing jurisdiction outside of the United States on any amounts paid to the WebXpress, such amounts will be increased by the amount of the withholding tax. Licensee shall be solely responsible for and shall pay any and all amounts [...***...] = 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. 4. required in the foreign location to be withheld, charged, deducted, or assessed against such payment amounts, and will promptly furnish WebXpress with certificates evidencing payment of such amounts. 4. Warranties and Support. 4.1 Limited Warranty. WebXpress warrants that for a period of ninety (90) days following delivery to Licensee, the WebXpress Software will perform substantially in accordance with the accompanying WebXpress Documentation. WebXpress does not warrant that the WebXpress Software will be error-free or will operate without interruption. Licensee's exclusive remedy for breach of the warranty contained in this Section 4.1 shall be the prompt correction of any such failure to perform. 4.2 WebXpress Warranty Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 4.1, WEBLOGIC HEREBY DISCLAIMS ALL OTHER WARRANTIES EXPRESS, IMPLIED, OR STATUTORY, WITH RESPECT TO THE WEBLOGIC SOFTWARE, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFR1NGEMENT. 4.3 Service and Support. Subject to payment of any applicable support fees set forth in Schedule C by Licensee, WebXpress agrees to provide support and software upgrades as described in Schedule E. 4.4 End-User Support. Licensee shall, at its own expense, be solely responsible for providing technical support (including without limitation warranty service) and training to its Distributors and End-Users for the Integrated Products. Licensee shall ensure that all questions from Distributors or End-Users regarding the use or operation of the Integrated Products are addressed to and answered by Licensee. WebXpress shall provide second-line support to Licensee as set forth on Schedule E. 5. Indemnification. 5.1 WebXpress Indemnity. WebXpress shall indemnify, defend and hold Licensee harmless from and against any claim that the WebXpress Software as used within the scope of this Agreement infringes the copyright, trademark, trade secret or patent issued as of the Effective Date of any third party, provided that (i) Licensee notifies WebXpress promptly in writing of the claim; (ii) WebXpress has sole control of the defense and all related settlement negotiations; and (iii)Licensee provides WebXpress with all necessary assistance, information, and authority to perform the above.. 5.2 Exclusions. WebXpress shall have no liability for any claim of infringement based on (i) use of other than a then currently supported version of the WebLogic Software provided to Licensee, to the extent the infringement would have been avoided by use of such version; (ii) modification of the WebXpress Software by Licensee to the extent the infringement would have been avoided without such modification; or (ii)the combination or use of the WebXpress Software furnished hereunder with materials not furnished by WebXpress to the extent such infringement would have been avoided by use of the WebXpress materials alone.. 5. 5.3 Alternatives. In the event the WebXpress Software is held to, or WebXpress believes is likely to be held to, infringe any third party copyright, trademark, trade secret or United States patent issued as of the Effective Date, WebXpress shall have the right at its sole option and expense to (i) substitute or modify the WebXpress Software so that it is non-infringing, while retaining equivalent features and functionality; or (ii)obtain for Licensee a license to continue using the WebXpress Software under commercially reasonable terms; or (iii) if (i) and (ii) are not reasonably practicable, terminate this Agreement as to the infringing WebXpress Software and return to Licensee any license fees paid by Licensee hereunder with respect thereto, amortized over a period of three years, which period the parties agree is represents the useful life of the WebXpress Software. 5.4 Sole Obligation. The foregoing states the sole obligation and exclusive liability of WebXpress, and Licensee's sole recourse and remedy for any infringements or claims of copyright and patent infringement by the WebXpress Software. 5.5 Licensee Indemnity. Licensee agrees to indemnify, defend and hold WebXpress harmless from and against any costs, losses, liabilities, claims or expenses (including attorneys' fees) arising out of: (i) any claim that any Integrated Product infringes upon the intellectual property or proprietary rights of any third party, except to the extent such arises from infringement of such rights by the WebLogic Software: (ii) the distribution of any Integrated Product by Licensee or its Distributors; or (iii) the use of any Integrated Product by any End- User, Distributor or third party. Notwithstanding the foregoing, Licensee will not have any , ,, indemnification liability to WebXpress to extent that a claim by a third party is based on a failure of the WebXpress Software to operate in accordance with the WebXpress Documentation. Nothing in this Section 5.5 shall be construed to be an extension of WebXpress's warranty obligations set forth in Section 5.1. The foregoing indemnity states the sole obligation and exclusive liability of Licensee, and WebXpress's sole recourse and remedy for any infringements or claims of copyright and patent infringement by the Integrated Products. 6. Term and Termination. 6.1 Initial Term. This Agreement shall become effective on the Effective Date and shall remain in effect for a period of three (3) years and six (6) months thereafter unless the Agreement is terminated as provided below. 6.2 Termination. 6.2.1 Breach. 'If either party defaults in a payment or other material obligation under this Agreement and, in the case of breaches capable of cure, fails to completely cure such default for a period of thirty (30) days after written notice of default from the non-breaching party, the non-breaching party may terminate this Agreement, in accordance with the provisions of this Section 6, upon written notice of termination given to the defaulting party. 6.2.2 Insolvency. Notwithstanding anything contained herein to the contrary, either party may terminate this Agreement immediately by notice to the other if: (i) the other ceases to carry on its business; or (ii) a receiver or similar officer is appointed for the other and is not discharged within thirty (30) days; or 6. (ii) the other becomes insolvent, admits in writing its inability to pay debts as they mature, is adjudicated bankrupt, or makes an assignment for the benefit or its creditors or another arrangement of similar import; or (iii) proceedings under bankruptcy or insolvency laws are commenced by or against the other and are not dismissed within (30) days. 6.3 Effect Of Termination. Upon termination of this Agreement, (i) the rights and licenses granted to Licensee pursuant to this Agreement shall automatically terminate, (ii) Licensee shall certify to WebXpress that all WebXpress Software subject to this Agreement and in Licensee's possession has been destroyed or removed from Licensee's equipment and (iii) Licensee shall cease to use all intellectual property of WebXpress. Within thirty (30) days of termination, Licensee shall provide to WebXpress a royalty report and pay all royalties accruing as of the date of termination, in accordance with Section 3.1. All licenses granted to End-User pursuant to appropriate End-User License Agreements shall survive expiration or termination. Sections I, 2.7, 3, 4.2, 4.4, 5, 6.3, 7, 8 and 9 shall survive the expiration or earlier termination of this Agreement. 7. Confidentiality. 7.1 Definition. For purposes of this Agreement, "Confidential Information" of a party means information or materials disclosed or otherwise provided by such party ("Disclosing Party") to the other party ("Receiving Party") that are identified as confidential or proprietary. "Confidential Information" does not include that which (i)was known to the Receiving Party, without restriction and without duty of confidentiality, at the time of disclosure, as evidenced by the written records of Receiving Party, (ii) is or becomes part of public knowledge other than as a result of any action or inaction of the Receiving Party, (iii) is obtained by the Receiving Party from an unrelated third party without a duty of confidentiality, or (iv) is independently developed by the Receiving Party without reliance upon or use of the Confidential Information of the Disclosing Party. Without limiting the generality of the foregoing, and notwithstanding the exclusions hereinbefore set forth, "Confidential Information" of WebXpress includes the WebXpress Software and any information relating to the development, design, manufacture and specifications of WebXpress Software. 7.2 Restrictions on Use and Disclosure. The Receiving Party shall not use Confidential Information of the Disclosing Party for any purpose other than in furtherance of this Agreement and the activities described herein. The Receiving Party shall not disclose Confidential Information of the Disclosing Party to any third parties except as otherwise permitted hereunder. The Receiving Party may disclose Confidential Information of the Disclosing Party only to those employees, consultants or sub-Licensees who have a need to know such Confidential Information and who are bound to retain the confidentiality thereof under provisions (including, without limitation, provisions relating to nonuse and nondisclosure) no less restrictive than those required by the Receiving Party for its own comparable Confidential Information. The Receiving Party shall maintain Confidential Information of the Disclosing Party with at least the same degree of care it uses to protect its own proprietary information of a similar nature or sensitivity, but no less than reasonable care under the 7. circumstances. Any copies of the Disclosing Party's Confidential Information shall be identified as belonging to the Disclosing Party and prominently marked "Confidential." 7.3 Legal Obligation to Disclose. This Agreement will not prevent the Receiving Party from disclosing Confidential Information of the Disclosing Party to the extent required by a judicial order or other legal obligation, provided that, in such event, the Receiving Party shall promptly notify the Disclosing Party to allow intervention, and shall cooperate with the Disclosing Party to contest or minimize the scope of the disclosure (including application for a protective order). Each party shall advise the other party in writing of any misappropriation or misuse of Confidential Information of the other party of which the notifying party becomes aware. 7.4 Injunctive Relief. Each party acknowledges that the Confidential Information of the Disclosing Party are valuable trade secrets the Disclosing Party and that any unauthorized use or disclosure of such information would cause the Disclosing Party irreparable harm for which its remedies at law would be inadequate. Accordingly, the Receiving Party acknowledges and agrees that the Disclosing Party shall be entitled, in addition to any other remedies available to it at law or in equity, to seek the issuance of injunctive or other equitable relief. 7.5 Return of Confidential Information. Upon the expiration or earlier term of this Agreement, each party (as Receiving Party) shall immediately return to the Disclosing Party all Confidential Information of the Disclosing Party embodied in tangible form, or certify in writing to the Disclosing Party that all such Confidential Information has been destroyed. The terms of this Section 7 shall survive the expiration or earlier termination of this Agreement for a period of five (5) years. 7.6 Source Code Protections. Licensee shall not under any circumstances attempt, or knowingly permit or encourage any End-User, Distributor or third party to decompile, decipher, disassemble, reverse engineer or otherwise decrypt or discover the source code for the WebXpress Software. 8. Limitation of Liability. EXCEPT FOR BREACHES OF SECTION 2 OR SECTION 7, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF THIS AGREEMENT AND HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR LOSS OF DATA, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR BREACHES OF SECTION 2 OR SECTION 7 AND BOTH PARTIES OBLIGATIONS PURSUANT TO SECTION 5, IN NO EVENT SHALL EITHER PARTY'S CUMULATIVE LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED THE AMOUNTS ACTUALLY PAID BY LICENSEE TO WEBLOGIC PURSUANT TO THIS AGREEMENT. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY. 8. 9. Miscellaneous. 9.1 Confidentiality of Agreement. Both WebXpress and Licensee agree that the terms and conditions of this Agreement shall be treated as Confidential Information and that no reference to the terms and conditions of this Agreement or to activities pertaining thereto can be made in any form without the prior written consent of the other party; provided, however, that the existence of this Agreement shall not be treated as Confidential Information and that either party may disclose the terms and conditions of this Agreement: (i) as required by any court or other governmental body; (ii) as otherwise required by law; (iii) to legal counsel of the parties; (iv) in confidence, to accountants, banks, proposed investors, and financing sources and their advisors; (v) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; or (vi) in confidence, in connection with a merger or acquisition or proposed merger or acquisition, or the like. (vii) to the extent permitted by Licensee's labeling requirement and marketing obligations under this Agreement. 9.2 Press Release. Upon mutual agreement, WebXpress and Licensee shall issue a joint press release announcing the relationship contemplated by this Agreement with mutual endorsements for Integrated Products and WebXpress Software. 9.3 Customer Reference. The Licensee agrees that WebXpress may disclose the name of the Licensee as a customer on the WebXpress web site and on other promotional materials. Licensee further agrees to provide WebXpress with the following customer reference information for possible use on WebXpress's web site and on other promotional material in conjunction with the Licensee's name a brief marketing summary of the Licensee's Integrated Products under this Agreement. Licensee agrees to discuss the WebXpress Software with the press, industry analysts and prospective (non-competitive) customers on a limited basis to be mutually agreed upon by both parties. 9.4 Assignment. Licensee may not assign this Agreement or any rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of WebXpress, which shall not be unreasonably withheld. Notwithstanding the foregoing, Licensee may assign this Agreement in connection with a merger or sale of substantially all its assets. 9.5 Notices. All notices between the parties shall be in writing and shall be deemed to have been given if personally delivered or sent by certified or registered mail (return receipt) 9. or telecopy to the addresses set forth as follows, or such other address as is provided by notice as set forth herein: If to WebXpress to: Contract Administrator 550 California Street San Francisco, CA ,94104 If to Licensee to: Chief Financial Officer Blue Martini Software, Inc. 2600 Campus Drive, Suite 175 San Mateo, CA 94403 Notices shall be deemed effective upon receipt or, if delivery is not effected by reason of some fault of the addressee, when tendered. 9.6 Governing Law; Forum Selection. This Agreement shall be governed by the laws of the State of California, as applied to agreements made, entered into and performed entirely in California by California residents. All disputes arising out of this Agreement shall be subject to the exclusive jurisdiction and venue of the California state courts of San Francisco County, California (or, if there is exclusive federal jurisdiction, the United Stated District Court for the Northern District of California), and the parties consent to the personal and exclusive jurisdiction of these courts. This Agreement shall not be governed by the United Nations Convention on the International Sale of Goods. 9.7 Severability. Any term or provision of this Agreement held to be illegal or unenforceable shall, if possible, be interpreted so as to be construed as valid, but in any event the validity or enforceability of the remainder hereof shall not be affected. 9.8 Legal Compliance. Licensee may not download or otherwise export or re- export the WebXpress Software or any underlying information or technology except in full compliance with all United States and other applicable laws and regulations. In particular, but without limitation, none of the Software or underlying information or technology may be downloaded or otherwise exported or re-exported (i) into (or to a national or resident of) Cuba, Iran, Iraq, Libya, North Korea, Syria, or Sudan, or (ii) to anyone on the US Treasury Department's list of Specially Designated Nationals or the US Commerce Department's Table of Deny Orders. By licensing the Software, Licensee is agreeing to the foregoing and Licensee are representing and warranting that Licensee are not located in, under control of, or a national or resident of any such country or on any such list. 9.9 Waiver. The waiver of, or failure to enforce, any breach or default hereunder shall not constitute the waiver of any other or subsequent breach or default. 9.10 Independent Contractors. The relationship of the parties hereunder shall be that of independent contractors, and nothing herein shall create or be deemed to create a joint venture, partnership, agency or employer/employee relationship. In no event will either party be permitted to make any agreement, or represent that it is authorized to make any agreement, on behalf of the other party, without the prior written consent of such other party. 10. 9.11 Escrow. Within thirty (30) days of the Effective Date of this Agreement. WebXpress and Licensee shall enter into a source code escrow agreement (the "Escrow Agreement") with an independent third party escrow agent in the business of providing escrow services (the "Escrow Agent"), which agreement shall provide as follows: 9.11.1 Deposit. The Escrow Agreement shall provide that WebXpress shall deposit the source code for the WebXpress Software and any updates provided to Licensee hereunder with the Escrow Agent promptly after final delivery of the corresponding object or executable code to Licensee. 9.11.2 Release. The Escrow Agreement shall provide that the Escrow Agent shall release WebXpress's source code to Licensee if any one of the following circumstances remains uncorrected for more than 30 days: (i) appointment of a trustee under Chapter 7 of Title 11 of the United States Code; (ii) the making by WebXpress of a general assignment for the benefit of creditors; (iii). WebXpress is in material breach of its support obligations pursuant to Schedule E and has failed to cure such breach within thirty (30) days after notification by Licensee. 9.11.3 License. The Escrow Agreement shall provide that WebXpress grants Licensee a worldwide, non-exclusive, paid-up and royalty-free, perpetual, non-transferable license to use, reproduce and modify the released source code, solely for the purpose of supporting and maintaining the WebXpress Software. Licensee will agree in the Escrow Agreement not to exercise this license unless the source code is released. 9.11.4 Fees. Licensee shall pay all reasonable fees and expenses for such escrow arrangement, including set-up fees, not to exceed fifteen hundred dollars ($1,500), and annual maintenance fees, not to exceed seven hundred fifty dollars ($750). WebXpress shall pay amounts above such limits. 11. 9.12 Entire Agreement. This Agreement, along with the Schedules attached hereto which are incorporated herein by reference, sets forth the entire Agreement between the parties and supersedes any and all prior proposals, agreements, and representations between them, whether written or oral. This Agreement may be changed only by mutual agreement of the parties in writing. In Witness Whereof, the parties hereto have caused this Agreement to be signed by duly authorized officers or representatives as of the Effective Date. BEA WebXpress, Inc. Licensee By: /s/ Randy Risher By: /s/ William Evans -------------------------- ------------------------- Name: Randy Risher Name: William Evans ----------------------- ----------------------- Title: Director F + A Title: VP, Marketing ---------------------- ---------------------- Date: 1/29/99 Date: January 29, 1999 ----------------------- ----------------------- 12. Schedule A WEBXPRESS SOFTWARE WebXpress Software covered by this Agreement: WebLogic Application Server (formerly Tengah) on all supported platforms License Restriction: Licensee will incorporate code provided by WebXpress into the Integrated Products which will make tine WebXpress Software nonfunctional without the presence of the Integrated Products. In addition, Licensee will insure the WebXpress API's are not accessible to Licensee's customers. 13. Schedule B INTEGRATED PRODUCTS Integrated Products covered by this Agreement: All products of the Blue Martini Software E-Merchandising System (known by this or some other name as shall be designated by Blue Martini Software from time to time) including the Merchandise Management Module, the Customer Management Module, the WebStore Operations Module, the Micro Marketing Module, and the Tools Module. The following describes the function and purpose of each of the Integrated Products covered by this Agreement: Blue Martini Software E-Merchandising System is a software solution for direct- to-consumer e-commerce and includes all the functionality of an Internet commerce server for displaying catalog items, descriptions and prices; calculating tax; managing sales and returns; managing the definition of merchandise assortments, promotions, and cross-product relationships; and managing customer identities and attributes and programs specific to customers such as frequent- buyer programs. 14. Schedule C ROYALTIES AND SUPPORT FEES C.1. Royalties: ---------- Licensee will pay royalties based upon a percentage of [...***...] in accordance with the following schedule (subject to a minimum royalty per transaction as stated below): Minimum Cumulative Percent of Royalty Royalties Paid [...***...] Per Transaction ---------------------- ---------------- ------------------ [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] For the purposes of this Agreement, [...***...]. The Minimum Royalty shall not apply to those Transactions by Licensee for which no WebXpress software is included in the software sold. No royalties will be owed on marketing, demonstration, training and customer evaluation licenses of the Integrated Product. C.2. Annual Support Fees: -------------------- Annual Support Fees are [...***...] of royalties. The annual support fees for subsequent years will be [...***...] of the royalties paid by Licensee under Section C.1 for copies of the Integrated Product for which Licensee has a maintenance agreement in place with the End User during such year. Such fees will be payable on a quarterly basis. Licensee shall provide to WebXpress, along with each payment, a report summarizing the number of End Users with maintenance agreements that form a basis for such payment. C.3. Royalty for Use of RSA's SSL Product: ------------------------------------- If in the future Licensee elects to license the RSA SSL Product from WebXpress, then in addition to the Royalties described above, Licensee must pay [...***...] and [...***...] per year for unlimited clients to WebXpress pursuant to WebXpress's License Agreement with RSA. [...***...] = 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. 15. C.4. Commitment: ----------- Licensee will commit to purchasing [...***...] in royalty and support, which will be applied towards purchases of WebXpress Software and support licensed under this agreement. This commitment is non-cancelable. Payment terms for this commitment are [...***...] net [...***...] days from Effective Date and [...***...] net [...***...] days. These payments are non-refundable. C.5. Development Licenses: --------------------- In order for Licensee to continue to develop and test the WebXpress Software with the Integrated Product, Licensee will purchase the following development licenses: Effective List Price Discount Unit Price Price 3 Development Servers [...***...] [...***...] [...***...] [...***...] 16 Developer Seats [...***...] [...***...] [...***...] [...***...] ------------ SUBTOTAL [...***...] Annual Support [...***...] ------------ [...***...] TOTAL DUE [...***...] Less Discount on License Fees [...***...] ------------ Total Due on an annual basis for Support [...***...] ------------ Payment for support will be net [...***...] days from initial invoicing by WebXpress. Subsequent years annual support payments will be net [...***...] days. WebXpress will deliver license keys for these licenses on the Effective Date of this agreement. In addition, when Licensee has shipped the licenses corresponding to the first [...***...] in royalties paid (or prepaid), Licensee will have the right to receive licenses for Development Servers and Development Seats at no charge, but must notify WebXpress of their election to put into service such licenses and must pay annual support of [...***...] of the Effective Unit Price of the applicable licenses. The development software is not to exceed [...***...] Development Servers, and [...***...] Development Seats over the term of the contract. These licenses will be subject to WebXpress's Standard Software License Agreement located on the WebXpress website at http://www.weblogic.com/licagree.html. [...***...] = 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. 16. Schedule D RESALE CERTIFICATE WE HEREBY CERTIFY that we hold a valid seller's permit No.______________ issued pursuant to laws and regulations governing Sales and Use Tax in the state of ; that we are engaged in the business of selling:______________________________ _______________________________________________________________________________ that the products described within this ISV Software License Agreement, which we shall license from WebXpress, will be resold by us { licensed to our customers}, in accordance with the terms of the Agreement. A Description of the products to be licensed from WebXpress is contained in the relevant schedule of the Agreement. ___________________________________________ (Signature of Purchaser or Authorized Agent) ___________________________________________ (Title) 17. Schedule E SERVICE AND SUPPORT TERMS WebXpress shall provide product support to Licensee to support its integration of WebXpress Software into Licensee's applications. Support means that WebXpress will provide: (a) software upgrades and product enhancements upon their commercial release, and appropriate documentation with respect thereto, and (b) technical assistance with respect to the WebXpress Software, including (i) clarification of functions and features; (ii) clarification of documentation; (iii) technical support and guidance in the operation of the WebXpress Software; and (iv) WebXpress Software error analysis and correction. Major product releases are not covered by the Service and Support contract, and WebXpress retains the right to determine in its sole discretion if a release constitutes an upgrade to an existing product or a new product release. WebXpress will use commercially reasonable efforts to provide error corrections or work-arounds for the most severe errors as soon as possible and based upon WebXpress classification of the severity of the error. Support shall be provided in compliance with Severity definitions and Escalation guidelines as defined in Sections IV and V of this Schedule. I. Engineering Contacts - Licensee will designate no more than 5 individuals who will be responsible for communicating and escalating support issues between the companies. II. Reporting Issues - Licensee will report support requests via email or phone as convenient. Licensee agrees to provide WebXpress with all the necessary information to resolve the reported issue. This may include: issue classification, test cases for isolating and reproducing the issue and other issue documentation. III. Phone coverage - WebXpress's Support Center is staffed Monday through Friday from 7:00 a.m. to 7:00 p.m. Pacific Time. For off-hour emergencies, procedures can be customized to Licensee's specific needs upon mutual agreement. IV. Issue Definition - . Severity 1 - Issue that impacts Licensee's application development schedule, or an End-User's production capability. A high severity issue is an error that causes a major feature of-Licensee's product to be unusable or causes irreparable loss of data and no recovery or work-arounds are available. . Severity 2 - Issue that results when a major feature is operational but unstable or unreliable. Such error would not stop development. . Severity 3 - Enhancements or defects that are targeted for updates, but do not result in the loss of functionality in a major feature. V. Escalation Guidelines - WebXpress's assigned Engineers will adhere to the following timeframes for internal escalation of Licensee's support requests in order to ensure maximum service responsiveness. 18. - --------------------------------------------------------------------------- Severity Severity 1 Severity 2 Severity 3 Escalation Point Definition for Sev. 1 issues - --------------------------------------------------------------------------- Initial Response 4 hours 8 hours 12 hours N/A - --------------------------------------------------------------------------- Level 1 - 24 hours 2 days 4 days Support Manager problem determination - --------------------------------------------------------------------------- Level 2 - 2 days 1 week 2 Support Manager problem isolation weeks - --------------------------------------------------------------------------- Level 3 - 7 days 3 weeks N/A Support Manager Engineering - --------------------------------------------------------------------------- For Severity 1 Errors WebXpress will promptly initiate the following procedures: (1) assign WebXpress specialists to correct the Error on an expedited basis; (2) provide a report on the status of the progress of correcting the Severity 1 Error every four (4) hours; and (3) commence to provide a temporary workaround or fix. For Severity 1 issues, WebXpress agrees to work continuously to resolve the issue. If a reported Severity Level I Error in the WebXpress Software renders the WebXpress Software inoperational, and WebXpress fails to make the WebXpress Software operational, so that it operates in a manner reasonably acceptable to Licensee and without loss of functionality, within 24 hours after WebXpress's first response to Licensee's report of such Error, Licensee may request onsite assistance. Upon this request, WebXpress will use its best efforts to respond by having at least one (1) maintenance person trained in the WebXpress Software at the installation site within twenty-four (24) hours of Licensee's request for onsite service. If such problem is the result of Licensee use of a WebXpress Software in a manner that is prohibited by its documentation or this Agreement or unrelated to a WebXpress Software, Licensee shall reimburse WebXpress at WebXpress's then current published standard rates for such services and any reasonable and actual travel expenses incurred by WebXpress. VI. WebXpress Version Support - WebXpress agrees to provide product support to Licensee for the most current version and the previous two versions of WebXpress products.. Notwithstanding the aforementioned, WebXpress shall always support versions released within the last twelve months. VII. Expanded support or technical assistance is available upon mutual agreement of the parties at an additional charge in accordance with WebXpress's then-current policy. 19. ADDENDUM TO ISV LICENSE AGREEMENT, AMENDMENT NO. 1 TO THE ISV SOFTWARE LICENSE AGREEMENT THIS AMENDMENT NO.1 TO THE ISV SOFTWARE LICENSE AGREEMENT ("Amendment No. 1") is made and entered into as of the 28th day of July, 1999 (the "First Amendment Date"), by and between BEA WEBEXPRESS, INC., a Delaware corporation with offices at 550 California Street, San Francisco, CA ("WebXpress"), and BLUE MARTINI SOFTWARE, an Delaware corporation with principal offices at 2600 Campus Drive, Suite 175, San Mateo, CA 94403 ("Licensee"). RECITALS WHEREAS, WebXpress and Licensee have entered into that certain ISV Software License Agreement, dated January 29, 1999 (the "Agreement"), which Agreement provides for the licensing of certain WebXpress Software (as defined in the Agreement) for the purpose of integrating such WebXpress Software into the Integrated Product (as defined in the Agreement) for distribution by Licensee. WHEREAS, WebXpress and Licensee would like to modify the license and support fee terms of the Agreement. NOW, THEREFORE, in consideration of the mutual covenants and representations contained herein, the parties hereby agree to amend the Agreement as follows. 1. AMENDED WEBXPRESS SOFTWARE AND ROYALTIES AND SUPPORT FEES: Schedule A and Section C.1. of Schedule C of the Agreement are deleted and replaced with the following: SCHEDULE A WEBXPRESS SOFTWARE WebXpress Software covered by this Agreement: WebLogic Application Server WebLogic Application Server w/clustering SCHEDULE C ROYALTIES AND SUPPORT FEES C.1. Royalties Licensee will pay royalties based upon a percentage of [...***...] in accordance with the following schedules (subject to a minimum royalty per transaction as stated below): For Modules Incorporating WebLogic Application Server - -------------------------------------------------------------------------------- CUMULATIVE ROYALTIES PERCENT OF [...***...] MINIMUM ROYALTY PER PAID TRANSACTION - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- For Modules Incorporating WebLogic Application Server w/clustering - -------------------------------------------------------------------------------- CUMULATIVE ROYALTIES PERCENT OF [...***...] MINIMUM ROYALTY PER PAID TRANSACTION - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- [...***...] [...***...] [...***...] - -------------------------------------------------------------------------------- For the purposes of this Agreement, [...***...]. The Minimum Royalty shall not apply to those Transactions by Licensee for which no WebXpress software is included in the software sold. No royalties will be owed on marketing, demonstration, training and customer evaluation licenses of the Integrated Product. [...***...] = 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. 2. FULL FORCE AND EFFECT. Except as specifically modified by this Amendment No. 1, the terms of the Agreement are and shall remain in full force and effect. IN WITNESS WHEREOF, the each of the parties hereto has caused this Amendment No. 1 to be executed by a duly authorized officer or representative as of the First Amendment Date. BEA WEBXPRESS, INC. BLUE MARTINI SOFTWARE, INC. By: /s/ Randy Risker By: /s/ William Evans -------------------------- -------------------------- Name: Randy Risker Name: William Evans ------------------------ ------------------------ Title: Director, F & A Title: VP, Marketing ----------------------- ----------------------- Date: 7/15/99 Date: July 13, 1999 ------------------------ ------------------------ SECOND AMENDMENT TO ISV AGREEMENT This Second Amendment (this "Second Amendment") is entered into as of January 31, 2000 ("Amendment Date") between Blue Martini Software a Delaware corporation with offices at 2600 Campus Drive, Suite 175, San Mateo, California 94403 ("Licensee"), and WebXpress, a BEA Company and Delaware Corporation ("WebXpress"). RECITALS -------- A. License and WebXpress signed an ISV Agreement on January 29, 1999 ("ISV Agreement") and a First Amendment dated as of July 28, 1999 ("First Amendment") which ISV Agreement provides for the licensing of certain WebXpress Software (as defined in the ISV Agreement) for the purpose of integrating such WebXpress Software into the Integrated Product (as defined in the ISV Agreement) for distribution by Licensee. B. WHEREAS, Licensee and WebXpress now desire to amend the ISV Agreement as hereinafter provided. NOW, THEREFORE, in consideration of the promises included herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: AGREEMENT --------- 1. Term. Section 6.1, Initial Term, of the ISV Agreement is revised to ---- ------------ read: "This Agreement shall become effective on the Effective Date and shall remain in effect for a period of four (4) years and six (6) months thereafter unless the Agreement is terminated as provided below. 2. Royalties and Support Fees. Section 3.1, Royalty and Support Fees, of -------------------------- ------------------------ the ISV Agreement is revised by the addition of the following sentence: "The royalties and applicable support fees due to WebXpress shall only accrue against the use or distribution of Licensee's Integrated Products; that is on those transactions by Licensee for which WebXpress software is included embedded in Licensee's product." 3. Schedule C. Section C.1, Royalties, of the ISV Agreement is deleted and ---------- --------- replaced by the following: "Licensee will pay royalties based upon a percentage of [...***...] of the Integrated Product in accordance with the following schedule (subject to a minimum royalty per transaction as stated below): For Licensee's Integrated Product incorporating WebLogic Application Server and WebLogic Application Server with Clustering Cumulative Percent of Minimum Royalty Royalties Paid [...***...] Per Transaction -------------- ----------- --------------- [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] [...***...] For the purposes of this ISV Agreement, [...***...]. The Minimum Royalty shall not apply to those Transactions by Licensee for which no WebXpress software is included in the software sold. No royalties will be owed on marketing, demonstration, training and customer evaluation licenses of the Integrated Product. In addition, WebXpress acknowledges that Licensee may commingle the WebLogic Application Server and WebLogic Application Server with Clustering in their Integrated Products. Furthermore, for the purposes of this ISV Agreement, WebXpress shall allow Licensee to distribute their Integrated Products on a rental basis to their end-users for prototype development, (through Licensee's "Incubator Program"). So long as any such rental period does not exceed twelve (12) months for any individual Licensee end user participation in the Incubator Program there shall be no minimum royalty fee for such Integrated Product." 4. Schedule C. Section C.4, Commitment, of the ISV Agreement is supplemented ---------- ---------- by the following: "Pursuant to this Second Amendment Licensee will commit to purchasing [...***...] in royalty and support, which will be applied towards additional purchases of WebXpress Software and support licensed under this ISV Agreement. This commitment is non-cancelable. Payment terms for this commitment are net 30 days from Effective Date of this Second Amendment. These payments are non-refundable." [...***...] = 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. 5. Entire Agreement. This Second Amendment together with the ISV Agreement ---------------- constitutes the entire agreement between the parties with respect to the subject matter hereof. 6. Effect of Amendment. Except as modified by this Second Amendment, all terms and conditions of the ISV Agreement, as amended, shall remain in full force and effect. Each of the undersigned represents and warrants that he or she is duly authorized to sign this First Amendment on behalf of the party he or she represents. Each party has read, understands and agrees to the terms and conditions of this First Amendment. This first Amendment may be executed in any number of counterparts, all of which shall constitute together one and the same agreement. Blue Martini Software, LICENSEE WEBXPRESS, A BEA COMPANY by: /s/ Scott D. Hanham By: /s/ Matthison S. Gassu ------------------------------ --------------------------- Name: Scott D. Hanham Name: Matthison S. Gassu ---------------------------- ------------------------- Title: VP, Product Development Title: SVP WW Ops --------------------------- ------------------------ EX-10.14 19 AGREEMENT BETWEEN JOHN CALONICO AND BLUE MARTINI EXHIBIT 10.14 February 24, 2000 John E. Calonico, Jr. 301 Laurel Avenue Millbrae, California 94030 Re: Employment Terms Dear John, Blue Martini Software, Inc. ("BMS") is pleased to offer you the position of Chief Financial Officer on the terms as described in your offer letter dated March 10, 2000. In addition to the letter referenced, your employment includes the following term: . if you are terminated from BMS without cause at any time in your employment, you will be eligible to receive a severance payment equal to 6 months of your base salary at the time of termination. If you resign from the company at any point, a severance payment will not be paid. This severance payment will be your only benefit or payment upon termination, and you will not be entitled to any additional stock vesting upon termination of employment for any reason. "Cause" shall mean the occurrence of one or more of the following: (i) your conviction of a felony or a crime involving moral turpitude or dishonesty; (ii) your participation in a fraud or act of dishonesty against the Company; (iii) your intentional and material damage to the Company's property; or (iv) a material breach by you of this Agreement, the Company's written policies, or the Employee Proprietary Information and Inventions Agreement that is not remedied by you within fourteen (14) days of written notice of such breach from the Board. It shall be a condition to your receipt of such severance that you enter into a release agreement acceptable to the Company. We look forward to your favorable reply and to a productive and enjoyable working relationship. Very truly yours, /s/ Monte Zweben Monte Zweben CEO and President I accept the employment terms stated in this letter, and expect to commence employment on February 24, 2000. /s/ John Calonico Jr. - ---------------------------------- Candidate's Signature Date: 2/24/00 ----------------------------- EX-23.1 20 CONSENT OF KPMG LLP Exhibit 23.1 The Board of Directors Blue Martini Software, Inc. We consent to the use of our reports included herein and to the references to our firm under the headings "Selected Financial Data" and "Experts" in the prospectus. /s/ KPMG LLP Mountain View, California May 2, 2000 EX-27.1 21 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS YEAR 3-MOS 3-MOS DEC-31-1998 DEC-31-1999 DEC-31-1999 DEC-31-2000 JUN-05-1998 JAN-01-1999 JAN-01-1999 JAN-01-2000 DEC-31-1998 DEC-31-1999 MAR-31-1999 MAR-31-2000 261 10,362 3,812 11,886 0 2,562 0 1,746 130 3,874 932 6,986 0 0 0 429 0 0 0 0 439 17,229 5,341 21,672 144 3,557 746 6,527 8 796 43 1,375 742 20,360 6,212 27,788 386 9,521 1,922 20,649 0 0 0 0 0 0 0 0 1 6 4 6 30 31 8 35 286 10,258 4,055 6,496 742 20,360 6,212 27,788 0 0 0 0 0 11,232 241 10,681 0 6,148 113 6,779 1,160 21,413 1,634 22,122 0 0 0 0 0 0 0 0 1 73 3 78 (1,145) (9,928) (1,362) (11,381) 0 0 0 0 (1,145) (9,928) (1,362) (11,381) 0 0 0 0 0 0 0 0 0 0 0 0 (1,145) (9,928) (1,362) (11,381) (0.05) (0.43) (0.06) (0.45) (0.05) (0.43) (0.06) (0.45)
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