Document:

Exhibit 10.3

 

Note: Redacted portions have been marked with
[***].  The redacted portions are subject
to a request for confidential treatment that has been filed with the Securities
and Exchange Commission.

 

 

FEDERAL HOME LOAN
BANK OF BOSTON

2005 EXECUTIVE INCENTIVE PLAN

March 2005

 

Purpose

 

The
Federal Home Loan Bank of Boston (Bank) has established an Executive Incentive
Plan (EIP) to:

 

•                  promote achievement of the Bank’s financial and
non-financial objectives as spelled out in the 2005
Strategic Business Plan;

•                  provide total annual compensation (i.e., salary plus
incentive) that is competitive with other financial institutions in the
employment markets in which the Bank competes, including other Federal Home
Loan Banks; and

•                  facilitate the retention and commitment of corporate
officers.

 

Overall
Business Purpose

 

The Bank’s
overall business purpose, as described in the Bank’s 2005 Strategic Business Plan, has been and continues to be
to provide reliable value to its shareholding members.  In all economic climates, the Bank provides
its members with:

 

•                  a reliable source of competitively priced liquidity in
the form of advances and asset-purchase programs, as well as other products and
services; and

•                  a dividend yield above short-term market rate indices.

 

The Bank
has an affirmative obligation to safeguard the investments of its shareholders
and creditors.  As such, the Bank has a
robust approach towards risk management, the crux of which is a conservative
operating philosophy.  The Bank strives
to minimize its market, credit, and liquidity risks, and it carefully monitors
and manages all of its risk exposures, including its exposure to business and
operational risk.

 

Incentive
Goals and Targets

 

The goals
in the 2005 EIP are compatible with the financial and non-financial objectives
in the 2005 Strategic Business Plan and
the Bank’s overall business purpose. 
There will be four financial goals (one focused on profitability, the
other three on balance sheet growth), two non-financial goals (one concerning
improved examination results and a second to cover non-financial, operational
objectives), and one discretionary goal. 
The goals, with the weights by tiers, are summarized in the following
table with detail next:

 

 

	
   

  	
   

  	
  Weight

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  	
   

  
	
  Goal

  	
   

  	
  Pres.

  	
   

  	
  1

  	
   

  	
  2

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pre-tax ROE
  (Adjusted for Net Prepayment Fees) Spread to LIBOR

  	
   

  	
  15

  	
  %

  	
  20

  	
  %

  	
  25

  	
  %

  	
  300 basis points

  	
   

  	
  360 basis points

  	
   

  	
  480 basis points

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Percentage
  Growth in Average CDA and NEF Advances 2005 Over 2004

  	
   

  	
  10

  	
  %

  	
  10

  	
  %

  	
  10

  	
  %

  	
  5 percent

  	
   

  	
  10 percent

  	
   

  	
  15 percent

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Percentage
  Growth in Average Advances and MPF Balances 2005 Over 2004 Members<$5B

  	
   

  	
  10

  	
  %

  	
  10

  	
  %

  	
  10

  	
  %

  	
  10 percent

  	
   

  	
  12 percent

  	
   

  	
  15 percent

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Percentage
  Growth in Average Advances and MPF Balances 2005 Over 2004 Members>$5B

  	
   

  	
  10

  	
  %

  	
  10

  	
  %

  	
  10

  	
  %

  	
  Maintain 2004 average

  	
   

  	
  5 percent

  	
   

  	
  10 percent

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Improved
  Examination Results

  	
   

  	
  15

  	
  %

  	
  15

  	
  %

  	
  15

  	
  %

  	
  N.A.

  	
   

  	
  “Fair” rating in 2005
  exam report

  	
   

  	
  “Satisfactory” rating
  in 2005 exam report

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Operational
  Component

  	
   

  	
  10

  	
  %

  	
  15

  	
  %

  	
  20

  	
  %

  	
  Based on
  accomplishments as defined

  	
   

  	
  Based on
  accomplishments as defined

  	
   

  	
  Based on
  accomplishments as defined

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Discretionary
  Component

  	
   

  	
  30

  	
  %

  	
  20

  	
  %

  	
  10

  	
  %

  	
  As documented by
  supervisor

  	
   

  	
  As documented by
  supervisor

  	
   

  	
  As documented by
  supervisor

  	
   

  

 

2

 

Financial Goals in the 2005 EIP

 

	
  2005 Goal:

  	
   

  	
  Pre-tax ROE (Adjusted for Net Prepayment
  Fees) Spread to LIBOR

  
	
  Weights:

  	
   

  	
  President: 15
  percent; Tier 1: 20 percent; Tier 2: 25 percent

  
	
  Threshold:

  	
   

  	
  300 basis points

  
	
  Target:

  	
   

  	
  360 basis points

  
	
  Excess:

  	
   

  	
  480 basis points

  

 

The
metric will be the spread by which the Bank’s pre-tax (i.e., pre-REFCorp and
pre-AHP) ROE (adjusted for net prepayment fees) exceeds the daily average of
the bond-equivalent yield of three-month LIBOR.

 

The difference between “ROE” and “ROE Adjusted for Net Prepayment Fees”
is that the latter defers the net effect of prepayment fee income from advances
or investments and associated debt retirement and hedge unwind expenses over
the expected remaining lives of the assets that were prepaid.  The exclusion of prepayment fee income and
associated debt retirement and swap unwind expense from the core ROE metric
removes the potential for “windfall” compensation in the event of heavy
prepayment fee income and removes a conflict with the objective of prudent
asset-liability management by excluding the otherwise punitive cost of debt
retirement and swap unwind expense.

 

The
metric is not distorted by the general level of interest rates (which affects
both dollar earnings and prepayment speeds on advances) and eliminates a tax
bias associated with REFCorp and AHP.

 

The
incentive target of 360 basis points is the same as the projection for adjusted
pre-tax ROE spread to LIBOR in the “base case” of the 2005 Strategic Business Plan.  The identical goal with a target of 350 basis
points was included in the 2004 EIP.

 

	
  2005 Goal:

  	
   

  	
  Growth in CDA and NEF
  Advances

  
	
  Weights:

  	
   

  	
  President: 10 percent; Tier 1: 10
  percent; Tier 2: 10 percent

  
	
  Threshold:

  	
   

  	
  5 percent growth

  
	
  Target:

  	
   

  	
  10 percent growth

  
	
  Excess:

  	
   

  	
  15 percent growth

  

 

The focus of the
mission-related metric will be to expand member lending activities in the
communities they serve through the Bank’s Community Development Advances (CDA)
and New England Fund (NEF) advances.(1)

 

The average CDA and NEF
advances balance for 2004 was $1.17 billion. 
A ten percent increase would grow average mission-related advances to
$1.29 billion. This increase would be driven by 

 

(1) This goal is measured using the following advance
product types: 822, 873, 877, 878, 879, 903, 904, and 914.

 

3

 

relatively small advances
disbursements.  The average CDA
disbursement for housing-related purposes is projected to average $3.9 million
and economic development $1.5 million in 2005.

 

Bank staff will actively
use the outreach and education tools available to achieve the goal, including
the successful Community Development Consult program, funding strategies,
training programs, and publication of examples of successful initiatives.

 

This would be a new goal
for 2005.  It would replace the 2004 goal
called “Commuity Development Outreach Initatives,” which was not focused on
balance sheet growth per se.

 

	
  2005 Goal:

  	
   

  	
  Members with Assets
  <$5 Billion - Growth in Advances and MPF

  
	
  Weights:

  	
   

  	
  President: 10 percent; Tier 1: 10
  percent; Tier 2: 10 percent

  
	
  Threshold:

  	
   

  	
  10 percent growth

  
	
  Target:

  	
   

  	
  12 percent growth

  
	
  Excess:

  	
   

  	
  15 percent growth

  
	
   

  	
   

  	
   

  
	
  2005 Goal:

  	
   

  	
  Members with Assets
  >$5 Billion - Growth in Advances and MPF

  
	
  Weights:

  	
   

  	
  President: 10 percent; Tier 1: 10
  percent; Tier 2: 10 percent

  
	
  Threshold:

  	
   

  	
  Maintenance of 2004 average

  
	
  Target:

  	
   

  	
  5 percent growth

  
	
  Excess:

  	
   

  	
  10 percent growth

  

 

The “base case” projection
in the 2005 Strategic Business Plan
is that average advances and Mortgage Partnership Finance (MPF) loans will be
basically unchanged between 2004 and 2005 — an average of $29.83 billion in
2004 compared with a projected average of $29.69 billion in 2005.  Advances projections are based on member
surveys and one-on-one discussions with certain of the Bank’s larger
customers.  Significant MPF growth is
heavily dependent on a single member that has been unwilling to purchase the
capital stock necessary to support the loans on the Bank’s balance sheet.  The projections do not factor in further
industry consolidation or the recuitment of one or more members of significant
size.

 

Notwithstanding the
projections for 2005, it is important that management be incented to grow the
Bank’s core businesses of advances and MPF. 
In 2005 the Bank will focus on the needs of community bank members as
well as the larger, regional and money-center institutions.  Separate goals have been established for the
two membership groups.(2)

 

(2) Average Advances and MPF Balances is defined as
the average daily balance of advances (net of CDA and NEF) plus the average
monthend balance of MPF.  Under MPF,
opportunities for participations with other MPF Banks will count toward the
goal.  To measure these goals, the
following Boston Bank members will be a part of the greater than $5 billion
asset group: all Citizens Bank affiliates that are subsidiaries of the Royal
Bank of Scotland Group; all Bank of America owned affiliates; and all captive
reinsurance companies.  For members other
than Fleet, which is expected to merge into Bank of America-Charlotte in June
2005 and transfer its advances to a new affiliated member, if a member merges
into a non-member, the merged entity’s balances will be excluded from the
calculation for 2005 and the average balance for 2004.  If a member merges into a member with assets
greater than $5 billion, all of the merged member’s balances for 2004 and to
the 2005 merger date will be included in the greater than $5 billion asset
group.

 

4

 

The Bank has the greatest
ability to influence advances borrowings and mortgage sales among members with
assets under $5 billion.  Bank staff work
with member management teams and boards of directors to provide a variety of
education programs along with financial management tools and models to assist
in evaluating options for balance sheet and funding cost management.  We have established a target of increasing
average combined gross balances of advances (net of CDA and NEF advances), MPF,
and other similar lending activities for this segment of the membership by 12
percent between 2004 and 2005.  This
segment is comprised of 452 members as of December 31, 2004, with average
2004 advances balances of $14.0 billion and MPF balances with the Bank of
approximately $1.0 billion.

 

Management also will work
with the large members to obtain a greater share of their wholesale funding and
mortage loan sales in the secondary market. 
Thus, a target goal of a 5 percent increase in average advances (net of
CDA and NEF advances) and MPF to members with assets greater than $5 billion
has been established.  Fifteen members
with the inclusion of Balboa, Melville Reinsurance, and Fleet/Bank of America
comprise this segment of members.  They
held $9.6 billion in advances and had MPF balances of $3.1 billion at year-end
2003.  The advances volume had dropped by
$2 billion at October 31, 2004, and MPF balances stood at $3.4
billion.  More recently, the Bank has
been able to re-build short-term funding balances to put this segment’s
advances at $12.8 billion on December 31, 2004.  MPF business remained lower than anticipated
at $3.1 billion.  The goal has been
established keeping in mind that the advances business from these members is
almost entirely rate sensitive, short-term in nature, less profitable and
particularly subject to business decisions over which the Bank has no control.
The MPF volume is subject to a servicing released option and constraints
associated with the capital requirement.

 

The combination of these two asset building goals is
similar to a goal in the 2004 incentive plan, the only differences being that
the 2004 goal was inclusive of CDA and NEF advances and was stated in terms of
dollar growth year-end over year-end rather than percentage growth in average
balances.  Having a separate goal for
growing CDA and NEF advances puts a special focus on targeted housing programs,
which is consistent with the Bank’s mission statement.  There is no substantive difference between a
dollar-growth goal and a percentage-growth goal, and the switch from a
point-in-time to an average-balance basis will incent the development of
sustained business with the members.

 

Non-financial Goals in the 2005 EIP

 

	
  2005 Goal:

  	
   

  	
  Improved Examination
  Results

  
	
  Weights:

  	
   

  	
  President: 15 percent; Tier 1: 15
  percent; Tier 2: 15 percent

  
	
  Threshold:

  	
   

  	
  None

  
	
  Target:

  	
   

  	
  “Fair” rating in 2004 exam report

  
	
  Excess:

  	
   

  	
  “Satisfactory” rating in 2004 exam report

  

 

In 2005 exam reports, the Federal Housing Finance
Board plans to include a rating of “satisfactory,” “fair,” “marginal,” or “unsatisfactory.”  A payment on this goal will be made at 

 

5

 

target if the Bank’s rating is “fair.”  A “satisfactory” rating will result in an
excess payout on this goal.

 

This goal did not exist in the 2004 incentive plan

 

	
  2005 Goal:

  	
   

  	
  Operational Component

  
	
  Weights:

  	
   

  	
  President: 10 percent; Tier 1: 15
  percent; Tier 2: 20 percent

  
	
  Threshold:

  	
   

  	
  As defined below

  
	
  Target:

  	
   

  	
  As defined below

  
	
  Excess:

  	
   

  	
  As defined below

  

 

Payments awarded under the operational component will
be based on an evaluation of an EIP participant’s role in achieving relevant
non-financial objectives through individual efforts or leadership at the
department or team level.  Non-financial,
operational objectives include:

 

•                  Complete preparations for compliance
with Sarbanes-Oxley Sections 302 and 404;

•                  Initiate registration with the
Securities and Exchange Commission (SEC);

•                  Implement operating improvements to
fully respond to the 2004 examination findings, including a revised retained
earnings plan;

•                  Begin efforts to implement the conversion
to the Mortgage Purchase Program (MPP) upon resolution of the 2004 examination
findings;

•                  Complete the Summit application
conversion phases, specifically Phase 1 (investments and non-swapped debt) by May 2005,
Phase 2 (derivatives) by September 2005, and Phase 3 (MBS) by first
quarter 2006;

•                  Initiate a records retention and
management program;

•                  Amend the Bank’s Capital Plan to
support asset growth;

•                  Assess operational impact of changes
to FHLB Direct and Profile;Otherwise complete initiatives in the technology,
marketing, community lending, communications, or human resources plans.

 

Managers will write goals and objectives for each EIP
participant to use as a basis of this evaluation.  Managers will select a payout percentage for
this individual component from a range of threshold to the maximum payout
percentage.   If the award is not
substantially achieved, a payment of zero for this component can also be
awarded.   Managers will select a payout
percentage for each employee based upon the following performance levels:

 

	
  Percentage Awarded

  	
   

  	
  Performance Level

  
	
  Zero

  	
   

  	
  The individual was unable to substantially
  accomplish the goals, or did not accomplish them in a manner expected for the
  position.

  
	
  Threshold Percentage

  	
   

  	
  Individual partially achieved the results expected
  for the year, however certain items were not completed or they were not
  accomplished in the manner expected for the position.

  

 

6

 

	
  Target Percentage

  	
   

  	
  Goals for the year were completed and accomplished
  in a manner expected for the position.

  
	
  Excess Percentage

  	
   

  	
  Individual not only accomplished the results that
  were expected, but his/her achievements greatly exceeded expectations.

  

 

The EIP will allow managers to also select payouts
between threshold and target or between target and excess to show the degree to
which the EIP participant accomplished these results.

 

	
  2005 Goal:

  	
   

  	
  Discretionary Component

  
	
  Weights:

  	
   

  	
  President: 30 percent; Tier 1: 20
  percent; Tier 2: 10 percent

  
	
  Threshold:

  	
   

  	
  As defined by manager/supervisor

  
	
  Target:

  	
   

  	
  As defined by manager/supervisor

  
	
  Excess:

  	
   

  	
  As defined by manager/supervisor

  

 

This is a subjective goal that a manager/supervisor
can award based on a participant’s leadership, work ethic, attitude, or other
such similar intangible attribute that contributes to the Bank’s success.  Managers/supervisors need to provide
reasonable documentation that states the basis for whatever award is
recommended under the discretionary component.

 

Incentive
Potential

 

Eligible
employees will be assigned an incentive award potential expressed as a
percentage of the incumbent’s base salary in effect at yearend 2005 as follows:

 

	
   

  	
   

  	
  Incentive as a Percent of Salary

  	
   

  
	
   

  	
   

  	
  Threshold

  	
   

  	
  Target

  	
   

  	
  Excess

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  President

  	
   

  	
  25.00

  	
  %

  	
  35.00

  	
  %

  	
  50.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tier I

  	
   

  	
  18.75

  	
  %

  	
  25.00

  	
  %

  	
  37.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tier II

  	
   

  	
  15.00

  	
  %

  	
  20.00

  	
  %

  	
  30.00

  	
  %

  

 

7

 

2005
Participation

 

The
following individuals are participants in the EIP for 2005:(3)

 

	
  President

  	
   

  	
  Tier I

  	
   

  	
  Tier II

  
	
  Michael A. Jessee

  	
   

  	
  Edward Dumas

  	
   

  	
  [***]

  
	
   

  	
   

  	
  M. Susan Elliott

  	
   

  	
   

  
	
   

  	
   

  	
  John T. Eller

  	
   

  	
   

  
	
   

  	
   

  	
  William Hamilton

  	
   

  	
   

  
	
   

  	
   

  	
  Ellen McLaughlin

  	
   

  	
   

  
	
   

  	
   

  	
  Frank Nitkiewicz

  	
   

  	
   

  
	
   

  	
   

  	
  Bill Oakley

  	
   

  	
   

  
	
   

  	
   

  	
  Michael L. Wilson

  	
   

  	
   

  

 

EIP
Administration

 

The EIP
is administered by the Personnel Committee of the Board of Directors
(Committee), which shall have full power and binding authority to construe,
interpret, and administer the EIP, and to adjust it during or at the end of the
calendar year covered by the EIP for extraordinary circumstances.  Extraordinary circumstances may include
changes in business strategy, termination or commencement of business lines, impact
of severe economic fluctuations, significant growth or consolidation of the
membership base, or significant regulatory or other changes impacting the Bank
or Bank System.

 

The
Committee reserves the right at any time to amend, suspend or terminate the EIP
in whole or in part for any reason and without the consent of any EIP
participant, provided that no such amendment shall adversely affect the rights
for EIP participants with respect to amounts earned prior to such amendments.

 

The Bank’s
President and Chief Executive Officer will determine participation in the EIP
with the concurrence of the Committee.

 

Any
individual hired or promoted into an eligible position during the year shall
have any earned incentive award prorated based on months of EIP participation,
providing he/she has served a minimum of six months in that role and otherwise
satisfies the EIP’s requirements.

 

EIP
participants who terminate employment with the Bank by reason of death or
disability prior to the conclusion of the year will receive a pro rata payment
of any incentive award earned, based 

 

(3) All corporate officers are listed as EIP
participants with one exception: [***].  [***]
is a participant in the Bank’s Sales Incentive Plan and is eligible for an
incentive award equivalent to a Tier II participant in the EIP. 

 

8

 

on the
months of completed service as an EIP participant during the year.  Beneficiaries of such payments will be the
same as identified in the Bank’s group insurance plan.

 

Any EIP
participant who terminates employment before the end of the plan year forfeits
any earned award.  Any EIP participant
whose service with the Bank is terminated for cause will receive no payment.  If any EIP participant has had poor performance
during the year, any potential payment may be subject to reduction or
elimination.

 

The Bank
may make such provisions, as it deems appropriate, for withholding payroll
taxes in connection with payment of EIP awards.

 

The Bank
also has several other incentive programs for staff at the Bank designed to
motivate employees to become more innovative and productive. The Bank’s
President is responsible for the administration of each of these programs and
has the authority to construe, implement, and administer programs, as
appropriate.

 

9Exhibit 10.1

 

DEBT CONVERSION AGREEMENT

 

THIS DEBT CONVERSION AGREEMENT (this “Agreement”) is entered into as of
December 20, 2005, by and among BROADVISION,
INC., a Delaware corporation (the “Company”), and HONU HOLDINGS LLC (“Purchaser”).

RECITALS

WHEREAS, Purchaser holds a Senior Secured
Convertible Promissory Note of the Company in the aggregate principal amount of
$15,359,999.00 and with accrued interest as of the date of this Agreement of $181,545.19,
and additional interest accruing at the rate of $2,104.11 per day (the “Note”);
and

WHEREAS, the Company has authorized the sale and
issuance pursuant to this Agreement of an aggregate of 34,500,000 shares of its Common Stock (the “Shares”) at a purchase
price of $.45 per share; and

WHEREAS, Purchaser desires to purchase the
Shares, on the terms and conditions set forth herein, in exchange for total
consideration of $15,525,000.00, consisting of the cancellation of all of the
unpaid principal under the Note and $165,001.00 of accrued and unpaid interest under
the Note (the “Cancelled Interest”), with the balance of the accrued and unpaid
interest to be paid in cash; and

WHEREAS, the Company desires to issue and sell
the Shares to Purchaser on the terms and conditions set forth herein; and

WHEREAS, in connection with such purchase and
sale, Purchaser and the Company desire to enter into an Amended and Restated
Registration Rights Agreement with respect to the Shares, a mutually
satisfactory form of which has been reviewed by the parties (the “Registration
Rights Agreement”);

NOW, THEREFORE, the parties agree as follows:

SECTION 1.  AGREEMENT TO SELL AND PURCHASE

1.1          Authorization
of Shares.  The Company has authorized the sale and
issuance to Purchaser of the Shares, which have the rights, preferences,
privileges and restrictions set forth in the Certificate of Incorporation of
the Company, as amended as of the date of this Agreement and in the form as
provided to the Purchaser.

1.2          Sale
And Purchase.  Subject to the terms and conditions of this
Agreement, at the Closing the Company hereby agrees to issue and sell the
Shares to Purchaser and Purchaser agrees to purchase the Shares from the
Company in consideration for the cancellation of (a) all of the unpaid
principal under the Note and (b) the Cancelled Interest.

 

1

 

SECTION 2.  CLOSING, DELIVERY AND PAYMENT

2.1          Closing. 
The closing of the sale and purchase of the Shares under this Agreement
(the “Closing”) shall take place at 10:30 a.m. on December 30, 2005, at the
offices of Cooley Godward LLP, 101
California Street, 5th Floor, San Francisco, California 94111 or at such other
time or place as the Company and Purchaser may mutually agree (such date is
hereinafter referred to as the “Closing Date”).

2.2          Deliveries.  At
the Closing, subject to the terms hereof, Purchaser will deliver to the Company
the original Note marked “Cancelled,” together with a document in form and
substance satisfactory to the Company evidencing the cancellation of the
Cancelled Interest. At or as soon as practicable following the Closing, subject
to the terms and conditions hereof, the Company will deliver to Purchaser a
certificate representing the Shares and a check in the amount of all accrued
and unpaid interest under the Note other than the Cancelled Interest.

SECTION 3.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to
Purchaser as follows:

3.1          Organization,
Good Standing And Corporate Power.  The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.  The
Company has all requisite corporate power and authority to execute and deliver
this Agreement and to
issue and sell the Shares.

3.2          Capitalization. 
The authorized capital stock of the Company, as of the date of this
Agreement, consists of 2,000,000,000 shares of Common Stock, 34,428,665 shares
of which are issued and outstanding, and 10,000,000 shares of preferred stock,
none of which are issued and outstanding.

3.3          Authorization;
Binding Obligations.  All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization of this Agreement, the
performance of all obligations of the Company hereunder at the Closing and the
authorization, sale, issuance and delivery of the Shares pursuant hereto has
been taken or will be taken prior to the Closing.

3.4          Offering
Valid.  Assuming the accuracy of the representations
and warranties of Purchaser contained in Section 4.2 hereof, the offer,
sale and issuance of the Shares will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws. 
Neither the Company nor any agent on its behalf has solicited or will
solicit any offers to sell or has offered to sell or will offer to sell all or
any part of the Shares to any person or persons so as to bring the sale of such
Shares by the Company within the registration provisions of the Securities Act
or any state securities laws.

3.5          Rights
Offering.  The Company has obtained all necessary
corporate approvals to commence and, upon compliance with all applicable legal
requirements, consummate the offering to all stockholders of the Company on a pro rata basis of rights to acquire 

 

2

 

approximately 202,200,000
shares of the Company’s Common Stock (including shares attributable to
Purchaser and its affiliates) for cash at the same price per share at which
Purchaser is acquiring the Shares (the “Rights Offering”).

SECTION
4.  REPRESENTATIONS
AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to the Company as follows:

4.1          Requisite Power And Authority. 
Purchaser has all necessary power and authority under all applicable
provisions of law to execute and deliver this Agreement and
to carry out their provisions.  All
action on Purchaser’s part required for the lawful execution and delivery of
this Agreement have been or will be effectively
taken prior to the Closing.

4.2          Investment
Representations.  Purchaser understands that the Shares have
not been registered under the Securities Act. 
Purchaser also understands that the Shares are being offered and sold
pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser’s representations contained in this Agreement.  Purchaser hereby represents and warrants as
follows:

(a)           Purchaser
Bears Economic Risk.  Purchaser is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests.  Purchaser must bear the
economic risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is
available.  Purchaser also understands
that there is no assurance that any exemption from registration under the
Securities Act will be available and that, even if available, such exemption
may not allow Purchaser to transfer all or any portion of the Shares under the
circumstances, in the amounts or at the times Purchaser might propose.

(b)           Acquisition
For Own Account.  Purchaser is acquiring the Shares for
Purchaser’s own account for investment only, and not with a view towards their
distribution.

(c)           Purchaser
Can Protect Its Interest.  Purchaser represents that by
reason of Purchaser’s business or financial experience, Purchaser has the
capacity to protect its own interests in connection with the transactions
contemplated in this Agreement.  Further,
Purchaser is aware of no publication of any advertisement in connection with
the transactions contemplated in this Agreement.

(d)           Rule
144.  Purchaser acknowledges and agrees that the
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.  Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the
resale occurring not less than one year after a party has purchased and paid
for the security to be sold, the sale being through an unsolicited “broker’s
transaction” or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) and the number of shares being sold during any three-month period
not exceeding specified limitations.

 

3

 

(e)           Residence. 
Purchaser resides in the State of California.

4.3          Legends. 
To the extent applicable, each certificate or other document evidencing
any of the Shares shall be endorsed with the legends set forth below:

(a)           the following legend under the Securities
Act:

THESE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

(b)           any legend imposed or required by the
Company’s Bylaws or applicable state Securities laws.

SECTION 5.  CONDITIONS TO CLOSING

5.1          Conditions
To Purchaser’s Obligations At The Closing.  Purchaser’s
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:

(a)           Representations
And Warranties True; Performance Of Obligations.  The
representations and warranties made by the Company in Section 3 hereof
shall be true and correct in all material respects as of the Closing Date with
the same force and effect as if they had been made as of the Closing Date, and
the Company shall have performed all obligations and conditions herein required
to be performed or observed by it on or prior to the Closing.

(b)           Legal
Investment.  On the Closing Date, the sale and issuance of
the Shares shall be legally permitted by all laws and regulations to which Purchaser
and the Company are subject.

(c)           Consents,
Permits, And Waivers.  The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement (except for such as may be properly obtained subsequent to
the Closing).

(d)           Registration
Rights Agreement.  The Company shall have executed and delivered
the Registration Rights Agreement.

5.2          Conditions
To Obligations Of The Company.  The Company’s
obligation to issue and sell the Shares at each Closing is subject to the
satisfaction, on or prior to the Closing, of the following conditions:

(a)           Representations
And Warranties True.  The representations and warranties made by
the Purchaser in Section 4 hereof shall be true and correct in all material 

 

4

 

respects at the
date of the Closing, with the same force and effect as if they had been made on
and as of said date.

(b)           Consents,
Permits, And Waivers.  Either (i) the consummation of
the purchase and sale contemplated by this Agreement without approval by the
Company’s stockholders shall be permitted under applicable listing standards of
the Nasdaq Stock Market or (ii) the Company’s Common Stock shall have been delisted
from the Nasdaq Stock Market, and the Company shall have obtained any and all other
consents, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement (except for
such as may be properly obtained subsequent to the Closing).

(c)           Registration
Rights Agreement.  Purchaser shall have executed and delivered
the Registration Rights Agreement.

SECTION 6.  COVENANTS

6.1          Nasdaq
Matters.  Prior to December 30, 2005, the Company shall
either (a) secure from the Nasdaq Stock Market such waiver or other
communication as shall satisfy the Company that the purchase and sale
contemplated by this Agreement without approval by the Company’s stockholders
is permitted under applicable listing standards of the Nasdaq Stock Market or
(b) take such action as may be necessary to cause the Company’s Common Stock to
be delisted from the Nasdaq Stock Market effective prior to December 30, 2005,
so as to render such Nasdaq Stock Market requirements inapplicable.

6.2          Company’s
Effectuation of Rights Offering.  Following the
Closing, the Company shall use all commercially reasonable efforts to effect
the Rights Offering in an expeditious manner, including filing a registration
statement, taking all necessary and appropriate steps to cause the SEC to
declare the registration statement effective and distributing the Rights
Offering materials to all holders of the Company’s Common Stock.

6.3          Purchaser’s Cooperation in Rights
Offering; Waiver of Rights.  Purchaser, on
behalf of itself and its affiliates, agrees to use all commercially reasonable
efforts to cooperate with the Company to timely provide information to the
Company in connection with the Rights Offering and to otherwise support and facilitate
the Rights Offering process.  Purchaser hereby
waives any and all rights that Purchaser may now have, or in the future may
acquire, to purchase shares of the Company’s Common Stock in connection with
the Rights Offering, whether by virtue of Purchaser’s ownership of shares of
the Company’s Common Stock or otherwise.

6.4          Reporting Requirements.  With a view to making available the benefits
of certain rules and regulations of the SEC that may at any time permit the
sale of the Shares to the public without registration or pursuant to a registration
statement, the Company agrees to use reasonable best efforts to:

(a)           make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act;

(b)           file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and

 

5

 

(c)           so long as Purchaser owns any shares of
Common Stock issued pursuant to the terms of this Agreement, to furnish to
Purchaser upon request (i) a written statement by the Company as to
whether it is in compliance with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, or whether it is qualified as a
registrant whose securities may be resold pursuant to SEC Form S-3, and
(ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company.

SECTION 7.  MISCELLANEOUS

7.1          Governing
Law.  This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.

7.2          Successors
And Assigns.  Except as otherwise expressly provided
herein, the provisions of this Agreement shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.

7.3          Entire
Agreement.  This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically
set forth herein and therein.

7.4          Severability. 
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

7.5          Amendment
And Waiver.  This Agreement may be amended or modified
only upon the written consent of the Company and Purchaser.

7.6          Notices. 
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (a) upon personal delivery to the party to
be notified; (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.  All
communications shall be sent to the Company and Purchaser at the addresses set
forth on the signature page of this Agreement or at such other address as the
Company or Purchaser may designate by ten days advance written notice to the
other parties hereto.

7.7          Expenses. 
Each party shall pay all costs and expenses that it incurs with respect
to the negotiation, execution, delivery and performance of this Agreement;
provided, however in the event the sale of Shares is consummated, the Company
shall pay the costs and expenses, including attorneys fees, of Purchaser,
associated with the transactions contemplated by this Agreement.

 

6

 

7.8          Titles
And Subtitles.  The titles of the sections and subsections of
this Agreement are for convenience of reference only and shall not, by
themselves, determine the construction of this Agreement.

7.9          Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.

7.10        Broker’s
Fees.  Each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker’s
or finder’s fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. 
Each party hereto further agrees to indemnify each other party for any
claims, losses or expenses incurred by such other party as a result of the representation
in this Section 7.10 being untrue.

 

7

 

IN WITNESS WHEREOF, the parties hereto have executed this DEBT CONVERSION  AGREEMENT as of the date set forth in the first paragraph
hereof.

COMPANY:

 

BROADVISION, INC.

 

 

 

	
  By:

  	
  /S/ WILLIAM E. MEYER

  
	
   

  	
  William E. Meyer

  
	
   

  	
  Executive Vice President and

  
	
   

  	
  Chief Financial Officer

  

 

PURCHASER:

HONU HOLDINGS LLC

 

 

 

	
  By:

  	
  /S/ PEHONG CHEN

  
	
   

  	
  Pehong Chen

  
	
   

  	
  Manager

  

 

	
  Address:

  	
   

  	
  Honu Holdings
  LLC

  
	
   

  	
   

  	
  c/o Cooley Godward LLP

  
	
   

  	
   

  	
  101 California Street, Fifth Floor

  
	
   

  	
   

  	
  San Francisco, CA 94111-5800

  
	
   

  	
   

  	
  Attn: Kenneth L. Guernsey

  

 

 

WAIVER OF
RIGHTS OFFERING PARTICIPATION

 

In consideration of the Company’s execution of the
foregoing Agreement, each of the undersigned hereby waives any and all rights
that the undersigned may now have, or in the future may acquire, to purchase shares
of the Company’s Common Stock in connection with the Rights Offering, whether
by virtue of the undersigned’s ownership of shares of the Company’s Common Stock
or otherwise.

 

	
   

  	
   

  	
   

  	
  THE
  CHEN FAMILY TRUST

  
	
   

  	
   

  	
   

  	
  U/A/D
  JANUARY 15, 1993

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /S/ PEHONG CHEN

  	
   

  	
  By:

  	
  /S/ PEHONG CHEN

  
	
  PEHONG
  CHEN

  	
   

  	
   

  	
  Pehong Chen

  
	
   

  	
   

  	
   

  	
   

  	
  Trustee

  

 

 

8

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