-----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, Ug+egZgUFEOLUhlnbLerNg9jTtOwGwv9m4GCvqN6+ZC5j9Kd/xG2Hu70PKkyJvW/ lP7VUCbwullN8Jq7u/NPlw== 0001072993-00-000594.txt : 20000922 0001072993-00-000594.hdr.sgml : 20000922 ACCESSION NUMBER: 0001072993-00-000594 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE MARTINI SOFTWARE INC CENTRAL INDEX KEY: 0001077814 STANDARD INDUSTRIAL CLASSIFICATION: 7372 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-30925 FILM NUMBER: 695377 BUSINESS ADDRESS: STREET 1: 2600 CAMPUS DR STREET 2: SUITE 175 CITY: SAN MATEO STATE: CA ZIP: 94403 10-Q 1 0001.txt FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange - - --- Act of 1934 For the quarterly period ended June 30, 2000 OR Transition report pursuant to Section 13 or 15(d) of the Securities - - --- Exchange Act of 1934 Commission File Number: 0-30925 BLUE MARTINI SOFTWARE, INC. (Exact name of registrant as specified in its charter) Delaware 94-3319751 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2600 Campus Drive San Mateo, California 94403 (Address of principal executive offices) Telephone Number (650) 356-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes No X ----- ----- As of August 1, 2000, there were approximately 68,957,000 shares of the registrant's common stock outstanding. =============================================================================== BLUE MARTINI SOFTWARE, INC. INDEX
PART I. FINANCIAL INFORMATION Page No. ------- Item 1. Condensed Consolidated Financial Statements: Condensed Consolidated Balance Sheets June 30, 2000 and December 31, 1999.........................................3 Condensed Consolidated Statements of Operations Three and six months ended June 30, 2000 and 1999...........................4 Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2000 and 1999.....................................5 Notes to Condensed Consolidated Financial Statements.........................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................9 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................21 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds................................23 Item 4. Submission of Matters to a Vote of Security Holders......................23 Item 6. Exhibits and Reports on Form 8-K.........................................24 Signatures...............................................................24
2 PART I. FINANCIAL INFORMATION - - ------------------------------ ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BLUE MARTINI SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, 2000 December 31, 1999 -------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 9,720 $ 10,362 Short-term investments 249 2,562 Accounts receivable, net 11,572 3,649 Prepaid expenses and other current assets 2,296 656 -------- -------- Total current assets 23,837 17,229 Property and equipment, net 5,991 2,761 Other assets 669 370 -------- -------- Total assets $ 30,497 $ 20,360 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 951 $ 1,874 Accrued employee compensation 7,442 2,578 Other current liabilities 6,693 1,074 Deferred revenues 17,834 3,577 Current portion of long-term obligations 506 418 -------- -------- Total current liabilities 33,426 9,521 Long-term obligations, less current portion 472 544 -------- -------- Total liabilities 33,898 10,065 -------- -------- Stockholders' equity (deficit): Convertible preferred stock 6 6 Common stock 37 31 Additional paid-in-capital 96,917 31,640 Deferred stock compensation (57,054) (8,926) Accumulated deficit (43,307) (12,456) -------- -------- Total stockholders' equity (deficit) (3,401) 10,295 -------- -------- Total liabilities and stockholders' equity (deficit) $ 30,497 $ 20,360 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 BLUE MARTINI SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2000 1999 2000 1999 -------- ------- -------- ------- Revenues: License $ 8,421 $ 1,066 $ 14,491 $ 1,091 Service 6,599 410 11,210 626 -------- ------- -------- ------- Total revenues 15,020 1,476 25,701 1,717 -------- ------- -------- ------- Cost of revenues: License 751 214 1,312 217 Service 10,464 353 16,701 470 -------- ------- -------- ------- Total cost of revenues 11,215 567 18,013 687 -------- ------- -------- ------- Gross profit 3,805 909 7,688 1,030 -------- ------- -------- ------- Operating expenses: Sales and marketing 12,847 935 21,427 1,459 Research and development 4,914 1,587 9,316 2,581 General and administrative 5,407 314 7,935 561 -------- ------- -------- ------- Total operating expenses 23,168 2,836 38,678 4,601 -------- ------- -------- ------- Loss from operations (19,363) (1,927) (30,990) (3,571) Interest and other, net 79 13 139 44 -------- ------- -------- ------- Net loss $(19,284) $(1,914) $(30,851) $(3,527) ======== ======= ======== ======= Basic and diluted net loss per common share $(0.76) $(0.09) $(1.22) $(0.16) ======== ======= ======== ======= Shares used in computing basic and diluted net loss per common share 25,420 22,100 25,220 22,100 ======== ======= ======== =======
See accompanying notes to condensed consolidated financial statements. 4 BLUE MARTINI SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended June 30, ---------------------- 2000 1999 -------- ------- Operating activities: Net loss $(30,851) $(3,527) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,530 168 Amortization of stock compensation and warrants 14,125 874 Provision for doubtful accounts 1,040 69 Changes in operating assets and liabilities: Accounts receivable (8,963) (1,912) Prepaid expenses and other current assets (1,639) (737) Accounts payable, accrued employee compensation and other current liabilities 9,560 1,612 Deferred revenues 14,257 1,366 -------- ------- Net cash used in operating activities (941) (2,087) -------- ------- Cash flows from investing activities: Purchases of property and equipment (4,475) (1,045) Sales and maturities of available-for-sale short-term investments, net 2,294 - Other assets (211) (16) -------- ------- Net cash used for investing activities (2,392) (1,061) -------- ------- Cash flows from financing activities: Net proceeds from issuance of convertible preferred stock - 5,000 Net proceeds from issuance of common stock 3,824 14 Repurchases of common stock (31) (3) Payments of issuance costs related to initial public offering (852) - Proceeds from bank borrowings - 384 Repayment of debt and capital lease obligations (250) (44) -------- ------- Net cash provided by financing activities 2,691 5,351 -------- ------- Net (decrease) increase in cash and cash equivalents (642) 2,203 Cash and cash equivalents at beginning of period 10,362 261 -------- ------- Cash and cash equivalents at end of period $ 9,720 $ 2,464 ======== ======= Supplemental disclosures of noncash investing and financing activities: Property and equipment acquired under capital lease obligations $ 265 $ 305 ======== ======= Deferred stock compensation $ 46,781 $ 1,114 ======== ======= Warrants issued in connection with lease financing and marketing arrangement $ 14,008 $ - ======== =======
See accompanying notes to condensed consolidated financial statements. 5 BLUE MARTINI SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Preparation The unaudited condensed consolidated financial statements of Blue Martini Software, Inc. (the "Company") at June 30, 2000 and for the three and six month periods then ended reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Registration Statement on Form S-1 declared effective by the Securities and Exchange Commission on July 24, 2000. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results for the entire year ending December 31, 2000. Note 2. 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, 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, common stock subject to repurchase, stock options and warrants. Common stock subject to repurchase represents the Company's right, under the 2000 Equity Incentive Plan, to repurchase stock upon the voluntary or involuntary termination of the purchaser's employment from the Company at the original issuance price. 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):
Six Months Ended June 30, ---------------- 2000 1999 ------ ------ Shares issuable under stock options 6,138 1,642 Shares of restricted stock subject to repurchase 10,450 7,797 Shares issuable pursuant to warrants 2,445 - Shares of convertible preferred stock on an "as-if-converted" basis 23,297 14,991
The weighted average exercise price of stock options was $3.81 and $0.12 at June 30, 2000 and 1999, respectively. The weighted average purchase price of restricted stock subject to repurchase was $0.35 and $0.01 at June 30, 2000 and 1999, respectively. The weighted average exercise price of warrants was $4.94 at June 30, 2000. Each share of convertible preferred stock automatically converted to four shares of common stock upon the closing of our initial public offering on July 28, 2000. Note 3. Comprehensive Income (Loss) Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of stockholders' equity but are excluded from net income. Through June 30, 2000, the Company had incurred insignificant unrealized gains (losses) on its available for sale 6 short-term investments. Accordingly, management has deemed such amounts as trivial and has not separately disclosed such items in the accompanying condensed consolidated financial statements. Note 4. Property and Equipment Property and equipment consisted of the following (in thousands):
June 30, December 31, 2000 1999 ------ ------ Computer equipment $7,094 $2,996 Furniture and office equipment 811 344 Leasehold improvements 394 217 ------ ------ 8,299 3,557 Less accumulated depreciation and amortization 2,308 796 ------ ------ $5,991 $2,761 ====== ======
Note 5. 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 June 30, 2000. On this basis, the Company is organized and operates in a single segment: the design, development and marketing of software solutions. Note 6. Initial Public Offering On July 28, 2000, the Company closed its initial public offering of 8,625,000 shares of its common stock, which included 1,125,000 shares issued in connection with the exercise of the underwriters' overallotment, at $20 per share. Net proceeds of the offering were approximately $158.5 million, after deducting underwriter discounts, commissions and other offering expenses. Simultaneously with the closing of the initial public offering, all 5,824,317 shares of the Company's convertible preferred stock were automatically converted into 23,297,268 shares of common stock. Note 7. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board, (or "FASB), 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 position or results of operations. In December 1999, the Securities and Exchange Commission, (or "SEC"), released Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, and amended by SAB No. 101A and SAB No. 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. In June 2000, the SEC issued SAB No. 101B that delayed the implementation of SAB 101. We have not determined the impact that SAB No. 101 will have on our 7 financial statements and believe that such determination will not be meaningful until closer to the date of initial adoption. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of the Accounting Principals Board, or APB, Opinion No. 25. This Interpretation clarifies the application of APB Opinion 25 including: . the definition of employee for purposes of applying APB Opinion 25; . the criteria for determining whether a plan qualifies as a noncompensatory plan; . the accounting consequence of various modifications to the terms of a previously fixed stock option or award; and . the accounting for an exchange of stock compensation awards in a business combination In general, this Interpretation is effective July 1, 2000. We do not expect the adoption of Interpretation No. 44 to have a material effect on our financial position or results of operations. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of Blue Martini Software, Inc. (the "Company") should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and the Notes thereto included in the Company's Registration Statement on Form S-1. This quarterly report on Form 10- Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements using terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements involve risks and uncertainties and actual results could differ materially from those discussed in the forward-looking statements. All forward- looking statements and risk factors included in this document are made as of the date hereof, based on information available to the Company as of the date thereof, and the Company assumes no obligation to update any forward-looking statement or risk factors. 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. This merger was treated for financial reporting purposes as a reorganization of entities under common control in a manner similar to a pooling of interests. We provide 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 contact centers. In March 1999, we released the first commercial version of our product. Following the initial release of our product, we substantially increased spending on our consulting services, technical support, training, sales and marketing organizations. We have incurred significant losses since inception, and as of June 30, 2000, we had an accumulated deficit of $43.3 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 has been provided to the customer. Payments received in advance of revenue recognition are recorded as deferred revenues. Services revenues are principally derived from consulting services, technical support and training. To date, all customers who have licensed our software product have purchased 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. Consulting 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, international revenues accounted for 20% of our revenues for the three months ended June 30, 2000. We believe international revenues will represent a more significant portion of our total revenues in the future but may fluctuate as a percentage of revenues in the near term. Although we have a limited operating history, we believe 9 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. To date, we have derived a significant portion of our revenues from a small number of customers. Sales to two customers individually represented 13% and 11% of our revenues for the three months ended June 30, 2000, and sales to three customers individually represented 42%, 31% and 25% of our revenues for the comparable period in 1999. 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. Results of Operations The following table presents selected financial data for the periods indicated as a percentage of total revenues:
Three Months Ended Six Months Ended June 30, June 30, ------------------- ---------------------- 2000 1999 2000 1999 ------- ------ ------- -------- Revenues: License 56 % 72 % 56 % 64 % Service 44 28 44 36 ---- ---- ------- -------- Total revenues 100 100 100 100 ---- ---- ------- -------- Cost of revenues: License 5 14 5 13 Service 70 24 65 27 ---- ---- ------- -------- Total cost of revenues 75 38 70 40 ---- ---- ------- -------- Gross profit 25 62 30 60 ---- ---- ------- -------- Operating expenses: Sales and marketing 85 64 84 85 Research and development 33 108 36 150 General and administrative 36 21 31 33 ---- ---- ------- -------- Total operating expenses 154 193 151 268 ---- ---- ------- -------- Loss from operations (129) (131) (121) (208) Interest and other, net 1 1 1 3 ---- ---- ------- -------- Net loss (128) % (130) (120) % (205) % ==== ==== ======= ========
10 Revenues License. Our software product was commercially released in late March 1999, and we recognized no license revenues before that date. License revenues increased from $1.1 million for the three months ended June 30, 1999 to $8.4 million for the three months ended June 30, 2000. For the six months ended June 30, 2000, license revenues increased to $14.5 million from $1.1 million for the comparable period in 1999. The increase in license revenues for the three and six month periods ended June 30, 2000 as compared to the comparable periods in 1999 was due to an increase in software licenses to new customers. Service. Service revenues increased from $410,000 for the three months ended June 30, 1999 to $6.6 million for the three months ended June 30, 2000. For the six months ended June 30, 2000, service revenues increased to $11.2 million from $626,000 for the comparable period in 1999. The increases for the three and six month periods ended June 30, 2000 as compared to the same periods in 1999 were due to an increase in the number of consulting service engagements and customer maintenance agreements, as well as an increase in training revenues. We expect that our service revenues will fluctuate 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 systems integrators and other professional services organizations provide the consulting services, technical support and training that we currently provide. 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 $214,000 for the three months ended June 30, 1999 to $751,000 for the three months ended June 30, 2000. These amounts represented 20% and 9% of license revenues for these periods. For the six months ended June 30, 2000, cost of license revenues increased to $1.3 million from $217,000 for the comparable period in 1999. These amounts represented 9% and 20% of license revenues for these periods. The increase in cost of license revenues in absolute dollars for the three and six month periods ended June 30, 2000 compared to the comparable period in 1999 was principally the result of growth in license revenues resulting in increased royalties payable to third parties. We expect cost of license 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 slightly as a percentage of license revenues as a result of royalty agreements that typically contain declining royalty rates. Service. Cost of service revenues consists primarily of salaries, and other personnel-related expenses, amortization of deferred stock compensation, as well as depreciation on equipment used to provide consulting services, technical support and training. Cost of service revenues increased from $353,000 for the three months ended June 30, 1999 to $10.5 million for the three months ended June 30, 2000. These amounts represented 86% and 159% of service revenues for these periods. For the six months ended June 30, 2000, cost of service revenues increased to $16.7 million from $470,000 for the comparable period in 1999. These amounts represented 149% and 75% of service revenues for these periods. The increase in absolute dollars for the three and six month periods ended June 30, 2000 as compared to the same periods in 1999 resulted from the expansion of our consulting services, technical support and training organizations to support the growth in new licenses and increased amortization of deferred stock compensation. We expect cost of service revenues to increase in absolute dollars in the future as we continue to expand our consulting 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 consulting services organizations and economies of scale. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of costs of our direct sales and marketing personnel, amortization of deferred stock compensation, as well as costs of marketing programs including trade shows, advertisements, promotional activities and media events. Sales and marketing expenses increased from $935,000 for the three months ended June 30, 1999 to $12.8 million for the three months ended June 30, 2000. For the six months ended June 30, 2000, marketing and sales expenses increased to $21.4 million 11 from $1.5 million in the comparable period in 1999. The increases for the three and six month periods ended June 30, 2000 as compared to the same periods in 1999 were primarily attributable to an increase in sales and marketing personnel expenses and commissions to sales personnel associated with higher revenues and increased spending for marketing programs. Additionally, amortization of deferred stock compensation accounted for an increase in sales and marketing expense for the three and six month periods ended June 30, 2000 as compared to the comparable periods in 1999 due to the increase in the number of sales marketing personnel. 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 600,000 shares of our series C convertible preferred stock at an exercise price of $20.00 per share. Effective upon the closing of our initial public offering on July 28, 2000, these warrants were automatically converted to warrants to purchase 2,400,000 shares of common stock at an exercise price of $5.00 per share. The warrant is fully vested and non- forfeitable and 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 based on an independent valuation was $13.8 million. The value of this warrant is being amortized over the service period and included as a non-cash component of marketing and sales expense in our statement of operations. Amortization expense for the three and six months ended June 30, 2000 was $575,000. Research and Development. Research and development expenses consist primarily of salaries and related expenses for engineering personnel, amortization of deferred stock compensation, 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. Research and development expenses increased from $1.6 million for the three months ended June 30, 1999 to $4.9 million for the three months ended June 30, 2000. For the six months ended June 30, 2000, research and development expenses increased to $9.3 million from $2.6 million in the comparable period in 1999. The growth in expenses for the three and six month periods ended June 30, 2000 as compared to the comparable periods of 1999 was primarily due to an increase in personnel-related expenses resulting from the addition of engineering personnel to support the development and enhancement of our product and an increase in the 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 amortization of deferred stock compensation, salaries and related expenses, professional fees, provisions for doubtful accounts and equipment depreciation. General and administrative expenses increased from $314,000 for the three months ended June 30, 1999 to $5.4 million for the three months ended June 30, 2000. For the six month period ended June 30, 2000, general and administrative expenses increased to $7.9 million from $561,000 in the comparable period in 1999. The increase in expenses in 2000 as compared to the same periods in 1999 was attributable to expenses for administrative personnel and professional fees, amortization of deferred stock compensation and an increase in the provision for doubtful accounts. 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 $1.1 million for the six months ended June 30, 1999 and $46.8 million for the comparable period in 2000. We are amortizing deferred stock compensation to expense over the period during which the stock options vest, generally four years using a method consistent with Financial Accounting Standards Board Interpretation No. 28. Under this method, each vested tranche of options is accounted for as a separate option grant awarded for past service. Accordingly, the compensation expense is recognized over the period during which the services have been provided. Such amortization amounted to $7.6 million and $509,000 for the three months ended June 30, 2000 and 1999, respectively, and $11.9 million and $864,000 for the six months ended June 30, 2000 and 1999, respectively. 12 During the six month period ended June 30, 2000 and the comparable period in 1999, we granted immediately vested and exercisable stock options to non- employees. In connection with these grants, we recorded non-cash compensation expense of $1.4 million and $10,000 for the six months ended June 30, 2000 and the comparable period in 1999. This reflects the fair value of these stock 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 condensed consolidated statement of operations (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------------ 2000 1999 2000 1999 ----- ----- ------- ----- Cost of revenues $1,991 $ 36 $ 3,094 $ 47 Sales and marketing 1,912 218 3,304 390 Research and development 1,206 188 3,373 294 General and administrative 2,472 67 3,571 143 ------ ----- ------- ----- $7,581 $ 509 $13,342 $ 874 ====== ===== ======= =====
Amortization of deferred stock compensation is estimated to total $28.0 million for 2000, $17.6 million for 2001, $7.6 million for 2002, $2.6 million for 2003 and $116,000 for 2004. 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 amortization of a warrant issued in connection with lease financing and interest expense associated with capital leases and bank borrowings. Interest and other, net increased from $13,000 for the three months ended June 30, 1999 to $79,000 for the three months June 30, 2000. For the six month period ending June 30, 2000, interest and other, net increased to $139,000 from $44,000 in the comparable period in 1999. The increase was due primarily to higher average balances of cash, cash equivalents and short-term investments net against increases in interest expense due on borrowings. We expect that our interest and other, net will increase as a result of proceeds from our initial public offering completed in July 2000. Income Taxes From inception to June 30, 2000, we incurred net losses for federal and state tax purposes and have not recognized any tax provision or benefit. Because of our limited operating history and our losses incurred to date, 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 assets. Liquidity and Capital Resources On July 28, 2000, we closed our initial public offering of 8,625,000 share of common stock, which included 1,125,000 shares in connection with the exercise of the underwriters' over-allotment option, at $20 per share. We received net proceeds of approximately $158.5 million in cash. Prior to this offering, we have financed our operations from the sale of our preferred and common stock and $750,000 of borrowings under a secured loan agreement. As of June 30, 2000, we had cash, cash equivalents and short-term investments of $10.0 million and $1.5 million available under a equipment lease facility. As of June 30, 2000, we had outstanding borrowings of $550,000 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 June 30, 2000, we also had capital lease obligations of $429,000. In July 2000, we paid off our existing indebtedness under the secured loan agreement. 13 In the first six months of 2000, net cash used in operating activities was $941,000 compared to $2.1 million in the comparable period in 1999. Net cash used in operating activities for the first six months of 2000 and for the comparable period in 1999 was primarily the result of net losses of $30.9 million and $3.5 million, respectively, after adjusting for amortization of deferred stock compensation and warrants of $14.1 million and $874,000 for the first six months of 2000 and for the comparable period in 1999. Net cash used for investing activities was $2.4 for the first six months of 2000 and $1.1 million for the comparable period in 1999. The cash used for investing activities was principally related to the purchase of computer hardware and software, office furniture and equipment, partially offset by sales and maturities of short-term investments. Our liquidity, capital resources and results of operations in any period could be impacted by the exercise of outstanding stock options and warrants. For example, at June 30, 2000, we had outstanding options to purchase 6.1 million shares of our common stock at a weighted average exercise price of $3.81 per share, and had approximately 8.7 million additional shares reserved for future grant under our stock option plans. In addition, we have issued warrants which are now exercisable to purchase 2,445,000 shares of common stock at an weighted average exercise price of $4.94 per share. Accordingly, our liquidity and capital resources may be impacted in future periods by cash proceeds upon exercise of these securities and from securities reserved for future issuance under our stock option plans. In addition, our per share results of operations could also be impacted by the increased number of outstanding shares. However, we cannot predict the timing or amount of proceeds from the exercise of these securities, if they are exercised at all. 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 cash proceeds from our recent initial public 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. 14 Factors That May Impact Future Operating Results - - ------------------------------------------------ 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 were founded in June 1998 and licensed our first software product in late March 1999, and our sales and service organizations are new and still growing. 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 expect losses to continue for the next several years and we may not achieve or maintain profitability. We incurred net losses of $1.6 million for the period from June 5, 1998, our date of inception, through December 31, 1998, $10.9 million for the year ended December 31, 1999 and $30.9 million for the six months ended June 30, 2000. As of June 30, 2000, we had an accumulated deficit of $43.3 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 the closing of our initial public offering on July 28, 2000. 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 able 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 able 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 results. In the three months ended June 30, 2000, sales to two customers accounted for 24% of our total revenues, and in the comparable period in 1999, sales to three customers accounted for 98% of total revenues. 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. All of our revenues to date have been derived from the licensing of our software product and the sale of related services, and if we fail to successfully upgrade or enhance our product and introduce new products, our revenues would decline. All of our revenues to date have been derived from the licensing of our software product and the sale of related services. For the six months ended June 30, 2000, 56% of our total revenues were derived from the licensing of our product. Our future revenues will depend, in significant part, on our successful development and 15 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, therefore 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. 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. 16 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. We have in the past discovered software errors and performance problems with our product and, as a result, have experienced delays in the shipment of our product and our customers have experienced difficulty in deploying and operating 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. 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 we license a rules engine from Blaze Software Inc. that automates the execution of business processes according to criteria set by our customers. 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. We may fail to introduce or deliver new products on a timely basis, if at all. In the past, we have experienced delays in the commencement of commercial shipments of enhancements to our product. To date, these delays have not had a material impact on our revenues. 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; 17 . 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 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 127 people at December 31, 1999 to 324 people at June 30, 2000. In particular, our consulting services, technical support and training organizations grew from 49 people at December 31, 1999 to 154 people at June 30, 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 financial 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. 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, if any. 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 Software, Customer Relationship Management Software and Supply Chain Management Software Vendors. We compete with enterprise resource planning software, customer relationship management software and supply chain management software vendors such as Oracle Corp., PeopleSoft, Inc., SAP AG, Siebel Systems, Inc. and i2 Technologies, Inc. . 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. 18 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. 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. Recently, funding has been less available for Internet companies as a result of the stock market decline and public and private investor concern regarding Internet-based businesses. These factors have reduced demand for our product from Internet-based customers and reduced demand for additional services from current Internet-based customers. Failure by existing customers in this industry to receive or generate adequate funding has and may continue to require us to make reserves for bad debt or to write off amounts due. 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. 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 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. We have no issued patents. If we are unable to protect our intellectual property or become subject to intellectual property infringement claims, we may lose a valuable asset or incur costly and time-consuming litigation. 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 issued patents and have filed two patent applications. Since we do not have any issued patents, existing laws afford only limited protection for our intellectual property. 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. This enforcement 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. 19 Third parties could claim that we have infringed their intellectual property rights by claiming that our product infringes their patents, trade secrets or copyrights. 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. Our directors and executive officers maintain significant control over Blue Martini Software, which may lead to conflicts with other stockholders over corporate governance. Our directors, executive officers and holders of 5% or more of our outstanding common stock beneficially owned approximately 67.8% of our outstanding common stock as of June 30, 2000. Monte Zweben, our Chairman, President and Chief Executive Officer, together with related entities, owned approximately 39.5% of our common stock as of this date. 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. 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 and requiring all stockholder actions to be taken at a meeting of our stockholders; and 20 . 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 in the near future 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, subject to restrictions under the Securities Act and contracted restrictions with the managing underwriters of our initial public offering. 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. A description of the shares eligible for future sale is set forth in our Registration Statement on Form S-1,declared effective by the Securities and Exchange Commission on July 24, 2000. Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Exchange Rate Risk Through June 30, 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 that exchange rate fluctuations will not adversely affect our financial results in the future. Through June 30, 2000, the Company had not engaged in foreign currency hedging activities. 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, (or "FASB), 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 position or results of operations. In December 1999, the Securities and Exchange Commission, (or "SEC"), released Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, and amended by SAB No. 101A and SAB No. 101B, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and 21 provides guidance for disclosures related to revenue recognition policies. In June 2000, the SEC issued SAB No. 101B that delayed the implementation of SAB 101. We have not determined the impact that SAB No. 101 will have on our financial statements and believe that such determination will not be meaningful until closer to the date of initial adoption. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of the Accounting Principals Board, or APB, Opinion No. 25. This Interpretation clarifies the application of APB Opinion 25 including: . the definition of employee for purposes of applying APB Opinion 25; . the criteria for determining whether a plan qualifies as a noncompensatory plan; . the accounting consequence of various modifications to the terms of a previously fixed stock option or award; and . the accounting for an exchange of stock compensation awards in a business combination. In general, this Interpretation is effective July 1, 2000. We do not expect the adoption of Interpretation No. 44 to have a material effect on our financial position or results of operations. 22 PART II. OTHER INFORMATION - - --------------------------- Item 2. Changes in Securities and Use of Proceeds On July 28, 2000, we closed our initial public offering of 8,625,000 shares of our common stock, which includes 1,125,000 shares in connection with the exercise of the underwriters' overallotment option, at $20 per share. The managing underwriters in the offering were Goldman Sachs & Co., Dain Rauscher Wessels, Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray. The shares of common stock sold in the offering were registered under the Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (Reg. No. 333-36062) that was declared effective by the SEC on July 24, 2000. The aggregate-offering amount including the overallotment exercise was $172.5 million. We incurred expenses of approximately $14.0 million, of which approximately $12.1 million represented underwriting discounts and commissions and approximately $1.9 million represented other expenses related to the offering. Currently, we have placed the net proceeds from the offering principally in government instruments as well as other short-term, interest bearing, investment grade securities. We expect to use the net proceeds from the offering for working capital and general corporate purposes, and to fund increased expenses related to additional personnel in our consulting services, technical support and training organizations; to fund increased expenses related to the expansion of our sales and marketing organization; to fund increased research and development expenses; and to fund increased general and administrative expenses related to the enhancement of our infrastructure to support our growth. In addition we intend to use the proceeds of our initial public offering to repay existing indebtedness and fund anticipated capital expenditures. Simultaneously with the closing of the initial public offering, all of our outstanding convertible preferred stock, par value $0.001 per share, automatically converted into an aggregate of approximately 23.3 million shares of common stock. From April 1, 2000 through June 30, 2000, the Company granted options to purchase approximately 2.5 million shares of common stock at a weighted average exercise price of approximately $7.63 per share to employees, consultants and directors under its 2000 Equity Incentive Plan and issued an aggregate of approximately 1.1 million shares of its common stock at a weighted average exercise price of approximately $1.42 per share to employees, consultants and directors as a result of exercises of options granted under the 2000 Equity Incentive Plan. These sales were made in reliance on Rule 701 and Section 4(2). Item 4. Submission of Matters to a Vote of Security Holders By way of Action by Written Consent, our stockholders approved the following proposals on June 23, 2000: . A proposal to amend and restate our Certificate of Incorporation to amend the authorized capital stock of the Company to consist of 500,000,000 shares of common stock and 5,000,000 of preferred stock at the closing of our initial public offering; . a proposal to amend and restate our bylaws; . a proposal to amend and restate the 1998 Equity Incentive Plan as the 2000 Equity Incentive Plan; . a proposal to approve our 2000 Employee Stock Purchase Plan; . a proposal to approve our 2000 Non-Employee Directors' Stock Option Plan; . a proposal to approve the form of Indemnity Agreement for use as an agreement between the Company and each of our directors and executive officers; and . a proposal to ratify the selection of KPMG LLP as independent auditors of the Company for the year ended December 31, 2000.
Shares Voting: For: 49,735,092 Against: 0 Abstaining: 0
23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed herewith: Exhibit Number Exhibit Title ------ ------------- 3.1 Fourth Amended and Restated Certificate of Incorporation of the Registrant 3.2 Bylaws of the Registrant 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 11, 2000 BLUE MARTINI SOFTWARE, INC. (Registrant) /S/ Monte Zweben ---------------- Monte Zweben Chairman, President and Chief Executive Officer /S/ John E. Calonico, Jr. ------------------------- John E. Calonico, Jr. Vice President, Chief Financial Officer and Secretary (Principal Accounting Officer) 24 EX-3.1 2 0002.txt RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.1 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 28th day of July 2000. Blue Martini Software, Inc. /s/ Monte Zweben By:___________________________________ Monte Zweben President Attest: /s/ John E. Calonico By:________________________ John Calonico Secretary 7. EX-3.2 3 0003.txt AMENDED & RESTATED BYLAWS Exhibit 3.2 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. Organization............................................ 6 Article IV. Directors.................................................. 6 Section 14. Number and Term of Office............................... 6 Section 15. Powers.................................................. 6 Section 16. Classes of Directors.................................... 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)) 5 Section 13. 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 14. 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 15. 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)) Section 16. CLASSES OF DIRECTORS. Unless otherwise provided in the Certificate of Incorporation and 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, 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 Closing of 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 closing of 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. Notwithstanding the foregoing provisions of this Article, 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. 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-27.1 4 0004.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from this Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 9,720 249 12,835 1,263 0 23,837 8,299 2,308 30,497 33,426 0 0 6 37 (3,444) 30,497 0 25,701 18,013 56,691 0 0 154 (30,851) 0 (30,851) 0 0 0 (30,851) (1.22) (1.22)
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