<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NET.GENESIS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7372 04-3236862
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
(617) 665-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. LAWRENCE S. BOHN
NET.GENESIS CORP.
150 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
(617) 665-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN D. PATTERSON, JR., ESQ. MARK H. BURNETT, ESQ.
ROBERT W. SWEET, JR., ESQ. JOCELYN M. AREL, ESQ.
FOLEY, HOAG & ELIOT LLP TESTA, HURWITZ & THIBEAULT, LLP
ONE POST OFFICE SQUARE 125 HIGH STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 832-1000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 832-7000 TELECOPY: (617) 248-7100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.001 par value...................... $70,000,000 $18,480
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</TABLE>
(1) Estimated solely for the purpose of determining the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
Includes the offering price attributable to shares that the underwriters
have the option to purchase from the registrant solely to cover
over-allotments, if any.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999
PROSPECTUS
SHARES
[NET.GENESIS LOGO]
COMMON STOCK
This is an initial public offering of common stock by net.Genesis Corp. We
are selling shares of common stock. We estimate that the initial public
offering price will be between $ and $ per share.
------------------
Prior to this offering, there has been no public market for our common
stock. We have applied to have the shares of common stock approved for quotation
on the Nasdaq National Market under the symbol NTGX.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts......................................
Proceeds to net.Genesis, before expenses....................
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to additional shares of common stock.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST DEUTSCHE BANC ALEX. BROWN
------------------
U.S. BANCORP PIPER JAFFRAY
, 2000.
<PAGE> 3
Inside Front Cover:
Graphic depiction of net.Analysis Application featuring various components of
the net.Analysis Application including net.Stream, net.Instrument, net.Analysis
Datastore, CartSmarts, net.Analysis 4.5, net.Reporter, HTML Reporter,
ReportSite and net.Dashboard in boxes with arrows linking the various components
to indicate their interrelationships.
Graphic is titled "Architecture for E-Customer Intelligence."
Top left corner has net.Genesis company logo and the following text: "We offer
e-customer intelligence solutions that enable companies to understand and
improve their online businesses. Our flagship product, net.Analysis, combines
information about web site visitor behavior with a company's other customer data
to improve its ability to market, sell and support products, services and
content online."
Top right corner of the graphic lists the following critical questions:
"What are the profiles of our best customer segments?
Which banner advertisements and other online sponsorships generate the most
visitors and customers for our web site?
Which content do visitors find the most valuable?
Is our content cost-effective?
How can we make our web site easier to use and more effective at selling our
products and services?"
Below the net.Analysis Application graphic appears the title "Acting on
E-Customer Intelligence Benefits" with the following bullet points listed
underneath:
- - Better Tailored and Targeted Marketing Initiatives
- - Improved E-Commerce Effectiveness
- - More Relevant and Cost-Effective Content
- - Better Web Site Design
- - Improved Allocation of Advertising and Partnership Resources
- - Better Web Site Infrastructure Planning
At the bottom are graphic depictions of customer web sites
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 38
Management.................................................. 56
Transactions with Related Parties........................... 66
Principal Stockholders...................................... 68
Description of Capital Stock................................ 70
Shares Eligible for Future Sale............................. 73
Underwriting................................................ 75
Legal Matters............................................... 77
Experts..................................................... 77
Where You Can Find More Information......................... 77
Index to Financial Statements............................... F-1
</TABLE>
------------------------
We own or have rights to trademarks or trade names that we use in
conjunction with the sale of our products and services. net.Genesis is a
registered trademark that we own. CartSmarts, Design for Analysis, HTML
Reporter, net.Activator, net.Analysis, net.Analysis DataStore, net.Dashboard,
net.Instrument, net.Reporter, net.Stream and ReportSite are trademarks that we
own. This prospectus also contains trademarks and trade names of other
companies.
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the following
summary together with the more detailed information in this prospectus,
including risk factors, regarding our company and the common stock sold in this
offering.
NET.GENESIS CORP.
We offer e-customer intelligence solutions that enable companies to
understand and improve their online businesses. Our flagship software product,
net.Analysis, combines information about web site visitor behavior with a
company's other online and offline customer data to improve its ability to
market, sell and support products, services and content online. Our software and
services solution enables companies to better tailor and target marketing
initiatives, increase the e-commerce effectiveness of their web sites, provide
more relevant and cost-effective content, improve web site design, better
allocate advertising and partnership resources, and improve web site
infrastructure planning.
The Internet has emerged as a global medium for communications and
electronic commerce, or e-commerce. As use of the Internet has grown, companies
have increasingly invested in a variety of advanced software applications and
professional consulting services for their web sites to ensure that customers,
partners and employees have a satisfying online experience. These include
software applications to serve visitors an enormous variety and number of web
pages, present multimedia content and banner advertisements, personalize the
online experience, and process orders securely and fulfill them reliably.
International Data Corporation estimated that spending on Internet commerce
software applications would grow from approximately $444 million in 1998 to
approximately $13.1 billion in 2003, a compound annual growth rate of 97%.
Online businesses seek to better attract, serve and retain customers and
more effectively communicate and conduct e-commerce with them. To achieve this
objective, companies must understand the needs and web site behavior of their
online customers, or e-customers, as well as the specific costs and benefits of
each of their web initiatives, such as online marketing campaigns, web site
content, advertising and other promotional sponsorships, and web site
infrastructure. Complicating matters, companies often desire to analyze and
understand their online customers in relation to their traditional offline
businesses.
We offer net.Analysis, an e-customer intelligence software application,
that allows companies to collect comprehensive data about their customers'
online behavior and provides powerful analytic and reporting capabilities to
enable them to understand, analyze and measurably improve their online
businesses. Our professional services organization helps companies identify the
relevant performance measures, or e-metrics, of their online businesses that
they can use to make better decisions about their web initiatives. Our solution
provides customers with the following benefits:
Comprehensive Customer Information. With net.Analysis, companies can track
visitor activity on their web sites and combine this information with data
gathered from other web applications and offline customer information systems to
build a unified e-customer information asset.
Powerful Analytical Applications. net.Analysis provides powerful analytic
capabilities and flexible reporting options to enable companies to understand,
profile and segment their e-customers and identify trends in customer behavior.
Open and Extensible Architecture. net.Analysis supports both Microsoft
Windows NT and Unix operating systems from a common base of software code,
integrates with third-party applications and provides a platform for the
development of add-on analytical applications.
3
<PAGE> 6
Highly Scalable and Reliable Solution in Complex Environments. We have
designed net.Analysis to be scalable and reliable enough to be effective in
complex web site environments managing tens of millions to over 100 million hits
per day.
Strategic E-Customer Intelligence Services. We provide strategic analytic
consulting services to assist organizations in understanding their e-customers
and developing e-metrics that are relevant to their online businesses. We also
help companies design web site modifications and develop customized analyses and
reports to meet their online business goals.
We have licensed net.Analysis to over 200 customers. Our customers include
Akamai, Barnes & Noble, BBC News Online, Bell Atlantic, CBS, Charles Schwab,
EarthWeb, eBags, Fidelity Investments, Foofoo.com, General Electric, Intraware,
Monster.com, PricewaterhouseCoopers, SallieMae, SmarterKids.com, Tavolo, The Gap
and Walt Disney. We target Fortune 1000 companies as well as new businesses
using the Internet as their primary business channel. We sell our products
through our direct sales force and to a lesser extent indirectly through
arrangements with systems integrators, original equipment manufacturers and
other technology providers.
Our executive offices are located at 150 CambridgePark Drive, Cambridge,
Massachusetts 02140, and our telephone number at that location is (617)
665-9200. Our web site is located at www.netgen.com. Information contained on
our web site is not part of this prospectus.
4
<PAGE> 7
THE OFFERING
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<S> <C>
Common stock offered by net.Genesis................. shares
Common stock to be outstanding after this
offering............................................ shares
Use of proceeds..................................... To fund working capital and other
general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.............. NTGX
</TABLE>
The number of shares of common stock to be outstanding after the offering
is based on shares outstanding as of December 15, 1999. This number includes
17,156,970 shares that we will issue upon conversion of our outstanding
preferred stock upon completion of this offering and 114,458 shares that we
expect to issue in connection with the exercise of a warrant before the
completion of this offering. It excludes:
- 279,739 shares issuable upon exercise of other warrants that will remain
outstanding after this offering, which have an exercise price of $1.84
per share
- 2,266,736 shares issuable upon exercise of options outstanding as of
December 15, 1999, which have a weighted average exercise price of $1.11
per share
- 3,800,000 additional shares reserved as of December 15, 1999 for future
issuance under our stock-based compensation plans
------------------------------
Except where we state otherwise, the information we present in this
prospectus reflects the automatic conversion of our outstanding preferred stock
into common stock upon completion of this offering, amendments to our
certificate of incorporation and by-laws to be effective upon completion of this
offering and no exercise of the underwriters' option to purchase additional
shares in this offering.
5
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data of our business. We have
computed the pro forma share information included in the statement of operations
data as we describe in note 2 of the notes to our financial statements. The pro
forma as adjusted column in the balance sheet data reflects:
- the conversion of all of our outstanding preferred stock into common
stock upon completion of this offering
- our issuance of shares of common stock upon exercise of a warrant, which
we expect will occur before the completion of this offering
- our sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
that we will pay
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue.................................. $ 481 $ 845 $ 937 $ 537 $ 2,272
Service revenue.................................. 102 164 631 430 1,602
------- ------- ------- ------- -------
Total revenue...................................... 583 1,009 1,568 967 3,874
Gross profit....................................... 359 369 575 555 1,934
Total operating expenses........................... 3,146 3,419 6,459 4,128 11,413
Loss from operations............................... (2,787) (3,050) (5,884) (3,573) (9,479)
Net loss........................................... (2,616) (3,110) (5,773) (3,500) (9,586)
Dividends and accretion of redeemable preferred
stock............................................ (118) (337) (660) (411) (1,300)
Net loss available to common stockholders.......... (2,734) (3,447) (6,433) (3,911) (10,886)
Basic and diluted net loss available to common
stockholders per share........................... $(16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11)
Shares used in computing basic and diluted net loss
available to common stockholders per share....... 171 567 793 721 1,531
Unaudited pro forma basic and diluted net loss per
common share..................................... $ (0.68) $ (0.65)
Shares used in computing unaudited pro forma basic
and diluted net loss per common share............ 8,440 14,804
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $15,936
Working capital............................................. 14,787
Total assets................................................ 21,150
Long-term portion of capital lease obligations and long-term
debt...................................................... 2,173 2,173
Redeemable convertible preferred stock...................... 35,964 --
Total stockholders' equity (deficit)........................ (21,005)
</TABLE>
6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could harm our business, results of operations and financial
condition and could result in a complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR FUTURE
OPERATIONS
Although we were formed in 1994, our current business operations have a
limited history. We introduced the first version of our net.Analysis software in
January 1996 and recorded our first revenue from this product and related
services in February 1996. To date, we have generated only limited amounts of
revenue from the sale of net.Analysis and related products and services.
Accordingly, you have limited information about our company with which to
evaluate our business and prospects. Before buying our common stock, you should
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, particularly those companies
whose business depends on the Internet.
WE HAVE A HISTORY OF LOSSES, EXPECT TO INCUR SUBSTANTIAL LOSSES AND NEGATIVE
OPERATING CASH FLOWS AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE
FUTURE
We have not achieved profitability since 1994. We expect to continue to
incur substantial losses for the foreseeable future and may never become
profitable. We incurred net losses of $2.6 million in 1996, $3.1 million in
1997, $5.8 million in 1998 and $9.6 million in the nine months ended September
30, 1999. As a result of ongoing operating losses, we had an accumulated deficit
of $23.8 million at September 30, 1999. As we grow our business, we expect
operating expenses and capital expenditures to increase significantly, and we
expect to continue to incur losses and negative cash flow from operations. As a
result, we will need to generate significant revenue to achieve and maintain
profitability. We do not believe that we can sustain the percentage rates at
which our revenue has grown in recent quarters. We may not be able to sustain or
increase profitability or cash flows from operations on a quarterly or annual
basis in the future. Our failure to achieve or maintain profitability may
materially and adversely affect the market price of our common stock.
WE EXPECT OUR REVENUE AND RESULTS OF OPERATIONS TO FLUCTUATE. THE MARKET PRICE
OF OUR COMMON STOCK WOULD LIKELY FALL IF OUR QUARTERLY RESULTS ARE LOWER THAN
THE EXPECTATIONS OF SECURITY ANALYSTS OR STOCKHOLDERS
We have experienced substantial fluctuations in both our annual and
quarterly revenue and results of operations, and we expect those fluctuations to
continue for the foreseeable future. We believe the following factors are those
most likely to cause our revenue and results of operations to fluctuate:
- uncertain demand for our products and services
- unanticipated changes in the market for e-customer intelligence solutions
- the timing of sales and delivery of our products and services
- the timing of customer implementations of our products and utilization of
our professional services personnel
- the mix of revenue derived from products and services
- timing of introductions of new products and services by us or our
competitors
- seasonal trends in our customers' business activity
7
<PAGE> 10
- timing of hiring of personnel and changes in productivity of our
professional services personnel and direct sales personnel
If our revenue or results of operations fall below the expectations of
securities analysts or investors, the market price of our common stock would
likely fall, and you could lose some or all of your investment. We budget our
expenses in part according to the revenue we forecast. A significant percentage
of our expenses, particularly salaries and rent, are relatively fixed. As a
result, if our revenue falls below our expectations, we may be unable to curtail
our expenses quickly enough to avoid losses greater than expected. As a result,
our results of operations may be volatile and difficult to predict. We do not
believe that period-to-period comparisons of our revenue and operating results
are necessarily meaningful. You should not rely on the results of one quarter as
an indication of future performance.
MOST OF OUR REVENUE EACH QUARTER IS DERIVED FROM A SMALL NUMBER OF LARGE
ORDERS. IF WE FAIL TO COMPLETE ONE OR MORE LARGE ORDERS IN ANY QUARTER, OUR
REVENUE COULD BE SIGNIFICANTLY LOWER THAN EXPECTED
We derive a significant portion of our revenue in each quarter from a small
number of large orders. Our quarterly operating results would be adversely
affected if we were unable to complete one or more large orders in any quarter.
For example, during 1998 we had two customers that each accounted for more than
10% of our total revenue. Moreover, during six of the last seven quarters, we
had at least one customer that accounted for between 15% and 25% of total orders
in each of those quarters.
OUR SALES CYCLES ARE LONG AND UNPREDICTABLE, MAKING IT DIFFICULT TO FORECAST
OUR REVENUES AND BUDGET OUR EXPENSES
Our sales cycles are long and unpredictable because we generally need to
educate potential customers about the benefits of e-customer intelligence
solutions. In addition, we believe that, for many of our potential customers,
the purchase of our solution can represent a significant portion of their web
site budget and a substantial commitment of personnel resources. As a result, we
experience widely varying sales cycles that typically range from two to six
months. Our long and varying sales cycles make it difficult to predict the
quarter in which particular sales may occur and, therefore, to forecast our
revenue and budget our expenses. Moreover, we believe that, as our business
develops, a significant portion of our sales will increasingly fall within the
last month of a quarter, making it difficult to predict revenue until late in
the quarter and to adjust expenses accordingly.
ALL OF OUR REVENUE IS DERIVED FROM OUR NET.ANALYSIS SOFTWARE AND RELATED
PRODUCTS AND SERVICES, AND ANY DECLINE IN DEMAND FOR THAT PRODUCT OR RELATED
PRODUCTS AND SERVICES WOULD SERIOUSLY HARM OUR BUSINESS
Since 1996, our net.Analysis software and related products and services
have accounted for all of our revenue. We anticipate that sales of our
net.Analysis software and related products and services will continue to account
for substantially all of our revenue for the foreseeable future. Consequently,
any decline in the demand for our net.Analysis software, or its failure to
achieve and maintain market acceptance, would seriously harm our business.
WE FACE INTENSE COMPETITION, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, WE
COULD EXPERIENCE REDUCED DEMAND FOR OUR PRODUCTS AND SERVICES, PRICE
REDUCTIONS AND REDUCED GROSS MARGINS FOR OUR PRODUCTS AND SERVICES, ANY OF
WHICH WOULD SERIOUSLY HARM OUR BUSINESS
Even though the market for e-customer intelligence solutions and web site
analysis software is immature, it is already intensely competitive, fragmented,
evolving and subject to rapid technological change. We expect competition to
intensify in the future. Increased competition
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<PAGE> 11
could result in reduced demand for our products and services, price reductions
and reduced gross margins for our products and services, any of which could
seriously harm our business. For a discussion of our primary competitors, see
"Business -- Competition."
We may not be able to compete successfully against current and future
competitors. Many of our competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do. They have significantly greater name recognition and a larger installed
base of customers than we have. In addition, many of our competitors have well-
established relationships with our current and potential customers and have
extensive knowledge of our target markets. As a result, our competitors may be
able to respond more quickly to evolving industry standards and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than we can. In the past, we have lost
potential customers to competitors for various reasons and may continue to do
so. Current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address customer needs. In addition, companies
marketing Internet applications that are currently complementary to our products
could incorporate into their products enhanced analytic and reporting
functionality that could adversely affect demand for our solution. We also
expect that industry consolidation will increase competition. For example,
Accrue recently acquired Marketwave and announced its acquisition of NeoVista,
and as a result can offer a wider selection of products to its customers.
Accordingly, it is possible that new competitors or alliances among our
competitors may emerge and rapidly acquire significant market share.
OUR ABILITY TO INCREASE REVENUE DEPENDS ON EXPANDING OUR DIRECT SALES FORCE,
WHICH MAY BE DIFFICULT BECAUSE OF THE SHORTAGE OF QUALIFIED SALES PERSONNEL
AND BECAUSE IT TAKES TIME FOR NEW HIRES TO BECOME PRODUCTIVE
If we are unable to significantly expand our direct sales force, we may not
increase our market share or revenue, which could seriously harm our business.
To date, we have derived the substantial majority of our revenue from the
efforts of our direct sales force. We believe we must increase the size of our
direct sales force in order to increase revenue. Competition for qualified sales
personnel is intense, and we may not be able to hire a sufficient number of
sales people with the skills we need. Moreover, the technical nature of our
products lengthens the time it takes for our new sales people to become
productive, typically three to six months. This lag in productivity may make it
more difficult to meet our sales growth targets. Further, we may not generate
sufficient sales to offset the increased expense resulting from growing our
sales force, and we may be unable to manage a larger sales force.
IF WE ARE UNABLE TO EXPAND OUR INDIRECT SALES CHANNELS, WE MAY NOT MAINTAIN OR
INCREASE OUR MARKET SHARE OR REVENUE, WHICH COULD SERIOUSLY HARM OUR BUSINESS
Our strategy includes developing relationships with a variety of
Internet-oriented systems integrators, resellers, original equipment
manufacturers and application service providers in the United States and abroad
to augment the efforts of our direct sales force. These third parties may not
succeed in marketing or selling our products and services. We have little or no
control over the activities of these third parties, and poor performance by any
of them could injure our reputation, create liabilities for us and seriously
harm our business. These third parties may also market and sell competing
products and services, which could adversely affect sales of our products and
services. We may be unable to effectively manage potential conflicts among these
third parties. Our reliance on these third parties may also increase our credit
risks because we effectively bear the risk of non-payment by both the third
parties and their customers. Any failure by these parties to pay for our
products and services in a timely manner could have a material adverse effect on
our business, cash flows and financial condition.
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OUR FAILURE TO UPGRADE OUR PRODUCTS AND INTRODUCE NEW PRODUCTS TO MEET MARKET
REQUIREMENTS WOULD SERIOUSLY AFFECT OUR REVENUES AND HARM OUR BUSINESS
If we are unable to upgrade our current products and introduce new products
and services to meet new technological innovations or demands of online
businesses, we could lose current and potential customers, which would adversely
affect our revenue and harm our business. The market for our products
experiences rapid technological change, frequent new product introductions,
Internet-related technology enhancements, uncertain product life cycles, and
changes in customer requirements and preferences. The growth of the Internet and
intense competition in our industry exacerbate these market characteristics. For
example, if we do not continue to upgrade our products to handle the increasing
traffic on our customers' web sites, demand for our solutions could diminish.
Similarly, widespread adoption of technology that enables web site visitors to
conceal their web site activities could seriously impair the functionality and
usefulness of our products. Moreover, in developing our products, we make
assumptions regarding the industry standards and technologies that our customers
and competitors will adopt. If we choose to support standards or technologies
that the industry does not adopt, market acceptance of our products may be
significantly reduced or delayed. Upgrading or developing our technology poses
complex technical challenges and requires substantial expenditures and lead
times. We have experienced delays in releasing new and enhanced products and may
experience similar delays in the future. Any delays in developing and releasing
our new or enhanced products, or decisions by potential customers to defer
purchases in anticipation of new products or releases by us or our competitors,
could seriously harm our business.
IF WE FAIL TO CONTINUE TO GENERATE REVENUE FROM OUR CURRENT CUSTOMERS, OUR
BUSINESS WILL BE SERIOUSLY HARMED
Our failure to continue to sell products and services to our existing
customers could seriously harm our business. In 1998, we derived approximately
48% of our total revenue from sales of products and services to customers that
had made purchases from us before 1998. We expect to continue to derive a
significant portion of our revenue from our existing customers. Our ability to
retain our customers will depend on a variety of factors, including the analytic
capabilities, scalability, openness, reliability and cost-effectiveness of our
products and services as well as our ability to effectively market our products
and services. If we fail to generate repeat and expanded business from our
current customers, our operating results would be seriously harmed.
THE EXPANSION OF OUR BUSINESS HAS PLACED, AND CONTINUES TO PLACE, A
SIGNIFICANT STRAIN ON OUR MANAGEMENT, OPERATING INFRASTRUCTURE AND RESOURCES
AND COULD SERIOUSLY HARM US
Our failure to properly manage the expansion of our business could
seriously harm us. We have recently experienced a period of significant and
rapid expansion of our business that has placed, and continues to place, a
significant strain on our management, operating infrastructure and resources.
For example, several members of our management team joined us in 1999. From
December 15, 1998 to December 15, 1999, the number of our employees grew from 59
to 147, and we plan to continue to expand our business by hiring additional
personnel. To the extent that our business continues to grow rapidly, we must,
among other measures, implement and improve on a timely basis our operating
infrastructure, including our administrative, financial, customer service and
operational systems, procedures and controls. In the near future, we plan to
implement new software systems for enterprise resource planning and human
resources management, including payroll and benefits. We could be seriously
harmed if our current and anticipated personnel, systems, procedures and
controls are inadequate to support our future operations, or if we are unable to
complete the necessary improvements to our systems, procedures and controls on a
timely basis.
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IF WE LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL
OFFICER OR OTHER MEMBERS OF OUR SENIOR MANAGEMENT TEAM, OUR BUSINESS COULD
SUFFER
Our future success depends on the continued service of our senior
management and other key personnel. In particular, we rely on the continued
services of Lawrence S. Bohn, our President and Chief Executive Officer, John
Delea, our Chief Financial Officer and Vice President of Finance and
Administration, Eric Richard, a founder and our Chief Technology Officer, and
Matthew Cutler, a founder and our Chief E-Business Intelligence Officer. The
loss of the services of one or more of these individuals or any other key
personnel could result in reduced sales, delays in new product development,
decreased customer satisfaction, a reduction of management resources and other
injury to our ability to achieve our business objectives. None of our key
personnel is bound by a long-term employment agreement with us, and we do not
intend to maintain any life insurance to compensate us for the loss of any of
our key personnel.
BECAUSE THERE IS INTENSE COMPETITION FOR QUALIFIED PERSONNEL IN OUR INDUSTRY,
WE MAY NOT BE ABLE TO RECRUIT OR RETAIN THE PERSONNEL WE NEED, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES
Our ability to achieve our business objectives could be adversely affected
if we cannot identify, attract, hire, train, retain and motivate a substantial
number of additional personnel. In particular, we are seeking to hire highly
skilled systems engineers and other technical and engineering personnel, sales
personnel, and employees for our professional services organization. Because of
the technical nature of our products, it typically takes several months to train
our professional service personnel to provide services effectively. If we are
unable to expand and train our professional services staff to meet customer
demand for our services, our business could be seriously harmed. Our
headquarters is located in the metropolitan Boston, Massachusetts area, and
competition for qualified personnel in this area, as well as the other areas
where we need personnel, is intense. Competition is particularly strong for
qualified systems engineers and other software development and technical
personnel. Many other employers are able to offer significantly more attractive
compensation and benefits than we do. We may be unable to recruit and retain the
personnel we need. Our business would be seriously harmed if we are unable to
retain our existing employees or to hire the other highly qualified personnel we
need.
IF THIRD-PARTY SOFTWARE THAT WE USE IN OUR PRODUCTS CEASES TO BE AVAILABLE,
OUR BUSINESS COULD BE SERIOUSLY HARMED
We integrate third-party software to provide some of the functionality of
our software. If we cannot maintain licenses to key third-party software,
shipments of our products could be delayed until we can develop or license
equivalent software and integrate it into our products, which could seriously
harm our business. Our license agreements with the vendors of this software
usually have a short term, and the vendors may choose not to renew our licenses.
Among other third-party software, we license software for chart creation from
Soft-tek International and software for database tools from RogueWave Software.
IF WE FAIL TO SUCCESSFULLY PROMOTE OUR CORPORATE AND PRODUCT BRAND NAMES, OR
IF WE INCUR SIGNIFICANT EXPENSES PROMOTING AND MAINTAINING OUR BRANDS, OUR
BUSINESS COULD BE HARMED
As competition in the market for our products increases, we believe the
importance of brand name recognition will increase. Our failure to achieve and
maintain widespread recognition of our corporate and product brand names may
limit our sales opportunities, which could limit our market share and seriously
harm our long-term business prospects. Successfully promoting and positioning
our corporate and product brands will depend largely on the effectiveness of our
marketing efforts and our ability to develop reliable and useful products at
competitive prices. We may find it necessary to accelerate expenditures on our
sales and marketing efforts or otherwise increase our financial commitment to
creating and maintaining brand awareness among potential customers. If
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we fail to successfully promote and maintain our brand or incur significant
expenses in promoting our brand, our business, results of operations and
financial condition could be materially and adversely affected.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR
BUSINESS MAY BE ADVERSELY AFFECTED AND THE MARKET PRICE FOR OUR COMMON STOCK
COULD BE SIGNIFICANTLY REDUCED
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 12
months. We may need to raise additional debt or equity capital, however, to fund
more rapid expansion of our operations and promotion of our corporate and brand
names, to enhance our products and services, or to acquire complementary
products, services, businesses or technologies. We have raised capital through
the issuance of debt or equity securities three times since June 1998. If we
raise additional funds through further issuances of equity or convertible debt
securities, our existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences and privileges
superior to those of holders of our common stock, including shares of common
stock sold in this offering. In addition, we may not be able to obtain
additional financing on terms favorable to us, if at all. If adequate funds are
not available on terms favorable to us, our business, results of operations and
financial condition could be materially and adversely affected.
WE MAY NEED TO ACQUIRE COMPLEMENTARY PRODUCTS, SERVICES, BUSINESSES OR
TECHNOLOGIES TO REMAIN COMPETITIVE. ACQUISITIONS MAY BE UNAVAILABLE TO US OR
MAY EXPOSE US TO RISKS THAT COULD NEGATIVELY AFFECT OUR OPERATING RESULTS
We believe our customers will increasingly demand additional product
functionality and features and additional services, and our internal resources
may be inadequate to meet those demands on a timely basis. As a result, we may
need to acquire products, services, businesses, technologies or other
capabilities in order to remain competitive. Our failure to meet customer
demands could seriously harm our business. We may be unable to successfully
identify or acquire on commercially reasonable terms the products, services,
businesses, technologies or capabilities that we need. Many of our competitors
have greater financial resources and more well-established industry
relationships than we do, and may therefore compete more effectively for
acquisition opportunities. If we make an acquisition, we may be exposed to
additional risks that could seriously harm our business, including the
following:
- acquired products, services, technologies and capabilities may not meet
customer needs or may not achieve or sustain widespread market acceptance
- we may encounter difficulties in assimilating acquired products,
services, businesses, technologies and capabilities with our existing
products, services, technologies and capabilities
- we may encounter difficulties in integrating the personnel and operations
of an acquired company with our personnel and operations
- acquired products, services, businesses, technologies and capabilities
may result in decreased revenue from our existing products and services
Acquisitions could disrupt our ongoing business, distract our employees,
increase our expenses and adversely affect our results of operations. We could
issue equity securities to pay for an acquisition, which could dilute the equity
interests of our existing stockholders. In addition, acquisitions may involve
investment-related or other charges and amortization of acquired technology,
goodwill and other intangible assets, which may adversely affect our results of
operations.
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FUTURE EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE SIGNIFICANT
MANAGEMENT ATTENTION AND FINANCIAL RESOURCES AND OUR EFFORTS TO EXPAND
INTERNATIONALLY MAY NOT SUCCEED
We intend to expand our international operations and international sales
and marketing efforts. We have limited experience in developing localized
versions of our software products and in marketing, selling and distributing our
solutions internationally. To date, our only offices outside the United States
are located in London, England. To successfully expand international sales, we
must expand our international operations, recruit additional international sales
and support personnel, and expand our international distribution channels. This
international expansion strategy will require significant management attention
and financial resources, and we may not be successful in implementing our
strategy. In particular, because we rely on international resellers, our success
in international markets will depend to a significant degree on the success of
those resellers and their willingness to dedicate resources to the sale of our
products and services. International sales are subject to other inherent risks,
such as:
- compliance with multiple, conflicting and changing governmental laws and
regulations
- the existence of protectionist laws and business practices that favor
local competition
- longer sales and collection cycles, including difficulties obtaining and
enforcing judgments against delinquent customers
- foreign currency exchange rate fluctuations
- difficulties in managing and staffing distant foreign operations
- reduced protection for intellectual property rights in some countries
- import and export licensing requirements
- impact of recessions in economies outside the United States
- seasonal reductions in business activity
- political and economic instability
Our failure to manage these risks adequately could seriously harm our business.
OUR BUSINESS AND PROSPECTS WOULD SUFFER IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS
Our success depends in large part on our intellectual property,
particularly our software. If we fail to successfully enforce our intellectual
property rights, other companies might copy our technology or introduce products
or services that compete with ours. This could reduce our revenues and weaken
our competitive position. We rely solely on a combination of copyright,
trademark and trade secrets law, assignment of invention and confidentiality
agreements, confidentiality procedures and licensing arrangements to establish
and protect our intellectual property rights. We have no patents. We have filed
a provisional patent application relating to our net.Activator technology. We
have registered the trademark net.Genesis in the United States and claim
trademark rights in CartSmarts, Design for Analysis, HTML Reporter,
net.Activator, net.Analysis, net.Analysis DataStore, net.Dashboard,
net.Instrument, net.Reporter, net.Stream and ReportSite. Our efforts to protect
our intellectual property may be inadequate. Existing trade secret, copyright
and trademark laws offer only limited protection. In addition, the laws of some
foreign countries where we market our products and services do not protect
intellectual property rights to the same extent as do the laws of the United
States. We may be required to spend significant resources to monitor
infringement of and enforce our intellectual property rights.
Third parties could copy or otherwise obtain and use our products or
technology without our authorization. They could also independently develop
similar technology that may infringe our intellectual property rights. We may
not be able to detect infringement and may lose our competitive position in the
market before we do so. Competitors may also design around our
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technology or develop competing technologies. If this occurs, our business and
prospects would be materially and adversely affected.
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD HARM OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reliance on intellectual property rights is pervasive in our industry, and
we expect that as competition intensifies, companies will continue to pursue
vigorous enforcement of their intellectual property rights through litigation
and other means. As a result, third parties may claim that our products or
services infringe their intellectual property rights. Any such claim could
seriously harm our business, results of operations and financial condition. We
have not performed a comprehensive analysis of patents that may limit our
ability to do business. An increasing number of companies are seeking and
obtaining patents regarding methods of doing business on the Internet, and valid
patents may have been issued or may in the future be issued that apply to our
methods of doing business. Defending any claim of intellectual property
infringement, regardless of merit, is expensive and time-consuming and may
distract our management's attention away from our business. As a result of any
claim or anticipated claim, we may agree or be forced to:
- pay substantial damages
- cease selling or using products and services that incorporate the
infringed intellectual property
- obtain a license for the infringed intellectual property, which might not
be available on commercially reasonable terms or which could adversely
affect our results of operations and financial condition
- attempt to modify our products and services to avoid infringing others'
intellectual property rights, which we might be unable to do at all or
quickly enough to prevent serious harm to our competitive position in the
market
WE MAY BE ADVERSELY AFFECTED BY UNEXPECTED YEAR 2000 ISSUES
Unexpected "year 2000" issues may harm our business. The year 2000 issue
refers generally to the problems that some software may have in determining the
correct century for the year. This inability to determine the correct century
may result in system failures or erroneous results. Our review of our software
products, embedded software applications, material internal software systems and
non-information technology systems may not have been adequate to identify year
2000 issues that may affect our business. Any errors or defects in our products
could result in delay or loss of revenue, diversion of development resources,
damage to our reputation, increased service and warranty costs, or legal
liabilities, any of which could seriously harm our business. We may incur
substantial expenses attempting to cure any year 2000 problems we encounter.
Moreover, year 2000 issues may adversely affect the Internet or the operations
of our customers and suppliers, which could have similarly adverse results. We
do not have a contingency plan for unexpected year 2000 issues.
IF OUR SOFTWARE PRODUCES INACCURATE INFORMATION ABOUT THE ONLINE CUSTOMER
BEHAVIOR AND TRANSACTIONS WE TRACK OR DISRUPTS THE FUNCTIONING OF OTHER
APPLICATIONS, WE MAY EXPERIENCE CUSTOMER DISSATISFACTION, LOSS OF CUSTOMERS,
OR BOTH, AND BE EXPOSED TO LAWSUITS
The failure of our products to provide accurate information concerning web
site visitor behavior could result in adverse publicity, loss of or delay in
market acceptance and claims by customers against us, any of which could
seriously harm our business, results of operations and financial condition.
Software often contains defects, particularly when first introduced or updated,
which can adversely affect performance or result in inaccurate data. We may not
discover software defects that adversely affect our products until after they
are deployed. Moreover, our products
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typically become incorporated in our customers' online business technology
infrastructure, which vary greatly in composition and complexity. As a result,
we cannot anticipate and plan for the configuration of every customer's
technology infrastructure, and our products may not work properly in every
installation or may disrupt the proper functioning of other applications within
that infrastructure. Accordingly, customers may discover errors or flaws in our
products. Our license agreements typically contain provisions that attempt to
limit our liability, but these provisions may not be enforceable in all
circumstances. In some circumstances, we may be liable for damages caused by
those errors, which could seriously harm our business. We carry only limited
amounts of product liability insurance, which may be insufficient to protect us
from any losses we suffer.
RISKS RELATED TO OUR INDUSTRY
IF THE INTERNET FAILS TO GROW AS A MEDIUM FOR COMMUNICATION AND ELECTRONIC
COMMERCE, OUR FUTURE REVENUE AND BUSINESS PROSPECTS WOULD BE MATERIALLY AND
ADVERSELY AFFECTED
Our future revenue and business prospects depend in part on a significant
increase in the use of the Internet as a medium for communication and electronic
commerce. The Internet is still emerging as a channel for selling goods and
services to consumers and businesses. Further, Internet advertising and
marketing is new and rapidly evolving, and it cannot yet be compared with
traditional advertising media or marketing programs to gauge its effectiveness.
Our business and prospects will be materially and adversely affected if the
Internet does not become accepted as a medium for purchasing goods and services
online or for advertising and marketing.
WE PARTICIPATE IN THE UNPROVEN MARKET FOR E-CUSTOMER INTELLIGENCE SOLUTIONS,
WHICH MAKES THE DEMAND FOR OUR PRODUCTS UNCERTAIN
The market for e-customer intelligence products and services is in an early
stage of development and may not continue to grow. Accordingly, the demand for
our products is uncertain. Many companies in our target markets are unaware that
e-customer intelligence solutions such as ours are available or beneficial and
may choose to allocate their resources elsewhere, including internally developed
e-customer intelligence capabilities. Moreover, many companies may continue to
rely on traditional offline customer intelligence methods. In order for us to be
successful, our potential customers must recognize the value of and decide to
invest in e-customer intelligence solutions, and, in particular, adopt our
solution. Any failure of this market to continue to develop would seriously harm
our business.
WE DEPEND ON THE CONTINUED VIABILITY OF THE INTERNET INFRASTRUCTURE
Our business depends upon the development and maintenance of a viable
Internet infrastructure. The current Internet infrastructure may be unable to
support an increased number of users, greater frequency of use or increases in
the bandwidth requirements of users. The timely development of products such as
high-speed modems and communications equipment will be necessary to continue
reliable Internet access. In addition, the Internet has experienced outages and
delays as a result of damage to portions of its infrastructure. Outages and
delays, including those resulting from year 2000 problems, could adversely
affect our customers' web sites and third-party web applications and the
willingness of our current and potential customers to use our e-customer
intelligence solutions. Even if the necessary infrastructure or technologies are
developed, we may have to spend considerable resources to adapt our offerings
accordingly. In addition, the effectiveness of the Internet may decline due to
delays in the development or adoption of new standards and protocols designed to
support increased levels of activity. If new standards or protocols are
developed, we may be required to incur substantial expenditures to adapt our
products. Any of these events could seriously harm our business.
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THE FUNCTIONALITY OF OUR PRODUCTS COULD BE LIMITED BY THE PRIVACY CONCERNS OF
ONLINE COMMERCE PARTICIPANTS AND GOVERNMENT REGULATORY REQUIREMENTS, WHICH
COULD SERIOUSLY HARM OUR BUSINESS
Web sites typically capture information about the preferences and
demographics of online users each time a user visits the web site or volunteers
information in response to survey or other questions. Our net.Analysis software
product enables organizations to analyze and use this customer information for
their business purposes, including marketing campaigns and customer
solicitations. Privacy concerns may cause web site visitors to resist providing
personal data, to avoid web sites known to collect data on visitor behavior and
to take other steps to prevent the involuntary collection of personal data, all
of which would impair the effectiveness of our products and could seriously harm
our business. Moreover, even the perception of privacy concerns may indirectly
inhibit market acceptance of our products or services. If customer privacy
concerns are not adequately addressed, our business could be seriously harmed.
In addition, federal, state, local or foreign governments or agencies have
adopted and may in the future adopt legislative or regulatory requirements
designed to protect individual privacy on the Internet. For example, the United
States' Children's Online Privacy Act, which took effect in October 1999,
imposes new obligations on all online businesses that target children under the
age of 13 and other requirements on all businesses engaged in online commerce to
protect the privacy of children under the age of 13. In addition, the European
Union has adopted a directive addressing data privacy that may result in
limitations on the collection and use of specific personal information regarding
Internet users. Developments like these may significantly impair the growth or
evolution of the Internet and online commerce. As a result, the demand for
products like net.Analysis may not grow as anticipated. This could seriously
harm our business.
IF GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES RELATED TO DOING BUSINESS ON
THE INTERNET CAUSE A DECLINE IN E-COMMERCE AND INTERNET ADVERTISING AND
MARKETING, OUR BUSINESS AND PROSPECTS COULD BE MATERIALLY AND ADVERSELY
AFFECTED
Laws and regulations directly applicable to Internet communications,
commerce and marketing are becoming more prevalent. If any of these laws hinders
the growth in use of the Internet generally or decreases the acceptance of the
Internet as a medium for communication, commerce and marketing, our business and
prospects may suffer materially. The United States Congress has enacted Internet
laws regarding children's privacy, copyrights and taxation. Other laws and
regulations may be adopted covering issues such as user privacy, pricing,
content, taxation and quality of products and services. State and foreign
governments might attempt to regulate Internet transmissions or levy sales or
other taxes relating to Internet activity. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet advertising and
marketing services. In addition, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad, that may impose additional burdens on
companies conducting business over the Internet.
INCREASED LIMITATION OR ABOLITION OF THE USE OF COOKIES COULD LIMIT OUR
ABILITY TO COLLECT DATA, IMPAIR THE EFFECTIVENESS OF OUR SOLUTION AND REQUIRE
PRODUCT MODIFICATIONS, ANY OF WHICH COULD SERIOUSLY HARM OUR BUSINESS
The passage of laws limiting or abolishing the use of cookies could
seriously harm our business. A cookie is information created by a web server
that is stored on an end-user's computer, often without the user's knowledge,
that can be used to track and record the user's online behavior and profile.
Cookies generally may be removed or disabled by the user. Our products capture
some data with cookies to identify unique user information and preferences. Some
countries have imposed laws limiting the use of cookies, and a number of
commentators, advocates and governmental bodies in the United States and other
countries have urged passage of laws limiting or abolishing the use of cookies.
If these laws were passed, we would have to disable certain data collection
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features of our products, which would reduce their usefulness to our customers,
and we might be unable to develop alternative methods to gather data currently
obtained with cookies. Even if we could develop those methods, the development
could involve significant expenses and might not occur in time to prevent damage
to our competitive position.
RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
FOLLOWING THE OFFERING, TRADING IN OUR COMMON STOCK MAY BE LIMITED AND YOU
MUST BE ABLE TO WITHSTAND A POSSIBLE LOSS OF YOUR INVESTMENT
This is our initial public offering. A public market for trading our common
stock has not existed before this offering. Although this offering will result
in a public trading market for our common stock, we do not know how liquid the
market for our stock will be. The price of the common stock being sold in this
offering will be determined through negotiations between the underwriters and
us. If you purchase common stock in this offering, you may not be able to resell
such stock at or above the price you paid.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING
The market price of our common stock after this offering may vary from its
initial public offering price. Fluctuations in market price and volume are
particularly common among securities of Internet and other technology companies.
As a result, you may be unable to sell your shares of common stock at or above
the initial offering price. The market price of our common stock may fluctuate
significantly in response to the following factors, some of which are beyond our
control:
- general fluctuations in stock market prices and volume, which are
particularly common among highly volatile securities of software and
Internet-related companies like ours
- variations in our quarterly operating results
- changes in securities analysts' estimates of our financial performance
- changes in market valuations of similar companies
- announcements by us or our competitors of significant products,
contracts, acquisitions or strategic partnerships
- additions or departures of key personnel
WE COULD BE THE SUBJECT OF SECURITIES CLASS ACTION LITIGATION DUE TO FUTURE
STOCK PRICE VOLATILITY
The stock market in general, and market prices for the securities of
Internet-related companies like ours in particular, recently have experienced
extreme volatility that often has been unrelated to the operating performance of
the underlying companies. These broad market and industry fluctuations may
adversely affect the market price of our common stock, regardless of our
operating performance. Recently, when the market price of a stock has decreased
rapidly, holders of that stock have often instituted securities class action
litigation against the company that issued the stock. If any of our stockholders
brought a lawsuit against us, our defense of the lawsuit could be costly and
divert the time and attention of our management.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE
Sales of a substantial number of shares of common stock after this
offering, or the perception that sales could occur, could adversely affect the
market price of the common stock. On completion of this offering, we will have
shares of common stock outstanding and 2,546,475 shares subject to
outstanding options and warrants. In general, the shares sold in this
offering will be freely tradable without restriction or further registration
under the federal securities laws.
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The remaining 21,452,826 shares of common stock outstanding on completion of the
offering will be "restricted securities" as that term is defined in Rule 144.
Our directors, executive officers and most other stockholders have executed
lock-up agreements that limit their ability to sell common stock. These
stockholders have agreed not to sell or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written approval of Hambrecht & Quist LLC, which could be given at any
time. When the lock-up agreements expire or are terminated, most of the
restricted securities will become eligible for sale.
MANAGEMENT COULD APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT
INCREASE OUR MARKET VALUE OR IMPROVE OUR OPERATING RESULTS
We will use our net proceeds from this offering for general corporate
purposes and working capital. We have not reserved or allocated the net proceeds
for any specific purpose, and we cannot state with certainty how our management
will use the net proceeds. Accordingly, our management will have considerable
discretion in applying the net proceeds. We may use the net proceeds for
purposes that do not result in any increase in our results of operations or
market value.
OUR DIRECTORS AND MANAGEMENT WILL COLLECTIVELY CONTROL OVER % OF OUR
OUTSTANDING COMMON STOCK
Immediately after this offering, our directors and executive officers and
their affiliates will collectively control approximately % of our outstanding
common stock. As a result, these stockholders, if they act together, will be
able to influence our management and affairs and all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control of our company and might
adversely affect the market price of our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY
Provisions of our certificate of incorporation and by-laws may discourage,
delay or prevent a merger, acquisition or change of control that a stockholder
may consider favorable. These provisions could also discourage proxy contests
and make it more difficult for stockholders to elect directors and take other
corporate actions. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions include:
- authorizing the issuance of "blank check" preferred stock
- providing for a classified board of directors with staggered, three-year
terms
- providing that directors may only be removed for cause by a two-thirds
vote of stockholders
- limiting the persons who may call special meetings of stockholders
- prohibiting stockholder action by written consent
- establishing advance notice requirements for nominations for election to
the board of directors and for proposing matters to be submitted to a
stockholder vote
Delaware law may also discourage, delay or prevent someone from acquiring
or merging with our company or obtaining control of our company.
INVESTORS IN THIS OFFERING WILL PAY A MUCH HIGHER PRICE THAN THE BOOK VALUE OF
OUR COMMON STOCK
The initial public offering price per share of our common stock is $
higher than the pro forma net tangible book value per share of our common stock,
based on an assumed public offering
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price of $ per share. As a result, investors purchasing common stock in
this offering will incur immediate and substantial dilution. In the past, we
issued options and warrants to acquire common stock at prices significantly
below the assumed initial public offering price per share. To the extent these
outstanding options and warrants are ultimately exercised, there will be further
dilution to investors.
THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS MIGHT PROVE
INACCURATE. AS A RESULT, OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR
ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS
Some of the statements we make in this prospectus are forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or similar terminology. These statements involve known and unknown
risks and uncertainties that may cause our actual results, levels of activity,
performance or achievements to differ materially from any future results, levels
of activity, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus. We cannot
guarantee any future results, levels of activity, performance or achievements.
Moreover, neither we nor anyone else assumes responsibility for the accuracy and
completeness of these statements. We undertake no obligation to update any of
the forward-looking statements after the date of this prospectus.
This prospectus contains various third-party data and estimates related to
our business and the Internet, including those relating to revenue generated by
e-commerce and the size of the Internet commerce software applications market.
These data and estimates have been included in studies published by independent
market research firms. The estimates are based on surveys, financial reports and
models used by these firms, as well as a number of assumptions regarding the
growth of e-commerce and the Internet. If the underlying data or one or more of
the assumptions contained in these studies turn out to be incorrect, actual
results or circumstances may be materially different from the estimates included
in this prospectus.
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USE OF PROCEEDS
We estimate that the net proceeds from our sale of the
shares of common stock we are offering will be approximately $ million, based
on an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
that we will pay. Our estimated net proceeds will be $ million
if the underwriters fully exercise their over-allotment option.
We intend to use our net proceeds for working capital and other general
corporate purposes, which may include acquisitions of businesses, products and
technologies that are complementary to our business. Although we have evaluated
possible acquisitions from time to time, we currently have no commitments or
agreements to make any acquisitions and we cannot assure you that we will make
any acquisitions in the future. Pending those uses, we intend to invest the net
proceeds in U.S. government securities and other short-term, investment-grade,
interest-bearing instruments or high-grade corporate notes.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our capital
stock. We currently intend to retain any earnings to fund the development and
growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account our financial
condition, operating results, cash needs and growth plans. Our agreement with
our lender contains restrictive covenants that generally prohibit us from paying
cash dividends, making any distribution on any class of stock or making stock
repurchases.
20
<PAGE> 23
CAPITALIZATION
The following table summarizes our capitalization as of September 30, 1999:
- on an actual basis, reflecting a charter amendment filed on December 22,
1999 that increased our authorized number of shares of common stock to
100,000,000
- on a pro forma as adjusted basis to reflect:
- the conversion of all of our outstanding preferred stock into common
stock upon completion of this offering
- the issuance of 114,458 shares of common stock upon exercise of a
warrant, which we expect will occur before the completion of this
offering
- a charter amendment, to be effective upon completion of this offering,
that will, among other things, authorize a class of undesignated
preferred stock
- our sale of shares of common stock at an assumed initial
public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
that we will pay
You should read this table together with our financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term portion of capital lease obligations and long-term
debt...................................................... $ 2,173 $ 2,173
-------- --------
Redeemable convertible preferred stock, $0.001 par value;
16,761,457 shares authorized and 16,231,540 issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma as adjusted.......................... 35,964 --
-------- --------
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 925,430
shares authorized, issued and outstanding, actual; no
shares authorized, issued or outstanding, pro forma as
adjusted............................................... 1,717 --
Preferred stock (undesignated), $0.001 par value; no
shares authorized, actual; 5,000,000 shares authorized,
pro forma as adjusted; no shares issued or
outstanding............................................ -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 4,264,919 shares issued and outstanding,
actual; shares issued and outstanding, pro
forma as adjusted...................................... 4
Additional paid-in capital................................ 4,447
Deferred compensation..................................... (3,818) (3,818)
Note receivable from stockholder.......................... (96) (96)
Accumulated deficit....................................... (23,801) (23,801)
Accumulated other comprehensive income.................... 542 542
-------- --------
Total stockholders' equity (deficit)................... (21,005)
-------- --------
Total capitalization.............................. $ 17,132 $
======== ========
</TABLE>
21
<PAGE> 24
The information in the foregoing table excludes:
- 279,739 shares issuable upon exercise of other warrants outstanding as
of September 30, 1999, which have an exercise price of $1.84 per share
- 1,798,812 shares issuable upon exercise of options outstanding as of
September 30, 1999, which have a weighted average exercise price of
$0.48 per share
- 701,578 additional shares reserved as of September 30, 1999 for future
issuance under our 1995 Stock Option Plan
22
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $15.0 million, or $0.70 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the amount of our total
tangible assets less our total liabilities by the pro forma number of shares of
common stock outstanding, after giving effect to the conversion of our
outstanding preferred stock and the exercise of a warrant, which we expect will
occur before the completion of this offering. After giving effect to our sale
of shares of common stock at an assumed initial public offering price
of $ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses that we will pay, our adjusted pro
forma net tangible book value as of September 30, 1999 would have been
$ million, or $ per share. This amount represents an immediate
increase in pro forma net tangible book value to our existing stockholders of
$ per share and an immediate dilution to new investors of $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of September
30, 1999.................................................... $0.70
Increase per share attributable to new investors..........
-----
Adjusted pro forma net tangible book value per share after
this offering.............................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
If the underwriters exercise their option to purchase additional shares in
this offering in full, our adjusted pro forma net tangible book value at
September 30, 1999 would have been $ million, or $ per share,
representing an immediate increase in pro forma net tangible book value to our
existing stockholders of $ per share and an immediate dilution to new
investors of $ per share.
The following table summarizes as of September 30, 1999, on a pro forma
basis after giving effect to the conversion of our outstanding preferred stock
and the exercise of a warrant as described above, the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid by our existing stockholders and by new investors, based
upon the assumed initial public offering price of $ per share before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 21,536,347 % $37,035,661 % $1.72
New investors....................
---------- ----- ----------- ------
Total....................... 100.0% 100.0%
========== ===== =========== ======
</TABLE>
The preceding discussion and tables assume no exercise of any stock options
or warrants outstanding as of September 30, 1999, except as stated above. As of
September 30, 1999, there were outstanding options to purchase a total of
1,798,812 shares of common stock at a weighted average exercise price of $0.48
per share and warrants, other than that described above, to purchase a total of
279,739 shares of common stock at an exercise price of $1.84 per share. To the
extent any of these options or warrants are exercised, there will be further
dilution to new investors.
23
<PAGE> 26
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. We derived the statement of operations data for the years
ended December 31, 1996, 1997 and 1998 and the balance sheet data as of December
31, 1997 and 1998 from our financial statements audited by
PricewaterhouseCoopers LLP, which appear elsewhere in this prospectus. We
derived the statement of operations data for the period from our inception (May
6, 1994) to December 31, 1994 and the year ended December 31, 1995 and the
balance sheet data as of December 31, 1994, 1995 and 1996 from our financial
statements audited by PricewaterhouseCoopers LLP, which do not appear in this
prospectus. We derived the statement of operations data for the nine months
ended September 30, 1998 and 1999 and the balance sheet data as of September 30,
1999 from our unaudited financial statements that appear elsewhere in this
prospectus. We have prepared our unaudited financial statements on the same
basis as our audited financial statements. In the opinion of our management, our
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information in those statements. Our historical results are not necessarily
indicative of operating results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
INCEPTION ENDED
(MAY 6, 1994) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
--------------- ------ ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue.................. $ -- $ 151 $ 481 $ 845 $ 937 $ 537 $ 2,272
Service revenue.................. 46 140 102 164 631 430 1,602
----- ------ ------- ------- ------- ------- --------
Total revenue...................... 46 291 583 1,009 1,568 967 3,874
----- ------ ------- ------- ------- ------- --------
Cost of revenue:
Cost of product revenue.......... -- 15 105 91 232 76 99
Cost of service revenue.......... 13 34 119 549 761 336 1,841
----- ------ ------- ------- ------- ------- --------
Total cost of revenue.............. 13 49 224 640 993 412 1,940
----- ------ ------- ------- ------- ------- --------
Gross profit....................... 33 242 359 369 575 555 1,934
----- ------ ------- ------- ------- ------- --------
Operating expenses:
Sales and marketing.............. 4 159 1,563 1,271 3,045 1,845 6,068
Research and development......... 12 327 1,192 1,410 2,266 1,528 3,026
General and administrative....... 4 78 381 738 1,148 755 2,047
Stock-based compensation......... -- -- 10 -- -- -- 272
----- ------ ------- ------- ------- ------- --------
Total operating expenses........... 20 564 3,146 3,419 6,459 4,128 11,413
----- ------ ------- ------- ------- ------- --------
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
INCEPTION ENDED
(MAY 6, 1994) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
--------------- ------ ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations...... 13 (322) (2,787) (3,050) (5,884) (3,573) (9,479)
Other income (loss)................ 1 8 171 (60) 111 73 (107)
----- ------ ------- ------- ------- ------- --------
Net income (loss).................. $ 14 $ (314) $(2,616) $(3,110) $(5,773) $(3,500) $ (9,586)
----- ------ ------- ------- ------- ------- --------
Dividends and accretion of
redeemable preferred stock....... -- -- (118) (337) (660) (411) (1,300)
----- ------ ------- ------- ------- ------- --------
Net income (loss) available to
common stockholders.............. $ 14 $ (314) $(2,734) $(3,447) $(6,433) $(3,911) $(10,886)
===== ====== ======= ======= ======= ======= ========
Basic and diluted net income (loss)
available to common stockholders
per share........................ $0.59 $(6.46) $(16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11)
===== ====== ======= ======= ======= ======= ========
Shares used in computing basic and
diluted net income (loss)
available to common stockholders
per share........................ 23 49 171 567 793 721 1,531
===== ====== ======= ======= ======= ======= ========
Unaudited pro forma basic and
diluted net loss per common
share............................ $ (0.68) $ (0.65)
======= ========
Shares used in computing unaudited
pro forma basic and diluted net
loss per common share............ 8,440 14,804
======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
---- ------ ------ ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $63 $1,413 $ 650 $ 253 $ 2,261 $ 15,936
Working capital................................... 9 1,383 2,449 866 1,688 14,787
Total assets...................................... 80 1,522 3,489 1,642 3,866 21,150
Long-term portion of capital lease obligations and
long-term debt.................................. -- 3 112 -- -- 2,173
Redeemable convertible preferred stock............ -- -- 4,082 5,856 13,566 35,964
Total stockholders' equity (deficit).............. 19 1,454 1,767 (4,712) (11,081) (21,005)
</TABLE>
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including those set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
We offer e-customer intelligence solutions that enable companies to
understand and improve their online businesses. Our flagship software product,
net.Analysis, combines information about web site visitor behavior with a
company's other online and offline customer data to improve its ability to
market, sell and support products, services and content online. We license
net.Analysis to customers for a fee and also provide related maintenance and
support services. In addition, we provide professional consulting services to
assist customers throughout a net.Analysis deployment. These services include
analytic consulting, product implementation, application integration,
customization of e-customer analysis reporting, training and support.
From our inception in May 1994 through December 31, 1995, our operations
consisted primarily of start-up activities, including raising capital,
recruiting personnel, conducting research and development for net.Analysis and
several other Internet software product and service offerings that we have since
discontinued, establishing the market for our initial products and purchasing
operating assets. Since 1995, we have invested in research and development for
net.Analysis, building sales channels, expanding marketing activities and
developing administrative operations. In January 1996, we began actively
marketing our net.Analysis product. To date, we have developed and released four
major versions of net.Analysis. We currently have over 200 customers. We market
and sell our products primarily through our direct sales force.
Since 1996, our net.Analysis software and related products and services
have accounted for all of our revenue. We anticipate that licensing of
net.Analysis and related products and services will continue to account for
substantially all of our revenue for the foreseeable future. Consequently, a
decline in the price of or demand for our net.Analysis software, or its failure
to achieve or maintain market acceptance, would seriously harm our business,
financial condition and results of operations.
We license net.Analysis and our other software products to our customers
primarily on a perpetual basis. Our pricing model is based on the number of the
customer's managed servers, the platform supported and the number of end users
of our software, allowing for additional revenue as a customer's requirements
grow. Support and maintenance contracts, which are purchased with initial
product licenses and are renewable annually thereafter, entitle customers to
telephone, e-mail and web-based support and to routine product upgrades, when
and if available. The price for our support and maintenance services is based on
a percentage of the then-current list price of the software. Consulting fees for
implementation services and training are charged either on a time-and-materials
basis or on a fixed-fee basis in the case of packaged services such as our
FastPath implementation package.
We recognize revenues in accordance with Statement of Position (SOP) 97-2,
"Software Revenue Recognition," which we adopted in 1998. Our standard license
agreement provides for a fee to use the product in perpetuity up to a maximum
number of managed servers and end users. Fees from licenses are recognized as
revenue when a contract has been executed and the product has been delivered,
provided fees are fixed or determinable and collection is probable. Revenue
under arrangements where multiple products or services are sold together under
one contract is allocated to each element based on their relative fair values,
with these fair values being determined using the price charged when that
element is sold separately. License fees from
26
<PAGE> 29
software sold together with services are generally recognized upon delivery of
the software, provided that the above criteria have been met and the services
are not essential to the functionality of any other element of the transaction.
In instances where these criteria have not been met, both the license and
professional services fees are recognized under the percentage-of-completion
method of contract accounting, based upon the proportion of hours expended to
total estimated hours at completion. Losses, if any, on fixed-price contracts
are recognized when the loss is determined.
Service revenue consists of fees from professional services and from
software maintenance and support. Professional services include analytic
consulting, product implementation, application integration, report
customization, training and support. We bill professional services fees either
on a time-and-materials basis or on a fixed-price schedule. We recognize
professional services fees as we perform the services.
Customers typically purchase maintenance and support agreements annually.
Customers purchasing maintenance and support agreements receive routine product
upgrades as they become generally available and telephone, e-mail and web-based
support. We recognize revenue from maintenance and support agreements ratably
over the term of the agreement, typically one year. We record cash receipts from
clients and billed amounts due from clients in excess of revenue recognized as
deferred revenue. The timing and amount of cash receipts from clients can vary
significantly depending on specific contract terms and can therefore have a
significant impact on the amount of deferred revenue in any given period.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments, and to establish our
administrative organization. As a result, we have incurred net losses in each
fiscal quarter since December 31, 1994 and, as of September 30, 1999, had an
accumulated deficit of $23.8 million. We anticipate that our operating expenses
will increase substantially in future quarters as we increase sales and
marketing operations, develop new distribution channels, fund greater levels of
research and development, broaden professional consulting services and support,
and improve operational and financial systems. We expect that these operating
expenses, as well as anticipated capital expenditures, will constitute a
material use of our cash resources. We expect to incur additional losses and
continued negative cash flow from operations. We may not achieve or sustain
profitability or positive cash flow from operations. You should not rely upon
our past operating results as an indication of future performance. While we have
experienced significant percentage growth in revenue in recent periods, we have
a limited operating history and we do not believe that our recent percentage
revenue growth rates are sustainable or indicative of our future revenue growth
rates.
We have recorded deferred stock-based compensation related to grants of
stock options. This amount represents the difference between the exercise price
of these stock option grants and the amount subsequently determined to be the
fair market value of the underlying common stock for financial reporting
purposes at the time of grant. Of this amount, we amortized approximately
$117,000 in the nine months ended September 30, 1999. We will amortize $3.8
million of stock-based compensation, plus the additional amounts recorded in
connection with stock options granted after September 30, 1999, over the
remaining vesting periods of the options, generally four years or less, which
will affect our reported results of operations through 2003.
27
<PAGE> 30
RESULTS OF OPERATIONS
The following table expresses our operating data as percentages of total
revenue for each period indicated.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue............................. 82.5% 83.8% 59.7% 55.5% 58.6%
Service revenue............................. 17.5 16.2 40.3 44.5 41.4
------ ------ ------ ------ ------
Total revenue................................. 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Cost of revenue:
Cost of product revenue..................... 18.0 9.0 14.8 7.8 2.6
Cost of service revenue..................... 20.4 54.4 48.5 34.8 47.5
------ ------ ------ ------ ------
Total cost of revenue......................... 38.4 63.4 63.3 42.6 50.1
------ ------ ------ ------ ------
Gross profit.................................. 61.6 36.6 36.7 57.4 49.9
------ ------ ------ ------ ------
Operating expenses:
Sales and marketing......................... 268.1 126.0 194.2 191.0 156.6
Research and development.................... 204.5 139.8 144.5 158.1 78.1
General and administrative.................. 65.4 73.2 73.2 78.1 52.9
Stock-based compensation.................... 1.7 -- -- -- 7.0
------ ------ ------ ------ ------
Total operating expenses...................... 539.7 339.0 411.9 427.2 294.6
------ ------ ------ ------ ------
Loss from operations.......................... (478.1) (302.4) (375.2) (369.8) (244.7)
Other income (loss)........................... 29.3 (5.9) 7.1 7.6 (2.7)
------ ------ ------ ------ ------
Net loss...................................... (448.8%) (308.3%) (368.1%) (362.2%) (247.4%)
====== ====== ====== ====== ======
</TABLE>
Comparison of Nine Months Ended September 30, 1998 and 1999
Total Revenue. Total revenue increased by $2.9 million, or 301%, to $3.9
million for the nine months ended September 30, 1999 from $1.0 million for the
nine months ended September 30, 1998.
Product Revenue. Product revenue increased by $1.7 million, or 323%, to
$2.3 million for the nine months ended September 30, 1999 from $537,000 for the
nine months ended September 30, 1998. The growth in product revenue was due
primarily to higher unit sales of net.Analysis as a result of increased market
awareness of our solution, introductions of new features, increases in both the
size and productivity of our sales force, and increased average dollar size of
licenses, attributable to larger implementations and price increases. Product
revenue as a percentage of total revenue increased to 59% for the nine months
ended September 30, 1999 from 55% for the nine months ended September 30, 1998.
We anticipate that revenue from licenses of net.Analysis will continue to
represent a majority of our revenues in the future. We expect that because of
our small historical revenue base, the recent percentage growth rates of our
product revenue will not be sustainable in the future.
Service Revenue. Service revenue increased by $1.2 million, or 273%, to
$1.6 million for the nine months ended September 30, 1999 from $430,000 for the
nine months ended September 30, 1998. This growth was due primarily to expanded
service offerings and greater sales of maintenance contracts associated with
higher unit volume and dollar value of sales of net.Analysis licenses. We expect
that the recent percentage growth rates of our service revenue will not be
sustainable in the future.
28
<PAGE> 31
Cost of Product Revenue. Cost of product revenue consists primarily of
royalties associated with third-party software embedded in our software products
and software product costs, such as user manuals, packaging and media costs.
Cost of product revenue increased by $23,000, or 31%, to $99,000 for the nine
months ended September 30, 1999 from $76,000 for the nine months ended September
30, 1998. The increase was primarily attributable to higher volumes of product
shipped and related third-party royalties. Cost of product revenue as a
percentage of product revenue declined to 4% for the nine months ended September
30, 1999 from 14% for the nine months ended September 30, 1998. This decrease
was attributable to economies of scale realized as a result of shipping greater
quantities of product in the nine months ended September 30, 1999.
Cost of Service Revenue. Cost of service revenue consists primarily of
salaries, benefits and associated overhead costs of our professional services
organization. Cost of service revenue increased by $1.5 million, or 448%, to
$1.8 million for the nine months ended September 30, 1999 from $336,000 for the
nine months ended September 30, 1998. The increase was due primarily to an
increased number of personnel in our professional services organization. This
growth has required that we invest in hiring and training personnel and building
a management and operational infrastructure. This investment has resulted in the
cost of service revenue increasing as a percentage of service revenue. Cost of
service revenue as a percentage of service revenue increased to 115% for the
nine months ended September 30, 1999 from 78% for the nine months ended
September 30, 1998. We expect that in dollar amount our cost of service revenue
will continue to exceed our service revenue for at least the next several
quarters.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of personnel costs, including related overhead costs and commissions,
as well as travel and entertainment expenses, trade show and other promotional
expenses, advertising, and other marketing costs. Sales and marketing expenses
increased by $4.2 million, or 229%, to $6.1 million for the nine months ended
September 30, 1999 from $1.8 million for the nine months ended September 30,
1998. The increase was primarily due to increased personnel in our sales and
marketing departments, and increased marketing communications expenditures
associated with product introductions and efforts to create increased awareness
of our products and services. Sales and marketing expenses as a percentage of
total revenue declined to 157% for the nine months ended September 30, 1999 from
191% for the nine months ended September 30, 1998. We expect that sales and
marketing expenses will continue to increase in dollar amount to support
marketing programs for new product launches, promotion of awareness of our
corporate and brand names, international expansion and increased sales efforts.
Research and Development Expenses. Research and development expenses
consist primarily of salaries, benefits and related overhead costs attributable
to our research and development organization, as well as the cost of
consultants. Research and development expenses increased by $1.5 million, or
98%, to $3.0 million for the nine months ended September 30, 1999 from $1.5
million for the nine months ended September 30, 1998. The increase was primarily
attributable to increased staffing and associated support for software engineers
required to expand and enhance our product offerings. Research and development
expenditures are charged to operations as incurred. Research and development
expenses as a percentage of total revenue declined to 78% for the nine months
ended September 30, 1999 from 158% for the nine months ended September 30, 1998.
We believe that research and development expenses will continue to increase in
dollar amount as we add additional research and development personnel.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries, benefits and overhead costs associated with our
executive, finance, human resource, legal, accounting and internal information
system functions. General and administrative expenses increased by $1.3 million,
or 171%, to $2.0 million for the nine months ended September 30, 1999 from
$755,000 for the nine months ended September 30, 1998. The increase was
primarily the result of increased staffing and associated expenses necessary to
manage and support our growth. General and administrative expenses as a
percentage of total revenue declined to 53% for the nine months
29
<PAGE> 32
ended September 30, 1999 from 78% for the nine months ended September 30, 1998.
We expect that general and administrative expenses will continue to increase in
dollar amount as we expand our operations and infrastructure to support our
planned future growth and transition to operating as a public company.
Stock-based Compensation. We incurred stock-based compensation expense of
$272,000 for the nine months ended September 30, 1999. The expense includes
$155,000 related to extension of options in connection with employee severance.
It also includes $117,000 for amortization of the deferred expense attributable
to the issuance during 1999 of stock options with exercise prices less than the
amount subsequently determined to be the fair market value of the underlying
stock for financial reporting purposes on the date of grant. These options
generally vest over four years or less. The remaining deferred compensation
expense of approximately $3.8 million will be amortized over the remaining
vesting periods of the options, and will affect periods ending subsequent to
September 30, 1999.
Other Income (Loss). Other income (loss) consists of interest income,
interest expense, other income, loss on disposal of fixed assets and other
expenses. Other income (loss) decreased by $180,000 from income of $73,000 in
the nine months ended September 30, 1998 to a loss of $107,000 for the nine
months ended September 30, 1999 due to higher interest expense incurred on
larger average outstanding borrowings during the nine months ended September 30,
1999.
Comparison of 1997 and 1998
Total Revenue. Total revenue increased by $559,000, or 55%, to $1.6
million for 1998 from $1.0 million for 1997. Two customers, E*Trade and Bell
Atlantic, each accounted for more than 10% of our total revenue in 1998.
Product Revenue. Product revenue increased by $92,000, or 11%, to $937,000
for 1998 from $845,000 for 1997. The increase in product revenue was primarily
due to higher unit sales of net.Analysis as a result of increased market
awareness of our products, introductions of new features, increases in both the
size and productivity of our sales force, and also to increased average dollar
size of licenses. Product revenue as a percentage of total revenue declined to
60% for 1998 from 84% for 1997.
Service Revenue. Service revenue increased by $468,000, or 286%, to
$631,000 for 1998 from $164,000 for 1997. Service revenue as a percentage of
total revenue increased to 40% for 1998 from 16% for 1997. This growth was
primarily due to expanded service offerings.
Cost of Product Revenue. Cost of product revenue increased by $141,000, or
155%, to $232,000 for 1998 from $91,000 for 1997. The increase was attributable
to increases in product revenue and third-party royalties. Cost of product
revenue as a percentage of product revenue increased to 25% for 1998 from 11%
for 1997, primarily as a result of an increase in the cost of licenses of
third-party software that we resell as part of our solution.
Cost of Service Revenue. Cost of service revenue increased by $212,000, or
39%, to $761,000 for 1998 from $549,000 for 1997. The increase was principally a
result of an increase in the number of our professional services personnel. Cost
of service revenue as a percentage of service revenue declined to 121% for 1998
from 335% for 1997, primarily as a result of increased utilization of our
expanded professional services organization.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$1.8 million, or 140%, to $3.0 million for 1998 from $1.3 million for 1997. The
increase was due to increased headcount in our sales and marketing departments,
and increased marketing communications expenditures associated with our products
and services.
Research and Development Expenses. Research and development expenses
increased by $856,000, or 61%, to $2.3 million for 1998 from $1.4 million for
1997. The increase was primarily
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<PAGE> 33
related to increased staffing and associated support for software engineers
required to expand and enhance our product and services offerings.
General and Administrative Expenses. General and administrative expenses
increased by $409,000, or 55%, to $1.1 million for 1998 from $738,000 for 1997.
The increase was due to increased staffing and associated expenses necessary to
manage and support our growth.
Other Income (Loss). Other income (loss) increased by $171,000 from a loss
of $60,000 in 1997 to income of $111,000 in 1998. The increase was due primarily
to a loss of $101,000 recognized in 1997 on the disposal of fixed assets related
to a discontinued service offering.
Comparison of 1996 and 1997
Total Revenue. Total revenue increased by $426,000, or 73%, to $1.0
million for 1997 from $583,000 for 1996.
Product Revenue. Product revenue increased by $364,000, or 76%, to
$845,000 for 1997 from $481,000 for 1996. The increase in product revenue was
primarily due to higher unit sales of net.Analysis as a result of increased
market awareness of our products and introductions of new features. Product
revenue as a percentage of total revenue increased to 84% for 1997 from 83% for
1996.
Service Revenue. Service revenue increased by $62,000, or 61%, to $164,000
for 1997 from $102,000 for 1996. This growth was primarily due to greater sales
of maintenance contracts to customers associated with higher unit sales of
net.Analysis licenses.
Cost of Product Revenue. Cost of product revenue decreased by $14,000, or
13%, to $91,000 for 1997 from $105,000 for 1996. Cost of product revenue as a
percentage of product revenue declined to 11% for 1997 from 22% for 1996.
Cost of Service Revenue. Cost of service revenue increased by $430,000, or
362%, to $549,000 for 1997 from $119,000 for 1996. The increase was due
primarily to an increased number of personnel in our professional services
organization. Cost of service revenue as a percentage of service revenue
increased to 335% for 1997 from 117% for 1996, primarily as a result of growth
in the size of our customer support staff.
Sales and Marketing Expenses. Sales and marketing expenses decreased by
$292,000, or 19%, to $1.3 million for 1997 from $1.6 million for 1996. The
decrease was primarily due to decreased personnel in our sales and marketing
departments, and reduced marketing communications expenditures.
Research and Development Expenses. Research and development expenses
increased by $218,000, or 18%, to $1.4 million for 1997 from $1.2 million for
1996. The increase was primarily related to increased staffing and associated
support for software engineers required to expand and enhance our product and
service offerings.
General and Administrative Expenses. General and administrative expenses
increased by $357,000, or 94%, to $738,000 for 1997 from $381,000 for 1996. The
increase was due to increased staffing and associated expenses necessary to
manage and support our growth.
Other Income (Loss). Other income (loss) decreased by $231,000 from a gain
of $171,000 in 1996 to a loss of $60,000 in 1997. The decrease was due primarily
to a loss of $101,000 recognized in 1997 on the disposal of fixed assets related
to a discontinued service offering versus a gain of $112,000 recognized in 1996
on the sale of a product line.
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<PAGE> 34
Quarterly Results of Operations
The following tables present our unaudited quarterly results of operations
for the seven quarters ended September 30, 1999 both in dollar amount and as a
percentage of our total revenue. You should read the following table in
conjunction with our financial statements and related notes appearing elsewhere
in this prospectus. We have prepared this unaudited information on the same
basis as our audited financial statements. In the opinion of our management,
this information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of our operating results for the
quarters presented. You should not draw any conclusions about our future results
from the results of operations for any quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue................ $ 191 $ 156 $ 190 $ 400 $ 468 $ 676 $ 1,127
Service revenue................ 42 168 220 202 354 458 790
----- ------- ------- ------- ------- ------- -------
Total revenue.................... 233 324 410 602 822 1,134 1,917
----- ------- ------- ------- ------- ------- -------
Cost of revenue:
Cost of product revenue........ 23 25 28 156 31 43 25
Cost of service revenue........ 63 80 193 425 417 527 896
----- ------- ------- ------- ------- ------- -------
Total cost of revenue............ 86 105 221 581 448 570 921
----- ------- ------- ------- ------- ------- -------
Gross profit..................... 147 219 189 21 374 564 996
----- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............ 274 460 1,111 1,200 1,600 1,865 2,602
Research and development....... 340 495 694 739 789 981 1,257
General and administrative..... 182 306 267 392 497 499 1,051
Stock-based compensation....... -- -- -- -- 13 36 223
----- ------- ------- ------- ------- ------- -------
Total operating expenses:........ 796 1,261 2,072 2,331 2,899 3,381 5,133
----- ------- ------- ------- ------- ------- -------
Loss from operations............. (649) (1,042) (1,883) (2,310) (2,525) (2,817) (4,137)
----- ------- ------- ------- ------- ------- -------
Other income (loss).............. 8 5 61 38 (53) (71) 18
----- ------- ------- ------- ------- ------- -------
Net loss......................... $(641) $(1,037) $(1,822) $(2,272) $(2,578) $(2,888) $(4,119)
===== ======= ======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
(AS PERCENTAGES OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue................... 82.0% 48.2% 46.3% 66.5% 56.9% 59.6% 58.8%
Service revenue................... 18.0 51.8 53.7 33.5 43.1 40.4 41.2
------ ------ ------ ------ ------ ------ ------
Total revenue....................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------
Cost of revenue:
Cost of product revenue........... 9.8 7.7 6.8 26.0 3.7 3.8 1.3
Cost of service revenue........... 26.9 24.7 47.2 70.5 50.8 46.5 46.8
------ ------ ------ ------ ------ ------ ------
Total cost of revenue............... 36.7 32.4 54.0 96.5 54.5 50.3 48.1
------ ------ ------ ------ ------ ------ ------
Gross profit........................ 63.3 67.6 46.0 3.5 45.5 49.7 51.9
------ ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing............... 117.9 142.2 270.8 199.4 194.5 164.5 135.7
Research and development.......... 146.1 152.8 169.0 122.7 95.9 86.4 65.6
General and administrative........ 78.3 94.6 65.1 65.2 60.5 44.0 54.8
Stock-based compensation.......... -- -- -- -- 1.6 3.2 11.6
------ ------ ------ ------ ------ ------ ------
Total operating expenses:........... 342.3 389.6 504.9 387.3 352.5 298.1 267.7
------ ------ ------ ------ ------ ------ ------
Loss from operations................ (279.0) (322.0) (458.9) (383.8) (307.0) (248.4) (215.8)
Other income (loss)................. 3.5 1.4 14.7 6.2 (6.4) (6.3) .9
------ ------ ------ ------ ------ ------ ------
Net loss............................ (275.5)% (320.6)% (444.2)% (377.6)% (313.4)% (254.7)% (214.9)%
====== ====== ====== ====== ====== ====== ======
</TABLE>
We have experienced substantial fluctuations in our quarterly results of
operations and we expect those fluctuations to continue. We believe the
following factors are those most likely to cause our revenue and results of
operations to fluctuate:
- uncertain demand for our products and services
- unanticipated changes in the market for e-customer intelligence solutions
- the timing of sales and delivery of our products and services
- the timing of customer implementations of our products and utilization of
our professional services personnel
- the mix of revenue derived from products and services
- the timing of introductions of new products and services by us or our
competitors
- seasonal trends in our customers' business activity
- timing of hiring of personnel and changes in productivity of our
professional services personnel and direct sales personnel
For example, costs related to the hiring of our chief executive officer
during the three months ended June 30, 1998 substantially increased our general
and administrative expenses in the quarter. During the third and fourth quarters
of 1998, our cost of service revenue grew more rapidly than our service revenue,
due to increases in personnel and recruiting expenses related to our initiative
to increase the capacity of our professional services organization. Sales and
marketing expense grew more rapidly in the third quarter of 1998 than in
previous quarters due to a substantial increase in the number of our field sales
personnel, who typically require initial training and may take several months to
become fully productive. Our results of operations in the fourth quarter of 1998
were
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<PAGE> 36
also affected by higher than usual cost of product revenue, attributable to
license fees for third-party software purchased during the quarter for resale by
us as part of our net.Analysis solution.
We establish our expenditure levels for product development, sales and
marketing and other operating expenses based, in large part, on our expected
future revenue. Our expectations regarding future revenue may not be accurate.
As a result, if revenue falls below expectations, our operating results are
likely to be adversely and disproportionately affected because only a small
portion of our expenses vary with revenue. Due to the above factors and others
described in "Risk Factors," our operating results are difficult to forecast. We
believe that period to-period comparisons of our historical operating results
are not necessarily meaningful and should not be relied upon as an indication of
future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private sales of preferred stock, resulting in net proceeds of $35.0 million
through September 30, 1999. To a lesser extent, we have financed our operations
through debt and lease financing. As of September 30, 1999, we had $15.9 million
in cash and cash equivalents and $14.8 million in working capital.
As of September 30, 1999, we had cash and cash equivalents totaling $15.9
million, an increase from $2.3 million of cash and cash equivalents held as of
December 31, 1998. This increase resulted primarily from our sale of preferred
stock in June 1999, which provided net proceeds of $20.8 million, reduced by
cash used to fund operations and investing activities for the nine months ended
September 30, 1999.
Our operating activities resulted in net cash used of $2.4 million for
1996, $2.7 million for 1997, $5.1 million for 1998 and $8.4 million for the nine
months ended September 30, 1999, primarily due to operating losses.
Our investing activities resulted in net cash used of $2.3 million for the
nine months ended September 30, 1999, primarily due to capital expenditures. Our
investing activities resulted in net cash used of $2.5 million in 1996 and net
cash provided of $960,000 and $132,000 for 1997 and 1998, respectively.
Our financing activities resulted in net cash provided of $24.4 million for
the nine months ended September 30, 1999, primarily due to our sale of preferred
stock in June 1999. Our financing activities resulted in net cash provided of
$4.2 million for 1996, $1.3 million for 1997 and $7.0 million for 1998. Our
financing activities in these periods principally consisted of sales of
preferred stock and borrowings under a term loan agreement.
We have a subordinated debt agreement providing for term loans of up to
$4.0 million and an equipment line of credit of up to $1.0 million with
Comdisco, Inc. The term loans and the equipment line are payable in 36 monthly
payments and bear interest at rates of 13.5% and 9%, respectively. The term loan
agreement provides for a prepayment penalty of 1% to be charged upon repayment
within twelve months of the closing date of the loan. As of September 30, 1999,
we had $3.0 million and $425,000 outstanding under the term loan agreement and
equipment line, respectively. In order to make additional borrowings under these
loan arrangements, we must maintain certain financial covenants. We were in
compliance with these financial covenants as of September 30, 1999.
Capital expenditures totaled $493,000 for 1996, $111,000 for 1997, $776,000
for 1998 and $2.0 million for the nine months ended September 30, 1999. Our
capital expenditures consisted of purchases of property and equipment, including
computer equipment and software. We expect capital expenditures to increase for
the foreseeable future as we increase our number of employees, increase the size
of our operating facilities, and improve and expand our information systems.
Since inception, we have generally funded capital expenditures either through
the use of working capital or with equipment loans and lease financing.
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<PAGE> 37
As of December 31, 1998, we had net operating loss carryforwards of $10.7
million and research and development credit carryforwards of $315,000. The net
operating loss and credit carryforwards will expire at various dates through
2018, if not used. Under the provisions of the Internal Revenue Code,
substantial changes in our ownership may limit the amount of net operating loss
carryforwards that could be utilized annually in the future to offset taxable
income. We have established a full valuation allowance in our financial
statements to reflect the uncertainty of our ability to use available tax loss
carryforwards and other deferred tax assets.
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, as well as anticipated capital expenditures,
will constitute a material use of our cash resources. In addition, we may
utilize cash resources to fund acquisitions of, or investments in, complementary
products, services, businesses or technologies. We believe that the net proceeds
from the sale of common stock in this offering, together with our existing cash
and cash equivalents, will be sufficient to finance our operations through at
least the next 12 months. Thereafter, we may find it necessary to obtain
additional equity or debt financing. Any needed financing may not be available
to us on commercially reasonable terms, if at all.
YEAR 2000 READINESS
The "year 2000" issue refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results. Many currently installed computer systems and
software products were originally coded to accept only two-digit entries in the
date code field and cannot reliably distinguish dates beginning on January 1,
2000 from dates prior to the year 2000. Many companies' software and computer
systems may need to be upgraded or replaced in order to correctly process dates
beginning in 2000.
State of Readiness. Our business depends on the operation of numerous
systems that could potentially be affected by year 2000 related problems. Those
systems include, among others:
- hardware and software systems we use to deliver services to our
customers, including our proprietary software systems as well as hardware
and software supplied by third parties;
- communications networks, such as the Internet and private intranets,
which we depend on to communicate both internally and with our customers
and potential customers;
- the internal systems of our customers and suppliers;
- the hardware and software systems we use internally to manage our
business; and
- non-information technology systems and services we use in our business,
such as telephone systems and building systems.
With the assistance of an external consultant, we have conducted a review
of our internal operational systems as well as our software product and service
offerings to determine their year 2000 readiness. We have largely completed all
phases of our year 2000 assessment and remediation program, except for
contingency planning.
With regard to our software products and services, we have tested our
net.Analysis version 4.0 and later releases to determine whether our products
will function across dates of potential concern for software applications. Based
on the results of these tests, we have concluded that these releases of our
software are year 2000 compliant. Despite testing by us and by current and
potential clients, and assurances from developers of products incorporated into
our products, our products may contain undetected errors or defects associated
with year 2000 date functions. Known or unknown errors or defects in our
products could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, or increased service and warranty costs,
any of
35
<PAGE> 38
which could seriously harm our business. Some commentators have predicted
significant litigation regarding year 2000 compliance issues, and we are aware
of such lawsuits against other software vendors. Because of the unprecedented
nature of such litigation, it is uncertain whether or to what extent we may be
affected by it.
We have made available to our customers year 2000 compliant versions of
net.Analysis under the terms and conditions of our standard maintenance and
support agreements. We continue to respond to customer questions about prior
versions of our products on a case-by-case basis.
With regard to internal systems, we have primarily focused on information
technology systems that serve critical operational, financial, administrative
and customer support functions. Our evaluation and remediation of year 2000
issues have centered on ensuring that we are operating on manufacturer-provided
software and system updates that the manufacturers have identified either
directly to us or generally through product literature as being year 2000 ready.
We have not undertaken audits and tests of those systems to ensure year 2000
readiness because vendors for these systems have made written representations
either directly to us or through product literature that their systems are year
2000 compliant. If our vendors do not provide us adequate assurance of the year
2000 readiness of their systems, we intend where possible to identify other
vendors offering comparative product offerings who can provide us such
assurances. As a result, some of these systems may, either independently or in
combination with other systems, become affected by the year 2000 date change. In
addition, we are aware of a number of non-critical software products we use
internally in everyday operations which are not expected to be year 2000
certified by their manufacturers. These systems are generally off-the-shelf
software products that we believe are replaceable without material effect on the
company if they prove to be defective in the year 2000. Further, we have not
initiated and do not plan to initiate a review of our non-information technology
systems that we believe are not critical.
Costs. To date, we have not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. Most of
our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and year 2000 compliance matters generally. While we have not completed
all of our year 2000 readiness efforts, based on our assessment to date of year
2000 readiness of systems critical to our business operations, we do not
anticipate that we will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with year 2000 compliance. If expenses relating to year 2000
compliance are higher than anticipated, it could seriously harm us.
Risks. We are not currently aware of any year 2000 compliance problems
relating to our software solutions that would seriously harm us. However, we
cannot assure you that we will not discover year 2000 compliance problems that
will require substantial expenditures to correct. In addition, clients use our
software products in numerous and varied computing environments and in
combination with numerous other software products. We have not undertaken a
study of our customers' year 2000 readiness nor have we undertaken a study of
the environments in which our software may be deployed. There can be no
assurance that our testing procedures are adequate to identify all potential
year 2000 issues.
Furthermore, our success may depend on our customers' success in
identifying and managing year 2000 issues in a timely manner. We expect that in
general, many of our larger clients will restrict or eliminate software system
purchasing decisions in the first quarter of 2000 in order to gain system
stability for the year 2000 date change. Depending on the success of our
customers in identifying and mitigating their year 2000 issues, significant
remediation of year 2000 issues may be required in the first quarter of 2000.
This may have the result of significantly reducing new contract sales
opportunities in the first quarter of 2000 and may deter customers from
continuing to install software previously acquired from us. This may cause us
serious harm.
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<PAGE> 39
Contingency Plan. We have not developed a contingency plan. The results of
our year 2000 testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans. Our business and financial condition could be
seriously harmed in the event of unanticipated year 2000 related problems.
RECENTLY ENACTED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Because we do not currently hold any derivative instruments and
do not currently engage in hedging activities, we expect the adoption of SFAS
No. 133 will not have a material impact on our financial position or operating
results.
DISCLOSURES ABOUT MARKET RISK
Based on the nature and current levels of our investments, we have
concluded that we have no material market risk exposure.
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<PAGE> 40
BUSINESS
net.Genesis offers e-customer intelligence solutions that enable companies
to understand and improve their online businesses. The Company's flagship
software product, net.Analysis, combines information about web site visitor
behavior with an organization's other online and offline customer data to
improve its ability to market, sell and support products, services and content
online. The Company's solution enables customers to better tailor and target
their marketing initiatives, increase the e-commerce effectiveness of their web
sites, provide more relevant and cost-effective content, improve web site
design, better allocate advertising and partnership resources, and improve web
site infrastructure planning.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet has emerged as a global medium that allows millions of people
to obtain information, communicate and conduct business. As Internet usage has
grown, companies have increasingly come to rely on both web sites and private
intranets as important business channels. Through the Internet, a company can
establish and maintain large numbers of direct relationships while avoiding many
traditional investments in business infrastructure, such as retail outlets,
distribution networks and sales personnel. Both traditional and Internet-based
companies use the Internet to communicate marketing and other information to
current and potential customers and to manage relationships with vendors,
business partners, employees and others. Increasingly, companies are using the
Internet to generate revenue through the sale of goods and services or the sale
of advertising. In October 1999, International Data Corporation estimated that
revenue from Internet commerce would increase from approximately $50 billion in
1998 to approximately $1.3 trillion in 2003.
Increasing Investments in Web Site Infrastructure
As use of the Internet increased and businesses became aware of its
potential, both traditional and Internet-based companies began to invest more
heavily in the development, design and support of their web sites. Early web
sites began merely as efforts to build corporate brand identity and contained
little more than general corporate and marketing information. Many companies
have now enhanced the content and features of their web sites, not only to
attract and retain customers, but also to better serve their customers' needs.
For example, companies focused on electronic commerce, or e-commerce, have spent
significant funds to purchase a variety of advanced third-party software
applications to ensure that customers have a satisfying online experience. These
include software applications to serve visitors an enormous variety and number
of web pages, present multimedia content and banner advertisements, and process
orders securely and fulfill them reliably. In April 1999, International Data
Corporation estimated that spending on Internet commerce software applications
would grow from approximately $444 million in 1998 to approximately $13.1
billion in 2003, a compound annual growth rate of 97%.
Continued competition among e-commerce businesses for online customers has
also contributed to the trend toward increased web site functionality. For
example, to attract and retain customers and build long-term customer loyalty,
many companies are now seeking to provide more personalized service to their
online customers. Numerous software applications now enable companies to
customize or personalize their web sites based on customers' stated or implied
preferences, as well as their demographic and behavioral profiles, previous
purchasing history or other offline relationships with the company.
To support this high level of functionality, companies must often manage
large databases and integrate specialized web applications with offline
applications and databases, including their transaction processing, financial
accounting and customer relationship management systems. As a result, many web
sites have become complex systems comprised of multiple, geographically
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<PAGE> 41
dispersed servers running a variety of software applications and managing
extremely large volumes of online visitor traffic.
The E-Customer Intelligence Opportunity
As companies have increased investments in their web sites and as those
sites have become more important to their overall business operations, they have
begun to devote more attention to establishing and achieving specific business
goals for their web initiatives. For many companies, the principal objectives of
their web sites are to better attract, serve and retain customers and more
effectively conduct e-commerce with them. Companies have also begun to evaluate
whether they have allocated their resources wisely among their various web
investments, such as online marketing campaigns, web site content, advertising
and other promotional sponsorships, and information technology infrastructure.
To achieve these objectives, companies must understand the needs and behavior of
their online customers as well as the specific costs and benefits of each of
their web initiatives. Complicating matters, companies often desire to analyze
and understand their online customers in relation to their traditional offline
businesses.
To gain an understanding of their online customers, or e-customers,
companies often initially purchase inexpensive web site statistics reporting
software. These solutions generally provide basic information on web site
traffic, but do not answer many of the detailed questions that business
professionals have about customer behavior and patterns over time. Marketing
executives and information technology professionals need answers to critical
questions, such as:
- where do our online customers come from? which banner ad placements,
affiliates and other online sponsorships generate the most visitors and
customers for our web site? where are the best sources for new customers?
- how do customers typically navigate our web site? how can we make our web
site easier to use and more effective at selling our products and
services? which pages do our best customers visit most often before
making a purchase on our site?
- what are the profiles of our best customer segments? how do their web
site behavior and other characteristics differ from visitors who do not
make purchases?
- are our existing offline customers using the online channel? which ones?
how?
- which web pages do visitors view the most often? is the content we are
providing in these web pages cost-effective?
- how are our employees using our intranet? what content do they seek most
often? how can we deliver information to our employees more effectively
and reduce our support costs?
- can our suppliers easily transact business with us from our web site?
- from which page do most visitors leave our web site? is there a problem
with that page? to which web sites do they go?
- does our information technology infrastructure have sufficient capacity?
what are the most common failures? what infrastructure requirements do we
anticipate based on our online visitor activity?
To answer these questions and develop actionable business plans, companies
need an easy-to-use system that gathers comprehensive intelligence about online
customers and their behavior. Businesses also need professional consulting
services to help them identify the customer intelligence they can use to take
full advantage of their online business opportunities. They need highly
functional analytical solutions and robust, interactive reporting capabilities
that will help marketing and information technology personnel understand and
draw conclusions from this customer intelligence. They need analysis that they
can readily put into action in the form of improvements to their web sites and
other online and offline marketing initiatives, and they need to
39
<PAGE> 42
be able to evaluate the effectiveness of those initiatives. Most companies also
require an open, scalable system that can function with other third-party
applications in complex web environments receiving millions of hits per day and
that can integrate with their existing customer information systems to provide a
comprehensive view of their customer base.
THE NET.GENESIS SOLUTION
We offer an e-customer intelligence solution that allows companies to
collect comprehensive data about visitor activity on their web sites and
provides powerful analytical and reporting capabilities to enable them to
understand, analyze and measurably improve their online businesses. Our
professional services organization helps companies identify relevant performance
measures for their online businesses, or e-metrics, that they can use to make
better decisions about their web initiatives. Our solution provides our
customers with the following benefits:
Comprehensive Customer Information. Through net.Analysis, organizations
can track visitor activity on their web sites and combine this information with
data gathered from their other web applications and offline customer information
systems. net.Analysis collects near real-time and historical information about
web site visitor activity, down to the level of each individual mouse-click.
With its net.Instrument architecture, net.Analysis enables an organization to
correlate this online customer behavior with information from third-party web
applications and databases, as well as with offline customer information, such
as transaction histories, call center logs, customer profiles and marketing
campaign data. This integrated database provides organizations with a
comprehensive view of their online customers, and grows more valuable over time
as it accumulates increasingly detailed information about the organization's
customers and their characteristics, preferences and behavior.
Powerful Analytical Applications. net.Analysis provides powerful
analytical capabilities and flexible reporting options designed to serve the
business needs of different constituencies within an organization. These
analytical applications help companies identify trends in customer behavior and
purchasing patterns and thereby assess and improve the effectiveness of their
marketing, advertising and e-commerce initiatives. Marketing executives,
information technology professionals and other managers can select the data they
wish to analyze, apply filters that refine the data and navigate through the
data to identify unusual patterns and significant trends. net.Analysis'
interactive data navigation capabilities provides high levels of detail,
enabling users to comprehensively analyze the data, or drill down, to a level as
specific as individual customers' paths through a web site, or clickstreams, or
their demographic profiles. For example, users can correlate specific marketing
campaigns with customer purchases to determine whether the campaign was
effective in increasing sales. Users can also match this data with customer
profiles to identify the customer segments that responded best to the marketing
campaign. With this information, companies can better tailor their web sites,
marketing campaigns and e-commerce initiatives to meet the needs of their online
customers. net.Analysis also serves as a platform on which we, our solution
providers and our customers can build additional analytical applications. For
example, we recently introduced CartSmarts, an add-on application to
net.Analysis that helps e-commerce companies better understand customers' online
shopping behavior.
Open and Extensible Architecture. net.Analysis has an open and extensible
architecture, meaning that it is designed for integration with third-party
software applications and databases. net.Analysis also supports multiple
operating platforms, including Microsoft Windows NT and Unix, from a common base
of software code. net.Analysis' open architecture makes it easier for
organizations to gather information from a broad range of data sources and
facilitates the incorporation of net.Analysis into complex web sites. This
flexible architecture makes our solution attractive to companies seeking an
e-customer intelligence solution that will integrate with their other web
applications and existing offline systems. In addition, third parties may seek
to build add-on applications or include the capabilities of net.Analysis in
systems or services that they offer to their customers. For example, other
software companies may seek to enter original equipment
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manufacturer agreements with us and incorporate net.Analysis in a suite of
integrated software applications. Similarly, application service providers, or
companies that offer the usage of software as a service to their customers, may
seek to license net.Analysis to provide advanced e-customer intelligence
services to companies that do not independently license net.Analysis.
Highly Scalable and Reliable Solution in Complex Environments. Because our
target market includes some of the busiest web sites on the Internet, we have
designed net.Analysis to be scalable and reliable enough to be effective in
complex web site environments managing tens of millions to over 100 million hits
per day. Its architecture uses high-speed, near real-time data collection
techniques and intelligent data aggregation algorithms to maintain performance
speed, even when used to analyze data from large sites hosted on multiple,
geographically dispersed servers. One key to our product's scalability is the
method by which the application collects, aggregates and stores data to maximize
performance speed while preserving our product's ability to drill down deeply
into the data. In addition, because net.Analysis frequently operates in complex,
integrated web environments where one or more software applications may fail, we
have built into net.Analysis backup, recovery and alert mechanisms to maintain
data and analytic integrity during failures and ensure its reliability as a
business-critical application.
Strategic E-Customer Intelligence Services. We provide professional
consulting services to help organizations understand the depth of critical
business information that net.Analysis can gather from customer activity on
their web sites. In addition to product installation and configuration,
application integration and training services, we provide advanced analytic
consulting services to assist organizations in understanding their business
needs, developing e-metrics that are relevant to their businesses and designing
web site modifications and developing customized analyses and reports to address
their particular requirements. We have also developed a formalized web site
analysis methodology, Design for Analysis, that assists customers in designing
or redesigning their web sites in ways that will facilitate analysis and
reporting of their online businesses. Our professional services organization
also helps companies plan cost-effective e-customer intelligence strategies by,
for example, evaluating trade-offs between the value of storing massive
quantities of data and the hardware, software and organizational costs
associated with that storage.
We believe that, by helping organizations better understand, segment and
target their online business activities to their customer base and improve the
effectiveness of their web sites, our e-customer intelligence solution enables
organizations to:
- attract customers and increase online commerce revenue
- improve customer satisfaction, retention and loyalty
- maximize the lifetime value of customer relationships
- increase the return on their spending on their web site initiatives
We believe our e-customer intelligence solution enables our customers to achieve
significant benefits in the following areas:
- better tailored and targeted marketing initiatives. net.Analysis
provides rich behavioral profiles of online visitor segments, enabling
marketing professionals to tailor online and offline marketing
initiatives such as online promotions, e-mail campaigns, direct mail and
other promotional efforts.
- improved e-commerce effectiveness. With net.Analysis, companies can
understand the web usage behavior and purchasing patterns of their best
online customers and target their content, features and online marketing
campaigns to those customers and prospects that resemble those customers.
Also, companies can understand which marketing campaigns are ineffective
and find ways to improve them.
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<PAGE> 44
- more relevant and cost-effective content. net.Analysis gives online
business managers information they can use to improve the content of
their web sites and intranets by expanding coverage of popular subject
matters and de-emphasizing products, services and content that users
rarely request. Content managers can also assess the level of interest in
particular content and determine whether that content is cost-effective.
- better web site design. By helping web site designers understand how
users navigate through a web site to reach the content they seek,
net.Analysis enables designers to shorten the path to the most popular
content and develop a more intuitive web site layout for both new and
experienced users.
- improved allocation of advertising and partnership resources. By
enabling companies to trace each step of every visitor's path from
arrival at the web site to departure, net.Analysis helps companies
identify which online advertisements or promotional sponsorships were
most effective at achieving specific business goals, such as registering
new users or increasing sales of particular products.
- better web site infrastructure planning. net.Analysis enables companies
to better measure how their web sites perform under varying traffic loads
and with different end-user access technologies. With this type of
information, companies can better plan investments in building additional
capacity and improving interfaces with new user technology.
STRATEGY
Our objective is to be the leading provider of e-customer intelligence
software and services. Our strategy to achieve this objective includes the
following elements:
Extend Leadership Position in E-Customer Intelligence Solutions. We intend
to continue to devote significant resources to the development of leading
e-customer intelligence solutions for complex, high-traffic web environments. We
began developing our core technology in 1994, when few companies had a
commercial presence on the web, and have continued to build our expertise in
developing highly functional, scalable and reliable e-customer intelligence
solutions. We intend to continue to enhance net.Analysis' data collection,
analytical and reporting functions to provide a more comprehensive view of
online customer relationships and to integrate with leading online commerce
applications and third-party offline data sources. We also intend to equip
marketing and executive personnel with additional customer analysis,
segmentation and predictive modeling applications. For example, we recently
introduced CartSmarts, an add-on application to net.Analysis that helps
e-commerce companies better understand customers' online shopping behavior. We
also recently announced our net.Activator product development initiative, which
is intended to allow our customers to use the information gathered through
net.Analysis as direct input to other software applications such as applications
for direct e-mail marketing campaigns and ad targeting.
Expand Sales and Distribution Channels. We believe the market for
e-customer intelligence solutions is only beginning to emerge in the United
States and is even less developed outside the United States. We intend to
significantly expand our direct sales force in the United States and in selected
locations in Europe and Asia to enhance our long-term competitive position. We
also plan to develop relationships with additional systems integrators, original
equipment manufacturers, resellers and application service providers in the
United States and abroad to augment the efforts of our direct sales force. In
particular, our business development organization is focused on establishing
relationships with systems integrators to take advantage of their substantial
service and distribution capabilities. We intend to continue to train selected
system integrators to provide the full range of our professional services
directly to customers. In addition, we may begin to use, or license application
service providers to use, net.Analysis to offer e-customer intelligence services
on a subscription basis to e-commerce sites that do not independently license
net.Analysis.
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Deepen Penetration into Installed Base of Customers. As of December 15,
1999, we had an installed base of more than 200 customers in a broad range of
industries. Many of our customers purchase additional products and services from
us after the initial installation of net.Analysis. For example, in 1998, we
derived approximately 48% of our total revenue from sales of products and
services to customers that had made purchases from us before 1998. We believe
several trends will create additional opportunities to market our products and
services to our existing customers, including the intensifying competition among
web sites for visitor attention, enhanced web site functionality, better
integration of web sites with existing business systems, growing internal
pressures to demonstrate the value of investments in web sites, and demand for
professional consulting services in developing e-metrics. Moreover, as we
develop new applications or product enhancements, we believe our existing
customer base will be a significant market opportunity for those products and
related services.
Expand Strategic Technology Relationships. We believe that an extensive
network of strategic technology alliances will enhance the attractiveness of our
solution and provide additional marketing and distribution channels. We have
established strategic relationships with a number of companies to offer a
solution that integrates with other technologies important to our customers'
online business initiatives. For example, we have developed relationships with
DoubleClick, IBM, Net Perceptions and Vignette to ensure that our products
integrate with each other or to conduct co-marketing or co-selling activities.
In addition, we intend to expand the distribution of our software by licensing
net.Analysis for incorporation into other web applications. We intend to build
upon our existing relationships and establish additional strategic technology
relationships with leading online commerce software providers to enhance the
value of our solution.
Expand Professional Services Capabilities. We believe there are
significant opportunities to expand our consulting services, particularly our
strategic analytic consulting services. We intend to significantly expand our
professional services capabilities to enable us to assist customers in
developing and measuring e-metrics that are relevant to their businesses and in
addressing key business issues associated with implementing large-scale,
strategically important online businesses. In addition, we believe that further
developing our professional services capabilities will allow us to develop close
customer relationships that may lead to additional sales and product development
opportunities.
Pursue Strategic Acquisitions. We intend to pursue acquisitions of
products, services and technologies that complement our existing business.
Although we have no present commitments or agreements regarding any
acquisitions, we believe that numerous acquisition candidates could enhance our
e-customer intelligence capabilities.
PRODUCTS AND SERVICES
We offer a highly scalable, reliable and functional e-customer intelligence
solution for high-traffic e-commerce web sites and other complex web
environments. Our core product, net.Analysis, is a highly functional software
application that gathers information about web site visitor activity through a
variety of data collection techniques and data sources and provides powerful
analytical capabilities for understanding and using that data to measurably
improve online businesses. We currently offer our net.Analysis software
application and a complementary application for analyzing online shopping
behavior, as well as a variety of strategic analytic consulting services,
implementation consulting services and other services.
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The following table briefly describes our product and services offerings,
their principal features and benefits, and their pricing structure.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRICING STRUCTURE/
OFFERING DESCRIPTION AND BENEFITS PLATFORMS SUPPORTED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
NET.ANALYSIS APPLICATION
- ---------------------------------------------------------------------------------------------------
net.Analysis 4.5 A software application that collects Pricing varies based on the
and stores web site and e-customer platform supported and increases
(released October 1999) data, integrates offline customer according to the number of managed
information and enables businesses to servers in the customer's
analyze this information to improve environment. Available for the
their ability to market, sell and following platforms:
support products, services and -- Microsoft Windows NT
content online -- Sun Solaris
-- IBM AIX (available for
net.Analysis 4.0)
- ---------------------------------------------------------------------------------------------------
net.Stream A high-performance data importing Included in net.Analysis 4.5
architecture that enables reporting
and analysis of near real-time and
historical web site data from
multiple sources, such as web server
log files, network packet sniffers
and web server plug-ins
- ---------------------------------------------------------------------------------------------------
net.Instrument Advanced integration architecture for Included in net.Analysis 4.5.
combining and correlating online Support for the following
visitor behavior with data from third-party applications are
online and offline third-party available at additional cost:
applications and customer data -- DoubleClick AdServer
sources -- IBM Net.Commerce
-- Net Perceptions Recommendation
Engine
-- Vignette StoryServer
- ---------------------------------------------------------------------------------------------------
net.Analysis DataStore A repository for e-customer data. The Included in net.Analysis 4.5.
DataStore schema stores complete web Supports the following relational
site behavior and other customer data databases:
as well as summarized aggregates of -- Oracle
this data -- Microsoft SQL Server
-- Sybase
-- Informix (available for
net.Analysis 4.0)
- ---------------------------------------------------------------------------------------------------
Reporting Capabilities
net.Reporter Software that resides on individual Priced according to the number of
end-users' computers to access end users. net.Analysis includes a
net.Analysis and enable easy, single end-user license for
in-depth, customizable analysis and net.Reporter. Also supports
reporting. Features over 150 standard Microsoft Windows 95/98
reports as well as the ability to
build custom reports
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRICING STRUCTURE/
OFFERING DESCRIPTION AND BENEFITS PLATFORMS SUPPORTED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
HTML Reporter Allows end users to generate pre- Priced according to the number of
defined reports through a browser- end users. net.Analysis includes a
based interface single end-user license for HTML
Reporter.
ReportSite A pre-built intranet site that uses net.Analysis includes a single
a simple, calendar-based interface end-user license for ReportSite
to provide access to automatically
published net.Analysis reports
net.Dashboard A customizable extension to Priced on a project basis
net.Reporter. This Java-based
interface allows users to create a
personalized view of high-level,
near real-time e-metrics of web site
activity
- ---------------------------------------------------------------------------------------------------
Administrator Console A browser-based interface for Included in net.Analysis 4.5
configuring and managing
net.Analysis users, data files and
automating report distribution
- ---------------------------------------------------------------------------------------------------
ADD-ON APPLICATION TO NET.ANALYSIS
- ---------------------------------------------------------------------------------------------------
CartSmarts 1.0 Provides online shopping analysis Priced separately from net.Analysis
and reporting capabilities. Features 4.5 and increases according to the
(released more than 40 pre-defined reports and number of managed web servers in the
October 1999) data filters specifically for customer's environment
evaluating shopping behavior as
customers progress through the
purchase process
- ---------------------------------------------------------------------------------------------------
PROFESSIONAL SERVICES
- ---------------------------------------------------------------------------------------------------
Strategic Analytic
Consulting Services Marketed primarily to customers that Billed primarily on a time-
operate complex, high-traffic web and-materials basis
sites and those managing
sophisticated online businesses.
Features our Design for Analysis
methodology that advises customers
how to design web sites that
facilitate analysis and reporting of
their online businesses
- ---------------------------------------------------------------------------------------------------
Product Implementation
Services A variety of consulting services, FastPath is billed on a fixed- price
including FastPath product basis; other implementation services
implementation and application are billed primarily on a time-
integration and-materials basis
- ---------------------------------------------------------------------------------------------------
Training Services Instruction for customers and Billed by training course, according
solution providers in the use and to the number of attendees
implementation of net.Analysis and
the integration of net.Analysis with
other data sources and applications
- ---------------------------------------------------------------------------------------------------
</TABLE>
SOFTWARE PRODUCTS
net.Analysis 4.5. Our principal software product, net.Analysis, collects
and analyzes valuable information about the behavior of visitors to the user's
web site, such as which web sites the
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visitors came from, what behavior they demonstrated on the site, how much time
they spent in various sections of the site, whether or not they made purchases,
and other clickstream patterns. net.Analysis can then correlate this data with
the organization's other online and offline business information to develop a
comprehensive view of its online customers. With this information asset,
business managers can more effectively target and tailor their web-based
advertising, marketing campaigns and promotional activities to particular
customer segments. By giving business managers information and analytical
capabilities to evaluate and monitor the effectiveness of these initiatives,
net.Analysis also allows them to improve their web site design and the return on
their web site investments.
We have designed net.Analysis to support the large and complex web server
configurations common to high-traffic web sites. net.Analysis directly supports
the most popular relational databases and enables fast data import and
processing. We currently offer versions of net.Analysis for three popular
operating systems: Microsoft Windows NT, Sun Solaris and IBM AIX. We introduced
our first version of net.Analysis in January 1996 and released version 4.5, the
latest version, in October 1999.
The net.Analysis application includes the following modules:
net.Stream. net.Stream is a high-performance data importing architecture
for collecting continuous streams of data regarding web site activity.
net.Stream enables the user to collect data from multiple sources, such as files
of web server transaction logs, or log files, network packet sniffers, which
analyze packets of data as they pass over the network, and web server plug-ins,
which are software modules that extend the standard information logged by the
web server. With net.Stream, business and technical managers have access to a
mix of near real-time and historical data reports to support both tactical and
strategic decision-making. At the option of the user, net.Stream can summarize
and store detailed clickstream data into aggregates, which can improve the
overall response time for targeted queries of the database during an analysis.
net.Instrument. net.Instrument is an advanced integration application for
combining and correlating online visitor behavior data with business data from
other sources. net.Instrument enables the user to discover meaningful business
trends by integrating and analyzing information from third-party web
applications and from traditional offline databases, such as product and
customer databases. Through net.Instrument, net.Analysis provides a complete
view of the online customer in the context of the overall business, and can
offer drill-down and data correlation reports for all of the organization's
information on its e-customers. net.Instrument also establishes a platform on
which users can develop new modules to take advantage of information and
technology provided by their strategic partners. For example, PixelPark, one of
our solution providers, has used net.Instrument to integrate net.Analysis with
Intershop's commerce server, called Enfinity, to provide a broader view of
online visitors and their transactional behavior as a value-added offering.
net.Analysis DataStore. With net.Analysis, a company can compile a vast
database of e-customer information, including both online and offline
information, which can become a valuable information asset. The net.Analysis
DataStore has both a transactional schema, designed for loading large amounts of
data on a consistent basis, and a constellation schema, designed to facilitate
rapid, ad hoc, interactive analysis. The net.Analysis DataStore contains both
complete transaction data as well as summarized aggregates of data. This design
facilitates both quick analysis of high-level questions and more thorough
analysis of questions that require a fine level of detail. Through
net.Instrument's integration capabilities, a company can also correlate web site
activity data in the net.Analysis DataStore with customer information compiled
in other databases. This information can include data from third-party web
applications and from offline sources, such as transaction histories, customer
profiles and marketing campaign data. Once information has been stored or
correlated in the net.Analysis DataStore, the customer can apply all of
net.Analysis' analytical tools and reporting capabilities to that information to
better understand and use the data to improve business decisions.
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Reporting Capabilities. net.Analysis' reporting modules include
net.Reporter, HTML Reporter, ReportSite and net.Dashboard. net.Reporter is a
software application that resides on the end-users' computers and serves as the
principal desktop interface for net.Analysis. From net.Reporter, end users
perform in-depth, ad hoc analysis of the characteristics of e-customers and
their web site activity. net.Reporter includes point-and-click wizards to help
create sophisticated, customized reports, filters that allow users to focus on
unique aspects of e-customer intelligence, and drill-down capabilities that
permit users to probe anomalies and identify trends important to their business
activities. net.Reporter provides over 150 pre-defined reports, report wizards
and data analysis filters. HTML Reporter allows users to generate pre-defined
reports through a browser-based interface. ReportSite is a pre-built intranet
site that uses a simple, calendar-based interface to provide access to
automatically published net.Analysis reports. net.Dashboard is a Java-based
desktop interface that enables a personalized view of near real-time web site
activity data. This fully customizable extension to net.Reporter presents
e-metrics for managers across the enterprise.
These reporting modules enable an organization to produce a wide variety of
pre-defined or customized reports with varying levels of detail to satisfy the
wide-ranging web site analysis needs of individuals throughout the organization.
Frequently used reports include:
- Top Content Pages
- Top Authors
- Top Advertisers by Impressions
- Top Advertisers by Clickthrough
- Top Pages by Time Spent
- Clickstream Path Report
- Top Referring Web Sites
- Visit Recency and Frequency (CartSmarts)
- Purchase Recency and Frequency (CartSmarts)
- Repeat Customers (CartSmarts)
Administrator Console. net.Analysis' Administrator Console is a
browser-based administrative interface through which our customer can automate
and refine the web site analysis reporting process, from data collection to
report production and distribution. Our customer's net.Analysis administrator
can configure and manage net.Analysis data files, and can automate data
retrieval, importing, compression and storage on an hourly, daily, weekly or
monthly basis. Other data parameters can also be adjusted based on the needs of
the customer's business. For example, the Administrator Console permits the
administrator to adjust data collection parameters to collect all available data
or to sample the data.
Licensing and Pricing. We license net.Analysis according to the number of
managed servers and according to the number of end users of net.Analysis'
reporting capabilities. Each net.Analysis license includes the net.Analysis
application and a single end-user license for net.Reporter, HTML Reporter and
ReportSite. Every license also includes maintenance and support for twelve
months. Pricing for net.Analysis varies according to the platform for which it
is purchased. Pricing for additional end-user access to net.Reporter, HTML
Reporter and ReportSite increases according to the number of end users in the
customer's organization. The price of an entry-level system, including software
and related professional services, ranges from approximately $50,000 to
$100,000. We offer annual maintenance and support renewals for a fee based on a
percentage of the then-current list price of the installed applications. We
offer premium and customer support services for additional fees.
ADD-ON APPLICATION TO NET.ANALYSIS
CartSmarts. CartSmarts provides online shopping analysis and reporting.
CartSmarts includes more than 40 pre-defined reports and filters specifically
for evaluating shopping behavior as
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customers progress through the purchase process. These specialized online
shopping reports include the following:
- Purchase Path Report, which enables businesses to understand how visitors
progress through or abandon each stage of the purchase process
- Shopping Cart Activity Report, which enables businesses to understand how
their customers use shopping carts, why they may abandon them at specific
stages of the purchase process, and which purchases they complete
- Acquisition Source Report, which enables users to understand which sites
refer the best potential customers
PROFESSIONAL SERVICES
We offer a range of professional services, including strategic analytic
consulting, product implementation, application integration, training programs
and technical support. We began to expand our professional services organization
significantly in 1998 and intend to continue to hire additional employees for
this department. We price our professional services primarily on a time-
and-materials basis and to a lesser extent on a fixed-price basis.
Strategic Analytic Consulting Services. We offer strategic analytic
consulting services primarily to customers that operate complex, high-traffic
web sites and customers that are developing or managing sophisticated online
businesses. We provide advanced consulting services to assist organizations in
understanding their business needs, developing e-metrics, and designing web site
modifications and developing customized analyses and reports to address their
particular requirements. We have also developed a formalized web site analysis
methodology, Design for Analysis, that assists customers in designing or
redesigning their web sites in ways that facilitate analysis and reporting of
their online businesses. Our professional service organization also helps
customers to plan cost-effective e-customer intelligence strategies by, for
example, evaluating trade-offs between the value of storing massive quantities
of data and the hardware, software and organizational costs associated with that
storage. We also assist customers in interpreting their data, identifying trends
and designing appropriate action plans.
Product Implementation and Application Integration Services. We offer a
variety of product implementation consulting services, including FastPath.
FastPath services enable a customer to rapidly begin using net.Analysis and
includes an assessment of the customer's needs, product installation and
configuration, and introductory training. Application integration consulting
covers a broad array of services, including customization of net.Analysis
reports, integration with third-party web and offline applications and
databases, and the development of special software for unique customer
situations. On a limited basis, we have also provided for a fee ongoing data
management, analysis and reporting remotely from our offices.
Training Programs. Through our training programs, we help customers use
our products effectively and achieve their online business goals. We provide
instruction in the development, use and administration of net.Analysis to
marketing, business analysis, web site design and information technology
professionals and other end users. We offer courses at our training facilities
as well as at customers' locations. We also work closely with our solution
providers to train them in the use and extension of net.Analysis so they can
independently deliver professional services relating to net.Analysis.
Technical Support Services. Basic technical support services includes
product maintenance and phone, e-mail and web site support. For an additional
fee, we also offer premium and custom support services for customers with
special support needs.
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PRODUCT DEVELOPMENT
Since 1996, the majority of our research and development activities have
been directed towards creating new versions of our net Analysis product to
extend and enhance its features, particularly its scalability, its ability to
integrate with other online and offline software applications and databases, and
its analytic capabilities. We intend to continue our investments in these areas
as well as in certain add-on technologies and applications, such as
net.Activator, a recently announced product development initiative. With
net.Activator, we intend to introduce an add-on application that will permit
organizations to use the information collected by net.Analysis as direct input
to other software applications, such as applications for direct marketing
campaigns and ad targeting.
We have invested significant resources in developing an open and extensible
architecture to comply with widely accepted commercial software industry
standards for building large-scale Internet applications. We develop most of our
software in C++ and Java, two widely accepted programming languages for
application development. In addition, net.Analysis meets ABC Interactive's
standards for accuracy for independent verification of online visitor
information. Adherence to industry standards provides compatibility with
existing applications, simplifies the modification of our software, and reduces
the customer's need to purchase new software.
We have focused our product development efforts in particular on developing
our software architecture to comply with eXtensible Markup Language, or XML, a
recently adopted standard for data representation and processing. We are also
actively developing and promoting a new initiative, known as Customer Profile
Exchange, or CPEX, a global standard for privacy-enabled customer data
interchange. Because we expect that the XML and CPEX standards will be widely
adopted in our industry, we believe that our initiatives with regard to these
standards will allow us to further our technology leadership position.
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CUSTOMERS
We sell our products primarily to medium and large-sized companies with
significant investments in complex, high-traffic commercial web sites. As of
December 15, 1999, our customers included the following companies, each of which
has accounted for at least $15,000 of our total revenue recognized since January
1, 1998:
<TABLE>
<S> <C> <C>
TECHNOLOGY & FINANCIAL SERVICES INTERNET & E-COMMERCE
TELECOMMUNICATIONS -------------------- ---------------------------
----------------------- Charles Schwab
Chicago Board Options BuyItNow.com
3Com Exchange Direct Hit Technologies
Akamai Countrywide Home Loans eBags
ASD Systems Credit Suisse First Boston edu.com
ATI Canada Fidelity Investments Egreetings Network
Bell Atlantic First American Bank Foofoo.com
Cellular One Nomura Securities Furniture.com
Creative Labs OppenheimerFunds Gomez Advisors
GTE PeopleFirst Finance iCelebrate.com
Instinctive Technology PricewaterhouseCoopers iWon
Into Networks (formerly Sallie Mae Monster.com
Arepa) SunAmerica NextPlanetOver Online
Intraware VISA International ShopLink.com
Lexmark SmarterKids.com
Lotus Development PUBLISHING, ENTERTAINMENT & StoreRunner
MapInfo MEDIA Tavolo
PixelPark GmbH -------------------------- ToyTime.com
Sybase Travelscape.com
Symantec 365 Corporation
Tele-Communications ADVO OTHER
BBC News Online ------
TRADITIONAL RETAIL CBS
------------------- EarthWeb Delta Air Lines
Barnes & Noble First Call General Electric
Follett PlanetOut Goodyear
The Gap R.R. Donnelly & Sons Olympus America
Micro Warehouse Red Herring PCS Health Systems
Sears Canada Universal Studios
Walt Disney
ZineZone
</TABLE>
TECHNOLOGY
We believe that net.Analysis excels in areas essential to complex,
high-traffic online businesses: scalability and performance, analytic
capabilities, open architecture and reliability.
Highly Scalable Data Import Architecture. We have designed net.Analysis to
meet the needs of customers with high-traffic web sites that process tens of
millions to over 100 million hits per day. net.Analysis works effectively with
large, complex web sites that have multiple, geographically distributed data
centers operating a mix of web server applications. Our solution is designed
around our net.Stream technology, a highly scalable data import architecture
that collects continuous streams of data regarding web site activity. The import
architecture collects data from web server log files, network packet sniffers
and web server plug-ins. net.Analysis consolidates all the requests from these
disparate data centers into one, chronologically ordered thread, enabling a
coherent view of web activity across the enterprise. net.Analysis avoids
importing unwanted data, such as activity caused by automated indexing agents
from search engines. net.Analysis then transforms the imported data into
meaningful information for subsequent analysis.
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net.Analysis applies a number of web-specific data cleansing and
transformation rules to extract a sophisticated model of users and their
behavior from low-level visitor session information. net.Analysis tracks
information about activities such as promotion responses, e-commerce
transactions and advertising clickthroughs for subsequent analysis. These data
importing and tracking techniques provide a coherent and complete view of
visitor activity on our customer's web site.
net.Analysis imports, manages and stores the complete history of each user
visit, which can result in extremely large volumes of data, particularly in
high-traffic environments. To maintain performance while analyzing these large
amounts of data, net.Analysis offers end users the option to summarize detailed
clickstream activity into data aggregates, while maintaining the underlying
detailed transactional information. Working with data aggregates improves the
overall response time for targeted queries of the database during an analysis.
net.Analysis is optimized specifically for each supported database platform and
uses the native database connectivity layer for high scale database access. We
have also designed net.Analysis to take advantage of database-specific features
and functionality to improve performance.
We have designed the net.Analysis DataStore schema for high performance.
net.Analysis DataStore has both a transactional schema and a constellation
schema. The transactional schema is designed for loading large amounts of data
on a consistent basis and the constellation schema is designed for ad hoc,
interactive analysis. The schema also permits the efficient use of sophisticated
database resources, such as parallelized queries, for high scaling and
performance.
Analytic Capabilities. We have designed net.Analysis to provide multiple
analytic interfaces to meet the needs of different information consumers. The
most powerful of these interfaces is net.Reporter. net.Reporter allows for the
creation of custom reports as well as in-depth, ad hoc analysis. net.Reporter's
flexible interface allows users to establish business rules, concentrate on
particular segments of users, and compare those segments with one another by
building, combining and applying reusable filters. In addition, we have designed
a rich set of point-and-click wizards to simplify the process of creating
sophisticated custom reports.
net.Analysis is designed to analyze dynamic web sites effectively. We have
included capabilities such as Key Value Analysis, which enables users to analyze
web sites that employ dynamic content-serving technology. These capabilities
provide insight on how visitors use online forms, search engine key words and
respond to banner advertising.
Standard, Open and Extensible Architecture. We have designed net.Analysis
using a standards-based, open and extensible architecture that allows customers
to easily manage net.Analysis and integrate it into their existing
infrastructure. net.Analysis uses a common base of software code to support
Microsoft Windows NT, Sun Solaris and IBM AIX. In addition, net.Analysis
directly supports standard relational databases such as Oracle, Microsoft SQL
Server, Sybase and Informix.
We have designed the net.Analysis architecture to combine and correlate
data from other databases and applications within an organization with online
customer behavior. This functionality extends the power of net.Analysis in two
ways. First, it allows net.Analysis to flexibly interact with an organization's
existing infrastructure and enhances the value of the organization's existing
customer information resources. Second, it enhances the analytic capabilities of
net.Analysis by enabling end users to pursue more sophisticated questions about
visitor behavior on their sites.
With its open architecture, net.Analysis can be easily incorporated into
complex web environments and can be used as a platform upon which customers can
build additional applications, such as PixelPark's integration of net.Analysis
with Intershop's commerce server.
Reliability. We have designed net.Analysis to serve as a core element of
the operational infrastructure of a large-scale enterprise. To that end, we have
incorporated technologies that are designed to simplify system administration
and oversight, such as automated scheduling facilities to handle data
collection, data archival and report publishing. We have also incorporated
automated monitoring and alerting features to manage these processes, as well as
recovery systems to minimize
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<PAGE> 54
the impact of power failures, third-party application faults and system
overloads. In addition, we have developed an application to allow customers to
integrate net.Analysis with systems management applications. We believe the
combination of these architectural components makes net.Analysis suited to serve
as a business-critical component of an organization's operational
infrastructure.
STRATEGIC TECHNOLOGY RELATIONSHIPS
To provide our customers with a complete solution, ensure that our own
products are compatible with the most advanced available technology and increase
the reach of our sales and marketing efforts, we have established relationships
with a select group of software and service providers that we believe are
leaders in their respective markets. Our relationships with these companies may
include joint development efforts directed at integrating our respective
products, joint participation in trade shows, seminars or user conferences, or
co-marketing or co-selling programs, or reciprocal product and sales training.
We believe that our association with these companies benefits our customers and
helps to position us as a technology and market leader.
We have strategic technology relationships with the following companies:
Allaire Allaire's Spectra software enables web site
developers to quickly build and deploy a broad
range of interactive applications for intranets and
public Internet sites. We are integrating
net.Analysis with Allaire's Spectra products to
enable companies to evaluate the effectiveness of
their web site design and online effectiveness.
Art Technology Group Art Technology Group is a developer of e-commerce
and online personalization applications. We are
integrating our net.Analysis application, including
net.Instrument and CartSmarts, to enable business
managers to capture, measure and correlate online
behavior on web sites using Art Technology Group's
Dynamo product suite.
Annuncio Annuncio offers Annuncio Live, a software
application that enables organizations to reliably
automate and manage online marketing campaigns.
Together, we are integrating net.Analysis with
Annuncio Live to enable online marketers to combine
ongoing web visitor data with data captured during
Annuncio Live marketing campaigns to increase the
effectiveness of these campaigns.
DoubleClick DoubleClick provides online advertising and direct
marketing software and services. We have integrated
our software with DoubleClick's AdServer to enable
users to measure and improve the effectiveness of
specific marketing campaigns and advertisements.
Harte-Hanks Harte-Hanks is a leading provider of direct
marketing services, including database marketing
solutions and response management services.
Harte-Hanks resells our software and services
through its sales force in North America and the
United Kingdom and also provides training on
net.Genesis' Design for Analysis methodology.
IBM IBM's Net.Commerce is a suite of software
applications that enable businesses to implement
commercial web sites and effectively conduct
electronic commerce on the Internet. IBM also
offers WebSphere, which provides web site
development tools
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and management software to help companies build,
manage and deploy e-business applications. We have
integrated net.Analysis with Net.Commerce and are
integrating it with WebSphere to provide advanced
analytic capabilities for customers using these IBM
products.
Net Perceptions Net Perceptions provides real-time product and
content recommendation software, which enables
companies to better personalize their web sites and
online marketing efforts based on individual
visitor's preferences. We have integrated
net.Analysis with Net Perceptions' Recommendation
Engine to demonstrate the effectiveness of Net
Perceptions' recommendations and to help business
managers improve their site's ability to generate
online revenue.
Sun-Netscape Alliance Netscape, through its Sun-Netscape Alliance, offers
business-to-business e-commerce applications,
including SellerXpert. We are integrating
net.Analysis with SellerXpert to provide businesses
a deeper understanding of the online behavior and
purchasing patterns of their business customers.
Vignette Vignette's StoryServer software application enables
businesses to better manage their online
relationships by personalizing their web site
content presentation, navigation and promotion
based on visitors' preferences and actions. We have
developed a Vignette integration that brings
analytic capabilities to sites using StoryServer,
improving content effectiveness and online
relationships.
SALES AND MARKETING
We sell net.Analysis worldwide through our direct sales force and, to a
lesser extent, through relationships with resellers and other strategic
partners. As of December 15, 1999, our sales force consisted of 39 sales
professionals located in Atlanta, Boston, Chicago, Cupertino, Dallas, Los
Angeles, New York, Raleigh, Tampa and London. Our direct sales force focuses on
selling net.Analysis to customers that maintain strategic, high-traffic
commercial web sites. We utilize sales teams consisting of both sales and
technical professionals who work directly with potential customers, or with our
partners, to provide proposals and demonstrations designed to address the
specific needs of potential customers. We intend to increase our direct sales
force, both domestically and abroad, and to develop relationships with
additional resellers, systems integrators, original equipment manufacturers and
application service providers.
We have established relationships with web solution providers in numerous
domestic and international locations to augment our ability to offer our
products and services. Several of our solution providers are authorized
resellers of our products and have completed the training we require to provide
professional consulting services, technical integration services and technical
support on our behalf.
We have also entered into co-marketing and co-sale arrangements with
selected strategic technology partners, such as IBM and DoubleClick. We also
intend to license our software to other software and service companies for
incorporation into their e-commerce and other application suites, such as with
Harte-Hanks. In addition, we intend to license our software to companies that
may resell our solution as a subscription service offering.
We focus our marketing efforts on creating awareness of our solution among
business executives, marketing professionals, web administrators and other
information technology profes-
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sionals considering large-scale e-customer intelligence solutions. We conduct a
variety of marketing programs worldwide to educate our target market. We have
engaged in marketing activities such as online seminars and promotions, direct
marketing, trade shows, press and industry analyst relations, and users
conferences. We invest substantial effort in our web site to support our
corporate image in the online business community and to generate sales leads. We
make available on our web site extensive product information, including a
virtual tour of common business scenarios, which shows online visitors typical
applications of our product by marketing, advertising, information technology
and executive-level employees. Our marketing organization works closely with our
customers, direct sales organization and partners to capture, organize and
prioritize customer feedback to help guide our product development organization.
COMPETITION
The market for e-customer intelligence solutions and web site analysis
software and related services is immature, fragmented, intensely competitive,
rapidly evolving and subject to rapid technological change. We expect that
competition will continue to intensify. Increased competition may result in
reduced market acceptance of our products, price reductions and reduced gross
margins, any of which could seriously harm our business. Competitors vary in
size and in the scope and breadth of the products and services they offer. Our
competitors include:
- other companies developing and offering stand-alone e-customer
intelligence and web site analysis software, such as Accrue, Macromedia
(with its recent acquisition of Andromedia) and WebTrends
- web application companies whose products have some of the functionality
of our products, such as Microsoft, which includes web site statistical
reporting in its Site Server software
- companies offering traditional offline business intelligence or decision
support solutions
- providers of service-based solutions
- internal development groups within prospective customers' organizations
Some of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. They have significantly greater name recognition and a
larger installed base of customers. In addition, many of our competitors have
well-established relationships with our current and potential customers. In the
past, we have lost potential customers to competitors for various reasons and
may continue to do so. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address customer
needs. Accordingly, new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
We believe that the principal competitive factors in the market for our
products are:
- the ability of a product to scale and support the requirements of
complex, high-traffic web sites
- depth of reporting and analysis capabilities
- data collection capabilities and techniques
- ability to integrate with the customer's web environment, and offline
applications and data
- ability to offer strategic professional services
- quality of customer support
- price
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<PAGE> 57
Although we believe that our solution competes favorably with respect to these
factors, our market is relatively new and is developing rapidly. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, technical and other resources.
EMPLOYEES
As of December 15, 1999, we had 147 full-time employees, including 39 in
sales, 36 in engineering, 34 in professional services and technical support, 20
in general and administrative, and 18 in marketing and business development.
None of our employees is represented by a labor union, and we have never
experienced a work stoppage. We believe that our relations with our employees
are good.
FACILITIES
Our headquarters are located in Cambridge, Massachusetts, where we lease
approximately 25,000 square feet of office space under a lease expiring in
August 2004. We expect that these facilities will meet our needs through
mid-2000 and that suitable additional or substitute space will be available as
needed. We also lease sales and service offices in Cupertino and London. We
lease these offices under agreements with remaining terms of less than two
years.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EXECUTIVES
The following table sets forth information with respect to our executive
officers, directors and key executives as of December 15, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Executive Officers and Directors
Lawrence S. Bohn..................... 48 President, Chief Executive Officer and Director
John Delea........................... 38 Chief Financial Officer, Vice President, Finance and
Administration, and Treasurer
Roger Hodskins....................... 44 Vice President, Worldwide Sales and Service
Marcie Desmond....................... 44 Vice President, Professional Services
Anne Estabrook....................... 35 Vice President, Marketing
David George......................... 32 Vice President, Business Development
Stan Jackson......................... 46 Vice President, Engineering
David Reiner......................... 47 Vice President, Product Strategy and Development
Kathleen Biro(1)..................... 47 Director
Ted R. Dintersmith(1)................ 47 Director
Robert N. Goldman(2)................. 50 Director
Rory T. O'Driscoll................... 35 Director
Stephen J. Ricci(2).................. 53 Director
Key Executives
Matthew Cutler....................... 26 Founder and Chief E-Business Intelligence Officer
Eric Richard......................... 26 Founder and Chief Technology Officer
</TABLE>
- ------------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Lawrence S. Bohn has served as our President and Chief Executive Officer
and a director since March 1998. From August 1997 to February 1998, Mr. Bohn was
an independent consultant. From September 1994 to July 1997, he served as
President of PC Docs, Inc., a developer of document management software for
enterprise networks. From April 1986 to July 1994, Mr. Bohn served as Senior
Vice President of Marketing and Business Development at Interleaf, Inc., a
developer of electronic publishing solutions. He received a B.A. with honors
from the University of Massachusetts at Amherst and an M.A. in structural
linguistics from Clark University.
John Delea has served as our Chief Financial Officer, Vice President,
Finance and Administration, and Treasurer since December 1996. From September
1994 to August 1996, Mr. Delea served as Business Unit Controller at Bay
Networks, now a division of Nortel Networks, where he directed the financial
planning and operations of its router products group. From May 1992 to August
1994, Mr. Delea served as Assistant Treasurer and Director of Investor Relations
at Wellfleet Communications (now Bay Networks). From September 1988 to April
1992, he served as a Treasury Manager at AT&T, and from July 1983 to August
1986, he served as an Audit Senior at Arthur Andersen LLP. Mr. Delea received an
M.B.A. in finance from the University of Chicago Graduate School of Business and
a B.A. in economics and accounting from the College of Holy Cross.
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Roger Hodskins has served as our Vice President of Worldwide Sales and
Service since May 1998. From April 1997 to May 1998, he served as Vice
President, Business Development at Rational Software Corporation, a provider of
quality engineering software. He served as Vice President of Strategic Alliances
and Emerging Markets at SQA Software from February 1992 until its merger with
Rational Software in April 1997. From March 1988 to January 1992, Mr. Hodskins
served as Manager, Geographic Information Systems and Senior International
Marketing Consultant in international sales and marketing at Wang Laboratories.
He received an M.B.A. in marketing from the University of Rochester and a B.S.
with honors from Purdue University.
Marcie Desmond has served as our Vice President of Professional Services
since June 1999. From June 1994 to June 1999, she served as Managing Partner
overseeing strategic accounts at Cambridge Technology Partners, a management
consulting and systems integration firm. From June 1989 to June 1994, Ms.
Desmond served as a manager at the Open Software Foundation. Ms. Desmond
received a B.S. in computer science from the University of Massachusetts.
Anne Estabrook has served as our Vice President of Marketing since May
1998. From June 1997 to April 1998, Ms. Estabrook served as the Director of
Professional Services at Firefly Network, a provider of personalization
software, where she led teams in the design and implementation of
personalization solutions for the web. From September 1993 to June 1997, Ms.
Estabrook was a senior associate at Mercer Management Consulting, a management
consulting firm. From July 1987 to June 1991, she served as a Senior Design
Engineer at Digital Equipment Corporation. Ms. Estabrook received an M.B.A. from
the Wharton School at the University of Pennsylvania and a B.S. and an M.S. in
electrical engineering from Cornell University.
David George has served as our Vice President of Business Development since
January 1999. From June 1996 to December 1998, Mr. George was responsible for
building our international business operations. Mr. George served as Manager of
the Strategic OEM Sales Team for Europe, Middle East and Africa at FTP Software,
a provider of TCP/IP solutions, from 1993 to June 1996. He received a B.S. in
marketing from the University of Rhode Island and studied International Business
at Ealing University in London, England.
Stan Jackson has served as our Vice President of Engineering since
September 1999. From May 1999 to August 1999, Mr. Jackson served as our
Solutions Engineering Manager. Mr. Jackson previously worked at Dow Jones
Markets, where he served as Director of Technical Planning and as Director of
Symbology Systems Development from May 1994 to December 1998. From October 1992
to October 1993, Mr. Jackson served as a manager of research and development at
Thomson Financial Networks. He received a B.S. from the Sloan School of
Management at the Massachusetts Institute of Technology.
David Reiner has served as our Vice President of Product Strategy and
Development since September 1999. From April 1998 to August 1999, he served as
Senior Vice President in the Data Technologies Division of Harte-Hanks, a direct
marketing and database marketing company. From July 1995 to December 1997, Dr.
Reiner served as Senior Vice President and Chief Scientist at Epsilon Data
Management, an industry leader in database marketing. Dr. Reiner received a
Ph.D. in computer science from the University of Wisconsin-Madison and an A.B.
in mathematics from Cornell University.
Kathleen Biro has served as our director since April 1999. Ms. Biro has
also served as Vice Chairman, President and a director of Bronnercom, an
Internet professional services firm, since December 1999. Ms. Biro co-founded
Strategic Interactive Group, a developer of Internet marketing strategies, in
April 1995 and has served as its Chief Executive Officer since that time. Before
founding Strategic Interactive Group, Ms. Biro served as Senior Vice
President/Marketing Director at Bronner Slosberg Humphrey, a marketing agency.
Ms. Biro serves as a director of Be Free, a digital marketing services firm. Ms.
Biro received an M.B.A. in marketing and finance from the Columbia University
Graduate School of Business and an M.S. in educational administration and a B.S.
in English education from New York University.
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Ted R. Dintersmith has served as our director since September 1996. Since
February 1996, Mr. Dintersmith has been a general partner at Charles River
Ventures, a venture capital firm. From October 1987 to February 1996, he was a
general partner of Aegis Management Corporation, a venture capital firm. Mr.
Dintersmith serves as a director of Be Free and Flycast Communications. Mr.
Dintersmith received a Ph.D. in engineering from Stanford University and a B.A.
in physics and English from the College of William and Mary.
Robert N. Goldman has served as our director since January 1995. Mr.
Goldman has been chairman of the board of Object Design since January 1999, and
has been its president and chief executive officer since September 1999. He also
served as president and chief executive officer of Object Design from November
1995 to January 1999. From 1992 to August 1995, Mr. Goldman was chairman of
Trinzic Corporation. Mr. Goldman is a member of the board of directors of Citrix
Systems, Parametric Technology Corporation and Systemsoft Corporation. Mr.
Goldman received a B.A. in computer science from Purdue University.
Rory O'Driscoll has served as our director since June 1999. Since April
1993, Mr. O'Driscoll has served as a vice president of Bank of America Ventures,
a venture capital firm. From March 1992 to April 1993, Mr. O'Driscoll served as
a corporate development consultant for BankAmerica Corporation. Mr. O'Driscoll
is a director of Connectinc.com. Mr. O'Driscoll holds a B.Sc. in Economics from
the London School of Economics.
Stephen J. Ricci has served as our director since June 1998. Mr. Ricci has
been a general partner of OneLiberty Ventures, a venture capital firm, since its
inception in January 1995. Before co-founding OneLiberty Ventures, Mr. Ricci was
a general partner of Palmer Partners, a venture capital firm, from 1974 to 1994.
Mr. Ricci received an M.B.A. from the Harvard Business School and a B.S. in
mechanical engineering from Tufts University.
Matthew Cutler co-founded net.Genesis in January 1994 and has served as our
Chief E-Business Intelligence Officer since January 1999. Mr. Cutler currently
leads our marketplace education and standards development efforts. Mr. Cutler
previously served as our Director of Market Development from January 1994 to
January 1999. From June 1995 to December 1998, Mr. Cutler also served as
Chairman of the Webmasters' Guild, the world's first professional association of
webmasters and now a part of the Association for Internet Professionals. Mr.
Cutler received a B.S. in mechanical engineering with honors from Massachusetts
Institute of Technology.
Eric Richard co-founded net.Genesis and has served as our Chief Technology
Officer since May 1994. Mr. Richard directs our technology development and
product architecture. Mr. Richard is the principal author of "Build a Web Site,"
an early technical resource guide for web site developers. Mr. Richard received
a B.S. in computer science from the Massachusetts Institute of Technology.
BOARD COMPOSITION
Following this offering, the board of directors will be divided into three
classes. At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. Immediately after the completion of this offering:
- Rory T. O'Driscoll and Lawrence S. Bohn will be the Class I directors and
will serve until our annual stockholders' meeting in 2000
- Stephen J. Ricci and Robert N. Goldman will be the Class II directors and
will serve until our annual stockholders' meeting in 2001
- Ted R. Dintersmith and Kathleen Biro will be the Class III directors and
will serve until our annual stockholders' meeting in 2002
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<PAGE> 61
Three of our current directors, Messrs. Dintersmith, O'Driscoll and Ricci,
originally were elected as directors pursuant to provisions of a stockholders'
agreement that will terminate upon the completion of this offering.
Each executive officer serves at the discretion of the board of directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of our directors and executive officers.
BOARD COMMITTEES
Our board of directors established an audit committee in December 1999. The
audit committee consists of Robert N. Goldman and Stephen J. Ricci. The audit
committee reviews our internal accounting procedures, evaluates our audit and
control functions, and reviews the results and scope of the audit and other
services provided by our independent public accountants.
Our board of directors established a compensation committee in December
1999. The compensation committee consists of Kathleen Biro and Ted R.
Dintersmith. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of our officers and directors and
administers and grants options under our stock plans. The compensation committee
also establishes and reviews general policies relating to the compensation and
benefits of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our board of directors or our compensation committee serves as
a member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
All of our directors are reimbursed for expenses incurred in attending
meetings of the board of directors and committees. In addition, our non-employee
directors are eligible to receive automatic grants of stock options under our
1999 Stock Incentive Plan. Currently, we do not otherwise compensate directors
for their services as members of the board of directors or any committee of the
board. In connection with the election of Kathleen Biro to our board, we granted
her an option on April 12, 1999 to purchase 25,000 shares of common stock at an
exercise price of $0.50 per share. The option vests as to one third of the
shares subject to the option on April 12, 2000 and as to an additional 8.33% of
such shares each quarter thereafter until fully vested.
Each non-employee director will receive an option to purchase 25,000 shares
of our common on the effective date of this offering. These options will vest in
annual installments over three years from the date of grant. In addition, each
non-employee director will receive an option to purchase 5,000 shares of our
common stock on the date of each annual meeting of stockholders commencing with
the 2000 annual meeting of stockholders. These options will be fully vested upon
grant. In addition, individuals who become directors after this offering and are
not our employees will receive an option to purchase 25,000 shares of our common
stock on the date of his or her initial election to our board of directors.
These options will vest in annual installments over three years from the date of
grant.
EXECUTIVE COMPENSATION
Compensation Earned
The following table summarizes the compensation earned during 1998 by our
named executive officers, who consist of each person who served in the capacity
of chief executive officer of our
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company at any time during 1998 and five other current and former executive
officers who earned more than $100,000 in salary and bonus during that year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS
ANNUAL ------------------------
COMPENSATION RESTRICTED SECURITIES ALL OTHER
--------------------- STOCK UNDERLYING COMPEN-
NAME AND PRESENT PRINCIPAL POSITION(S) SALARY($) BONUS($) AWARDS($) OPTIONS(#) SATION($)
- -------------------------------------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Lawrence S. Bohn..................... $132,878 $51,750 $ 0 810,000 $36,000
President and Chief Executive Officer
John Delea........................... 116,655 50,000 -- 320,000 --
Chief Financial Officer, Vice
President, Finance and
Administration, and Treasurer
Roger Hodskins....................... 87,369 83,333 -- 280,000 --
Vice President, Worldwide Sales and
Service
David George......................... 87,284 41,661 -- 120,000 --
Vice President, Business Development
Louis Gennaro........................ 39,115 -- -- -- --
Former Chief Executive Officer
Kathy Kessel......................... 101,042 39,917 -- 280,000 37,500
Former Vice President, Marketing
Christopher Paul..................... 105,547 15,000 -- 280,000 --
Former Vice President, Engineering
</TABLE>
In 1998, in addition to the compensation stated in the foregoing table, we
also provided each of our full-time employees with term life insurance in an
amount equal to their annual salary. Because we pay a single premium for the
entire group of employees, we are unable to calculate the dollar amount of the
premium attributable to any particular employee.
We paid Mr. Bohn a $36,000 tax bonus in accordance with the terms of his
employment agreement, which is described in more detail below under
"-- Employment Agreement." Under the employment agreement, we also paid Mr. Bohn
a signing bonus of $51,750, which Mr. Bohn used to purchase, on a restricted
basis, 1,035,000 shares of our common stock at a price of $0.05 per share, which
our board of directors determined was the fair market value of the common stock
on the date of purchase. Under the terms of a stock restriction and repurchase
agreement signed by Mr. Bohn in connection with this purchase, we have the right
to repurchase these shares of restricted stock if Mr. Bohn's employment is
terminated. Our right to repurchase these shares of restricted stock expires in
48 equal monthly installments. Upon the closing of this offering, our right to
repurchase these shares of restricted stock will expire. As December 31, 1998,
the value of these shares of restricted stock was $124,200, based on a price of
$0.12 per share, which our board of directors determined was the fair market
value of the common stock on that date. We paid Kathy Kessel $37,500 as
severance in connection with the termination of her employment at the end of
1998.
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Option Grants
The following table provides information regarding stock options granted to
the named executive officers during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR SHARE($/SH) DATE 5%($) 10%($)
- ---- ---------- ----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence S. Bohn....... 810,000 22.8% $0.12 07/15/08 $61,129 $154,912
John Delea............. 320,000 9.0 0.12 07/15/08 24,150 61,200
Roger Hodskins......... 140,000 3.9 0.05 05/28/08 4,402 11,156
140,000 3.9 0.12 07/15/08 10,565 26,775
David George........... 65,000 1.8 0.05 04/02/08 2,044 5,180
55,000 1.6 0.12 07/15/08 4,151 10,519
Louis Gennaro.......... -- -- -- -- -- --
Kathy Kessel........... 140,000 3.9 0.05 05/28/08 4,402 11,156
140,000 3.9 0.12 07/15/08 10,565 26,775
Christopher Paul....... 140,000 3.9 0.05 04/02/08 4,402 11,156
140,000 3.9 0.12 07/15/08 10,565 26,775
</TABLE>
All options described in the foregoing table vest as to 25% of the shares
subject to the option on the first anniversary of the date of grant and as to an
additional 6.25% of such shares each quarter thereafter until fully vested,
except that the option granted to Mr. Bohn vests in 48 equal monthly
installments, beginning March 23, 1998.
In 1998 and 1999, we accelerated this vesting schedule for some of the
named executive officers and entered into stock restriction and repurchase
agreements with them containing identical vesting schedules. See "Transactions
with Related Parties -- Acceleration of Stock Options Vesting for Executive
Officers." When we entered into these agreements, we also provided that vesting
would accelerate in the event of a change of control, by 24 months in the case
of Messrs. Bohn and Hodskins and by twelve months in the case of Messrs. George
and Paul. The percentage of total options is based on an aggregate of 3,546,400
options that we granted during 1998 to our employees, including the named
executive officers. We granted these options with an exercise price equal to the
fair market value of our common stock on the date of grant, as determined in
good faith by our board of directors. All of the options have a term of 10
years, subject to earlier termination in the event of a termination of
employment. The exercise price for all options may be paid in cash, shares of
common stock, or a combination of cash and shares.
The potential realizable values are based on the assumption that our common
stock will appreciate at the annual rate shown, compounded annually, from the
date of grant until the expiration of the ten-year term. These numbers are
calculated based on SEC requirements and do not reflect our projections or
estimates of future stock price growth. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock. This table
does not take into account any appreciation in the price of our common stock
from the date of grant to the current date. The values shown are net of the
option exercise price, but do not reflect deductions for taxes or other expenses
associated with the exercise.
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<PAGE> 64
Option Exercises and Holdings
The following table provides information regarding exercises of stock
options during 1998 and exercisable and unexercisable options held on December
31, 1998 by each of the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE ------------------------------ ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence S. Bohn..... -- -- -- 810,000 -- --
John Delea........... -- -- 160,000 160,000 -- --
Roger Hodskins....... 140,000 $ 0 -- 140,000 -- --
David George......... -- -- 17,500 142,500 $1,225 $6,125
Louis Gennaro........ 63,200 0 -- -- -- --
Kathy Kessel......... -- -- 35,000 -- -- --
Christopher Paul..... -- -- -- 280,000 -- 9,800
</TABLE>
The value of unexercised in-the-money options is based on a price of $0.12
per share, the fair market value of our stock on December 31, 1998 as determined
by our board of directors, minus the per share exercise price, multiplied by the
number of shares underlying the option. After December 31, 1998, we entered into
arrangements with some of our executive officers to accelerate the vesting of
their options upon the conditions described in "Transactions with Related
Parties -- Acceleration of Stock Option Vesting for Executive Officers."
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan
In 1995, our board adopted and our stockholders approved the 1995 stock
option plan and reserved 1,316,809 shares of common stock for issuance under the
plan. In July 1998, we amended the plan to increase the number of shares
authorized for issuance under the plan to 4,000,000. In September 1999, we
amended the plan to increase the number of shares authorized for issuance under
the plan to 5,000,000. On December 15, 1999, options to purchase a total of
2,266,736 shares of common stock were outstanding under the 1995 plan. These
options had a weighted average exercise price of $1.11 per share. In connection
with the adoption of the 1999 stock incentive plan described below, the board
terminated further issuances of options under the 1995 plan.
The 1995 plan authorizes the grant of options to purchase common stock
intended to qualify as incentive stock options, as defined in Section 422 of the
Internal Revenue Code, and nonstatutory stock options. The exercise price of
incentive options granted under the 1995 plan must be at least equal to the fair
market value of our common stock on the date of grant. The terms of these
options may not exceed ten years. The exercise price of incentive options
granted to an optionee who owns stock possessing more than 10% of the voting
power of our outstanding capital stock must be at least equal to 110% of the
fair market value of the common stock on the date of grant. This type of
optionee must exercise his or her option within five years from the date of
grant.
The 1995 plan provides that, upon a change of control of our company:
- all outstanding options will be exchanged for similar options of the
corporation surviving any change of control
- the vesting of all outstanding options will be accelerated by twelve
months
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<PAGE> 65
For these purposes, a "change of control" means the occurrence of any of the
following:
- any person becomes a beneficial owner, directly or indirectly, of 50% or
more of the combined voting power of our outstanding shares
- any merger or consolidation of net.Genesis with another company, other
than a merger or consolidation in which our voting shares outstanding
immediately before the merger or consolidation represent more than 50% of
the combined voting power of the voting shares of the surviving entity
- the liquidation, sale or disposition of all or substantially all of our
assets
The 1995 plan is administered by the compensation committee of our board of
directors.
1999 Stock Incentive Plan
In December 1999, our board of directors adopted and our stockholders
approved our 1999 stock incentive plan. The 1999 plan initially authorizes the
issuance of up to 3,500,000 shares of our common stock and authorizes an
additional 500,000 shares of our common stock on each of the first three
anniversaries of the date of adoption of the plan. On December 15, 1999, no
options had been granted under the 1999 plan.
The 1999 plan authorizes the grant of options to purchase common stock
intended to qualify as incentive stock options, as defined in Section 422 of the
Internal Revenue Code, and nonstatutory stock options. The 1999 plan also
provides for awards of stock appreciation rights, performance shares, restricted
stock and other stock-based awards.
Our officers, directors, employees, consultants and advisors are eligible
to receive awards under the 1999 plan. Under present law, incentive stock
options may only be granted to employees. No participant may receive awards for
over 1,000,000 shares of common stock in any calendar year.
Incentive options may be granted under the 1999 plan to our employees and
employees of our affiliates within the meaning of the Internal Revenue Code,
including our officers and directors as well as officers and directors of our
affiliates who are also employees. The exercise price of incentive options
granted under the 1999 plan must be at least equal to the fair market value of
our common stock on the date of grant. The exercise price of incentive options
granted to an optionee who owns stock possessing more than 10% of the voting
power of our outstanding capital stock must be at least equal to 110% of the
fair market value of the common stock on the date of grant. This type of
optionee must exercise his or her option within five years from the date of
grant.
Under the terms of the 1999 plan, we may grant nonstatutory options to our
officers and other employees, our directors, and other individuals providing
services to us. There are no limits on the exercise price of nonstatutory
options granted under the 1999 plan.
Under the terms of the 1999 plan, non-employee directors will also receive
certain automatic option grants as described in "Management -- Director
Compensation."
The 1999 plan provides that, upon a change of control of our company:
- all outstanding options will be exchanged for similar options of the
corporation surviving any change of control
- the vesting of all outstanding options will be accelerated by twelve
months
For these purposes, a "change of control" has the same meaning as under the 1995
plan.
The 1999 plan is administered by the compensation committee of the board of
directors. The compensation committee selects the individuals to whom awards
will be granted and determines the exercise price and other terms of each award,
subject to the provisions of the 1999 plan.
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<PAGE> 66
1999 Employee Stock Purchase Plan
In December 1999, our board of directors adopted and our stockholders
approved our 1999 employee stock purchase plan. The stock purchase plan
initially authorizes the issuance of up to 300,000 shares of our common stock
and authorizes an additional 70,000 shares of our common stock on each of the
first three anniversaries of the date of adoption of the plan.
All of our employees who have completed three months of employment and
whose customary employment is more than 20 hours per week and for more than five
months in any calendar year are eligible to participate in the stock purchase
plan. Employees who own stock and hold outstanding options to purchase stock
representing five percent or more of the total combined voting power or value of
all classes of our stock are not eligible to participate in the stock purchase
plan.
At the commencement of each designated payroll deduction period, or
offering period, an eligible employee may authorize us to deduct between 1% to
10%, in increments of 1%, of his or her base pay. On the last business day of
the offering period, we will deem the employee to have exercised the option, at
the exercise option price, to the extent of accumulated payroll deductions. The
purchase price will be 85% of the closing market price of our common stock on
either the first or last business day of the offering period, whichever is
lower.
No employee is allowed to buy shares of common stock worth more than
$25,000, based on the fair market value of the common stock on the first day of
the offering period, in any calendar year under the plan.
The stock purchase plan is administered by the compensation committee of
the board of directors.
401(k) Plan
We have adopted an employee savings and retirement plan qualified under
Section 401 of the Internal Revenue Code and covering all of our employees.
Employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and have the amount of the reduction
contributed to the 401(k) plan. We may make matching or additional contributions
to the 401(k) plan in amounts to be determined annually by our board of
directors.
EMPLOYMENT AGREEMENT
On May 28, 1998, we hired Lawrence S. Bohn to serve as our President and
Chief Executive Officer and we entered into an employment agreement and a stock
restriction and repurchase agreement with him. Under the employment agreement,
we agreed to employ Mr. Bohn as our President and Chief Executive Officer at an
annual salary of $150,000, which our board may increase annually. We also agreed
to pay Mr. Bohn a signing bonus of $51,750 upon the commencement of his
employment and a 1999 tax bonus of $36,000 on April 1, 1999. The agreement does
not specify a term of employment; rather, Mr. Bohn remains an employee-at-will.
Under the agreement, Mr. Bohn is entitled to participate in any bonus, group
health, medical reimbursement or life insurance programs that we may offer.
Under the employment agreement, we must pay Mr. Bohn severance payments in
an amount equal to the salary and bonus paid to him over the immediately
preceding 12 months if his employment is terminated:
- by us without good cause, which means dishonesty, any misappropriation of
our assets, gross failure to perform his duties, the commission of any
felony or any crime involving moral turpitude, or any breach of his
obligations under his confidentiality, assignment of inventions and
non-competition agreement with us
- upon a change of control of net.Genesis
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<PAGE> 67
- as a result of any attempt by us to force Mr. Bohn to relocate
involuntarily his place of employment by more than 100 miles from
Cambridge, Massachusetts
- as a result of any action by us that has the effect of significantly
diminishing his level of responsibility as President and Chief Executive
Officer
We also agreed to use our best efforts to cause Mr. Bohn to be elected to
our board of directors. The employment agreement further provides that if Mr.
Bohn's employment is terminated for any reason, he will be deemed to have
resigned as a director and from all other positions with net.Genesis. While Mr.
Bohn serves as our Chief Executive Officer, he is entitled to approve the
appointment of any Chairman of the Board.
LIABILITY LIMITATIONS AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law permits a corporation to
provide that its directors will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders
- acts or omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law
- unlawful payments of dividends or unlawful stock repurchases or
redemptions
- any transaction from which the director derived an improper personal
benefit
The limitations do not apply to liabilities arising under the federal
securities laws and do not affect the availability of equitable remedies,
including injunctive relief or rescission.
Our certificate of incorporation and by-laws provide that we will indemnify
our directors and officers, and may indemnify other employees and agents, to the
maximum extent permitted by law. We believe that indemnification under our
by-laws covers at least negligence and gross negligence on the part of
indemnified parties. Our by-laws also permit us to secure insurance on behalf of
any officer, director, employee or agent for any liability arising out of
actions in his or her capacity as an officer, director, employee or agent,
regardless of whether the by-laws would permit indemnification. We have obtained
an insurance policy that insures our directors and officers against losses,
above a deductible amount, from specified types of claims. We believe that these
provisions and policies are desirable to help us attract and retain qualified
persons as directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and by-laws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors and
officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons under our
certificate of incorporation or by-laws, we have been advised that in the
opinion of the SEC this indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
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<PAGE> 68
TRANSACTIONS WITH RELATED PARTIES
SALES OF PREFERRED STOCK
A number of our directors, executive officers and stockholders beneficially
owning more than 5% of our common stock have participated in transactions in
which they purchased shares of our preferred stock. We believe that we sold
these shares at their fair market value and that the terms of these transactions
were no less favorable than we could have obtained from unaffiliated third
parties. The following table summarizes these transactions:
<TABLE>
<CAPTION>
CLASS OF NUMBER
DATE OF TRANSACTION PREFERRED STOCK PRICE OF SHARES
- ------------------- --------------- ----- ---------
<S> <C> <C> <C>
September 18, 1996 Series B $5.15 776,717
September 12, 1997 Series C $0.50 2,928,316
June 25, 1998 Series D $1.20 5,899,999
June 10, 1999 Series F $3.32 6,626,508
</TABLE>
On the closing of this offering, these shares of preferred stock will
automatically convert into shares of common stock. Listed below are the
directors, executive officers and 5% stockholders who participated in the
transactions described above.
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------------------- AGGREGATE
STOCKHOLDER SERIES B SERIES C SERIES D SERIES F CONSIDERATION
- ----------- -------- --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Charles River Partnership VII.......... 383,514 1,005,520 1,500,000 261,050 $5,144,543
Affiliates of Bessemer Venture
Partners............................... 344,187 902,400 1,266,667 261,044 $4,610,430
Affiliates of OneLiberty Ventures...... -- -- 2,625,000 261,044 $4,016,666
Sean O'Sullivan Revocable Living
Trust................................ 4,855 274,914 20,834 -- $ 187,461
Christopher Paul....................... -- -- 83,333 -- $ 100,000
</TABLE>
Ted R. Dintersmith, a general partner of Charles River Partnership VII, has
served as one of our directors since September 1996. Stephen J. Ricci, a general
partner of OneLiberty Fund IV, has served as one of our directors since June
1998. Sean M. O'Sullivan, the trustee of the Sean O'Sullivan Revocable Living
Trust, served as one of our directors from July 1995 to April 1999. Christopher
Paul served as our Vice President of Engineering from March 1998 to September
1999.
In connection with our sales of preferred stock in the foregoing
transactions, we granted rights to the holders of preferred stock to require us
to register their shares under the Securities Act and to include their shares in
registration statements we file for our own benefit under the Securities Act.
For more information about these registration rights, please see "Description of
Capital Stock -- Registration Rights."
SALE OF COMMON STOCK TO LAWRENCE S. BOHN
On May 28, 1998, in connection with the employment of Lawrence S. Bohn as
our President and Chief Executive Officer, we issued and sold to Mr. Bohn
1,035,000 shares of our common stock for $0.05 a share, which our Board of
Directors determined to be the fair market value of our common stock at the
time. On the same date, we entered into a stock restriction and repurchase
agreement with Mr. Bohn providing that if he ceases to be employed by us prior
to the full vesting of his shares, we may repurchase the unvested shares for
$0.001 per share. This option to repurchase lapses in 48 equal monthly
installments, calculated from March 23, 1998. The stock restriction and
repurchase agreement will terminate upon the closing of this offering.
LOAN TO LAWRENCE S. BOHN
On May 4, 1999, Mr. Bohn exercised an option to purchase 810,000 shares of
our common stock at an exercise price of $0.12 per share. This option was
accelerated as described below. We loaned
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<PAGE> 69
Mr. Bohn $96,390 towards this purchase. The full recourse loan is evidenced by a
promissory note from Mr. Bohn to us. The loan is secured by the 810,000 shares
of common stock that Mr. Bohn purchased.
ACCELERATION OF STOCK OPTION VESTING FOR EXECUTIVE OFFICERS
We have made arrangements with our executive officers to accelerate the
vesting of their options in full if they enter into stock restriction and
repurchase agreements with us. Under the stock restriction and repurchase
agreements, if an executive officer ceases to be employed by us before any of
the shares purchased would otherwise have vested under the option agreement, we
have the right to repurchase those shares at the same price for which the
officer purchased them. The following table provides information regarding the
executive officers who have entered into these arrangements with us, the date of
the transaction, the exercise price and number of options that were accelerated,
the number of shares purchased (including shares that were already vested and
therefore not subject to any stock restriction and repurchase agreement), and
the extent to which acceleration of vesting of the shares purchased will occur
upon a change in control of our company.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF ACCELERATION
DATE OF EXERCISE OPTIONS SHARES UPON CHANGE
NAME AND PRINCIPAL POSITION TRANSACTION PRICE ACCELERATED PURCHASED OF CONTROL
- --------------------------- ----------- -------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Lawrence S. Bohn......................... 05/04/99 $0.12 573,754 810,000 24 months
President and Chief Executive Officer
Roger Hodskins........................... 06/19/98 $0.05 140,000 140,000 24 months
Vice President, Worldwide Sales and 09/01/99 $0.12 105,000 140,000 24 months
Service
Anne Estabrook........................... 05/30/99 $0.05 22,500 30,000 12 months
Vice President, Marketing 05/30/99 $0.12 130,000 130,000 12 months
David George............................. 05/30/99 $0.05 54,408 105,000 12 months
Vice President, Business Development 05/30/99 $0.12 30,938 55,000 12 months
Matthew Cutler........................... 09/17/99 $0.12 135,000 180,000 12 months
Chief E-Business Intelligence Officer
Eric Richard............................. 09/17/99 $0.12 123,750 165,000 12 months
Chief Technology Officer
Christopher Paul......................... 06/02/99 $0.05 96,250 105,000 12 months
Former Vice President, Engineering 06/02/99 $0.12 140,000 140,000 12 months
</TABLE>
On June 22, 1999, John Delea, our Chief Financial Officer, exercised an
option to purchase 200,000 shares of common stock. Because the shares were
vested under the terms of the option, he was not required to enter into a stock
restriction and repurchase agreement with us. Mr. Delea has options to purchase
an additional 150,000 shares of common stock, which he may exercise at any time,
provided that he enters into an appropriate stock restriction and repurchase
agreement with us. In September 1999, Christopher Paul's employment with us
terminated, and in December 1999 we repurchased from him 166,250 shares of
common stock pursuant to his stock restriction and repurchase agreements.
TERMS OF TRANSACTIONS
We believe that all of the transactions described above were made on terms
no less favorable to us than we would have obtained from unaffiliated third
parties. We have adopted a policy under which all future transactions between us
and any of our directors, executive officers or 5% stockholders must be on terms
no less favorable to us than we would obtain from unaffiliated third parties and
must be approved by a majority of the disinterested members of the board of
directors.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table provides information about the beneficial ownership of
our common stock as of December 15, 1999, by:
- each person or entity known to own beneficially more than five percent of
our common stock
- each of the named executive officers
- each of our directors
- all of our executive officers and directors as a group
In accordance with SEC rules, beneficial ownership includes any shares for
which a person or entity has sole or shared voting power or investment power and
any shares of which the person or entity has the right to acquire beneficial
ownership within 60 days after December 15, 1999 through the exercise of any
option or otherwise. Except as noted below, we believe that the persons named in
the table have sole voting and investment power with respect to the shares of
common stock set forth opposite their names. Percentage of beneficial ownership
is based on 21,338,368 shares of common stock outstanding as of December 15,
1999, including shares into which our outstanding preferred stock will convert
upon completion of this offering, and shares of common stock that will
be outstanding after completion of this offering. All shares included in the
"Right to Acquire" column represent shares subject to outstanding stock options
exercisable within 60 days after December 15, 1999. The address of our executive
officers and directors is in care of net.Genesis Corp., 150 CambridgePark Drive,
Cambridge, Massachusetts 02140.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- --------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Ted R. Dintersmith(1)...................... 3,150,084 -- 3,150,084 14.8%
Charles River Partnership VII.............. 3,150,084 -- 3,150,084 14.8
1000 Winter Street
Waltham, MA 02154
Stephen J. Ricci(2)........................ 2,886,044 -- 2,886,044 13.5
Affiliates of OneLiberty Ventures(3)....... 2,886,044 -- 2,886,044 13.5
150 CambridgePark Drive
10th Floor
Cambridge, MA 02140
Affiliates of Bessemer Venture
Partners(4).............................. 2,774,298 -- 2,774,298 13.0
1400 Old Country Road
Suite 407
Westbury, NY 11590
Lawrence S. Bohn(5)........................ 1,845,000 -- 1,845,000 8.6
Rory O'Driscoll(6)......................... 1,807,228 -- 1,807,228 8.5
Bank of America Ventures................... 1,807,228 -- 1,807,228 8.5
950 Tower Lane
Suite 700
Foster City, CA 94404
John Delea................................. 200,000 150,000 350,000 1.6
Roger Hodskins(7).......................... 280,000 -- 280,000 1.3
David George(8)............................ 160,000 40,000 200,000 *
Christopher Paul........................... 197,083 -- 197,083 *
Robert N. Goldman.......................... 60,855 18,446 79,301 *
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- --------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Kathy Kessel............................... 35,000 -- 35,000 *
Louis Gennaro.............................. 63,200 -- 63,200 *
Kathleen Biro.............................. -- -- -- *
All current executive officers and
directors as a group (13 persons)........ 10,549,211 208,446 10,757,657 49.9%
</TABLE>
- ------------------------------
* Less than one percent.
(1) Represents shares beneficially held by Charles River Partnership VII, of
which Mr. Dintersmith is a general partner. Mr. Dintersmith disclaims
beneficial ownership of all of these shares, except to the extent of his
pecuniary interest in those shares, if any.
(2) Represents shares beneficially held by affiliates of OneLiberty Ventures, of
which Mr. Ricci is a general partner. Mr. Ricci disclaims beneficial
ownership of all of these shares, except to the extent of his pecuniary
interest in those shares, if any.
(3) Represents 2,748,613 shares beneficially held by OneLiberty Fund, IV and
137,431 shares beneficially held by OneLiberty Advisors IV, L.P.
(4) Includes 1,093,096 shares beneficially held by Bessec Ventures IV L.P.,
1,093,095 shares beneficially held by Bessemer Venture Partners IV L.P.,
57,041 shares beneficially held by BVP IV Special Situations L.P. and 45,703
shares beneficially held by BVP Special Situations L.P. Also includes
485,363 shares beneficially held by affiliates of Bessemer Venture Partners
for whom Robert Buescher, a manager of the general partner of Bessemer
Venture Partners IV L.P., holds a power of attorney.
(5) Includes 100,000 shares held by the Justin Bohn Trust and 100,000 shares
held by the Ariel Bohn Trust. Of the outstanding shares held by Mr. Bohn,
960,952 shares do not vest until after 60 days after December 15, 1999 and
are subject to our right to repurchase them if Mr. Bohn's employment is
terminated.
(6) Represents shares beneficially held by Bank of America Ventures, of which
Mr. O'Driscoll is a vice president. Mr. O'Driscoll disclaims beneficial
ownership of all of these shares.
(7) Of the outstanding shares held by Mr. Hodskins, 166,250 shares do not vest
until after 60 days after December 15, 1999 and are subject to our right to
repurchase them if Mr. Hodskins' employment is terminated.
(8) Of the outstanding shares held by Mr. George, 55,588 shares do not vest
until after 60 days after December 15, 1999 and are subject to our right to
repurchase them if Mr. George's employment is terminated.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following is a summary
description of our capital stock.
COMMON STOCK
As of December 15, 1999, there were 21,338,368 shares of common stock
outstanding, assuming the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering. The shares were held
of record by 152 stockholders.
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Holders of common stock are entitled to
receive their proportionate share of dividends, if any, declared from time to
time by the board of directors out of funds legally available for that purpose.
See "Dividend Policy." In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to their proportionate share of all
assets remaining after payment of liabilities, after taking into consideration
the prior distribution rights of any preferred stock then outstanding. Common
stock has no preemptive or conversion rights or other subscription rights. No
redemption or sinking fund provisions apply to the common stock. All outstanding
shares of common stock are fully paid and nonassessable, and the shares of
common stock being offered by us will be fully paid and nonassessable upon the
completion of this offering.
PREFERRED STOCK
Immediately prior to this offering, our certificate of incorporation
provided for six series of preferred stock. Upon the completion of this
offering, each outstanding share of preferred stock will automatically convert
into one share of common stock.
Upon the completion of this offering, the board of directors will be
authorized, without stockholder approval, to issue from time to time up to
5,000,000 shares of preferred stock in one or more series, each series to have
whatever rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, that the
board of directors may determine. The rights of the holders of common stock will
be affected by, and may be adversely affected by, the rights of holders of any
preferred stock that we may issue in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for others to acquire, or of discouraging others from attempting
to acquire, a majority of our outstanding voting stock. We have no current plans
to issue any shares of preferred stock.
WARRANTS
We have outstanding warrants to purchase 279,739 shares at an exercise
price of $1.84 per share. These warrants will expire three years after
completion of this offering. We also have outstanding a warrant to purchase
114,458 shares at an exercise price of $3.32. This warrant will expire upon the
effective date of this offering. We expect the holder of this warrant to
exercise the warrant before that date.
REGISTRATION RIGHTS
After the completion of this offering, the holders of approximately
16,345,998 shares of common stock and warrants to purchase 279,739 shares of
common stock, or their permitted transferees, will be entitled to certain rights
with respect to registration of their shares, or "registrable securities," under
the Securities Act.
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At any time after 180 days following the effective date of the registration
statement for this offering, the holders of at least 50% of the registrable
securities then outstanding can require us to file a registration statement
covering their registrable securities if the reasonably anticipated aggregate
offering price to the public would exceed $7.5 million. In addition, two years
after this offering, holders of registrable securities may require us to
register their shares for public resale on Form S-3 or any successor form if we
are able to use that form and the reasonably anticipated aggregate offering
price to the public would exceed $1.0 million. Furthermore, if we choose to
register any of our shares of common stock or other securities for any public
offering, the holders of registrable securities are entitled to include their
registrable securities in the registration, subject to the right of the managing
underwriter of the offering to reduce the number of shares to be registered in
view of market conditions. This incidental registration right has been waived
with respect to this offering. We will pay all of the expenses of any
registration, other than underwriting discounts and commissions and
extraordinary expenses attributable to any one security holder. If any person
with registration rights holds less than 1% of our outstanding capital stock,
the person's registration rights terminate when the person becomes entitled to
sell all of its shares in any 90-day period under Rule 144 of the Securities
Act.
If our stockholders with registration rights cause a large number of
securities to be registered and sold in the public market, those sales could
cause the market price of our common stock to fall. If we were to initiate a
registration and include registrable securities because of the exercise of
registration rights, the inclusion of registrable securities could adversely
affect our ability to raise capital.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BY-LAWS
Provisions of Delaware law and our certificate of incorporation and by-laws
could make it more difficult to acquire us by means of a tender offer, a proxy
contest, open market purchases, removal of incumbent directors and otherwise.
These provisions, summarized below, are expected to discourage types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging takeover or acquisition proposals
because negotiation of these proposals could result in an improvement of their
terms.
We must comply with Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years following the date the person became an
interested stockholder, unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to an interested
stockholder. An interested stockholder includes a person who, together with
affiliates and associates, owns, or did own within three years before the
determination of interested stockholder status, 15% or more of the corporation's
voting stock. The existence of this provision generally will have an
anti-takeover effect for transactions not approved in advance by the board of
directors, including discouraging attempts that might result in a premium over
the market price for the shares of common stock held by stockholders.
Upon the completion of this offering, our certificate of incorporation and
by-laws will require that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition, upon
the completion of this offering, special meetings of our stockholders may be
called only by the board of directors or some of our officers. Our certificate
of incorporation and by-laws also provide that, effective upon the completion of
this offering, our board of directors will be divided into three classes, with
each class serving staggered three-year terms. These provisions
71
<PAGE> 74
may have the effect of deterring hostile takeovers or delaying changes in our
control or management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the symbol NTGX.
72
<PAGE> 75
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock. We
cannot predict the effect, if any, that sales of shares of common stock to the
public or the availability of shares for sale to the public will have on the
market price of the common stock prevailing from time to time. Nevertheless, if
a significant number of shares of common stock are sold in the public market, or
if people believe that such sales may occur, the prevailing market price of our
common stock could decline and could impair our future ability to raise capital
through the sale of our equity securities.
Giving effect to this offering and the exercise of a warrant, upon
completion of this offering we will have outstanding shares of common
stock, assuming no exercise of any other outstanding options or warrants after
December 15, 1999. Of these shares, the shares sold in this offering
will be freely tradable without restriction under the Securities Act except for
any shares purchased by affiliates of net.Genesis, as that term is defined in
Rule 144 under the Securities Act.
The remaining 21,452,826 shares of common stock were issued and sold by us
in reliance on exemptions from the registration requirements of the Securities
Act and as a result are restricted securities. A total of shares are
subject to lock-up agreements with the underwriters that provide that the
holders of those shares may not dispose of or hedge any common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 180 days after the date of this
prospectus. At any time and without notice, Hambrecht & Quist LLC may, in its
sole discretion, release some or all of the securities from these lock-up
agreements. In addition, holders of stock options and warrants could exercise
these options and warrants and sell the shares issued upon exercise as described
below. The following table describes the number of outstanding shares that will
become eligible for sale in the public market on several relevant dates.
<TABLE>
<CAPTION>
NUMBER OF
SHARES ELIGIBLE
FOR FUTURE
RELEVANT DATES SALE COMMENT
- -------------- --------------- -------
<S> <C> <C>
On effective date...................... Shares eligible for sale under Rule
144(k)
90 days after effective date........... Additional shares eligible for sale
under Rules 144 and 701
180 days after effective date.......... All shares subject to lock-up
agreements released; additional shares
eligible for sale under Rules 144 and
701
More than 181 days after effective
date................................. Additional shares becoming eligible for
sale under Rule 144 more than 180 days
after the effective date
</TABLE>
RULE 144
In general, under Rule 144, an affiliate of net.Genesis, or any person or
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, generally including the holding period of any
prior owner other than an affiliate from whom the holder acquired the shares for
value, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of:
- one percent of the then-outstanding shares of common stock (approximately
shares immediately after this offering)
- the average weekly trading volume during the four calendar weeks before
the date on which the seller files a notice of the proposed sale with the
SEC
73
<PAGE> 76
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements, and information about us must be publicly available. All
holders of Rule 144 shares are required to wait until 90 days after the date of
this prospectus before selling those shares.
RULE 144(k)
Under Rule 144(k), a person who has not been an affiliate of net.Genesis at
any time during the three months before a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, generally including the
holding period of any prior owner other than an affiliate from whom the holder
acquired the shares for value, is entitled to sell those shares without
complying with the volume limitation, manner of sale, notice filing or public
information requirements of Rule 144. Therefore, unless otherwise restricted,
shares eligible for sale under Rule 144(k) may be sold immediately upon the
completion of this offering.
RULE 701
Any of our employees, officers, directors or consultants who purchased
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provision of Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. A total of of the
Rule 701 shares are subject to lock-up agreements.
We are unable to estimate the number of shares that will be sold under
Rules 144, 144(k) and 701 because that number will depend on the market price
for the common stock, the personal circumstances of the sellers and other
factors. Upon the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering, among other things,
shares of common stock covered by outstanding options under our stock plans.
Based on the number of shares covered by outstanding options as of December 15,
1999 and currently reserved for issuance under the stock plans, the registration
statement would cover approximately 6,066,736 shares. The registration statement
will become effective upon filing. Accordingly, shares registered under the
registration statement on Form S-8 will be available for sale in the open market
immediately, after complying with Rule 144 volume limitations applicable to
affiliates, and with applicable 180-day lock-up agreements.
REGISTRATION RIGHTS
After the completion of this offering, holders of approximately 16,345,998
shares of common stock and warrants to purchase 279,739 shares of common stock
will be entitled to specific rights to register those shares for sale in the
public market. See "Description of Capital Stock -- Registration Rights."
Registration of these shares under the Securities Act would result in the shares
becoming freely tradable without restriction under the Securities Act, except
for shares purchased by affiliates, immediately upon the effectiveness of the
registration.
74
<PAGE> 77
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
Deutsche Bank Securities Inc. and U.S. Bancorp Piper Jaffray Inc., have
severally agreed to purchase from us the following numbers of shares of common
stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
Deutsche Bank Securities Inc................................
U.S. Bancorp Piper Jaffray Inc..............................
-------
Total..................................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditioned on the absence of any material adverse change in
our business and the receipt of certificates, opinions and letters from us, our
counsel and our independent auditors. The underwriters are committed to purchase
all shares of common stock offered in this prospectus if any shares are
purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and to dealers at the public offering price less a concession not in
excess of $ per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $ per share to other dealers.
After the public offering of the shares, the underwriters may change the
offering price and other selling terms. The representatives of the underwriters
have informed us that the underwriters do not intend to confirm discretionary
sales in excess of 5% of the shares of common stock offered by this prospectus.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price, less the underwriting
discount set forth on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will have a firm commitment
to purchase a number of shares that approximately reflects the same percentage
of total shares the underwriter purchased in the above table. We will be
obligated to sell shares to the underwriters to the extent the option is
exercised. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of common stock offered in this
prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by net.Genesis. The underwriting
discount was determined based on an arms' length negotiation between the
representatives of the underwriters and net.Genesis. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY NET.GENESIS
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1,000,000. The
offering of the shares is made for delivery when, as and if accepted by the
underwriters and subject to prior sale and to withdrawal,
75
<PAGE> 78
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act, and to contribute to payments the
underwriters may be required to make in respect of those liabilities.
Hambrecht & Quist LLC and its affiliates beneficially own an aggregate of
466,357 shares of our common stock. Hambrecht & Quist LLC also holds a warrant
to purchase 114,458 shares of common stock that will expire upon the effective
date of this offering. We expect Hambrecht & Quist LLC to exercise this warrant
before that date.
All of our stockholders, including all of our executive officers and
directors, have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into shares of common stock owned by them during
the 180-day period following the date of this prospectus. We have agreed that we
will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of common stock, options or warrants to
acquire shares of common stock or securities exchangeable for or convertible
into shares of common stock during the 180-day period following the date of this
prospectus, except that we may issue shares upon the exercise of options granted
prior to the date of this prospectus and may grant additional options under our
stock plans, provided that, without the prior written consent of Hambrecht &
Quist LLC, any additional options shall not be exercisable during the 180-day
period.
At our request, the underwriters have reserved up to shares of
common stock to be sold in the offering and offered for sale, at the public
offering price, to our directors, officers, employees, business associates such
as customers and suppliers and persons related to, or affiliated with the
foregoing persons. The number of shares available for sale to the general public
in the offering will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares not so purchased will be offered to the
general public on the same basis as other shares offered by this prospectus.
Persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or the effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Stabilizing, if commenced, may be discontinued at any time.
Before this offering, there was no public market for the common stock. The
initial public offering price for the common stock will be determined by
negotiations between ourselves and the representatives. Among the factors to be
considered in determining the initial public offering price will be prevailing
market and economic conditions, our revenues and earnings, market valuations of
other companies engaged in activities similar to ours, estimates of our business
potential and prospects, the present state of our business operations, our
management and other factors deemed relevant.
76
<PAGE> 79
LEGAL MATTERS
The validity of the shares offered in this prospectus will be passed upon
for us by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Legal matters will be
passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP.
EXPERTS
The financial statements as of December 31, 1997 and 1998, and for each of
the three years in the period ended December 31, 1998, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for the copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
We intend to send our stockholders annual reports containing audited
financial statements and to make available quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
77
<PAGE> 80
net.GENESIS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1997 and 1998 and
September 30, 1999 (unaudited) and pro forma September 30,
1999 (unaudited)............................................ F-3
Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and for
the nine months ended September 30, 1999 (unaudited)...... F-5
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999 (unaudited)................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of net.Genesis Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of net.Genesis
Corp. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 16, 1999, except as to the information in
Note 13, for which the date is December 20, 1999
F-2
<PAGE> 82
net.GENESIS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
----------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 253,333 $ 2,260,820 $ 15,936,471 $ 15,936,471
Restricted cash........................................... -- 55,000 403,500 403,500
Short-term investments and marketable securities.......... 962,291 -- 542,069 542,069
Accounts receivable, net of allowances for doubtful
accounts of $101,600, $143,800 and $180,000 (unaudited)
at December 31, 1997 and 1998 and September 30, 1999,
respectively............................................ 113,634 706,317 1,855,785 1,855,785
Prepaid expenses and other current assets................. 34,501 46,870 67,000 67,000
----------- ------------ ------------ ------------
Total current assets.................................... 1,363,759 3,069,007 18,804,825 18,804,825
Fixed assets, net........................................... 278,337 797,153 2,342,910 2,342,910
Other assets................................................ -- -- 2,410 2,410
----------- ------------ ------------ ------------
Total assets............................................ $ 1,642,096 $ 3,866,160 $ 21,150,145 $ 21,150,145
=========== ============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations.............. -- -- 116,803 116,803
Current portion of long-term debt......................... 108,997 9,083 942,254 942,254
Accounts payable.......................................... 13,045 90,523 257,729 257,729
Accrued expenses.......................................... 321,195 956,312 1,462,131 1,462,131
Deferred revenue.......................................... 54,995 325,282 1,239,262 1,239,262
----------- ------------ ------------ ------------
Total current liabilities............................... 498,232 1,381,200 4,018,179 4,018,179
Long-term portion of capital lease obligations.............. -- -- 308,536 308,536
Long-term debt.............................................. -- -- 1,864,815 1,864,815
----------- ------------ ------------ ------------
Total liabilities....................................... 498,232 1,381,200 6,191,530 6,191,530
----------- ------------ ------------ ------------
Redeemable convertible preferred stock...................... 5,855,780 13,566,336 35,963,834 --
----------- ------------ ------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity (deficit):
Convertible preferred stock, Series A-1, $.001 par value;
200,000 shares authorized, issued and outstanding at
December 31, 1997 and 1998 and September 30, 1999
(unaudited); none issued and outstanding pro forma
(unaudited)............................................. 49,006 49,006 49,006 --
Convertible preferred stock, Series A-2, $.001 par value;
101,430 shares authorized, issued and outstanding at
December 31, 1997 and 1998 and September 30, 1999
(unaudited); none issued and outstanding pro forma
(unaudited)............................................. 137,349 137,349 137,349 --
Convertible preferred stock, Series A-3, $.001 par value;
624,000 shares authorized, issued and outstanding at
December 31, 1997 and 1998 and September 30, 1999
(unaudited); none issued and outstanding pro forma
(unaudited)............................................. 1,530,502 1,530,502 1,530,502 --
Common stock, $.001 par value; 24,000,000 shares
authorized; 739,061, 2,006,386, 4,264,919 and 21,421,889
issued and outstanding at December 31, 1997 and 1998,
September 30, 1999 (unaudited) and pro forma
(unaudited), respectively............................... 739 2,006 4,265 21,422
Additional paid-in capital.................................. 52,453 114,552 4,447,103 42,110,637
Deferred compensation....................................... (3,817,983) (3,817,983)
Note receivable from stockholder............................ (96,390) (96,390)
Accumulated deficit......................................... (6,481,965) (12,914,791) (23,801,140) (23,801,140)
Accumulated other comprehensive income...................... -- -- 542,069 542,069
----------- ------------ ------------ ------------
Total stockholders' equity (deficit).................... (4,711,916) (11,081,376) (21,005,219) 14,958,615
----------- ------------ ------------ ------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit).............. $ 1,642,096 $ 3,866,160 $ 21,150,145 $ 21,150,145
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 83
net.GENESIS CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue................ $ 481,075 $ 844,983 $ 936,796 $ 536,550 $ 2,271,709
Service revenue.............. 101,800 163,721 631,296 429,800 1,602,253
----------- ----------- ----------- ----------- ------------
Total revenue............. 582,875 1,008,704 1,568,092 966,350 3,873,962
----------- ----------- ----------- ----------- ------------
Cost of revenue:
Cost of product revenue...... 104,856 90,924 231,843 75,528 99,037
Cost of service revenue...... 118,800 548,867 760,868 336,221 1,840,859
----------- ----------- ----------- ----------- ------------
Total cost of revenue..... 223,656 639,791 992,711 411,749 1,939,896
----------- ----------- ----------- ----------- ------------
Gross profit................... 359,219 368,913 575,381 554,601 1,934,066
----------- ----------- ----------- ----------- ------------
Operating expenses:
Sales and marketing.......... 1,562,951 1,271,105 3,045,347 1,845,367 6,067,670
Research and development..... 1,191,942 1,409,959 2,266,022 1,527,428 3,026,120
General and administrative... 381,060 738,383 1,147,571 755,331 2,047,174
Stock-based compensation..... 9,678 -- -- -- 271,889
----------- ----------- ----------- ----------- ------------
Total operating
expenses................ 3,145,631 3,419,447 6,458,940 4,128,126 11,412,853
----------- ----------- ----------- ----------- ------------
Loss from operations........... (2,786,412) (3,050,534) (5,883,559) (3,573,525) (9,478,787)
Other income (loss):
Interest income.............. 82,611 56,925 117,339 80,551 268,666
Interest expense............. (23,351) (17,962) (10,754) (10,380) (357,768)
Loss on disposal of fixed
assets.................... -- (101,420) -- -- (20,000)
Gain on sale of product
lines..................... 111,775 -- -- -- --
Other income................. -- 2,678 4,138 2,986 2,394
----------- ----------- ----------- ----------- ------------
Net loss....................... $(2,615,377) $(3,110,313) $(5,772,836) $(3,500,368) $ (9,585,495)
----------- ----------- ----------- ----------- ------------
Dividends and accretion of
redeemable preferred stock... (118,622) (336,973) (659,990) (410,971) (1,300,854)
Net loss available to common
stockholders................. $(2,733,999) $(3,447,286) $(6,432,826) $(3,911,339) $(10,886,349)
----------- ----------- ----------- ----------- ------------
Basic and diluted net loss
available to common
stockholders per share....... $ (16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11)
=========== =========== =========== =========== ============
Shares used in computing basic
and diluted net loss
available to common
stockholders per share....... 170,511 566,906 792,808 720,605 1,530,892
Unaudited pro forma basic and
diluted net loss per common
share........................ $ (.68) $ (.65)
Shares used in computing
unaudited pro forma basic and
diluted net loss per common
share........................ 8,440,154 14,804,195
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 84
net.GENESIS CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A-1 SERIES A-2 SERIES A-3
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------- ------------------ --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. 200,000 $49,006 101,430 $137,349 624,000 $1,530,502
Issuance of common stock.....................
Forfeiture of common stock...................
Exercise of stock options....................
Accrual of cumulative dividends on Series B
preferred stock and accretion to redemption
value.......................................
Net loss.....................................
------- ------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1996................. 200,000 49,006 101,430 137,349 624,000 1,530,502
Forfeiture of common stock...................
Exercise of stock options....................
Accrual of cumulative dividends on Series B
and Series C preferred stock and accretion
to redemption value.........................
Net loss.....................................
------- ------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1997................. 200,000 49,006 101,430 137,349 624,000 1,530,502
Issuance of common stock.....................
Exercise of stock options....................
Accrual of cumulative dividends on Series B,
Series C and Series D preferred stock and
accretion to redemption value...............
Net loss.....................................
------- ------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1998................. 200,000 49,006 101,430 137,349 624,000 1,530,502
Exercise of stock options (unaudited)........
Deferred compensation related to grants of
stock options (unaudited)...................
Amortization of deferred compensation
(unaudited).................................
Accrual of cumulative dividends on Series B,
Series C, Series D, and Series F preferred
stock and accretion to redemption value
(unaudited).................................
Unrealized gain on short-term investments and
marketable securities (unaudited)...........
Net loss (unaudited).........................
Comprehensive loss...........................
------- ------- ------- -------- ------- ----------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED).... 200,000 $49,006 101,430 $137,349 624,000 $1,530,502
======= ======= ======= ======== ======= ==========
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN DEFERRED FROM
SHARES PAR VALUE CAPITAL COMPENSATION STOCKHOLDER
--------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. 814,992 $ 815 $ 36,597
Issuance of common stock..................... 6,913 7 9,671
Forfeiture of common stock................... (25,500) (26) 26
Exercise of stock options.................... 5,700 6 2,799
Accrual of cumulative dividends on Series B
preferred stock and accretion to redemption
value.......................................
Net loss.....................................
--------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1996................. 802,105 802 49,093
Forfeiture of common stock................... (65,399) (65) 65
Exercise of stock options.................... 2,355 2 3,295
Accrual of cumulative dividends on Series B
and Series C preferred stock and accretion
to redemption value.........................
Net loss.....................................
--------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1997................. 739,061 739 52,453
Issuance of common stock..................... 1,035,000 1,035 50,715
Exercise of stock options.................... 232,325 232 11,384
Accrual of cumulative dividends on Series B,
Series C and Series D preferred stock and
accretion to redemption value...............
Net loss.....................................
--------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1998................. 2,006,386 2,006 114,552
Exercise of stock options (unaudited)........ 2,258,533 2,259 242,679 (96,390)
Deferred compensation related to grants of
stock options (unaudited)................... 4,089,872 (4,089,872)
Amortization of deferred compensation
(unaudited)................................. 271,889
Accrual of cumulative dividends on Series B,
Series C, Series D, and Series F preferred
stock and accretion to redemption value
(unaudited).................................
Unrealized gain on short-term investments and
marketable securities (unaudited)...........
Net loss (unaudited).........................
Comprehensive loss...........................
--------- ------ ---------- ----------- --------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED).... 4,264,919 $4,265 $4,447,103 $(3,817,983) $(96,390)
========= ====== ========== =========== ========
<CAPTION>
ACCUMULATED
OTHER TOTAL COMPREHENSIVE
ACCUMULATED COMPREHENSIVE STOCKHOLDERS' INCOME
DEFICIT INCOME EQUITY (DEFICIT) (LOSS)
------------ ------------- ---------------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. $ (300,680) $ 1,453,589
Issuance of common stock..................... 9,678
Forfeiture of common stock...................
Exercise of stock options.................... 2,805
Accrual of cumulative dividends on Series B
preferred stock and accretion to redemption
value....................................... (118,622) (118,622)
Net loss..................................... (2,615,377) (2,615,377)
------------ -------- ------------ -----------
BALANCE AT DECEMBER 31, 1996................. (3,034,679) (1,267,927)
Forfeiture of common stock...................
Exercise of stock options.................... 3,297
Accrual of cumulative dividends on Series B
and Series C preferred stock and accretion
to redemption value......................... (336,973) (336,973)
Net loss..................................... (3,110,313) (3,110,313)
------------ -------- ------------ -----------
BALANCE AT DECEMBER 31, 1997................. (6,481,965) (4,711,916)
Issuance of common stock..................... 51,750
Exercise of stock options.................... 11,616
Accrual of cumulative dividends on Series B,
Series C and Series D preferred stock and
accretion to redemption value............... (659,990) (659,990)
Net loss..................................... (5,772,836) (5,772,836)
------------ -------- ------------ -----------
BALANCE AT DECEMBER 31, 1998................. (12,914,791) (11,081,376)
Exercise of stock options (unaudited)........ 148,548
Deferred compensation related to grants of
stock options (unaudited)...................
Amortization of deferred compensation
(unaudited)................................. 271,889
Accrual of cumulative dividends on Series B,
Series C, Series D, and Series F preferred
stock and accretion to redemption value
(unaudited)................................. (1,300,854) (1,300,854)
Unrealized gain on short-term investments and
marketable securities (unaudited)........... $542,069 542,069 $ 542,069
Net loss (unaudited)......................... (9,585,495) (9,585,495) (9,585,495)
-----------
Comprehensive loss........................... $(9,043,426)
------------ -------- ------------ ===========
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED).... $(23,801,140) $542,069 $(21,005,219)
============ ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 85
NET.GENESIS CORP.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(2,615,377) $(3,110,313) $(5,772,836) $(3,500,368) $(9,585,495)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 84,376 194,646 256,739 161,005 422,493
Loss on disposal of fixed assets........ -- 101,420 -- -- 20,000
Non-cash interest expense............... -- -- -- -- 62,471
Stock-based compensation expense........ 9,678 -- -- -- 271,889
Increase (decrease) resulting from
changes in operating assets and
liabilities:
Accounts receivable................... (39,214) (39,896) (592,683) (300,605) (1,149,468)
Prepaid expenses and other assets..... (206,920) 179,036 (12,369) (63,018) (22,540)
Deferred revenue...................... 32,083 22,912 270,287 196,131 913,980
Accounts payable...................... 138,227 (150,559) 77,478 166,919 167,206
Accrued expenses...................... 198,539 83,467 635,117 395,396 505,819
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities....................... (2,398,608) (2,719,287) (5,138,267) (2,944,540) (8,393,645)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets............... (492,570) (111,180) (775,555) (504,265) (1,988,250)
Purchases of short-term investments..... (4,209,178) (949,073) -- -- --
Proceeds from sales of short-term
investments........................... 2,188,494 2,007,466 962,291 962,291 --
Proceeds from sale of fixed assets...... -- 12,790 -- -- --
Restricted cash......................... -- -- (55,000) (55,000) (348,500)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities............. (2,513,254) 960,003 131,736 403,026 (2,336,750)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale and leaseback of
fixed assets.......................... -- -- -- -- 425,339
Principal payments of capital lease
obligations........................... (3,907) -- -- -- --
Proceeds from issuance of debt.......... 242,052 -- -- -- 3,000,000
Repayment of debt....................... -- (133,055) (99,914) (81,749) (9,083)
Issuance of common stock................ -- -- 51,750 51,750 --
Proceeds from issuance of redeemable
convertible preferred stock, net of
issuance costs........................ 3,963,045 1,437,140 7,050,566 7,050,566 20,841,242
Proceeds from exercise of stock
options............................... 2,805 3,297 11,616 11,089 148,548
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities....................... 4,203,995 1,307,382 7,014,018 7,031,656 24,406,046
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................. (707,867) (451,902) 2,007,487 4,490,142 13,675,651
Cash and cash equivalents, beginning of
period.................................. 1,413,102 705,235 253,333 253,333 2,260,820
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period.................................. $ 705,235 $ 253,333 $ 2,260,820 $ 4,743,475 $15,936,471
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Dividends and accretion of preferred
stock................................. $ 118,622 $ 336,973 $ 659,990 $ 410,971 $ 1,300,854
Interest paid........................... $ 23,351 $ 18,691 $ 10,755 $ 10,381 $ 286,994
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations
for sale and leaseback of fixed
assets................................ -- -- -- -- $ 425,339
Convertible preferred stock warrants
issued and recorded as debt
discount.............................. -- -- -- -- 255,402
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 86
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF FINANCIAL STATEMENTS
net.Genesis offers e-customer intelligence solutions that enable companies
to understand and improve their online businesses. The Company's flagship
software product, net.Analysis, combines information about web site visitor
behavior with an organization's other online and offline customer data to
improve its ability to market, sell and support products, services and content
online. The Company's solution enables customers to better tailor and target
their marketing initiatives, increase the e-commerce effectiveness of their web
sites, provide more relevant and cost-effective content, improve web site
design, better allocate advertising and partnership resources, and improve web
site infrastructure planning. The Company operates in one business segment and
its principal markets are the domestic and international business markets. In
addition, the Company provides consulting, training, maintenance and support
services to facilitate the installation and use of its software.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the
financial statements are as follows:
Interim Financial Information
The financial statements of the Company as of September 30, 1999 and for
the nine months ended September 30, 1998 and 1999 are unaudited. All adjustments
(consisting only of normal recurring adjustments) have been made which, in the
opinion of management, are necessary for a fair presentation. Results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999 or for any other future period.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B, C, D, and F convertible preferred stock will
automatically convert on a 1-for-1 basis to approximately 17,156,970 shares of
the Company's common stock assuming an offering price of greater than $6.64 per
share. The unaudited pro forma presentation of the balance sheet has been
prepared assuming the conversion of the convertible preferred stock into common
stock as of September 30, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
Cash Equivalents, Short-term Investments and Marketable Securities
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company invests its
excess cash primarily in a money market account which is managed by a financial
institution with a strong credit rating. Accordingly, these investments are
subject to minimal credit and market risk and are classified as
available-for-sale. At
F-7
<PAGE> 87
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997 and 1998, and September 30, 1999 (unaudited) the Company's
cash equivalents consisted of certificates of deposit and money market funds
totaling approximately $121,000, $1,860,000 and $15,936,471, respectively. The
carrying amount in the financial statements approximates fair value because of
the short maturity and holding period of these instruments.
At December 31, 1997, all of the Company's short-term investments and
marketable securities consist of certificates of deposit and U.S. Government
obligations, with maturities less than one year, and are classified as
available-for-sale. Short-term investments at December 31, 1997 are recorded at
cost plus accrued interest, which approximates market. Gross unrealized gains
and losses as of December 31, 1997 and realized gains and losses on sales of
securities for the years ended December 31, 1997 and 1998 were not significant.
(Unaudited)
At September 30, 1999, all of the Company's short-term investments and
marketable securities consist of common stock recorded at fair value and
classified as available for sale.
Restricted Cash
Restricted cash represents a deposit held at a major financial institution
as collateral for letters of credit that secure the Company's payroll liability,
office lease and leases of certain of the Company's fixed assets.
Revenue Recognition
SOP No. 97-2, as amended, was adopted by the Company in the fiscal year
beginning January 1, 1998. The Company generates several types of revenue,
including the following:
License Fees
The Company's standard end user license agreement for the Company's
products provides for an initial fee to use the product in perpetuity up to a
maximum number of users. The Company also enters into other license agreement
types, typically with major end user customers, which allow for the use of the
Company's products, usually restricted by the number of employees, the number of
users, number of servers or the license term. Fees from licenses are recognized
as revenue when a contract has been executed and the product has been delivered,
provided fees are fixed or determinable and collection is probable. Revenue
under arrangements where multiple products or services are sold together under
one contract is allocated to each element based on their relative fair values,
with these fair values being determined using the price charged when that
element is sold separately. License fees from software sold together with
services are generally recognized upon delivery of the software provided that
the above criteria have been met and the services are not essential to the
functionality of any other element of the transaction. In instances where the
aforementioned criteria have not been met, both the license and consulting fees
are recognized under the percentage of completion method of contract accounting,
based upon the proportion of hours expended to total estimated hours at
completion. Losses, if any, on fixed price contracts are recognized when the
loss is determined.
Service and Support Agreements
The Company provides consulting, installation and training services to its
customers. Revenue from such services is generally recognized over the period
during which the applicable service is to be performed or on a
services-performed basis. Support agreements generally call for the Company
F-8
<PAGE> 88
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to provide technical support and software updates to customers. Revenue for
support agreements is recognized ratably over the term of the support agreement
and is included in services revenue in the accompanying statements of
operations.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, short-term investments and marketable securities, accounts
receivable, capital lease obligations, debt and redeemable convertible preferred
stock, approximate their fair values at December 31, 1998.
Concentrations of Credit Risk, Significant Customers and Revenue by Geographic
Region
Financial instruments which potentially expose the Company to
concentrations of credit risk include accounts receivable. The Company performs
ongoing evaluations of customers' financial condition and does not generally
require collateral. The Company maintains reserves for potential credit losses,
which in the aggregate, have not exceeded management's expectations.
At December 31, 1998, accounts receivable from one customer accounted for
approximately 13% of total accounts receivable. At December 31, 1997, no
receivable accounted for more than 10% of total accounts receivable.
During the year ended December 31, 1998, revenue from each of two customers
accounted for approximately 14% of total revenue. During the year ended December
31, 1997, no customer accounted for more than 10% of total revenue. During the
year ended December 31, 1996, revenue from one customer accounted for
approximately 15% of total revenue.
The Company markets its products and related services to customers in many
industries, principally in the United States, Europe and Australia. Revenue by
geographic region is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
United States................................... $497,698 $ 813,577 $1,194,639
Europe.......................................... 78,469 176,299 338,162
Australia....................................... 6,708 18,828 35,291
-------- ---------- ----------
Total........................................... $582,875 $1,008,704 $1,568,092
======== ========== ==========
</TABLE>
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Capital leases and
leasehold improvements are amortized over the lease life or the estimated useful
life of the asset. Upon retirement or sale, the costs of the assets disposed and
the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the determination of income. Maintenance
and repair costs are charged to expense as incurred. Estimated useful lives
generally range from three to five years.
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products
are expensed as incurred. Software development costs incurred subsequent to the
establishment of technological feasibility are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased or Otherwise
F-9
<PAGE> 89
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Marketed." No software development costs were capitalized during 1996, 1997 or
1998 since costs incurred subsequent to the establishment of technological
feasibility were not significant.
Advertising Expense
The Company recognizes advertising expense as incurred. Advertising expense
was approximately $60,000, $93,000 and $49,000 for the years ended December 31,
1996, 1997, and 1998, respectively.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company has adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," through disclosure only (Note 8).
Net Loss per Share and Unaudited Pro Forma Net Loss per Share
Basic and diluted net loss available to common stockholders per share is
computed by dividing loss available to common stockholders by the weighted
average number of shares of common stock outstanding during the period,
excluding shares of common stock subject to repurchase. Diluted net loss
available to common stockholders per share does not differ from basic net loss
per share since potential common shares from conversion of preferred stock and
exercise of stock options and warrants are anti-dilutive for all periods
presented. Unaudited pro forma basic and diluted net loss available to common
stockholders per share have been calculated assuming the conversion of all
outstanding shares of preferred stock into common shares, as if the shares had
converted immediately upon their issuance.
Recently Enacted Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Because the Company does not currently hold any derivative
instruments and does not currently engage in hedging activities, the Company
expects that adoption of SFAS No. 133 will not have a material impact on its
financial position or operating results.
3. ACCOUNTS RECEIVABLE
Provisions for doubtful accounts charged to the statement of operations
were $128,000, $3,992 and $42,215 in 1996, 1997 and 1998, respectively, and
write-offs against the allowances were $15,625, $14,774 and $0 in 1996, 1997 and
1998, respectively.
F-10
<PAGE> 90
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ---------------------- SEPTEMBER 30,
IN YEARS 1997 1998 1999
----------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures.............. 5 $ 32,642 $ 67,747 $ 247,818
Computer equipment and software..... 3 488,240 1,220,707 2,876,232
Leasehold improvements.............. 5 10,730 18,713 151,367
-------- ---------- ----------
531,612 1,307,167 3,275,417
Less -- accumulated depreciation.... 253,275 510,014 932,507
-------- ---------- ----------
$278,337 $ 797,153 $2,342,910
======== ========== ==========
</TABLE>
5. CAPITAL LEASE AND BORROWINGS
In January 1999, the Company entered into an agreement with a leasing
company to establish a line of credit that enabled the Company to finance up to
$1,000,000 in purchases of property and equipment under capital leases (the
"lease line"). Each borrowing under the lease line is payable in equal monthly
installments over a period of 36 months and bears interest at a rate of 9% per
annum. In connection with this agreement, the Company granted warrants to
purchase 35,307 shares of the Company's Series E preferred stock at an exercise
price equal to $1.84 per share. These warrants are exercisable immediately and
expire five years from the grant date, or three years from the effective date of
an initial public offering, whichever is earlier. There is $425,339 outstanding
on the lease line at September 30, 1999 (unaudited). The future minimum lease
payments as of September 30, 1999 are $478,824 (unaudited).
(Unaudited)
During 1999, the Company sold and immediately leased back certain equipment
under the lease line. Total computer equipment of $425,339 was purchased under
the lease line. Amortization of property and equipment under capital leases
totaled $59,075 during the nine months ended September 30, 1999 and is included
in depreciation expense. Interest expense relating to capital lease obligations
totaled $13,890 for the nine months ended September 30, 1999.
In January 1999, the Company entered into a subordinated debt agreement
providing for borrowings of up to $4,000,000. The subordinated debt is payable
in 36 monthly payments and bears interest at a rate of 13.5%. At September 30,
1999, the Company had $3,000,000 outstanding under the agreement (unaudited).
In connection with the subordinated debt, the Company granted warrants to
purchase 244,432 shares of the Company's Series E redeemable convertible
preferred stock at an exercise price equal to $1.84 per share. These warrants
are exercisable immediately and expire five years from the grant date, or three
years from the effective date of an initial public offering, whichever is
earlier. The value ascribed by management to the value of these warrants and the
warrants issued with respect to the lease line was $255,402. The warrant value
was recorded as a debt discount and is being amortized to interest expense over
the term of the loans.
The subordinated debt and the lease line are secured by substantially all
assets of the Company. Under these agreements, the Company is required to comply
with certain covenants. The Company is in compliance with these covenants for
all periods presented.
F-11
<PAGE> 91
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In February 1996, the Company entered into a Credit Agreement for a working
capital line of credit and for an equipment term loan providing for eligible
borrowings of up to $300,000 and $250,000, respectively, at prime lending rates
plus 1% and 1 1/2%, respectively (8.75% and 9.25% at December 31, 1998,
respectively). Eligible borrowings under both the line and the term loan are
based on accounts receivable and other assets and determined according to a
formula defined in the Credit Agreement. The line of credit terminated on
February 19, 1997 and all outstanding principal and interest were paid on that
date. Borrowings under the equipment term loan are payable in monthly principal
installments of $9,083 plus interest, beginning July 1996 through December 1998.
The borrowings under the equipment term loan are secured by all of the Company's
assets and are subject to compliance tests and restrictions. At December 31,
1998, the Company had $9,083 outstanding under the equipment term loan.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE PREFERRED STOCK
In June 1998, the Company decreased the number of authorized shares of
Series C Redeemable Convertible Preferred Stock from 6,400,000 shares to
3,000,000 in connection with the issuance of the Series D Redeemable Convertible
Preferred Stock.
In December 1998, the Company authorized 858,333 shares of the newly
designated Series E Redeemable Convertible Preferred Stock.
In June 1999, as payment for certain services associated with the issuance
of the Series F Preferred Stock, the Company issued warrants to purchase 114,458
shares of Series F preferred stock with an exercise price of $3.32 per share.
The warrants are exercisable immediately and expire five years from the date of
grant or, if earlier, at the effective date of the Company's initial public
offering.
The Series A Convertible Preferred Stock ("Series A Preferred Stock") is
comprised of three subseries (the "Series A-1 Preferred Stock," "Series A-2
Preferred Stock," and "Series A-3 Preferred Stock").
The Series B, Series C, Series D, and Series F Preferred Stock is
redeemable on or after June 30, 2004 over a 3 year period at the option of the
holders at redemption prices of $5.15, $.50, $1.20, and $3.32 per share,
respectively, plus any accrued but unpaid dividends.
Required redemption amounts for Series B, Series C, Series D and Series F
Preferred Stock, excluding any cumulative and unpaid dividends are as follows:
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES F
REDEMPTION REDEMPTION REDEMPTION REDEMPTION
YEAR AMOUNT AMOUNT AMOUNT AMOUNT
- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
2004.............................. $1,333,333 $488,053 $2,360,000 $7,333,333
2005.............................. $1,333,333 $488,053 $2,360,000 $7,333,333
2006.............................. $1,333,333 $488,053 $2,360,000 $7,333,333
</TABLE>
F-12
<PAGE> 92
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Redeemable convertible preferred stock consists of
the following:
Redeemable convertible preferred stock, Series F,
$.001 par value; 6,805,000 shares authorized;
6,626,508 shares issued and outstanding at September
30, 1999 (unaudited); at issuance cost plus
accumulated accretion and dividends................. $ -- $ -- $21,483,327
Redeemable convertible preferred stock, Series E,
$.001 par value; 858,333 shares authorized at
December 31, 1998; 279,739 shares authorized at
September 30, 1999; none issued and outstanding
at December 31, 1998 and September 30, 1999
(unaudited).................................... -- -- --
Series E redeemable convertible preferred stock
warrants....................................... 255,402
Redeemable convertible preferred stock, Series D,
$.001 par value; 5,900,000 shares authorized;
5,899,999 issued and outstanding at December
31, 1998 and September 30, 1999 (unaudited); at
issuance cost plus accumulated accretion and
dividends...................................... -- 7,327,800 7,699,501
Redeemable convertible preferred stock, Series C,
$.001 par value; 3,000,000 shares authorized;
2,928,316 shares issued and outstanding at
December 31, 1997 and 1998 and September 30,
1999 (unaudited); at issuance cost plus
accumulated accretion and dividends............ 1,494,115 1,596,871 1,673,938
Redeemable convertible preferred stock, Series B,
$.001 par value; 776,718 shares authorized;
776,717 issued and outstanding at December 31,
1997 and 1998 and September 30, 1999
(unaudited); at issuance cost plus accumulated
accretion and dividends........................ 4,361,665 4,641,665 4,851,666
---------- ----------- -----------
Total redeemable convertible preferred
stock................................... $5,855,780 $13,566,336 $35,963,834
========== =========== ===========
</TABLE>
Conversion
Each share of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock is convertible at any time at the option of the holder
into shares of common stock at a ratio of one share of common stock for each
share of Preferred Stock, subject to certain anti-dilution adjustments. In
addition, the conversion ratio is subject to adjustment, as defined in the
agreement, in the event that the Company issues common stock or preferred stock
at a per share price less than the original purchase prices for all series of
Preferred Stock.
The Series A, Series B, Series C, Series D, Series E and Series F Preferred
Stock will automatically convert to common stock immediately prior to the
closing of a public offering of the Company's common stock resulting in gross
proceeds of at least $20,000,000 based on an offering price per share of not
less than $6.64.
F-13
<PAGE> 93
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Dividends
Dividends on the Series A Preferred Stock are payable when and if declared
by the Board of Directors. Through December 31, 1998, no dividends have been
declared or paid by the Company.
The holders of Series B, Series C, Series D, Series E and Series F
Preferred Stock are entitled to receive cumulative dividends at an annual rate
of 7% of the original purchase price. Dividends are payable whether or not
declared. Cumulative and unpaid dividends on Series B, Series C and Series D
Preferred Stock were $641,665, $132,712 and $247,800 at December 31, 1998,
respectively.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, the holders of the Series B, Series C, Series D, Series E and
Series F Preferred Stock are entitled to receive on a pro rata basis, prior and
in preference to the holders of other preferred or common stock, $5.15 per
share, $.50 per share, $1.20 per share, $1.84 per share and $3.32 per share,
respectively, plus all accrued and unpaid dividends.
The holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock and
Series A-3 Preferred Stock will be entitled to receive in preference to the
holders of the common stock an amount equal to $.25, $1.38 and $2.50,
respectively, plus any accrued but unpaid dividends.
Voting Rights
Each holder of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock is entitled to the number of votes equal to the number
of shares of common stock into which such holder's shares are convertible at the
record date for such vote.
Holders of the Series B, Series C, Series D, Series E and Series F
Preferred Stock are also entitled to vote together as a separate class to
approve or reject certain transactions, including mergers and certain changes to
equity.
7. COMMON STOCK
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders.
In October 1997, the Board of Directors authorized a 1:5 reverse stock
split of the Company's common stock. All common share and per share amounts
included in the accompanying financial statements and notes thereto have been
adjusted to reflect the reverse stock split.
In June 1998, the Company increased the number of authorized shares of
common stock from 11,697,872 to 17,500,000 shares.
In June 1999, the Company increased the number of authorized shares of
common stock from 17,500,000 to 24,000,000 shares.
The Company has reserved 18,955,783 (unaudited) shares of common stock for
the conversion of the Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock and for the exercise of outstanding options at
September 30, 1999.
F-14
<PAGE> 94
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock Restriction Agreements
The Company has entered into stock restriction agreements with certain
common stockholders. The agreements provide that in the event that any
individual who is a party to such agreement is no longer employed by the
Company, the Company may repurchase all shares that are not vested at the time
the individual ceases to be employed by the Company. These shares generally vest
over four years, as defined in the agreements. At December 31, 1998 and
September 30, 1999, approximately 959,378 and 2,033,291 (unaudited) shares of
common stock, respectively, are subject to repurchase.
8. 1995 STOCK OPTION PLAN
The 1995 Incentive Stock Option Plan (the "Plan") provides for the grant of
incentive stock options and nonqualified stock options. The Board of Directors
is responsible for administration of the Plan. The Board of Directors determines
the term of each option, option exercise price, number of shares for which each
option is granted and the rate at which each option is exercisable. Options
generally vest ratably over four years. Options granted under the Plan generally
expire ten years from the date of the grant.
Nonqualified stock options may be granted to any officer, employee,
director or consultant at an exercise price per share as determined by the
Company's Board of Directors.
In July 1998, the Company increased the number of options available for
grant under the Plan from 500,000 to 4,000,000.
In September 1999, the Company increased the number of options available
for grant under the Plan from 4,000,000 to 5,000,000 (unaudited).
Transactions under the 1995 Stock Option Plan for the years ended December
31, 1996, 1997, and 1998 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding -- December 31, 1995............................ 53,408 $1.30
Granted..................................................... 222,740 1.40
Exercised................................................. (5,700) .49
Canceled.................................................. (6,488) 1.40
----------
Outstanding -- December 31, 1996............................ 263,960 1.40
Granted................................................... 1,562,144 .29
Exercised................................................. (2,355) 1.40
Canceled.................................................. (638,551) 1.18
----------
Outstanding -- December 31, 1997............................ 1,185,198 .06
Granted................................................... 3,546,400 .11
Exercised................................................. (232,325) .05
Canceled.................................................. (1,392,911) .06
----------
Outstanding -- December 31, 1998............................ 3,106,362 .11
</TABLE>
As of December 31, 1996, 1997 and 1998, 13,558, 55,265 and 427,518 options
were exercisable, respectively, under the Plan. The weighted average fair value
of options granted during 1996, 1997
F-15
<PAGE> 95
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and 1998 was $.40, $.08 and $.03, respectively. All options were granted at
exercise prices equal to the fair market value of the Company's common stock at
the date of grant.
During 1997, the Company's Board of Directors determined that, because
certain stock options held by employees of the Company had an exercise price
significantly higher than the fair value of the Company's common stock, such
stock options were not providing the incentive intended. Accordingly, in
September 1997, options to purchase 468,220 shares of common stock with an
exercise price of $1.40 per share were canceled and reissued at a price of $.05
per share. The exercise price of the repriced options equaled the fair market
value of the Company's common stock on the date of repricing.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF REMAINING NUMBER OF
OPTIONS CONTRACTUAL LIFE OPTIONS
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISABLE
- -------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.05......................................... 584,862 9.06 97,668
$0.11......................................... 2,520,400 9.55 328,750
$1.40......................................... 1,100 7.41 1,100
--------- -------
3,106,362 427,518
========= =======
(Unaudited)
</TABLE>
During the nine months ended September 30, 1999, the Company issued options
to certain employees under the Plan with exercise prices below the amount
subsequently determined to be the fair market value of the common stock at the
date of grant for financial reporting purposes. In accordance with the
requirements of APB 25, the Company has recorded deferred compensation for the
differences between the exercise price of the options and the deemed fair market
value of the Company's stock at the date of grant. This deferred compensation is
amortized to expense over the vesting periods, generally four years.
As discussed in Note 2, the Company has adopted SFAS 123 through disclosure
only. Had compensation cost for the Company's option plan been determined based
on the fair value of the options at the grant dates, as prescribed in SFAS 123,
the Company's net loss and basic and diluted net loss per share on a pro forma
basis would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss
As reported................................. $(2,615,377) $(3,110,313) $(5,772,836)
Pro forma................................. (2,635,936) (3,144,083) (5,822,306)
Basic and diluted net loss available to
common stockholders per share
As reported............................... $ (16.03) $ (6.08) $ (8.11)
Pro forma................................. (16.15) (6.14) (8.18)
</TABLE>
F-16
<PAGE> 96
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield................................ 0 0 0
Risk-free interest rate................................ 5 - 7% 5 - 7% 5 - 7%
Weighted average expected life......................... 5 years 5 years 5 years
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors noted above, and because additional option grants are
expected to be made and options vest over several years, the above pro forma
disclosures are not representative of the pro forma effects on reported net
income or loss for future years.
9. INCOME TAXES
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards............ $ 1,119,000 $ 2,013,000 $ 4,401,000
Research and development credit
carryforwards............................... 161,000 173,000 270,000
Other temporary differences................. 86,000 150,000 295,000
----------- ----------- -----------
Gross deferred tax assets................. 1,366,000 2,336,000 4,966,000
Deferred tax asset valuation allowance...... (1,366,000) (2,336,000) (4,966,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company has provided a full valuation allowance for the deferred tax
assets since it is more likely than not that these future benefits will not be
realized. If the Company achieves future profitability, a significant portion of
these deferred tax assets could be available to offset future income taxes.
At December 31, 1998, the Company has federal and state net operating loss
and research and development tax credit carryforwards of approximately
$10,688,000 and $315,000, respectively, available to reduce future federal and
state income taxes payable. These net operating loss carryforwards and credits
expire through 2018.
Certain substantial changes in the Company's ownership occurred during 1997
and 1996. As a result, under the provisions of Section 382 of the Internal
Revenue Code, the amount of net operating loss carryforwards available annually
to offset future taxable income is limited. The amount of this annual limitation
is determined based upon the Company's value prior to the ownership changes
taking place. Subsequent significant ownership changes could further affect the
limitation in future years.
F-17
<PAGE> 97
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities, certain computer equipment and furniture
and fixtures under noncancelable operating leases.
Future lease obligations as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ------------------------ ----------
<S> <C>
1999........................................................ $ 346,645
2000........................................................ 344,266
2001........................................................ 334,764
----------
Total minimum lease payments.............................. $1,025,675
==========
</TABLE>
Rental expense under operating leases for the years ended December 31,
1996, 1997 and 1998 was $80,838, $200,966 and $268,681, respectively.
The Company is from time to time subject to legal proceedings and claims
which arise in the normal course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not have a
material adverse affect on the Company's financial position or results of
operations.
Royalty Agreements
The Company maintains several agreements under which the Company has
obtained the right to use technology related to certain software developed by
others. In exchange, the Company is required to pay royalties as a fixed
percentage of software sales as stipulated in the royalty agreements. Royalty
expense of approximately $35,500, $34,500 and $149,500 was incurred for the
years ended December 31, 1996, 1997 and 1998, respectively.
F-18
<PAGE> 98
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. NET LOSS PER COMMON SHARE
The following is a calculation of net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss................................. $(2,615,377) $(3,110,313) $(5,772,836) $(3,500,368) $ (9,585,495)
Dividends and accretion of redeemable
preferred stock...................... (118,622) (336,973) (659,990) (410,971) (1,300,854)
----------- ----------- ----------- ----------- ------------
Net loss available to common
stockholders......................... (2,733,999) (3,447,286) (6,432,826) (3,911,339) (10,886,349)
----------- ----------- ----------- ----------- ------------
Weighted average shares.............. 803,185 765,488 1,473,680 1,295,380 2,913,828
Weighted average unvested common
shares subject to repurchase....... (632,674) (198,582) (680,872) (574,775) (1,382,936)
----------- ----------- ----------- ----------- ------------
Total weighted average shares.......... 170,511 566,906 792,808 720,605 1,530,892
----------- ----------- ----------- ----------- ------------
Net loss available to common
stockholders per share:
Basic and diluted.................... $ (16.03) $ (6.08) $ (8.11) $ (5.43) $ (7.11)
=========== =========== =========== =========== ============
Pro Forma:
Net loss............................... $(5,772,836) $ (9,585,495)
----------- ------------
Weighted average common shares, basic
and diluted.......................... 792,808 1,530,892
Conversion of convertible preferred
stock................................ 7,647,346 13,273,303
----------- ------------
Total weighted average shares............ 8,440,154 14,804,195
=========== ============
Pro forma net loss per share:
Basic and diluted...................... $ (0.68) $ (0.65)
=========== ============
</TABLE>
Options to purchase shares of the Company's common stock totaling 263,960,
1,185,198 and 3,106,362 at December 31, 1996, 1997, and 1998 were outstanding
but were not included in the computations of diluted earnings per share as the
inclusion of these shares would have been anti-dilutive.
12. 401(K) PLAN
In January 1997, the Company adopted an employee savings and retirement
plan which covers all employees and is qualified under Section 401 of the
Internal Revenue Code. Employees may elect to make voluntary contributions to
the 401(k) plan, based on a percentage of their pretax earnings, up to the
statutorily prescribed annual limit. The Company may make matching or additional
contributions to the 401(k) plan in amounts determined annually by the Board of
Directors. Through December 31, 1998 the Company has made no contributions to
the 401(k) plan.
13. SUBSEQUENT EVENTS
1999 Stock Incentive Plan
In December 1999, the Company adopted its 1999 stock incentive plan and
reserved 3,500,000 shares of common stock for issuance under the plan. As of
December 15, 1999, no options had been granted under the 1999 plan. The 1999
plan authorizes the grant of incentive options and nonqualified options and also
provides for awards of stock appreciation rights, performance shares, restricted
stock and other stock-based awards.
F-19
<PAGE> 99
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Incentive options may be granted under the 1999 plan to key employees of
the Company and its affiliates within the meaning of the internal Revenue Code,
including officers and directors as well as officers and directors of the
Company's affiliates who are also employees. The exercise price of incentive
options granted under the 1999 plan must be at least equal to the fair market
value of the common stock on the date of grant. The exercise price of incentive
options granted to an optionee who owns stock possessing more than 10% of the
voting power of our outstanding capital stock must be at least equal to 110% of
the fair market value of the common stock on the date of grant, and such
optionee must exercise his or her option within five years from the date of the
grant of such option.
Additionally, the Company may grant nonqualified options to its officers
and other employees, directors, and other individuals providing services to the
Company. There are no limits on the exercise price of nonqualified options
granted under the 1999 plan.
The 1999 plan is administered by the compensation committee of the board of
directors. The compensation committee selects the individuals to whom options
will be granted and determines the option exercise price and other terms of each
award, subject to the provisions of the 1999 plan.
1999 Employee Stock Purchase Plan
In December 1999, the Company adopted its 1999 employee stock purchase plan
and reserved 300,000 shares of common stock for issuance under the plan.
Under the terms of the stock purchase plan, all employees who have
completed three months of employment and whose customary employment is more than
20 hours per week and more than five months in the calendar year are eligible to
participate in the stock purchase plan. Employees who own stock and hold
outstanding options to purchase stock representing five percent or more of the
total combined voting power or value of all classes of the Company's stock are
not eligible to participate in the stock purchase plan.
At the commencement of each designated payroll deduction period, or
offering period, an eligible employee may authorize the Company to deduct
between 1% to 10%, in increments of 1%, of his or her base pay. On the last
business day of the offering period, the Company will deem the employee to have
exercised the option, at the exercise option price, to the extent of accumulated
payroll deductions. The purchase price will be 85% of the closing market price
of the common stock on either (a) the first business day of the offering period
or (b) the last business day of the offering period, whichever is lower.
F-20
<PAGE> 100
Back Cover:
Graphic depiction entitled "Our Solution is Comprised of Software and
Professional Services." The graphic presents boxes depicting the professional
services included in the net.Analysis solutions, including Strategic Analytic
Consulting Services, Product Implementation and Application Integration Services
and Training and Support" with arrows linking the various elements to indicate
their interrelationships.
At the right side of the graphic appears the following text: "net.Genesis
Professional Services enable customers to plan, implement and evaluate cost-
effective e-customer intelligence strategies."
Below the graphic appears the following text: "net.Genesis has three primary
distribution channels: Solutions Providers, net.Genesis Direct Sales
and Strategic Technology Relationships."
At the bottom of the artwork are graphic depictions of customer web sites.
<PAGE> 101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
HAMBRECHT & QUIST
DEUTSCHE BANC ALEX. BROWN
------------------------
U.S. BANCORP PIPER JAFFRAY
------------------------
, 2000
------------------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by us in connection
with the sale of the common stock being registered, other than the underwriting
discounts and commissions. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,480
NASD filing fee............................................. 7,500
Nasdaq National Market listing fee.......................... 95,000
Accounting fees and expenses................................ 300,000
Legal fees and expenses..................................... 400,000
Blue Sky fees and expenses.................................. 15,000
Transfer agent fees......................................... 15,000
Printing and engraving expenses............................. 100,000
Miscellaneous............................................... 49,020
----------
Total............................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a Delaware
corporation to indemnify its present and former directors and officers under
certain conditions. Article Seventh of our certificate of incorporation provides
that we shall indemnify each person who at any time is, or shall have been, one
of our directors or officers and 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 or she is or was one of our directors or officers, or is or was serving
at our request as a director, officer, trustee of, or in similar capacity with,
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement incurred in connection with any such action, suit or proceeding,
to the maximum extent permitted by the Delaware General Corporation Law, as
currently in effect or amended in the future. No amendment to or repeal of the
provisions of Article Seventh of our certificate of incorporation shall deprive
a director or officer of the benefit of those Articles with respect to any act
or failure occurring prior to such amendment or repeal.
Section 102(b)(7) of the Delaware General Corporation Law authorizes a
Delaware corporation to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that the provision may not
eliminate or limit the liability of directors for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders
- any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
- any payment of a dividend or approval of a stock purchase that is illegal
under Section 174 of the Delaware General Corporation Law
- any transaction from which the director derived an improper personal
benefit
Article Ninth of our certificate of incorporation provides that, to the
maximum extent permitted by the Delaware General Corporation Law, none of our
directors shall be personally
II-1
<PAGE> 103
liable to us or to any of our stockholders for monetary damages arising out of
that director's breach of fiduciary duty as one of our directors. No amendment
to or repeal of the provisions of Article Ninth shall apply to or have any
effect on the liability or the alleged liability of any of our directors with
respect to any act or failure to act of that director occurring before the
amendment or repeal. A principal effect of Article Ninth is to limit or
eliminate the potential liability of our directors for monetary damages arising
from breaches of their duty of care, unless the breach involves one of the four
exceptions described above.
Section 145 of the Delaware General Corporation Law also authorizes a
Delaware corporation to obtain insurance on behalf of its directors and officers
against liabilities incurred by them in those capacities. We have procured a
directors' and officers' liability and company reimbursement liability insurance
policy that insures (a) our directors and officers against losses, above a
deductible amount, arising from specified types of claims made against them by
reason of enumerated acts done or attempted by our directors or officers and (b)
us against losses, above a deductible amount, arising from any of the specified
types of claims, but only if we are required or permitted to indemnify our
directors or officers for those losses under statutory or common law or under
provisions of our certificate of incorporation or by-laws.
The preceding discussion gives effect to amendments of our certificate of
incorporation and by-laws that will become effective upon completion of the
offering contemplated by this Registration Statement.
Please also see section 7 of the underwriting agreement relating to the
offering, to be filed as Exhibit 1.1 to this Registration Statement, for
indemnification arrangements between us and the underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 15, 1996, we have issued and sold unregistered securities as
described below.
From December 15, 1996 through the date of this registration statement, we
issued options to purchase a total of 6,716,894 shares of our common stock to
our employees and options to purchase 109,500 shares of our common stock to our
directors and consultants.
From December 15, 1996 through the date of this registration statement, we
issued and sold an aggregate of 2,580,738 shares of common stock to our
employees, directors and consultants upon exercise of options previously granted
to them, at per share prices ranging from $0.05 to $1.40. We realized aggregate
proceeds of $268,004 from these sales.
On May 28, 1998, we issued and sold 1,035,000 shares of common stock to our
President and Chief Executive Officer, Lawrence S. Bohn, for proceeds of
$51,750, or $0.05 per share.
On September 12, 1997, we sold 2,928,316 shares of series C convertible
preferred stock to 36 accredited investors for proceeds of $1,464,158, or $.50
per share.
In June and August 1998, we sold a total of 5,899,999 shares of series D
convertible preferred stock to 30 accredited investors for proceeds of
$7,080,000, or $1.20 per share.
In January 1999, we issued to Comdisco, Inc., an accredited investor, two
warrants to purchase shares of Series E convertible preferred stock at an
aggregate exercise price of $515,000. At the time of issuance, the price and
number of shares subject to the warrant were determined by formula. In June
1999, the warrant was determined to be exercisable for 279,739 shares of Series
E convertible preferred stock at an exercise price of $1.84 per share.
In June 1999, we sold 6,626,508 shares of series F convertible preferred
stock to 41 accredited investors for proceeds of $22,000,007, or $3.32 per
share. Hambrecht & Quist LLC acted as our placement agent for this offering. In
consideration for their services, we paid Hambrecht & Quist
II-2
<PAGE> 104
LLC $1,158,756 and issued to them a warrant to purchase up to 114,458 shares of
our series F convertible preferred stock at an exercise price of $3.32 per
share.
Each of the sales described above was completed without registration under
the Securities Act in reliance upon one or more of the following exemptions:
- Section 4(2) of the Securities Act or Rule 506 of Regulation D
promulgated under the Securities Act for transactions not involving a
public offering or
- Rule 701 promulgated under the Securities Act with respect to certain of
the options and shares of common stock issued to our employees, directors
and consultants
None of the sales of the securities we issued have involved the use of an
underwriter, and except for the Series F offering described above, no
commissions were paid in connection with the sale of any of the securities we
issued.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
*1.1 Underwriting Agreement
3.1 Certificate of Incorporation of net.Genesis Corp.
3.2 Certificate of Amendment to the Certificate of Incorporation
of net.Genesis Corp. dated December 21, 1999
3.3 Proposed form of Amended and Restated Certificate of
Incorporation of net.Genesis Corp. (to become effective as
of the closing of the offering)
3.4 By-Laws of net.Genesis Corp.
3.5 Proposed form of Amended and Restated By-Laws of net.Genesis
Corp. (to become effective as of the closing of the
offering)
*4.1 Specimen certificate for common stock of net.Genesis Corp.
*5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 net.Genesis Corp. 1995 Incentive Stock Option Plan, as
amended
10.2 net.Genesis Corp. 1999 Stock Incentive Plan
10.3 net.Genesis Corp. 1999 Employee Stock Purchase Plan
10.4 Lease dated October 23, 1996 between net.Genesis Corp. and
Athenaeum Realty Nominee Trust
10.5 Sublease dated October 15, 1999 between net.Genesis Corp.
and WL-Boston, Inc.
10.6 Lease commencing August 15, 1999 between BRE/CambridgePark
Office II, LLC and net.Genesis Corp.
10.7 Subordinated Loan and Security Agreement dated January 6,
1999 between net.Genesis Corp. and Comdisco, Inc.
10.8 Master Lease Agreement dated January 6, 1999 between
net.Genesis Corp. and Comdisco, Inc.
10.9 Warrant Agreement dated January 6, 1999 between net.Genesis
Corp. and Comdisco, Inc.
10.10 Warrant Agreement dated January 6, 1999 between net.Genesis
Corp. and Comdisco, Inc.
10.11 Third Amended and Restated Registration Rights Agreement,
dated June 10, 1999 among net.Genesis Corp. and the persons
and entities listed therein
10.12 Employment Agreement with Lawrence S. Bohn
10.13 Promissory Note dated May 4, 1999 from Lawrence S. Bohn to
net.Genesis Corp.
10.14 Warrant Agreement dated June 10, 1999 between net.Genesis
Corp. and Hambrecht & Quist LLC
+10.15 Software License Agreement dated as of October 5, 1999
between net.Genesis Corp. and MicroStrategy Incorporated
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
II-3
<PAGE> 105
<TABLE>
<C> <S>
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5 of this
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Filed under application for confidential treatment of certain portions
pursuant to Rule 406.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in our financial statements and related notes.
ITEM 17. UNDERTAKINGS.
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in denominations and registered in names as
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC that indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against those liabilities (other than our payment of expenses
incurred or paid by one of our directors, officers or controlling persons of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by our directors, officers or controlling persons in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether that indemnification by us is
against public policy as expressed in the Securities Act and we will be governed
by the final adjudication of such issue.
We undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus we filed pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, net.Genesis
Corp. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Cambridge,
Massachusetts, as of December 21, 1999.
NET.GENESIS CORP.
BY: /s/ LAWRENCE S. BOHN
------------------------------------
Lawrence S. Bohn
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned officers and directors of net.Genesis Corp. hereby
severally constitute and appoint Lawrence S. Bohn and John Delea and each of
them singly, our true and lawful attorneys-in-fact with full power of
substitution, to sign for us and in our names in the capacities indicated below,
any and all pre- and post-effective amendments to this Registration Statement,
any subsequent registration statement for the same offering filed pursuant to
Rule 462(b) under the Securities Act of 1933 and any and all pre-and
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, and generally to do all things in our names and on our
behalf in our capacities as officers and directors to enable net.Genesis Corp.
to comply with the provisions of the Securities Act of 1933 and all requirements
of the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys-in-fact, or any of them,
to said Registration Statement and any and all amendments thereto or to any
subsequent Registration Statements for the same offering filed pursuant to said
Rule 462(b) under the Securities Act of 1933.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the indicated
capacities as of December 21, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ LAWRENCE S. BOHN President, Chief Executive Officer and Director
- --------------------------------------------------- (Principal Executive Officer)
Lawrence S. Bohn
/s/ JOHN DELEA Chief Financial Officer, Vice President, Finance
- --------------------------------------------------- and Administration, Treasurer and Secretary
John Delea (Principal Accounting and Financial Officer)
/s/ KATHLEEN BIRO Director
- ---------------------------------------------------
Kathleen Biro
/s/ TED R. DINTERSMITH Director
- ---------------------------------------------------
Ted R. Dintersmith
/s/ ROBERT N. GOLDMAN Director
- ---------------------------------------------------
Robert N. Goldman
</TABLE>
II-5
<PAGE> 107
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ RORY O'DRISCOLL Director
- ---------------------------------------------------
Rory O'Driscoll
/s/ STEPHEN J. RICCI Director
- ---------------------------------------------------
Stephen J. Ricci
</TABLE>
II-6
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------- EXHIBIT DESCRIPTION
<C> <S>
*1.1 Underwriting Agreement
3.1 Certificate of Incorporation of net.Genesis Corp.
3.2 Certificate of Amendment to the Certificate of Incorporation
of net.Genesis Corp. dated December 21, 1999
3.3 Proposed form of Amended and Restated Certificate of
Incorporation of net.Genesis Corp. (to become effective as
of the closing of the offering)
3.4 By-Laws of net.Genesis Corp.
3.5 Proposed form of Amended and Restated By-Laws of net.Genesis
Corp. (to become effective as of the closing of the
offering)
*4.1 Specimen certificate for common stock of net.Genesis Corp.
*5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 net.Genesis Corp. 1995 Incentive Stock Option Plan, as
amended
10.2 net.Genesis Corp. 1999 Stock Incentive Plan
10.3 net.Genesis Corp. 1999 Employee Stock Purchase Plan
10.4 Lease dated October 23, 1996 between net.Genesis Corp. and
Athenaeum Realty Nominee Trust
10.5 Sublease dated October 15, 1999 between net.Genesis Corp.
and WL-Boston, Inc.
10.6 Lease commencing August 15, 1999 between BRE/CambridgePark
Office II, LLC and net.Genesis Corp.
10.7 Subordinated Loan and Security Agreement dated January 6,
1999 between net.Genesis Corp. and Comdisco, Inc.
10.8 Master Lease Agreement dated January 6, 1999 between
net.Genesis Corp. and Comdisco, Inc.
10.9 Warrant Agreement dated January 6, 1999 between net.Genesis
Corp. and Comdisco, Inc.
10.10 Warrant Agreement dated January 6, 1999 between net.Genesis
Corp. and Comdisco, Inc.
10.11 Third Amended and Restated Registration Rights Agreement,
dated June 10, 1999 among net.Genesis Corp. and the persons
and entities listed therein
10.12 Employment Agreement with Lawrence S. Bohn
10.13 Promissory Note dated May 4, 1999 from Lawrence S. Bohn to
net.Genesis Corp.
10.14 Warrant Agreement dated June 10, 1999 between net.Genesis
Corp. and Hambrecht & Quist LLC
+10.15 Software License Agreement dated as of October 5, 1999
between net.Genesis Corp. and MicroStrategy Incorporated
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5 of this
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Filed under application for confidential treatment of certain portions
pursuant to Rule 406.
<PAGE> 1
Exhibit 3.1
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NET.GENESIS CORP.
(Originally incorporated under the name net.Genesis Corp.)
net.Genesis Corp. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is net.Genesis Corp. The original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on May 6, 1994. A Certificate of Correction was filed with the
Secretary of the State of the State of Delaware on June 1, 1994. Certificates of
Amendment were filed with the Secretary of State of the State of Delaware on May
25, 1995, July 19, 1995 and November 14, 1995. A Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
September 17, 1996. A Second Amended and Restated Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on September 10,
1997. Certificates of Amendment were filed with the Secretary of State of the
State of Delaware on October 30, 1997 and May 27, 1998. A Third Amended and
Restated Certificate of Incorporation was filed with the Secretary of State on
June 24, 1998. A Fourth Amended and Restated Certificate of Incorporation was
filed with the Secretary of State on December 30, 1998.
2. This Fifth Amended and Restated Certificate of Incorporation restates
and further amends the Fourth Amended and Restated Certificate of Incorporation
of the Corporation.
3. This Fifth Amended and Restated Certificate of Incorporation has been
duly proposed by the directors and adopted by the stockholders in the manner and
by the vote prescribed by Sections 228 and 242 and has been duly adopted
pursuant to Section 245 of the General Corporation Law of Delaware.
4. The text of the Fourth Amended and Restated Certificate of
Incorporation is therefore further amended and restated in its entirety hereby
to read as herein set forth:
FIRST: The name of the Corporation is net.Genesis Corp.
<PAGE> 2
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New Castle,
and the name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of capital stock that
the Corporation shall have the authority to issue is 41,686,887 shares, $.001
par value, which shall consist of Common Stock and four classes of Preferred
Stock as follows:
Common Stock, $.001 par value
("Common Stock") - 24,000,000 shares
Series A Convertible Preferred
Stock, $.001 par value
("Series A Preferred Stock") - 925,430 shares
Series B Convertible Preferred
Stock, $0.001 par value
("Series B Preferred Stock") - 776,718 shares
Series C Convertible Preferred
Stock, $0.001 par value
("Series C Preferred Stock") - 3,000,000 shares
Series D Convertible Preferred
Stock, $0.001 par value
("Series D Preferred Stock") - 5,900,000 shares
Series E Convertible Preferred
Stock, $0.001 par value
("Series E Preferred Stock") - 279,739 shares
Series F Convertible Preferred
Stock, $0.001 par value
("Series F Preferred Stock") - 6,805,000 shares
The Series A Preferred Stock shall consist of three subseries as
follows:
Series A-1 Convertible Preferred
Stock
("Series A-1 Preferred Stock") - 200,000 shares
Series A-2 Convertible Preferred
Stock
("Series A-2 Preferred Stock") - 101,430 shares
Series A-3 Convertible Preferred
Stock
("Series A-3 Preferred Stock") - 624,000 shares
-2-
<PAGE> 3
The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock are collectively referred to herein as the "Preferred Stock."
Effective as of October 31, 1997, the shares of Common Stock of the
Corporation, (the "Old Common Stock"), and the shares of Preferred Stock of the
Corporation (the "Old Preferred Stock") issued and outstanding or held in the
treasury of the Corporation immediately prior to such time, were combined,
reclassified and changed into fully paid and nonassessable shares of Common
Stock, par value $0.001 per share (the "New Common Stock") or Preferred Stock,
par value $.001 per share (the "New Preferred Stock"), respectively, in the
ratio of 0.2 share of New Common Stock or New Preferred Stock to one share of
Old Common Stock or Old Preferred Stock.
The rights, preferences, privileges and restrictions granted to and imposed
upon the various classes and series of stock of the Corporation are as follows:
A. PREFERRED STOCK.
1. Voting Rights.
(a) Except as otherwise expressly provided in the Fifth Amended and
Restated Certificate of Incorporation of the Corporation, or as required by
law, the holders of shares of Preferred Stock shall vote together with the
Common Stock and all other classes and series of stock of the Corporation
entitled to vote together with the Common Stock as a single class on all
actions to be taken by the shareholders of the Corporation. Each share of
Preferred Stock shall entitle the holder thereof to such number of votes
per share on each such action as shall equal the largest number of whole
shares of Common Stock into which such shares of Preferred Stock could be
converted, pursuant to the provisions of paragraph 5 hereof, at the record
date for the determination of shareholders entitled to vote on such matter
or, if no such record date is established, at the date such vote is taken
or any written consent of shareholders is solicited.
(b) Special Series B Preferred Stock Voting Rights. The consent of the
holders of at least sixty (60%) percent (or such greater number as may then
be required by law) of all of the shares of Series B Preferred Stock at the
time outstanding, given in person or by proxy, by a vote at a meeting
called for the purpose or by consent in lieu thereof, at which the holders
of shares of Series B Preferred Stock shall vote together as a separate
class, shall be necessary (i) for authorizing, effecting or validating any
amendment to the Fifth Amended and Restated Certificate of Incorporation or
by-laws of the Corporation which (x) creates any new class of shares having
rights, preferences or privileges senior to or on a parity with the Series
B Preferred Stock, (y) alters or changes the rights, preferences or
privileges of the Series B Preferred Stock in a material and adverse manner
or (z) increases the authorized number of shares of Series B Preferred
Stock, or (ii) for any action by the Corporation to (aa) increase the size
of the Board of Directors beyond seven directors, (bb) authorize the
payment of any dividends on the
-3-
<PAGE> 4
Common Stock or (cc) authorize or approve the sale of all or substantially
all of the Company's assets (whether now owned or hereafter acquired) to
any person, firm or entity, or any merger or consolidation of this
Corporation to or with any other corporation or other entity (other than a
merger in which the Corporation is the surviving corporation and not more
than forty (40%) percent of the voting stock of the Corporation outstanding
immediately after the effective date of such merger being owned of record
or beneficially by persons other than the holders of such voting stock
immediately prior to such merger), except for a sale or other disposition
of assets or a merger in which the net consideration per share received in
cash or in fair market value, as determined in good faith by the Board of
Directors, of shares of stock tradable without restriction within 120 days
after the effective date of such transaction, by the holders of the Series
B Preferred Stock is not less than two (2) times the Original Purchase
Price of the Series B Preferred Stock, as defined in paragraph 4(d) hereof
(subject to equitable adjustment in the event of any stock dividend, stock
split, reclassification of shares or similar event affecting or relating to
the Series B Preferred Stock or the Common Stock issued upon the conversion
thereof) (a "Qualified Merger").
(c) Special Series C Preferred Stock Voting Rights. The consent of the
holders of at least sixty (60%) percent (or such greater number as may then
be required by law) of all of the shares of Series C Preferred Stock at the
time outstanding, given in person or by proxy, by a vote at a meeting
called for the purpose or by consent in lieu thereof, at which the holders
of shares of Series C Preferred Stock shall vote together as a separate
class, shall be necessary (i) for authorizing, effecting or validating any
amendment to the Fifth Amended and Restated Certificate of Incorporation or
by-laws of the Corporation which (x) creates any new class of shares having
rights, preferences or privileges senior to or on a parity with the Series
C Preferred Stock, (y) alters or changes the rights, preferences or
privileges of the Series C Preferred Stock in a material and adverse manner
or (z) increases the authorized number of shares of Series C Preferred
Stock, or (ii) for any action by the Corporation to (aa) increase the size
of the Board of Directors beyond seven directors, (bb) authorize the
payment of any dividends on the Common Stock or (cc) authorize or approve
the sale of all or substantially all of the Company's assets (whether now
owned or hereafter acquired) to any person, firm or entity, or any merger
or consolidation of this Corporation to or with any other corporation or
other entity (other than a merger in which the Corporation is the surviving
corporation and not more than forty (40%) percent of the voting stock of
the Corporation outstanding immediately after the effective date of such
merger being owned of record or beneficially by persons other than the
holders of such voting stock immediately prior to such merger), except for
a sale or other disposition of assets or a merger in which the net
consideration per share received in cash or in fair market value, as
determined in good faith by the Board of Directors, of shares of stock
tradable without restriction within 120 days after the effective date of
such transaction, by the holders of the Series C Preferred Stock is not
less than three (3) times the Original Purchase Price of the Series C
Preferred Stock, as defined in paragraph 4(d) hereof (subject to equitable
adjustment in the event of any stock dividend, stock split,
reclassification of shares or similar event affecting or relating to the
Series C Preferred Stock or the Common Stock issued upon the conversion
thereof).
-4-
<PAGE> 5
(d) Special Series D Preferred Stock Voting Rights. The consent of the
holders of at least sixty (60%) percent (or such greater number as may then
be required by law) of all of the shares of Series D Preferred Stock at the
time outstanding, given in person or by proxy, by a vote at a meeting
called for the purpose or by consent in lieu thereof, at which the holders
of shares of Series D Preferred Stock shall vote together as a separate
class, shall be necessary (i) for authorizing, effecting or validating any
amendment to the Fifth Amended and Restated Certificate of Incorporation or
by-laws of the Corporation which (x) creates any new class of shares having
rights, preferences or privileges senior to or on a parity with the Series
D Preferred Stock, (y) alters or changes the rights, preferences or
privileges of the Series D Preferred Stock in a material and adverse manner
or (z) increases the authorized number of shares of Series D Preferred
Stock, or (ii) for any action by the Corporation to (aa) increase the size
of the Board of Directors beyond seven directors, (bb) authorize the
payment of any dividends on the Common Stock, (cc) repurchase any shares of
Common Stock except from employees or consultants upon termination of
employment or (dd) authorize or approve the sale of all or substantially
all of the Company's assets (whether now owned or hereafter acquired) to
any person, firm or entity, or any merger or consolidation of this
Corporation to or with any other corporation or other entity (other than a
merger in which the Corporation is the surviving corporation and not more
than forty (40%) percent of the voting stock of the Corporation outstanding
immediately after the effective date of such merger being owned of record
or beneficially by persons other than the holders of such voting stock
immediately prior to such merger), except for a sale or other disposition
of assets or a merger in which the net consideration per share received in
cash or in fair market value, as determined in good faith by the Board of
Directors, of shares of stock tradable without restriction within 120 days
after the effective date of such transaction, by the holders of the Series
D Preferred Stock is not less than three (3) times the Original Purchase
Price of the Series D Preferred Stock, as defined in paragraph 4(d) hereof
(subject to equitable adjustment in the event of any stock dividend, stock
split, reclassification of shares or similar event affecting or relating to
the Series D Preferred Stock or the Common Stock issued upon the conversion
thereof).
(e) Special Series F Preferred Stock Voting Rights. The consent of the
holders of at least sixty (60%) percent (or such greater number as may then
be required by law) of all of the shares of Series F Preferred Stock at the
time outstanding, given in person or by proxy, by a vote at a meeting
called for the purpose or by consent in lieu thereof, at which the holders
of shares of Series F Preferred Stock shall vote together as a separate
class, shall be necessary (i) for authorizing, effecting or validating any
amendment to the Fifth Amended and Restated Certificate of Incorporation or
by-laws of the Corporation which (x) creates any new class of shares having
rights, preferences or privileges senior to or on a parity with the Series
F Preferred Stock, (y) alters or changes the rights, preferences or
privileges of the Series F Preferred Stock in a material and adverse manner
or (z) changes the authorized number of shares of Series F Preferred Stock,
or (ii) for any action by the Corporation to (aa) increase the size of the
Board of Directors beyond seven directors, (bb) authorize the payment of
any dividends on the Common Stock, (cc) repurchase any shares of Common
Stock except from employees or
-5-
<PAGE> 6
consultants upon termination of employment (dd) repurchase any shares of
Preferred Stock except pursuant to Section 6 of the Fifth Amended and
Restated Certificate of Incorporation or (ee) authorize or approve any
reorganization or recapitalization of this Corporation, the sale of all or
substantially all of the Company's assets (whether now owned or hereafter
acquired) to any person, firm or entity, or any merger or consolidation of
this Corporation to or with any other corporation or other entity (other
than a merger in which the Corporation is the surviving corporation and not
more than forty (40%) percent of the voting stock of the Corporation
outstanding immediately after the effective date of such merger being owned
of record or beneficially by persons other than the holders of such voting
stock immediately prior to such merger), except for a sale or other
disposition of assets or a merger in which the net consideration per share
received in cash or in fair market value, as determined in good faith by
the Board of Directors, of shares of stock tradable without restriction
within 120 days after the effective date of such transaction, by the
holders of the Series F Preferred Stock is not less than three (3) times
the Original Purchase Price of the Series F Preferred Stock, as defined in
paragraph 4(d) hereof (subject to equitable adjustment in the event of any
stock dividend, stock split, reclassification of shares or similar event
affecting or relating to the Series F Preferred Stock or the Common Stock
issued upon the conversion thereof).
(f) Amendment to Series E Preferred Stock Generally. The consent of
the holders of at least fifty-one (51%) percent (or such greater number as
may then be required by law) of all of the shares of the Series E Preferred
Stock at the time outstanding, given in person or by proxy, by a vote at a
meeting called for the purpose, or by consent in lieu thereof, at which the
holders of shares of Series E Preferred Stock shall vote together as a
separate class, shall be necessary for authorizing, effecting or validating
any amendment to the charter or by-laws of the Corporation which (A) alters
or changes the rights, preferences or privileges of the Series E Preferred
Stock generally and in a material and adverse manner or (B) increases the
authorized number of shares of Series E Preferred Stock.
(g) Amendment to Series A Preferred Stock Generally. The consent of
the holders of at least fifty-one (51%) percent (or such greater number as
may then be required by law) of all of the shares of the Series A Preferred
Stock at the time outstanding, given in person or by proxy, by a vote at a
meeting called for the purpose, or by consent in lieu thereof, at which the
holders of shares of Series A Preferred Stock shall vote together as a
separate class, shall be necessary for authorizing, effecting or validating
any amendment to the charter or by-laws of the Corporation which (A) alters
or changes the rights, preferences or privileges of the Series A Preferred
Stock generally and in a material and adverse manner or (B) increases the
authorized number of shares of Series A Preferred Stock generally but not
the authorized number of shares of a specific series or subseries of Series
A Preferred Stock or (C) creates any new class of shares having rights,
preferences or privileges senior to or on a parity with the Series A
Preferred Stock generally.
-6-
<PAGE> 7
(h) Amendment to a Specific Series or Subseries of Series A Preferred
Stock. The consent of the holders of at least fifty-one (51%) percent (or
such greater number as may then be required by law) of all of the shares of
a series or subseries of Series A Preferred Stock at the time outstanding,
given in person or by proxy, by a vote at a meeting called for the purpose,
or by consent in lieu thereof, at which the holders of shares of such
series or subseries of Series A Preferred Stock shall vote together as a
separate class, shall be necessary for authorizing, effecting or validating
any amendment to the charter or by-laws of the Corporation which (A) alters
or changes the rights, preferences or privileges of that specific series or
subseries of the Series A Preferred Stock or (B) increases the authorized
number of shares of such series or subseries of Series A Preferred Stock or
(C) creates any new class of shares having rights, preferences or
privileges senior to or on a parity with such series or subseries of Series
A Preferred Stock. Where one of the foregoing actions affects the rights
and preferences of the Series A Preferred Stock generally, the provisions
of subparagraph (g) shall apply instead of the provisions of this
subparagraph (h).
2. No Impairment of Rights. The Corporation will not, by amendment of the
Fifth Amended and Restated Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Preferred Stock set forth
herein, and will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Preferred Stock
against dilution or other impairment. Without limiting the generality of the
foregoing, the Corporation (i) will not increase the par value of any shares of
stock receivable on the conversion of the Preferred Stock above the amount
payable therefor on such conversion, and (ii) will take all such action as may
be necessary or appropriate in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of stock on the conversion of
all Preferred Stock under the terms hereof from time to time outstanding.
3. Dividend Rights. No cash dividends shall be declared or set aside for
any shares of Preferred Stock except as follows:
(a) From and after the date of the original issuance of the shares of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock (with respect
to each Series, its "Original Issuance Date"), the holders of the Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock (for purposes of this
paragraph 3, collectively, the "Dividend Stock") shall be entitled to
receive, out of funds legally available therefor, cumulative dividends at
the rate of 7% per annum, of the Original Purchase Price (with respect to
each Series of Dividend Stock, its "Accruing Dividend"). Each respective
Accruing Dividend shall accrue, from each respective Original Issuance
Date, from day to day, whether or not earned or declared, and shall be
cumulative so that, if such dividends in respect of any previous or current
dividend period, at the aforesaid rate, shall not have been paid or
declared and a sum sufficient for
-7-
<PAGE> 8
the payment thereof set apart, the deficiency shall first be paid before
any dividend or other distribution (other than litigation) shall be paid on
or declared and set apart for any other class or series of capital stock of
the Corporation (other than stock dividend payable in Common Stock or other
securities of the Corporation); provided, however, that the Corporation
shall be under no obligation to pay any such Accruing Dividend except (i)
until and when so declared by the Board of Directors, or (ii) upon any
redemption of any Dividend Stock in accordance with the provisions of
paragraph 6 below;
(b) In the event the Board of Directors of the Corporation shall
declare a dividend (other than a dividend payable in additional shares of
Common Stock) payable upon the then outstanding shares of the Common Stock
of the Corporation, the Board of Directors shall declare at the same time a
dividend upon the then outstanding shares of the Preferred Stock, payable
at the same time as the dividend paid on the Common Stock, in an amount
equal to the amount of dividends, per share of Preferred Stock, as would
have been payable on the largest number of whole shares of Common Stock
into which each share of Preferred Stock held by each holder thereof if
such Preferred Stock had been converted to Common Stock pursuant to the
provisions of paragraph 5 hereof as of the record date for the
determination of holders of Common Stock entitled to receive such
dividends; and
(c) In the event the Board of Directors of the Corporation shall
declare a dividend payable upon any class or series of capital stock of the
Corporation other than Common Stock (other than a dividend payable in
additional shares of such class or series of capital stock), the Board of
Directors shall declare at the same time a dividend upon the then
outstanding shares of Dividend Stock, payable at the same time as such
dividend on such other class or series of capital stock in an amount equal
to (i) in the case of any series or class convertible into Common Stock,
that dividend, per share of Dividend Stock, as would equal the dividend
payable on such other class or series determined as if all such shares of
such class or series had been converted to Common Stock and all shares of
Dividend Stock have been converted to Common Stock on the record date for
the determination of holders entitled to receive such dividend or (ii) if
such class or series of capital stock is not convertible into Common Stock,
at a rate per share of Dividend Stock determined by dividing the amount of
the dividend payable on each share of such class or series of capital stock
by the original issuance price of such class or series of capital stock and
multiplying such fraction by the Original Purchase Price.
4. Liquidation Rights.
(a) In the event of a voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, before any payment shall be
made or any assets distributed to the holders of Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock or any
other class or series of stock which ranks on liquidations with respect to
the right to receive payments upon liquidation junior to the Series F
Preferred Stock, the holders of record of shares of the Series F Preferred
Stock shall be entitled to
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receive, out of the assets of the Corporation legally available therefor,
an amount equal to the Original Purchase Price per outstanding share of
Series F Preferred Stock, plus an amount equal to any declared and unpaid
dividends thereon, up to and including the date of payment (other than the
Accruing Dividend (unless actually declared by the Board)). Such total
amount to be paid to the holders of the Series F Preferred Stock is
referred to as the "Series F Liquidation Amount". For the purposes hereof,
the Common Stock, the Series A Preferred Stock, Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock shall rank on liquidation junior to the Series F Preferred
Stock with respect to the right to receive payments upon liquidation. If
the funds available upon liquidation are insufficient to satisfy in full
the Series F Liquidation Amount, the entire assets of the Corporation
available for such distribution shall be distributed ratably among the
holders of the Series F Preferred Stock based on the respective percentages
to which they are entitled of the total Series F Liquidation Amount.
(b) After payment in full of the Series F Liquidation Amount, before
any payment shall be made or any assets distributed to the holders of
Common Stock, the Series A Preferred Stock, Series B Preferred Stock or any
other class or series of stock which ranks on liquidations with respect to
the right to receive payments upon liquidation junior to the Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred
Stock, the holders of record of shares of the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock shall be entitled
to receive, out of the assets of the Corporation legally available
therefor, an amount equal to the Original Purchase Price per outstanding
share of Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, plus an amount equal to any declared and unpaid dividends
thereon, up to and including the date of payment (other than the Accruing
Dividend (unless actually declared by the Board)). The aggregate of such
amounts to be paid to the holders of the Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock is referred to as the
"Preferred Liquidation Amount". For the purposes hereof, the Common Stock,
the Series A Preferred Stock and Series B Preferred Stock shall rank on
liquidation junior to the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock with respect to the right to receive
payments upon liquidation. If the funds available upon liquidation after
full satisfaction of the Series F Liquidation Amount are insufficient to
satisfy in full the Preferred Liquidation Amount, the entire assets of the
Corporation available for such distribution shall be distributed ratably
among the holders of the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock based on the respective percentages
to which they are entitled of the total Preferred Liquidation Amount.
(c) After payment in full of the Series F Liquidation Amount and the
Preferred Liquidation Amount, before any payment shall be made or any
assets distributed to the holders of Common Stock, the Series A Preferred
Stock or any other class or series of stock which ranks on liquidations
with respect to the right to receive payments upon liquidation junior to
the Series B Preferred Stock, the holders of record of shares of Series B
Preferred Stock shall be entitled to receive, out of the assets of the
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<PAGE> 10
Corporation legally available therefor, an amount equal to the Original
Purchase Price per outstanding share of Series B Preferred Stock, plus an
amount equal to any declared and unpaid dividends thereon, up to and
including the date of payment (other than the Accruing Dividend (unless
actually declared by the Board)). The aggregate of such amounts to be paid
to the holders of the Series B Preferred Stock is referred to as the
"Series B Liquidation Amount". For the purposes hereof, the Common Stock
and the Series A Preferred Stock shall rank on liquidation junior to the
Series B Preferred Stock with respect to the right to receive payments upon
liquidation. If the funds available upon liquidation after full
satisfaction of the Series F Liquidation Amount and the Preferred
Liquidation Amount are insufficient to satisfy in full the Series B
Liquidation Amount, the entire assets of the Corporation available for such
distribution shall be distributed ratably among the holders of the Series B
Preferred Stock based on the number of shares held by each.
(d) After payment in full of the Series F Liquidation Amount, the
Preferred Liquidation Amount and the Series B Liquidation Amount, before
any payment shall be made or any assets distributed to the holders of
Common Stock or any other class or series of stock which ranks on
liquidation with respect to the right to receive payments upon liquidation
junior to the Series A Preferred Stock, the holders of record of shares of
each subseries of Series A Preferred Stock shall be entitled to receive,
out of the assets of the Corporation legally available therefor, an amount
equal to the applicable Original Purchase Price for such subseries of
Series A Preferred Stock, per outstanding share of Series A Preferred
Stock, plus an amount equal to any declared and unpaid dividends thereon,
up to and including the date of payment. The aggregate of such amounts to
be paid to the holders of the Series A Preferred Stock is referred to as
the "Series A Liquidation Amount". For the purposes hereof, the Common
Stock shall rank on liquidation junior to the Series A Preferred Stock with
respect to the right to receive payments upon liquidation. If the funds
available upon liquidation, after full satisfaction of the the Series F
Liquidation Amount, the Preferred Liquidation Amount and the Series B
Liquidation Amount, are insufficient to satisfy in full the Series A
Liquidation Amount, the entire assets of the Corporation available for such
distribution shall be distributed ratably among the holders of each
subseries of the Series A Preferred Stock in proportion to the product of
(x) the applicable Original Purchase Price of each subseries and (y) the
number of shares of such subseries then outstanding, and the amount so
distributed to each subseries shall be allocated ratably among holders of
stock of such subseries ratably in proportion to the number of shares of
stock of such subseries then outstanding.
(e) For purposes hereof, the Original Purchase Prices for the
Preferred Stock are as follows:
Series A-1 Preferred Stock $ 0.25
Series A-2 Preferred Stock $ 1.3805
Series A-3 Preferred Stock $ 2.50
Series B Preferred Stock $ 5.15
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Series C Preferred Stock $ 0.50
Series D Preferred Stock $ 1.20
Series E Preferred Stock $ 1.841
Series F Preferred Stock $ 3.32
The amounts above reflect the five-for-one reverse stock split
effective October 31, 1997.
(f) Upon any such liquidation, dissolution or winding up of the
Corporation, upon completion of the distributions required by subsections
(a) through (d) of this Section 4, all of the remaining assets of this
corporation available for distribution to stockholders shall be distributed
among the holders of Series F Preferred Stock and Common Stock pro rata
based on the number of shares of Common Stock held by each (assuming full
conversion of all such Series F Preferred Stock into Common Stock).
(g) Notwithstanding anything to the contrary in this Section 4, if the
amount which each holder of Series F Preferred Stock would be entitled to
receive in connection with a liquidation, dissolution or winding up of the
corporation pursuant to its right to participate with the Common Stock as
set forth in subsection (f) of this Section 4 (and determined as if such
holder were not entitled to receive the Series F Liquidation Amount
pursuant to subsection (a)) equals or exceeds $5.81 per share of Series F
Preferred Stock (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares), then the holders of shares of Series F Preferred
Stock shall not be entitled to the payment of the Series F Liquidation
Amount pursuant to subsection (a) of this Section 4.
(h) The reorganization, merger or consolidation of the Corporation
into or with another corporation (other than a reorganization or merger in
which the Corporation is the surviving corporation and which will not
result in more than forty percent (40%) of the capital stock of the
Corporation outstanding immediately after the effective date of such merger
being owned of record or beneficially by persons other than the holders of
such capital stock immediately prior to such merger), or sale, conveyance
or transfer of all or substantially all of the assets of the Corporation,
or of more than eighty percent (80%) of the outstanding shares of capital
stock of the corporation (except for a Qualified Merger, as defined in
Section 1(e)) shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this paragraph 4, unless the holders
of (i) at least sixty (60%) percent of the then outstanding shares of
Preferred Stock, voting as a single class, and (ii) 60% of the holders of
the Series F Preferred Stock, voting as a separate class, elect otherwise
by giving notice to the Corporation at the earlier of twenty (20) days
after delivery of notice or five (5) days before the effective date of such
event. If no such notice is given, such event shall be deemed to be a
liquidation, dissolution or winding up for purposes of this paragraph 4(h)
and the provisions of paragraph 5(n) shall not apply. The amount deemed
distributed in connection with a transaction referred to in this paragraph
4(h) shall be the cash or the value of the property, rights or other
securities distributable by the acquiring person, firm or other entity as
part of such transaction. Wherever a distribution provided for in this
paragraph 4 is payable in property other than
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<PAGE> 12
in cash, the value of such distribution shall be the fair market value of
such property as determined in good faith by the Corporation's Board of
Directors.
5. Conversion Rights. The holders of the Preferred Stock shall have the
following conversion rights:
(a) Conversion.
(i) General. Subject to and in compliance with the provisions of
this paragraph 5, any shares of the Preferred Stock may, at the option
of the holder, be converted at any time or from time to time into
fully-paid and non-assessable shares (calculated as to each conversion
to the nearest smaller whole share) of Common Stock (except that upon
any liquidation of the Corporation, the right of conversion of the
Preferred Stock, and upon redemption of shares of Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock, the right of conversion
of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock,
as the case may be, shall terminate at the close of business on the
last business day next preceding the date fixed for payment of the
amount distributable on such shares). The number of shares of Common
Stock to which a holder of Preferred Stock shall be entitled upon
conversion shall be the product obtained by multiplying the Applicable
Conversion Rate (determined as provided in paragraph 5(c)) by the
number of shares of Preferred Stock being converted.
(ii) Conversion Upon Qualified Public Offering. All outstanding
shares of Preferred Stock shall be converted automatically without any
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or a transfer agent designated by the Corporation into the
number of shares of Common Stock into which such Preferred Stock is
convertible pursuant to paragraph 5(a) hereof, immediately prior to
the closing of the first underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account
of the Corporation in which Common Stock is sold at a public offering
price per share of not less than $6.64 and in which the aggregate net
proceeds are at least $20,000,000 (a "Qualified Public Offering").
Notice of any such Qualified Public Offering must be delivered to each
holder of Preferred Stock at least thirty (30) days in advance of the
proposed closing date for such Qualified Public Offering. As soon as
practicable following the automatic conversion of the Preferred Stock
as a result of a Qualified Public Offering the Corporation will give
each holder written notice of such conversion.
(iii) Conversion of Series A Preferred Stock. All outstanding
shares of each subseries of Series A Preferred Stock shall be
automatically converted into
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<PAGE> 13
the number of shares of Common Stock into which such subseries of
Series A Preferred Stock is then convertible pursuant to paragraph
5(a) hereof without any further action by the holders of such shares
and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent for the Common
Stock if there are at any time outstanding, with respect to the Series
A-1 Preferred Stock, from and after such time that less than 100,000
shares of Series A-1 Preferred Stock are issued and outstanding, with
respect to the Series A-2 Preferred Stock, from and after such time
that less than 50,513 shares of Series A-2 Preferred Stock are issued
and outstanding, and with respect to the Series A-3 Preferred Stock,
from and after such time that less than 200,000 shares of Series A-3
Preferred Stock are issued and outstanding. The numbers of the shares
set forth above reflect the one-for-five reverse stock split of
October 30, 1997 and shall be adjusted for stock dividends,
combinations, splits, etc. Notice hereof shall be given by the
Corporation to the holders of Series A Preferred Stock within thirty
(30) days of such vote or consent. The effective date of conversion
hereunder shall be the date specified in the vote causing conversion,
or if no such date is specified, the date the vote is taken.
(iv) Voluntary Conversion. All outstanding shares of Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock, upon the vote or
written consent of the holders of at least sixty-six and two-thirds
(66 2/3%) percent of the then outstanding shares of Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock, each voting as a separate
class only with respect to the conversion of said class of Shares
(each share of such Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock being entitled to a single vote), shall be
automatically converted into the number of shares of Common Stock into
which such Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock is convertible pursuant to paragraph 5(a) hereof without any
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company
or its transfer agent for the Common Stock. Notice hereof shall be
given by the Company to the holders of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock within thirty (30) days of such vote
or consent. The effective date of conversion hereunder shall be the
date specified in the vote causing conversion, or it no such date is
specified, the date the vote is taken.
(b) Conversion Procedures. Upon the occurrence of the conversion
specified in paragraph 5(a) hereof, each holder of such Preferred Stock
shall surrender the certificates representing such shares at the office of
the Corporation or of its transfer agent designated by the Corporation.
Thereupon, there shall be issued and delivered to such holder a certificate
or certificates for the number of shares of Common Stock into which
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<PAGE> 14
the shares of the Preferred Stock surrendered were convertible on the date
on which such conversion occurred. The Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing such shares of the Preferred
Stock being converted are either delivered to the Corporation or any such
transfer agent or the holder notifies the Corporation or any such transfer
agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation (with surety if requested) from any loss incurred by it in
connection therewith.
(c) Applicable Conversion Rate. The conversion rate in effect at any
time (the "Applicable Conversion Rate") for any series or subseries of
Preferred Stock shall be the quotient obtained by dividing the Original
Purchase Price for such series or subseries by the Applicable Conversion
Value for such series or subseries, calculated as provided in paragraph
5(d).
(d) Applicable Conversion Value. The Applicable Conversion Value in
effect from time to time shall be the Original Purchase Price, as adjusted
from time to time in accordance with paragraph 5(e) or 5(f) hereof.
(e) Adjustments to the Applicable Conversion Value for Series A
Preferred Stock.
(i) Issues of Stock. If the Corporation shall, prior to October
3, 1996, issue any shares of its Common Stock (other than Excluded
Stock, as defined in this paragraph 5(e), and other than Common Stock
issued as a dividend or other distribution payable in respect of
Common Stock, or any Preferred Stock) for a consideration per share
which is less than the Applicable Conversion Value of a series or
subseries of Series A Preferred Stock in effect immediately prior to
such issue, the Applicable Conversion Value for such series or
subseries of Series A Preferred Stock shall be reduced to the price
per share at which such additional shares of stock are issued. No such
adjustment shall be made in an amount less than $.001, but any such
amount shall be carried forward and shall be given effect in
connection with the next subsequent adjustment. For purposes of this
clause, the following provisions shall be applicable:
(A) Convertible Securities, Options and Rights. If the
Corporation shall issue any stock, warrant, security, obligation,
option or other right which directly or indirectly may be
converted, exchanged for or satisfied in shares of Common Stock,
other than Excluded Stock, the maximum total number of shares of
Common Stock issuable upon such conversion, exchange or other
exercise of such securities or rights thereof thereupon shall be
deemed to have been issued and to be outstanding, and the
consideration received by the Corporation therefor shall be
deemed to include the sum of the consideration received for the
issue of such securities or rights and the minimum additional
consideration payable
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<PAGE> 15
upon such conversion, exchange or other exercise of such
securities or rights. No further adjustment shall be made for the
actual issuance of Common Stock upon such conversion, exchange or
other exercise of any such securities or rights. If the
provisions of any such securities or rights with respect to
purchase price of shares purchasable shall change or expire, any
adjustment previously made hereunder therefor shall be readjusted
to such as would have obtained on the basis of securities or
rights as modified by such change or expiration.
(B) Consideration. In case the Corporation shall issue
shares of its Common Stock for a consideration wholly or partly
other than cash, the amount of consideration other than cash
received by the Corporation shall be deemed to be the fair value
of such consideration as determined in good faith by the Board of
Directors of the Corporation.
(C) Record Dates. For purposes of this paragraph 5(e), in
case the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them (x) to receive a
dividend or other distribution payable in Common Stock, or (y) to
subscribe for or purchase Common Stock, that such record date
shall be deemed to be the date of the issue or sale of the shares
of Common Stock deemed to have been issued upon the declaration
of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase,
as the case may be.
(D) Treasury Stock. The number of shares of Common Stock
outstanding at any given time shall include shares owned or held
by, or for the account of the Corporation, and the disposition of
any such shares so owned or held shall not be considered an issue
of Common Stock.
(ii) Excluded Stock. The term "Excluded Stock" shall mean (x)
shares of Common Stock issued by the Corporation upon conversion of
any shares of Preferred Stock and (y) shares of Common Stock which may
be issued by the Corporation from time to time to employees of or
consultants to the Corporation pursuant to option or restricted stock
plans or grants duly adopted or approved by the Corporation's Board of
Directors.
(iii) Common Stock. The term "Common Stock," as used in this
paragraph 5(e) shall include any class of capital stock of the
Corporation, now or hereafter authorized, other than the Preferred
Stock, the right of which to share in distributions either of earnings
or assets of the Corporation is without limit as to any amount or
percentage.
(f) Adjustments to the Applicable Conversion Value for Series B
Preferred Stock.
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<PAGE> 16
(i) General.
(A) Sale or Issuance of Common Stock. If the Corporation
shall, while there are any shares of Series B Preferred Stock
outstanding, issue or sell shares of its Common Stock without
consideration or at a price per share less than the Applicable
Conversion Value for the Series B Convertible Preferred Stock
(the "Series B Preferred Stock Applicable Conversion Value") in
effect immediately prior to such issuance or sale, then upon each
such issuance or sale, except as hereinafter provided, such
Series B Preferred Stock Applicable Conversion Value shall be
lowered so as to be equal to an amount determined by multiplying
the Series B Preferred Stock Applicable Conversion Value by a
fraction:
(x) the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (2)
the number of shares of Common Stock which the net aggregate
consideration, if any, received by the Corporation for the
total number of such additional shares of Common Stock so
issued would purchase at the Series B Preferred Stock
Applicable Conversion Value in effect immediately prior to
such issuance, and
(y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock plus (2)
the number of such additional shares of Common Stock so
issued;
provided, however, in no event will any adjustment be made to the
extent it would result in any shares of Common Stock being issued
for an amount which is less than the par value of such shares and
that no adjustment shall be made in the Series B Preferred Stock
Applicable Conversion Value arising from the sale and issuance of
(i) the Series C Preferred Stock, if (I) holders of Series A
Preferred Stock and Common Stock purchase at least 4,000,000
shares of Series C Preferred Stock (prior to the one-for-five
reverse stock split effective in October 31, 1997) or (II)
holders of at least sixty (60%) percent of the outstanding shares
of Series B Preferred Stock consent to the waiver of the Series B
anti-dilution rights set forth in this paragraph 5, (ii) the
Series D Preferred Stock, (iii) the Series E Preferred Stock or
warrants to purchase the Series E Preferred Stock or (iv) the
Series F Preferred Stock.
(B) Sale or Issuance of Warrants, Options or Purchase Rights
with Respect to Common Stock. For the purposes of this paragraph
5(f)(i), the issuance of any warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock and the
issuance of any
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<PAGE> 17
securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options or any rights
with respect to such convertible or exchangeable securities)
shall be deemed an issuance at such time of such Common Stock if
the Net Consideration Per Share (as hereinafter determined) which
may be received by the Corporation for any such Common Stock
shall be less than the Series B Preferred Stock Applicable
Conversion Value at the time of such issuance. Any obligation,
agreement or undertaking to issue warrants, options,
subscriptions or purchase rights or convertible or exchangeable
securities at any time in the future shall be deemed to be an
issuance at the time such obligation, agreement or undertaking is
made or arises. No adjustment of the Series B Preferred Stock
Applicable Conversion Value shall be made under this paragraph
5(f)(i) upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any warrants, options,
subscriptions or purchase rights or pursuant to the exercise of
any conversion or exchange rights in any convertible securities
if any adjustment shall previously have been made upon the
issuance of any such warrants, options or subscriptions or
purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any
rights therefor) as above provided. No adjustment of the Series B
Preferred Stock Applicable Conversion Value shall be made upon
the sale or issuance of (i) the Series C Preferred Stock, if (I)
holders of Series A Preferred Stock and Common Stock purchase at
least 4,000,000 shares of Series C Preferred Stock prior to the
one-for-five reverse stock split effective October 31, 1997) or
(II) holders of at least sixty (60%) percent of the outstanding
shares of Series B Preferred Stock consent to the waiver of the
Series B anti-dilution rights set forth in this paragraph 5, (ii)
the Series D Preferred Stock, (iii) the Series E Preferred Stock
or warrants to purchase the Series E Preferred Stock or (iv) the
Series F Preferred Stock. Any adjustment of the Series B
Preferred Stock Applicable Conversion Value with respect to this
paragraph which relates to warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock shall be
disregarded if, as, and when such warrants, options,
subscriptions or purchase rights expire or are canceled without
being exercised, so that the Series B Preferred Stock Applicable
Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series B Preferred Stock
Applicable Conversion Value in effect immediately prior to the
time of the issuance of the expired or canceled warrants,
options, subscriptions or purchase rights, with such additional
adjustments as would have been made to that Series B Preferred
Stock Applicable Conversion Value had the expired or canceled
warrants, options, subscriptions or purchase rights not been
issued.
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For purposes of this paragraph 5(f)(i)(B), the "Net Consideration
Per Share" which may be received by the Corporation shall be
determined as follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Corporation for the issuance of such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Corporation
upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(y) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each
instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which
may be applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities.
(C) Consideration: Non-Cash Property. For purposes of this
paragraph 5(f)(i), if a part or all of the consideration received
by the Corporation in connection with the issuance of shares of
the Common Stock or the issuance of any of the securities
described in this paragraph 5(f)(i) consists of property other
than cash, the Board of Directors of the Corporation shall in its
good faith discretion value such property, whereupon such value
shall be given to such consideration and shall be recorded on the
books of the Corporation with respect to receipt of such
property.
This paragraph 5(f)(i) shall not apply and no adjustment in
the Series B Preferred Stock Applicable Conversion Value shall be
made hereunder under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as hereinafter
defined in paragraph 5(j).
(D) Exceptions. Notwithstanding the foregoing, the following
provisions shall apply with respect to the adjustment of the
Series B Preferred Stock Applicable Conversion Value pursuant to
paragraph 5(f)(i)(A):
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In the event any entity holding shares of Series B
Preferred Stock does not participate in a Financing (as
defined below) by purchasing its full Basic Amount (as
defined below), then paragraph 5(f)(i)(A) shall not apply to
any shares of Series B Preferred Stock held by such holder
(the "Applicable Shares," as defined below) and all such
Applicable Shares of Series B Preferred Stock held by such
holder shall, simultaneous with and effective immediately
prior to such Financing, automatically be converted into an
equal number of shares of a new series of Series B Preferred
Stock, such new series to be designated Series B-1, Series
B-2, Series B-3 and so on depending upon the order in which
such series is created. All new series of Series B Preferred
Stock shall be identical in all respects to the Series B
Preferred Stock (including the right to any previously
effective adjustment to the Series B Preferred Stock
Applicable Conversion Value), except that none of the
provisions of paragraph 5(f)(i)(A) shall thereafter apply to
such new series. Each holder of Applicable Shares of Series
B Preferred Stock that have been converted into a new series
pursuant to this paragraph 5(f)(i)(D) shall immediately upon
written notice from the Corporation surrender to the
Corporation at its principal office all certificates for
such Series B Preferred Stock, and the Corporation shall
thereupon deliver to such holder a certificate for such
shares of such new series of Series B Preferred Stock. For
the purposes of this paragraph 5(f)(i)(D), a holder's "Basic
Amount" of a Financing shall be its pro-rata share of such
Financing, subject to proportional reduction by the Board of
Directors of the Corporation if the Corporation elects to
add additional investors in such Financing, such pro rata
share to be determined based on the number of shares of
Series B Preferred Stock held by each holder of Series B
Preferred Stock to the number of shares of Series B
Preferred Stock held by all holders of Series B Preferred
Stock, and a "Financing" shall mean any transaction,
designated as a "Financing" by the Board of Directors of the
Corporation, pursuant to which the Corporation shall issue
any shares of Common Stock, or other securities convertible
into, exchangeable or exercisable for shares of Common
Stock, for cash or cash equivalent consideration; however a
Financing does not include the issuance of any shares of
Common Stock or other securities of the Corporation, or
options to purchase shares of Common Stock or other
securities of the Corporation, issued pursuant to any stock
option or stock purchase plans to the Corporation's
employees, officers, directors or consultants. "Applicable
Shares" shall mean that percentage of shares of Series B
Preferred Stock held by such holders prior to the Financing
which is equal to the percentage, if any, of the Basic
Amount
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<PAGE> 20
which such holder does not purchase in the Financing. As an
example only: If a holder of Series B Preferred Stock
purchases only 75% of its Basic Amount of a Financing, and
thereby does not purchase 25% of such Basic Amount, then the
Applicable Shares of Series B Preferred Stock held by such
holder which will be converted to a new series of Series B
Preferred Stock, will be 25% of the number of such shares of
Series B Preferred Stock held by such holder immediately
prior to such Financing.
(ii) Certain Issues of Common Stock Excepted. Anything in
paragraph 5(f)(i) to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Series B Preferred
Stock Applicable Conversion Value as set forth in paragraph 5(f)(i),
in the case of (x) the issuance of any shares of Common Stock upon
conversion of any shares of Preferred Stock, (y) the issuance of, or
grant of options to purchase shares of Common Stock to employees,
consultants, directors or other contributors as determined by the
Board of Directors pursuant to the Corporation's 1995 Incentive Stock
Option Plan, as amended from time to time, or the issuance of shares
of Common Stock upon the exercise of any such options to officers,
directors, employees of or consultants to the Corporation, or (z) the
issuance of 1,035,000 shares of Common Stock to Larry Bohn in
connection with his employment as President and Chief Executive
Officer of the Company.
(g) Adjustments to the Applicable Conversion Value for Series C
Preferred Stock.
(i) General.
(A) Sale or Issuance of Common Stock. If the Corporation
shall, while there are any shares of Series C Preferred Stock
outstanding, issue or sell shares of its Common Stock without
consideration or at a price per share less than the Applicable
Conversion Value for the Series C Convertible Preferred Stock
(the "Series C Preferred Stock Applicable Conversion Value") in
effect immediately prior to such issuance or sale, then upon each
such issuance or sale, except as hereinafter provided, such
Series C Preferred Stock Applicable Conversion Value shall be
lowered so as to be equal to an amount determined by multiplying
the Series C Preferred Stock Applicable Conversion Value by a
fraction:
(x) the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (2)
the number of shares of Common Stock which the net aggregate
consideration, if any, received by the Corporation for the
total number of such additional shares of Common Stock so
issued
-20-
<PAGE> 21
would purchase at the Series C Preferred Stock Applicable
Conversion Value in effect immediately prior to such
issuance, and
(y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock plus (2)
the number of such additional shares of Common Stock so
issued;
provided, however, in no event will any adjustment be made to the
extent it would result in any shares of Common Stock being issued
for an amount which is less than the par value of such shares.
(B) Sale or Issuance of Warrants, Options or Purchase Rights
with Respect to Common Stock. For the purposes of this paragraph
5(g)(i), the issuance of any warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock and the
issuance of any securities convertible into or exchangeable for
shares of Common Stock (or the issuance of any warrants, options
or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance at such time of such
Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Corporation for any such
Common Stock shall be less than the Series C Preferred Stock
Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights or convertible or exchangeable
securities at any time in the future shall be deemed to be an
issuance at the time such obligation, agreement or undertaking is
made or arises. No adjustment of the Series C Preferred Stock
Applicable Conversion Value shall be made under this paragraph
5(g)(i) upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any warrants, options,
subscriptions or purchase rights or pursuant to the exercise of
any conversion or exchange rights in any convertible securities
if any adjustment shall previously have been made upon the
issuance of any such warrants, options or subscriptions or
purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any
rights therefor) as above provided. Any adjustment of the Series
C Preferred Stock Applicable Conversion Value with respect to
this paragraph which relates to warrants, options, subscriptions
or purchase rights with respect to shares of Common Stock shall
be disregarded if, as, and when such warrants, options,
subscriptions or purchase rights expire or are canceled without
being exercised, so that the Series C Preferred Stock Applicable
Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series C Preferred Stock
Applicable Conversion Value in effect immediately prior to the
time of the issuance of the expired or canceled warrants,
options, subscriptions or
-21-
<PAGE> 22
purchase rights, with such additional adjustments as would have
been made to that Series C Preferred Stock Applicable Conversion
Value had the expired or canceled warrants, options,
subscriptions or purchase rights not been issued.
For purposes of this paragraph 5(g)(i)(B), the "Net Consideration
Per Share" which may be received by the Corporation shall be
determined as follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Corporation for the issuance of such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Corporation
upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(y) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each
instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which
may be applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities.
(C) Consideration: Non-Cash Property. For purposes of this
paragraph 5(g)(i), if a part or all of the consideration received by
the Corporation in connection with the issuance of shares of the
Common Stock or the issuance of any of the securities described in
this paragraph 5(g)(i) consists of property other than cash, the Board
of Directors of the Corporation shall in its good faith discretion
value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Corporation
with respect to receipt of such property.
This paragraph 5(g)(i) shall not apply and no adjustment in the
Series C Preferred Stock Applicable Conversion Value shall be made
hereunder under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as hereinafter defined in paragraph
5(j).
-22-
<PAGE> 23
(D) Exceptions. Notwithstanding the foregoing, the following
provisions shall apply with respect to the adjustment of the Series C
Preferred Stock Applicable Conversion Value pursuant to paragraph
5(g)(i)(A):
In the event any entity holding shares of Series C Preferred
Stock does not participate in a Financing (as defined below) by
purchasing its full Basic Amount (as defined below), then
paragraph 5(g)(i)(A) shall not apply to any shares of Series C
Preferred Stock held by such holder (the "Applicable Shares," as
defined below) and all such Applicable Shares of Series C
Preferred Stock held by such holder shall, simultaneous with and
effective immediately prior to such financing, automatically be
converted into an equal number of shares of a new series of
Series C Preferred Stock, such new series to be designated Series
C-1, Series C-2, Series C-3 and so on depending upon the order in
which such series is created. All new series of Series C
Preferred Stock shall be identical in all respects to the Series
C Preferred Stock (including the right to any previously
effective adjustment to the Series C Preferred Stock Applicable
Conversion Value), except that none of the provisions of
paragraph 5(g)(i)(A) shall thereafter apply to such new series.
Each holder of Applicable Shares of Series C Preferred Stock that
have been converted into a new series pursuant to this paragraph
5(g)(i)(D) shall immediately upon written notice from the
Corporation surrender to the Corporation at its principal office
all certificates for such Series C Preferred Stock, and the
Corporation shall thereupon deliver to such holder a certificate
for such shares of such new series of Series C Preferred Stock.
For the purposes of this paragraph 5(g)(i)(D), a holder's "Basic
Amount" of a Financing shall be its pro-rata share of such
Financing, subject to proportional reduction by the Board of
Directors of the Corporation if the Corporation elects to add
additional investors in such Financing, such pro rata share to be
determined based on the number of shares of Series C Preferred
Stock held by each holder of Series C Preferred Stock to the
number of shares of Series C Preferred Stock held by all holders
of Series C Preferred Stock, and a "Financing" shall mean any
transaction, designated as a "Financing" by the Board of
Directors of the Corporation, pursuant to which the Corporation
shall issue any shares of Common Stock, or other securities
convertible into, exchangeable or exercisable for shares of
Common Stock, for cash or cash equivalent consideration; however
a Financing does not include the issuance of any shares of Common
Stock or other securities of the Corporation, or options to
purchase shares of Common Stock or other securities of the
Corporation, issued
-23-
<PAGE> 24
pursuant to any stock option or stock purchase plans to the
Corporation's employees, officers, directors or consultants.
"Applicable Shares" shall mean that percentage of shares of
Series C Preferred Stock held by such holders prior to the
Financing which is equal to the percentage, if any, of the Basic
Amount which such holder does not purchase in the Financing. As
an example only: If a holder of Series C Preferred Stock
purchases only 75% of its Basic Amount of a Financing, and
thereby does not purchase 25% of such Basic Amount, then the
Applicable Shares of Series C Preferred Stock held by such holder
which will be converted to a new series of Series C Preferred
Stock, will be 25% of the number of such shares of Series C
Preferred Stock held by such holder immediately prior to such
Financing.
(ii) Certain Issues of Common Stock Excepted. Anything in paragraph
5(g)(i) to the contrary notwithstanding, the Corporation shall not be
required to make any adjustment of the Series C Preferred Stock Applicable
Conversion Value as set forth in paragraph 5(g)(i), in the case of (x) the
issuance of any shares of Common Stock upon conversion of any shares of
Preferred Stock, (y) the issuance of, or grant of options to purchase
shares of Common Stock to employees, consultants, directors or other
contributors as determined by the Board of Directors pursuant to the
Corporation's 1995 Incentive Stock Option Plan, as amended from time to
time, or the issuance of shares of Common Stock upon the exercise of any
such options to officers, directors, employees of or consultants to the
Corporation, or (z) the issuance of 1,035,000 shares of Common Stock to
Larry Bohn in connection with his employment as President and Chief
Executive Officer of the Company.
(h) Adjustments to the Applicable Conversion Value for Series D
Preferred Stock.
(i) General.
(A) Sale or Issuance of Common Stock. If the Corporation
shall, while there are any shares of Series D Preferred Stock
outstanding, issue or sell shares of its Common Stock without
consideration or at a price per share less than the Applicable
Conversion Value for the Series D Convertible Preferred Stock
(the "Series D Preferred Stock Applicable Conversion Value") in
effect immediately prior to such issuance or sale, then upon each
such issuance or sale, except as hereinafter provided, such
Series D Preferred Stock Applicable Conversion Value shall be
lowered so as to be equal to an amount determined by multiplying
the Series D Preferred Stock Applicable Conversion Value by a
fraction:
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<PAGE> 25
(x) the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (2)
the number of shares of Common Stock which the net aggregate
consideration, if any, received by the Corporation for the
total number of such additional shares of Common Stock so
issued would purchase at the Series D Preferred Stock
Applicable Conversion Value in effect immediately prior to
such issuance, and
(y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock plus (2)
the number of such additional shares of Common Stock so
issued;
provided, however, in no event will any adjustment be made to the
extent it would result in any shares of Common Stock being issued
for an amount which is less than the par value of such shares.
(B) Sale or Issuance of Warrants, Options or Purchase Rights
with Respect to Common Stock. For the purposes of this paragraph
5(h)(i), the issuance of any warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock and the
issuance of any securities convertible into or exchangeable for
shares of Common Stock (or the issuance of any warrants, options
or any rights with respect to such convertible or exchangeable
securities) shall be deemed an issuance at such time of such
Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the Corporation for any such
Common Stock shall be less than the Series D Preferred Stock
Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or undertaking to issue warrants, options,
subscriptions or purchase rights or convertible or exchangeable
securities at any time in the future shall be deemed to be an
issuance at the time such obligation, agreement or undertaking is
made or arises. No adjustment of the Series D Preferred Stock
Applicable Conversion Value shall be made under this paragraph
5(h)(i) upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any warrants, options,
subscriptions or purchase rights or pursuant to the exercise of
any conversion or exchange rights in any convertible securities
if any adjustment shall previously have been made upon the
issuance of any such warrants, options or subscriptions or
purchase rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any
rights therefor) as above provided. Any adjustment of the Series
D Preferred Stock Applicable Conversion Value with respect to
this paragraph which relates to warrants, options, subscriptions
or purchase rights with respect to shares of Common Stock shall
be disregarded if, as,
-25-
<PAGE> 26
and when such warrants, options, subscriptions or purchase rights
expire or are canceled without being exercised, so that the
Series D Preferred Stock Applicable Conversion Value effective
immediately upon such cancellation or expiration shall be equal
to the Series D Preferred Stock Applicable Conversion Value in
effect immediately prior to the time of the issuance of the
expired or canceled warrants, options, subscriptions or purchase
rights, with such additional adjustments as would have been made
to that Series D Preferred Stock Applicable Conversion Value had
the expired or canceled warrants, options, subscriptions or
purchase rights not been issued.
For purposes of this paragraph 5(h)(i)(B), the "Net Consideration
Per Share" which may be received by the Corporation shall be
determined as follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Corporation for the issuance of such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Corporation
upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(y) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each
instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which
may be applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities.
(C) Consideration: Non-Cash Property. For purposes of this
paragraph 5(h)(i), if a part or all of the consideration received by
the Corporation in connection with the issuance of shares of the
Common Stock or the issuance of any of the securities described in
this paragraph 5(h)(i) consists of property other than cash, the Board
of Directors of the Corporation shall in its good faith discretion
value such property, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Corporation
with respect to receipt of such property.
-26-
<PAGE> 27
This paragraph 5(h)(i) shall not apply and no adjustment in the
Series D Preferred Stock Applicable Conversion Value shall be made
hereunder under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as hereinafter defined in paragraph
5(j).
(D) Exceptions. Notwithstanding the foregoing, the following
provisions shall apply with respect to the adjustment of the Series D
Preferred Stock Applicable Conversion Value pursuant to paragraph
5(h)(i)(A):
In the event any entity holding shares of Series D Preferred
Stock does not participate in a Financing (as defined below) by
purchasing its full Basic Amount (as defined below), then
paragraph 5(h)(i)(A) shall not apply to any shares of Series D
Preferred Stock held by such holder (the "Applicable Shares," as
defined below) and all such Applicable Shares of Series D
Preferred Stock held by such holder shall, simultaneous with and
effective immediately prior to such financing, automatically be
converted into an equal number of shares of a new series of
Series D Preferred Stock, such new series to be designated Series
D-1, Series D-2, Series D-3 and so on depending upon the order in
which such series is created. All new series of Series D
Preferred Stock shall be identical in all respects to the Series
D Preferred Stock (including the right to any previously
effective adjustment to the Series D Preferred Stock Applicable
Conversion Value), except that none of the provisions of
paragraph 5(h)(i)(A) shall thereafter apply to such new series.
Each holder of Applicable Shares of Series D Preferred Stock that
have been converted into a new series pursuant to this paragraph
5(h)(i)(D) shall immediately upon written notice from the
Corporation surrender to the Corporation at its principal office
all certificates for such Series D Preferred Stock, and the
Corporation shall thereupon deliver to such holder a certificate
for such shares of such new series of Series D Preferred Stock.
For the purposes of this paragraph 5(h)(i)(D), a holder's "Basic
Amount" of a Financing shall be its pro-rata share of such
Financing, subject to proportional reduction by the Board of
Directors of the Corporation if the Corporation elects to add
additional investors in such Financing, such pro rata share to be
determined based on the number of shares of Series D Preferred
Stock held by each holder of Series D Preferred Stock to the
number of shares of Series D Preferred Stock held by all holders
of Series D Preferred Stock, and a "Financing" shall mean any
transaction, designated as a "Financing" by the Board of
Directors of the Corporation, pursuant to which the Corporation
shall issue
-27-
<PAGE> 28
any shares of Common Stock, or other securities convertible into,
exchangeable or exercisable for shares of Common Stock, for cash
or cash equivalent consideration; however a Financing does not
include the issuance of any shares of Common Stock or other
securities of the Corporation, or options to purchase shares of
Common Stock or other securities of the Corporation, issued
pursuant to any stock option or stock purchase plans to the
Corporation's employees, officers, directors or consultants.
"Applicable Shares" shall mean that percentage of shares of
Series D Preferred Stock held by such holders prior to the
Financing which is equal to the percentage, if any, of the Basic
Amount which such holder does not purchase in the Financing. As
an example only: If a holder of Series D Preferred Stock
purchases only 75% of its Basic Amount of a Financing, and
thereby does not purchase 25% of such Basic Amount, then the
Applicable Shares of Series D Preferred Stock held by such holder
which will be converted to a new series of Series D Preferred
Stock, will be 25% of the number of such shares of Series D
Preferred Stock held by such holder immediately prior to such
Financing.
(ii) Certain Issues of Common Stock Excepted. Anything in
paragraph 5(h)(i) to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Series D Preferred
Stock Applicable Conversion Value as set forth in paragraph 5(h)(i),
in the case of (x) the issuance of any shares of Common Stock upon
conversion of any shares of Preferred Stock, or (y) the issuance of,
or grant of options to purchase shares of Common Stock to employees,
consultants, directors or other contributors as determined by the
Board of Directors pursuant to the Corporation's 1995 Incentive Stock
Option Plan, as amended from time to time, or the issuance of shares
of Common Stock upon the exercise of any such options to officers,
directors, employees of or consultants to the Corporation.
(i) Adjustments to the Applicable Conversion Value for Series E Preferred
Stock.
(i) General.
(A) Sale or Issuance of Common Stock. If the Corporation shall,
while there are any shares of Series E Preferred Stock outstanding,
issue or sell shares of its Common Stock without consideration or at a
price per share less than the Applicable Conversion Value for the
Series E Convertible Preferred Stock (the "Series E Preferred Stock
Applicable Conversion Value") in effect immediately prior to such
issuance or sale, then upon each such issuance or sale, except as
hereinafter provided, such Series E Preferred Stock Applicable
Conversion Value shall be lowered so
-28-
<PAGE> 29
as to be equal to an amount determined by multiplying the Series E
Preferred Stock Applicable Conversion Value by a fraction:
(x) the numerator of which shall be (1) the number of shares
of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, plus (2) the number of
shares of Common Stock which the net aggregate consideration, if
any, received by the Corporation for the total number of such
additional shares of Common Stock so issued would purchase at the
Series E Preferred Stock Applicable Conversion Value in effect
immediately prior to such issuance, and
(y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock plus (2) the
number of such additional shares of Common Stock so issued;
provided, however, in no event will any adjustment be made to the
extent it would result in any shares of Common Stock being issued for
an amount which is less than the par value of such shares.
(B) Sale or Issuance of Warrants, Options or Purchase Rights with
Respect to Common Stock. For the purposes of this paragraph 5(i)(i),
the issuance of any warrants, options, subscriptions or purchase
rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common Stock
(or the issuance of any warrants, options or any rights with respect
to such convertible or exchangeable securities) shall be deemed an
issuance at such time of such Common Stock if the Net Consideration
Per Share (as hereinafter determined) which may be received by the
Corporation for any such Common Stock shall be less than the Series E
Preferred Stock Applicable Conversion Value at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants,
options, subscriptions or purchase rights or convertible or
exchangeable securities at any time in the future shall be deemed to
be an issuance at the time such obligation, agreement or undertaking
is made or arises. No adjustment of the Series E Preferred Stock
Applicable Conversion Value shall be made under this paragraph 5(i)(i)
upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants,
options or subscriptions or purchase rights or upon the issuance of
any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of
the Series E
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<PAGE> 30
Preferred Stock Applicable Conversion Value with respect to this
paragraph which relates to warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock shall be
disregarded if, as, and when such warrants, options, subscriptions or
purchase rights expire or are canceled without being exercised, so
that the Series E Preferred Stock Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be
equal to the Series E Preferred Stock Applicable Conversion Value in
effect immediately prior to the time of the issuance of the expired or
canceled warrants, options, subscriptions or purchase rights, with
such additional adjustments as would have been made to that Series E
Preferred Stock Applicable Conversion Value had the expired or
canceled warrants, options, subscriptions or purchase rights not been
issued.
For purposes of this paragraph 5(i)(i)(B), the "Net Consideration Per
Share" which may be received by the Corporation shall be determined as
follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Corporation for the issuance of such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Corporation
upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(y) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each
instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which
may be applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities.
(C) Consideration: Non-Cash Property. For purposes of this
paragraph 5(i)(i), if a part or all of the consideration received by
the Corporation in connection with the issuance of shares of the
Common Stock or the issuance of any of the securities described in
this paragraph 5(i)(i) consists of property other than cash, the Board
of Directors of the Corporation shall in its good faith discretion
value such property, whereupon such value shall be given to such
consideration and shall be
-30-
<PAGE> 31
recorded on the books of the Corporation with respect to receipt of
such property.
This paragraph 5(i)(i) shall not apply and no adjustment in the
Series E Preferred Stock Applicable Conversion Value shall be made
hereunder under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as hereinafter defined in paragraph
5(j).
(ii) Certain Issues of Common Stock Excepted. Anything in paragraph
5(i)(i) to the contrary notwithstanding, the Corporation shall not be
required to make any adjustment of the Series E Preferred Stock Applicable
Conversion Value as set forth in paragraph 5(i)(i), in the case of (x) the
issuance of any shares of Common Stock upon conversion of any shares of
Preferred Stock, or (y) the issuance of, or grant of options to purchase
shares of Common Stock to employees, consultants, directors or other
contributors as determined by the Board of Directors pursuant to the
Corporation's 1995 Incentive Stock Option Plan, as amended from time to
time (including in such number all options outstanding on the date the
Fifth Amended and Restated Certificate of Incorporation becomes effective),
or the issuance of shares of Common Stock upon the exercise of any such
options (which number shall be equitably adjusted on the occurrence of an
Extraordinary Common Stock Event, as hereinafter defined, a
reclassification, reorganization or similar event affecting the Common
Stock) to officers, directors, employees of or consultants to the
Corporation.
(j) Adjustments to the Applicable Conversion Value for Series F Preferred
Stock.
(i) General.
(A) Sale or Issuance of Common Stock. If the Corporation shall,
while there are any shares of Series F Preferred Stock outstanding,
issue or sell shares of its Common Stock without consideration or at a
price per share less than the Applicable Conversion Value for the
Series F Convertible Preferred Stock (the "Series F Preferred Stock
Applicable Conversion Value") in effect immediately prior to such
issuance or sale, then upon each such issuance or sale, except as
hereinafter provided, such Series F Preferred Stock Applicable
Conversion Value shall be lowered so as to be equal to an amount
determined by multiplying the Series F Preferred Stock Applicable
Conversion Value by a fraction:
(x) the numerator of which shall be (1) the number of shares
of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, plus (2) the number of
shares of Common Stock which the net aggregate
-31-
<PAGE> 32
consideration, if any, received by the Corporation for the total
number of such additional shares of Common Stock so issued would
purchase at the Series F Preferred Stock Applicable Conversion
Value in effect immediately prior to such issuance, and
(y) the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock plus (2) the
number of such additional shares of Common Stock so issued;
provided, however, in no event will any adjustment be made to the
extent it would result in any shares of Common Stock being issued for
an amount which is less than the par value of such shares.
(B) Sale or Issuance of Warrants, Options or Purchase Rights with
Respect to Common Stock. For the purposes of this paragraph 5(j)(i),
the issuance of any warrants, options, subscriptions or purchase
rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common Stock
(or the issuance of any warrants, options or any rights with respect
to such convertible or exchangeable securities) shall be deemed an
issuance at such time of such Common Stock if the Net Consideration
Per Share (as hereinafter determined) which may be received by the
Corporation for any such Common Stock shall be less than the Series F
Preferred Stock Applicable Conversion Value at the time of such
issuance. Any obligation, agreement or undertaking to issue warrants,
options, subscriptions or purchase rights or convertible or
exchangeable securities at any time in the future shall be deemed to
be an issuance at the time such obligation, agreement or undertaking
is made or arises. No adjustment of the Series F Preferred Stock
Applicable Conversion Value shall be made under this paragraph 5(j)(i)
upon the issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants,
options or subscriptions or purchase rights or upon the issuance of
any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of
the Series F Preferred Stock Applicable Conversion Value with respect
to this paragraph which relates to warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock shall be
disregarded if, as, and when such warrants, options, subscriptions or
purchase rights expire or are canceled without being exercised, so
that the Series F Preferred Stock Applicable Conversion Value
effective immediately upon such cancellation or expiration shall be
equal to the Series F Preferred Stock
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Applicable Conversion Value in effect immediately prior to the time of
the issuance of the expired or canceled warrants, options,
subscriptions or purchase rights, with such additional adjustments as
would have been made to that Series F Preferred Stock Applicable
Conversion Value had the expired or canceled warrants, options,
subscriptions or purchase rights not been issued.
For purposes of this paragraph 5(j)(i)(B), the "Net Consideration Per
Share" which may be received by the Corporation shall be determined as
follows:
(x) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Corporation for the issuance of such
warrants, options, subscriptions or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Corporation
upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(y) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each
instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which
may be applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities.
(C) Consideration: Non-Cash Property. For purposes of this
paragraph 5(j)(i), if a part or all of the consideration received
by the Corporation in connection with the issuance of shares of
the Common Stock or the issuance of any of the securities
described in this paragraph 5(j)(i) consists of property other
than cash, the Board of Directors of the Corporation shall in its
good faith discretion value such property, whereupon such value
shall be given to such consideration and shall be recorded on the
books of the Corporation with respect to receipt of such
property.
This paragraph 5(j)(i) shall not apply and no adjustment in
the Series F Preferred Stock Applicable Conversion Value shall be
made hereunder under any of the circumstances which would
constitute an
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Extraordinary Common Stock Event (as hereinafter defined in
paragraph 5(k).
(D) Exceptions. Notwithstanding the foregoing, the following
provisions shall apply with respect to the adjustment of the
Series F Preferred Stock Applicable Conversion Value pursuant to
paragraph 5(j)(i)(A):
In the event any entity holding shares of Series F
Preferred Stock does not participate in a Financing (as
defined below) by purchasing its full Basic Amount (as
defined below), then paragraph 5(j)(i)(A) shall not apply to
any shares of Series F Preferred Stock held by such holder
(the "Applicable Shares," as defined below) and all such
Applicable Shares of Series F Preferred Stock held by such
holder shall, simultaneous with and effective immediately
prior to such financing, automatically be converted into an
equal number of shares of a new series of Series F Preferred
Stock, such new series to be designated Series F-1, Series
F-2, Series F-3 and so on depending upon the order in which
such series is created. All new series of Series F Preferred
Stock shall be identical in all respects to the Series F
Preferred Stock (including the right to any previously
effective adjustment to the Series F Preferred Stock
Applicable Conversion Value), except that none of the
provisions of paragraph 5(j)(i)(A) shall thereafter apply to
such new series. Each holder of Applicable Shares of Series
F Preferred Stock that have been converted into a new series
pursuant to this paragraph 5(h)(i)(D) shall immediately upon
written notice from the Corporation surrender to the
Corporation at its principal office all certificates for
such Series F Preferred Stock, and the Corporation shall
thereupon deliver to such holder a certificate for such
shares of such new series of Series F Preferred Stock. For
the purposes of this paragraph 5(j)(i)(D), a holder's "Basic
Amount" of a Financing shall be its pro-rata share of such
Financing, subject to proportional reduction by the Board of
Directors of the Corporation if the Corporation elects to
add additional investors in such Financing, such pro rata
share to be determined based on the number of shares of
Series F Preferred Stock held by each holder of Series F
Preferred Stock to the number of shares of Series F
Preferred Stock held by all holders of Series F Preferred
Stock, and a "Financing" shall mean any transaction,
designated as a "Financing" by the Board of Directors of the
Corporation, pursuant to which the Corporation shall issue
any shares of Common Stock, or other securities convertible
into, exchangeable or exercisable for shares of Common
Stock, for cash or cash equivalent consideration; however a
Financing does not
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include the issuance of any shares of Common Stock or other
securities of the Corporation, or options to purchase shares
of Common Stock or other securities of the Corporation,
issued pursuant to any stock option or stock purchase plans
to the Corporation's employees, officers, directors or
consultants. "Applicable Shares" shall mean that percentage
of shares of Series F Preferred Stock held by such holders
prior to the Financing which is equal to the percentage, if
any, of the Basic Amount which such holder does not purchase
in the Financing. As an example only: If a holder of Series
F Preferred Stock purchases only 75% of its Basic Amount of
a Financing, and thereby does not purchase 25% of such Basic
Amount, then the Applicable Shares of Series F Preferred
Stock held by such holder which will be converted to a new
series of Series F Preferred Stock, will be 25% of the
number of such shares of Series F Preferred Stock held by
such holder immediately prior to such Financing.
(ii) Certain Issues of Common Stock Excepted. Anything in
paragraph 5(j)(i) to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Series F Preferred
Stock Applicable Conversion Value as set forth in paragraph 5(j)(i),
in the case of (x) the issuance of any shares of Common Stock upon
conversion of any shares of Preferred Stock, or (y) the issuance of,
or grant of options to purchase shares of Common Stock to employees,
consultants, directors or other contributors as determined by the
Board of Directors pursuant to the Corporation's 1995 Incentive Stock
Option Plan, as amended from time to time, or the issuance of shares
of Common Stock upon the exercise of any such options to officers,
directors, employees of or consultants to the Corporation.
(k) Upon Extraordinary Common Stock Event. Upon the happening of an
Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value for each series or subseries of Preferred Stock shall,
simultaneously with the happening of such Extraordinary Common Stock Event,
be adjusted only under this paragraph 5(k) by multiplying the then
effective Applicable Conversion Value for such series or subseries of
Preferred Stock by a fraction, (x) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and (y) the denominator of which shall be
the number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the Applicable Conversion Value for such series or subseries
of Preferred Stock. The Applicable Conversion Value, as so adjusted, shall
be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (x) the issue of
additional shares of the Common Stock as a dividend or other distribution
on outstanding Common
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Stock, (y) subdivision of outstanding shares of Common Stock into a greater
number of shares of the Common Stock, or (z) combination of outstanding
shares of the Common Stock into a smaller number of shares of the Common
Stock after October 31, 1997.
(l) Dividends. In the event the Corporation shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution (other than a distribution in
liquidation or other distribution provided for herein) payable in
securities of the Corporation other than shares of Common Stock or in
assets (excluding ordinary cash dividends paid out of retained earnings),
then and in each such event, provision shall be made so that the holders of
Preferred Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the number of
securities or such other assets of the Corporation which they would have
received had their shares of Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period
from the date of such event to and including the Conversion Date (as that
term is hereafter defined in paragraph 5(p)), retained such securities or
such other assets receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under
this paragraph 5 with respect to the rights of the holders of the Preferred
Stock.
(m) Capital Reorganization or Reclassification. If the Common Stock
issuable upon the conversion of the Preferred Stock shall be changed into
the same or different number of shares of any series or classes of stock,
whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this paragraph 5, or a reorganization, merger, consolidation
or sale of assets provided for elsewhere in this paragraph 5), then and in
each such event the holder of each share of Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares
of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number
or shares of Common Stock into which such share of Preferred Stock might
have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(n) Capital Reorganization, Merger or Sale of Assets. If at any time
or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this paragraph 5 or a merger or
consolidation of the Corporation with or into another corporation, or the
sale of all or substantially all of the Corporation's properties and assets
to any other person (other than an event described in paragraph 4(h),
unless the requisite number of holders of Preferred Stock and Series F
Preferred Stock have elected not to treat such event as a liquidation for
purposes of such paragraph), then, as a part of such reorganization,
merger, consolidation or sale, provision shall be made so that the holders
of the Preferred Stock shall be entitled to receive upon consummation of
such transaction, the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from
such merger, consolidation or sale, to which a holder
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of Common Stock issuable upon conversion would have been entitled upon
consummation of such capital reorganization, merger, consolidation, or
sale, provided that no such provision shall be deemed to constitute the
consent of the holders of the Preferred Stock to any such transaction if
such consent is required by the Fifth Amended and Restated Certificate of
Incorporation of the Corporation or under applicable law.
(o) Certificate as to Adjustments. In each case of an adjustment or
readjustment of the Applicable Conversion Rate, the Corporation will
furnish each holder of Preferred Stock with a certificate showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(p) Exercise of Conversion Privilege. To exercise his conversion
privilege, a holder of Preferred Stock shall surrender the certificate or
certificates representing the shares being converted together with a
written notice of such conversion to the Corporation at its principal
office or to the transfer agent, if any, which has been designated by the
Corporation. Such notice shall also state the name or names (with address
or addresses) in which the certificate or certificates for shares of Common
Stock issuable upon such conversion shall be issued. The certificate or
certificates for shares of Preferred Stock surrendered for the conversion
shall be accompanied by proper assignment thereof to the Corporation or in
blank. The date when such written notice is received by the Corporation,
together with the certificate or certificates representing the shares of
Preferred Stock being converted, shall be the "Conversion Date". As
promptly as practicable after the Conversion Date, the Corporation shall
issue and deliver to the holder of the shares of Preferred Stock being
converted, (i) such certificate or certificates as it may request for the
number of whole shares of Common Stock issuable upon the conversion of such
shares of Preferred Stock in accordance with the provisions of this
paragraph 5, and (ii) cash, as provided in paragraph 5(q), in respect of
any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the
close of business on the Conversion Date, and at such time the rights of
the holder as holder of the converted shares of Preferred Stock shall cease
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
(q) Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock. Instead of any fractional shares
of Common Stock which would otherwise be issuable upon conversion of
Preferred Stock, the Corporation shall pay to the holder of the shares of
Preferred Stock which were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the fair
market value per share of the Common Stock (as determined in good faith by
the Board of Directors) at the close of business on the Conversion Date.
The determination as to whether or not to make any cash payment in lieu of
the issuance of fractional shares shall
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be based upon the total number of shares of Preferred Stock being converted
at any one time by any holder thereof, not upon each share of Preferred
Stock being converted.
(r) Partial Conversion. In the event some but not all of the shares of
Preferred Stock represented by a certificate or certificates surrendered by
a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Preferred Stock which were
not converted.
(s) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred
Stock, the Corporation shall take such corporate action subject to the
terms of the Corporation's Second Amended and Restated Certificate of
Incorporation and applicable law as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(t) Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Stock
which is being converted.
(u) Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion
of such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
6. Redemption.
(a) The Corporation shall on or after June 30, 2004, at the written
election of the holders of at least sixty (60%) percent of the then
outstanding shares of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock, each voting as a separate class as to its own class of Preferred
Stock only, delivered to the Corporation and specifying the first day on
which such shares are to be redeemed, (i) redeem on the date specified by
such holders one-third of all the shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and/or Series F Preferred Stock as the case may be, outstanding on
the date of such election and (ii) redeem on the first and second
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anniversaries of such date an additional one-third of the shares of Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and/or Series F Preferred Stock outstanding on the
date of such election (each such date being herein called a "Redemption
Date" and each share of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock to be redeemed under this paragraph 6(a) called "Redeemable Preferred
Stock").
(b) All shares of Redeemable Preferred Stock which are to be redeemed
hereunder shall remain issued and outstanding until the Redemption Price
therefor has been indefeasibly paid in full in cash. If the Corporation for
any reason fails to pay the Redemption Price for any shares of Redeemable
Preferred Stock on or prior to the date specified in this paragraph 6, then
the unpaid Redemption Price shall thereafter bear interest at the annual
rate of 12%, compounded annually until paid.
(c) The Redemption Price (the "Redemption Price") for each share of
Redeemable Preferred Stock redeemed pursuant to paragraph 6 shall be the
sum of the Original Purchase Price for such shares (subject to equitable
adjustment in the event of any stock dividend, stock split,
reclassification of shares or similar event affecting or relating to the
Redeemable Preferred Stock) plus (i) the amount of the unpaid Accruing
Dividend for such shares and (ii) all other declared but unpaid dividends
on such shares to and including the applicable Redemption Date.
(d) After receipt of a notice of election pursuant to paragraph 6(a)
the Corporation will give written notice by mail, postage prepaid to the
holders of record of Redeemable Preferred Stock to be redeemed on each
Redemption Date, such notice to be addressed to each such holder at its
post office address shown by the records of the Corporation, specifying the
number of shares to be redeemed, the Redemption Price, and the place and
Redemption Date of such redemption (which date shall not be a day on which
banks in the City of Boston are required or authorized to close), and to be
given at least twenty (20) days prior to the Redemption Date; provided,
however, that the Corporation's failure to give such notice shall in no way
affect its obligation to redeem the shares of Redeemable Preferred Stock as
provided in this paragraph 6. If on or before any Redemption Date, the
funds necessary for redemption of the shares of Redeemable Preferred Stock
to be redeemed on such Redemption Date shall have been deposited with an
independent payment agent so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares of
Redeemable Preferred Stock to be redeemed shall not have been surrendered
for cancellation, from and after the close of business on such Redemption
Date, the shares so called for redemption shall no longer be deemed
outstanding, any dividends thereon shall cease to accrue, and all rights
with respect to such shares, including all conversion rights pursuant to
paragraph 5 hereof, shall forthwith cease, except only the right of the
holders thereof to receive, upon presentation of the certificate
representing shares so called for redemption, the Redemption Price
applicable to such Redeemable Preferred Stock without interest thereon.
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(e) If the funds of the Corporation legally available for redemption
of Redeemable Preferred Stock on any Redemption Date are insufficient to
redeem the total number of outstanding Redeemable Preferred Stock to be
redeemed on such Redemption Date, the Corporation shall redeem such shares
of Redeemable Preferred Stock ratably first, from holders of Series F
Preferred Stock, second, from holders of Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, and third, from holders of
Series B Preferred Stock to the extent of any funds legally available for
redemption of such Redeemable Preferred Stock, according to the respective
amounts which would be payable with respect to the full number of
Redeemable Preferred Stock to be redeemed from them on such date (such
amounts to be applied first, to redeem Series F Preferred Stock, second to
redeem Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, and third to redeem Series B Preferred Stock) as if all
such Redeemable Preferred Stock were redeemed in full. Any shares of
Redeemable Preferred Stock not redeemed shall remain outstanding. At any
time thereafter when additional funds of the Corporation are legally
available for the redemption of Redeemable Preferred Stock, such funds will
be used to redeem the balance of such Redeemable Preferred Stock, or such
portion thereof for which funds are then available, on the basis set forth
above. Any Redeemable Preferred Stock may be converted by the holder
thereof to Common Stock, in accordance with the provisions of the Fifth
Amended and Restated Certificate of Incorporation of the Corporation, at
any time prior to the close of business on the last business day next
preceding the Redemption Date.
(f) No shares of Redeemable Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise
shall be reissued, and all such acquired Redeemable Preferred Stock shall
be canceled, retired and eliminated from the shares which the Corporation
shall be authorized to issue. The Corporation shall from time to time take
such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Redeemable Preferred Stock accordingly.
(g) Except pursuant to this paragraph 6, the Corporation shall not
redeem any shares of capital stock (excepting redemptions of shares held by
employees or consultants of the Corporation pursuant to agreements with
such employees or consultants upon termination of their employment by, or
consulting for, the Corporation) unless consented to by holders of a
majority of the issued and outstanding shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock voting as a single class.
7. Notices of Record Date. In the event of
(a) any taking by the Corporation of a record of the holders of any
series of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
series or any other securities or property, or to receive any other right,
or
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(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the Corporation to
any other corporation, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then and in each such event the Corporation shall
mail or cause to be mailed to each holder of Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, (iii) the time, if any, that is to be fixed, as to
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up and (iv) the last date on which the
holders of shares of Preferred Stock may convert such shares to Common
Stock in conjunction with any such action. Such notice shall be mailed at
least twenty (20) days prior to the date specified in such notice on which
such action is to be taken.
B. COMMON STOCK.
1. Relative Rights of Preferred Stock and Common Stock. All preferences,
voting powers, relative, participating, optional or other special rights and
privileges, and qualifications, limitations, or restrictions of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or the Fifth Amended
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held by him of record on the
books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation.
3. Dividends. Subject to the preferential rights of the Preferred Stock, if
any, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property or in shares of capital stock.
4. Dissolution, Liquidation or Winding Up. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock, the holders of Common Stock shall be entitled,
unless otherwise provided by law or this Fifth Amended and Restated Certificate
of Incorporation, to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively.
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FIFTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) Subject to the limitations and exceptions, if any, contained in the
by-laws of the Corporation, the by-laws may be adopted, amended or repealed by
the Board of Directors of the Corporation; and
(b) Elections of directors need not be by written ballot unless, and only
to the extent, otherwise provided in the by-laws.
SIXTH: The Corporation shall indemnify each person who, at any time, is, or
shall have been, a director or officer of the Corporation and 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 or she is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred in connection with any such action, suit or proceeding, to the maximum
extent permitted by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended. The foregoing right of indemnification
shall in no way be exclusive of any other rights of indemnification to which any
such director or officer may be entitled, under any by-law, agreement, vote of
directors or stockholders or otherwise. No amendment to or repeal of the
provisions of this Article SIXTH shall deprive a director or officer of the
benefit hereof with respect to any act or failure to act occurring prior to such
amendment or repeal.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages arising out of
such director's
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breach of fiduciary duty as a director of the Corporation, except to the extent
that the elimination or limitation of such liability is not permitted by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended. No amendment to or repeal of the provisions of this
Article EIGHTH shall deprive any director of the Corporation of the benefit
hereof with respect to any act or failure to act of such director occurring
prior to such amendment or repeal.
NINTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Fifth Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by statute and this
Fifth Amended and Restated Certificate of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, said net.Genesis Corp., has caused this certificate to
be signed by Larry Bohn, President, and attested to by John D. Patterson, Jr.,
Assistant Secretary, this 4th day of June, 1999.
By: /s/ Larry Bohn
--------------------------
Larry Bohn
President
ATTEST:
/s/ John D. Patterson, Jr.
- ----------------------------------
John D. Patterson, Jr.
Assistant Secretary
-43-
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NET.GENESIS CORP.
net.Genesis Corp., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of said corporation has adopted by
written consent the following resolution:
RESOLVED: That the Certificate of Incorporation of the
Corporation be amended to increase the
number of shares of authorized common stock,
$.001 par value per share, of the
Corporation to 100,000,000, and that the
officers of the Corporation be authorized
(i) to prepare, execute and file with the
Secretary of State of the State of Delaware
an amended certificate (the "Amended
Certificate") and (ii) to take any and all
other actions necessary, desirable or
convenient to give effect to the Amended
Certificate or otherwise to carry out the
purposes of this Resolution.
RESOLVED: That the Amended Certificate of
Incorporation be submitted to the
stockholders for their consideration.
SECOND: That the the Corporation's Fifth Amended and Restated
Certificate of Incorporation be amended by deleting the first paragraph of
Article Fourth thereof and substituting therefor the following paragraph:
The total number of shares of all classes of capital stock that the
Corporation shall have the authority to issue is 117,686,887 shares,
$.001 par value, which shall consist of Common Stock and six classes of
Preferred Stock as follows:
<TABLE>
<S> <C>
Common Stock, $.001 par value
("Common Stock") - 100,000,000 shares
Series A Convertible Preferred
Stock, $.001 par value
("Series A Preferred Stock") - 925,430 shares
Series B Convertible Preferred
Stock, $0.001 par value
("Series B Preferred Stock") - 776,718 shares
Series C Convertible Preferred
Stock, $0.001 par value
("Series C Preferred Stock") - 3,000,000 shares
Series D Convertible Preferred
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Stock, $0.001 par value
("Series D Preferred Stock") - 5,900,000 shares
Series E Convertible Preferred
Stock, $0.001 par value
("Series E Preferred Stock") - 279,739 shares
Series F Convertible Preferred
Stock, $0.001 par value
("Series F Preferred Stock") - 6,805,000 shares
</TABLE>
The Series A Preferred Stock shall consist of three subseries as follows:
<TABLE>
<S> <C>
Series A-1 Convertible Preferred Stock
("Series A-1 Preferred Stock) - 200,000 shares
Series A-2 Convertible Preferred Stock
("Series A-2 Preferred Stock) - 101,430 shares
Series A-3 Convertible Preferred Stock
("Series A-3 Preferred Stock) - 624,000 shares
</TABLE>
THIRD; That said amendment has been consented to and authorized by a
majority of the holders of the issued and outstanding shares of common stock,
par value $.001 ("Common Stock") by written consent given in accordance with
the provisions of Section 228 of the General Corporation Law of the State of
Delaware.
FOURTH: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Lawrence S. Bohn, its President, and attested to by John Delea, its
Secretary, this 21st day of December, 1999.
/s/ Laurence S. Bohn
--------------------------------------
President
Attested by:
/s/ John Delea
- ------------------------------------
Secretary
<PAGE> 3
The Series A Preferred Stock shall consist of three subseries
as follows:
<TABLE>
<S> <C>
Series A-1 Convertible Preferred Stock
("Series A-1 Preferred Stock") - 200,000 shares
Series A-2 Convertible Preferred Stock
("Series A-2 Preferred Stock") - 101,430 shares
Series A-3 Convertible Preferred Stock
("Series A-3 Preferred Stock") - 624,000 shares
</TABLE>
THIRD: That said amendment has been consented to and authorized by a
majority of the holders of the issued and outstanding shares of common stock,
par value $.001 ("Common Stock") by written consent given in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
FOURTH: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 and 228 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Lawrence S. Bohn, its President, and attested to by John Delea, its
Secretary, this 21st day of December, 1999.
____________________________________
President
Attested by:
___________________________________
Secretary
2
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NET.GENESIS CORP.
The following Amended and Restated Certificate of Incorporation (i)
amends and restates the provisions of the Certificate of Incorporation of
net.Genesis Corp. (the "Corporation") originally filed with the Secretary of
State of the State of Delaware on May 6, 1994, as amended and restated to date;
(ii) supersedes the Certificate of Incorporation and all amendments thereto and
restatements thereof; and (iii) has been duly proposed by the Board of Directors
of the Corporation and duly adopted by the stockholders of the Corporation in
accordance with the provisions of Sections 228, 242 and 245 of the Delaware
General Corporation Law.
FIRST: The name of the corporation (the "Corporation") is net.Genesis
Corp.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, and
the name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 105,000,000, consisting
of (i) 100,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof, in respect of each class of capital stock of the Corporation:
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
<PAGE> 2
2. Voting. The holders of Common Stock will be entitled to one vote per
share on all matters to be voted on by the stockholders of the Corporation.
There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential liquidation rights of any then
outstanding Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. No share of
Preferred Stock that is redeemed, purchased or acquired by the Corporation may
be reissued except as otherwise provided herein or by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided herein, in any
such resolution or resolutions, or by law.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided by law or by this Amended and Restated Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the Amended
and Restated Certificate of Incorporation, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation.
FIFTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
-2-
<PAGE> 3
(a) Subject to the limitations and exceptions, if any,
contained in the by-laws of the Corporation, the by-laws may be adopted, amended
or repealed by the Board of Directors of the Corporation.
(b) Elections of directors need not be by written ballot.
(c) Subject to any applicable requirements of law, the books
of the Corporation may be kept outside the State of Delaware at such location as
may be designated by the Board of Directors or in the by-laws of the
Corporation.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The Corporation shall indemnify each person who at any time
is, or shall have been a director or officer of the Corporation, and is
threatened to be or is 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 served at the request of the Corporation as a director,
officer, employee, trustee, or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement incurred in connection
with any such action, suit or proceeding to the maximum extent permitted by the
General Corporation Law of Delaware. The foregoing right of indemnification
shall in no way be exclusive of any other rights of indemnification to which any
such director or officer may be entitled, under any by-law, agreement, vote of
directors or stockholders or otherwise. No amendment to or repeal of the
provisions of this paragraph shall deprive a person of the benefit of this
paragraph with respect to any act or failure to act of such person occurring
prior to such amendment or repeal.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
-3-
<PAGE> 4
NINTH: To the maximum extent permitted by the General Corporation Law
of Delaware as the same exists or may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or to any of its
stockholders for monetary damages arising out of such director's breach of
fiduciary duty as a director of the Corporation. No amendment to or repeal of
the provisions of this paragraph shall apply to or have any effect on the
liability or the alleged liability of any director of the Corporation with
respect to any act or failure to act of such director occurring prior to such
amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly constituted annual or
special meeting of stockholders and may not be effected by any consent in
writing by such stockholders. Notwithstanding any other provisions of law, this
Amended and Restated Certificate of Incorporation or the by-laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least eighty percent (80%) of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article ELEVENTH.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned, being the duly elected and acting
President of net.Genesis Corp., does hereby declare that this Amended and
Restated Certificate of Incorporation has been duly adopted by the Board of
Directors and the stockholders of this Corporation in accordance with the
provisions of Sections 228, 242 and 245 of the General Corporation Law of
Delaware. The undersigned does hereby affirm, under the penalties of perjury,
that this instrument is the act and deed of the Corporation and the facts herein
set forth are true and correct. I have accordingly hereunto set my hand
this_____day of ___________, 2000.
NET.GENESIS CORP.
By:
----------------------------------
Lawrence S. Bohn
Its President
-5-
<PAGE> 1
Exhibit 3.4
BY-LAWS
OF
net.Genesis Corp.
(a Delaware Corporation)
<PAGE> 2
NET.GENESIS CORP.
(a Delaware Corporation)
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 OFFICES .................................................................... 1
SECTION 1. Registered Office ......................................... 1
SECTION 2. Other Offices .............................................. 1
SECTION 3. Books, Accounts and Records, and Inspection Rights ......... 1
ARTICLE 2 SEAL ....................................................................... 1
ARTICLE 3 MEETINGS OF STOCKHOLDERS ................................................... 2
SECTION 1. Place of Meetings .......................................... 2
SECTION 2. Annual Meetings ............................................ 2
SECTION 3. Special Meetings ........................................... 2
SECTION 4. Notice ..................................................... 2
SECTION 5. Waiver of Notice ........................................... 2
SECTION 6. Quorum and Adjournments .................................... 3
SECTION 7. Votes; Proxies ............................................. 3
SECTION 8. Organization ............................................... 4
SECTION 9. Consent of Stockholders in Lieu of Meeting ................. 4
ARTICLE 4 DIRECTORS .................................................................. 5
SECTION 1. Number ..................................................... 5
SECTION 2. Term of Office ............................................. 5
SECTION 3. Resignations ............................................... 5
SECTION 4. Vacancies .................................................. 6
SECTION 5. Removal by Stockholders .................................... 6
SECTION 6. Meetings of the Newly Elected Board ........................ 6
SECTION 7. Notice of Meetings; Waiver of Notice ....................... 6
SECTION 8. Votes ...................................................... 7
SECTION 9. Quorum and Adjournment ..................................... 7
SECTION 10. Compensation ............................................... 8
SECTION 11. Action By Consent of Directors ............................. 8
SECTION 12. Reliance on Records ........................................ 8
ARTICLE 5 COMMITTEES OF DIRECTORS .................................................... 8
SECTION 1 .................................................................... 8
SECTION 2 .................................................................... 8
SECTION 3 .................................................................... 8
SECTION 4 .................................................................... 9
SECTION 5 .................................................................... 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6 OFFICERS ................................................................... 9
SECTION 1. Officers ................................................... 9
SECTION 2. Vacancies .................................................. 9
SECTION 3. Chairman of the Board ...................................... 10
SECTION 4. President .................................................. 10
SECTION 5. Executive Vice Presidents and Vice Presidents .............. 10
SECTION 6. Secretary .................................................. 10
SECTION 7. Assistant Secretaries ...................................... 10
SECTION 8. Treasurer .................................................. 10
SECTION 9. Assistant Treasurers ....................................... 11
SECTION 10. Controller ................................................. 11
SECTION 11. Assistant Controllers ...................................... 11
SECTION 12. Subordinate Officers ....................................... 11
SECTION 13. Compensation ............................................... 11
SECTION 14. Removal .................................................... 11
SECTION 15. Bonds ...................................................... 11
ARTICLE 7 CERTIFICATES OF STOCK ...................................................... 12
SECTION 1. Form and Execution of Certificates ......................... 12
SECTION 2. Transfer of Shares ......................................... 13
SECTION 3. Closing of Transfer Books .................................. 13
SECTION 4. Fixing Date for Determination of Stockholders of Record .... 13
SECTION 5. Lost or Destroyed Certificates ............................. 14
SECTION 6. Uncertificated Shares ...................................... 15
ARTICLE 8 EXECUTION OF DOCUMENTS .............................................. 15
SECTION 1. Execution of Checks, Notes, etc. ........................... 15
SECTION 2. Execution of Contracts, Assignments, etc. .................. 15
SECTION 3. Execution of Proxies ....................................... 16
ARTICLE 9 INSPECTION OF BOOKS ........................................................ 16
ARTICLE 10 FISCAL YEAR ................................................................ 16
ARTICLE 11 AMENDMENTS ................................................................. 16
ARTICLE 12 LIABILITY AND INDEMNIFICATION .............................................. 17
SECTION 1. Indemnification ............................................ 17
SECTION 2. Derivative Indemnity ....................................... 17
SECTION 3. Attorneys' Fees ............................................ 18
SECTION 4. Determination of Indemnity ................................. 18
SECTION 5. Advance Payment ............................................ 18
SECTION 6. NonExclusive Remedy ........................................ 18
SECTION 7. Insurance .................................................. 18
SECTION 8. Merger and Consolidation ................................... 19
SECTION 9. Other Enterprises .......................................... 19
SECTION 10. Survival of Indemnity ...................................... 19
</TABLE>
<PAGE> 4
NET.GENESIS CORP.
(a Delaware Corporation)
-----------
BY-LAWS
----------
ARTICLE 1
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation
shall be located at The Company Corporation, Three Christian Center, 201 N.
Walnut Street, Wilmington, County of New Castle, State of Delaware, and the name
of the resident agent in charge thereof shall be Vanessa Foster.
SECTION 2. Other Offices. The Corporation may also have offices at
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time appoint or the business of the Corporation may
require.
SECTION 3. Books, Accounts and Records, and Inspection Rights. The
books, accounts and records of the Corporation, except as otherwise required by
the laws of the State of Delaware, may be kept outside of the State of Delaware,
at such place or places as the Board of Directors may from time to time
designate. Any stockholder, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during regular business hours to inspect, for any proper purpose, the
Corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom.
ARTICLE 2
SEAL
The seal of the Corporation shall, subject to alteration by the Board
of Directors, consist of a flat-faced circular die with the word "Delaware",
together with the name of the Corporation and the year of incorporation, cut or
engraved thereon.
<PAGE> 5
-2-
ARTICLE 3
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders shall be
held at the offices of the Corporation in the City of Wilmington, State of
Delaware, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. An annual meeting of the stockholders of
the Corporation shall be held on the fourth Tuesday in May of each year, if not
a legal holiday, and if a legal holiday, then on the next secular day following,
at ten o'clock in the forenoon, Eastern Time, or at such other date and time as
shall be designed from time to time by the Board of Directors and stated in the
notice of the meeting. At such meeting, the stockholders shall elect directors
by a plurality vote. Election of directors need not be by written ballot. Each
director shall be elected to serve until his successor is duly elected and
qualified, or until his earlier resignation or removal. At the annual meeting
the stockholders may transact such other business as may be desired, whether or
not the same was specified in the notice of the meeting, unless the
consideration of such other business without its having been specified in the
notice of the meeting as one of the purposes thereof is prohibited by law.
SECTION 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called by the Chairman of the Board of Directors,
if there be one, the President or by the directors by resolution adopted by a
vote of the majority and special meetings shall be called by the President or
the Secretary whenever stockholders owning a majority of the capital stock
issued, outstanding and entitled to vote so request in writing. Such request of
stockholders shall state the purpose or purposes of the proposed meeting.
The "call" and the "notice" of any such meeting shall be deemed to be
synonymous.
SECTION 4. Notice. Written or printed notice of every meeting of
stockholders, annual or special, stating the hour, date and place thereof, and
the purpose or purposes in general terms for which the meeting is called shall,
not less than ten (10) days, or such longer period as shall be provided by law,
the Certificate of Incorporation, these By-Laws, or otherwise, and not more than
sixty (60) days before such meeting, be served upon or mailed to each
stockholder entitled to vote thereat, at the address of such stockholder as it
appears upon the stock records of the Corporation.
SECTION 5. Waiver of Notice. Whenever any notice is required to be
given to any stockholder under any law, the
<PAGE> 6
-3-
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance by
a stockholder at a meeting shall constitute a waiver of notice of such meeting,
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. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
SECTION 6. Quorum and Adjournments. Except as otherwise provided by law
or by the Certificate of Incorporation, the presence in person or by proxy at
any meeting of stockholders of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, shall be requisite and shall constitute a quorum. If a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote thereat or, where a larger quorum is required, such quorum, shall not be
represented at any meeting of the stockholders regularly called, the holders of
a majority of the shares present or represented by proxy and entitled to vote
thereat shall have power to adjourn the meeting to another time, or to another
time and place, without notice other than announcement of adjournment at the
meeting, and there may be successive adjournments for like cause and in like
manner until the requisite amount of shares entitled to vote at such meeting
shall be represented; provided, however, that if the adjournment is for more
than thirty (30) days, notice of the hour, date and place of the adjourned
meeting shall be given to each stockholder entitled to vote thereat. At any
meeting held to consider matters which were subject to adjournment for want of a
quorum at which the requisite amount of shares entitled to vote thereat shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed.
SECTION 7. Votes; Proxies. Except as otherwise provided in the
Certificate of Incorporation, at each meeting of stockholders, every
stockholder of record at the closing of the transfer books, if closed, or on the
date set by the Board of Directors for the determination of stockholders
entitled to vote at such meeting, shall have one vote for each share of stock
entitled to vote which is registered in such stockholder's name on the books of
the Corporation.
Each stockholder having the right to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may personally vote, consent or dissent or may authorize another person
or persons to act for such stockholder by proxy appointed by an instrument in
writing executed by such stockholder or by the transmission of a telegram,
cablegram, or other means of electronic transmission which sets forth or is
submitted with information from which it can be
<PAGE> 7
-4-
determined that the transmission was authorized by the stockholder. No proxy
shall be voted or acted upon after six months from its date unless the proxy
shall provide for a longer period.
Voting at meetings of stockholders need not be by written ballot and,
except as otherwise provided by law, need not be conducted by inspectors of
election unless so determined by the Chairman of the meeting or by the holders
of shares of stock having a majority of the votes which could be cast by the
holders of all outstanding shares of stock entitled to vote thereon which are
present in person or represented by proxy at such meeting. If it is required or
determined that inspectors of election be appointed, the Chairman shall appoint
two inspectors of election, who shall first take and subscribe an oath or
affirmation faithfully to execute the duties of inspectors at such meeting with
strict impartiality and according to the best of their ability. The inspectors
so appointed shall take charge of the polls and, after the balloting, shall make
a certificate of the result of the vote taken. No director or candidate for the
office of director shall be appointed as such inspector.
At any meeting at which a quorum is present, a plurality of the votes
properly cast for election to fill any vacancy on the Board of Directors shall
be sufficient to elect a candidate to fill such vacancy, and a majority of the
votes properly cast upon any other question shall decide the question, except in
any case where a larger vote is required by law, the Certificate of
Incorporation, these By-Laws, or otherwise.
SECTION 8. Organization. The Chairman of the Board, if there be one, or
in his or her absence the Vice Chairman, or in the absence of a Vice Chairman,
the President, or in the absence of the President, a Vice President, shall call
meetings of the stockholders to order and shall act as chairman thereof. The
Secretary of the Corporation, if present, shall act as secretary of all meetings
of stockholders, and, in his or her absence, the presiding officer may appoint a
secretary.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
by the Delaware General Corporation Law to be taken at any annual or special
meeting of the stockholders of the Corporation, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in 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.
<PAGE> 8
-5-
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this section to
the Corporation, written consents signed by a sufficient number of stockholders
to take action are delivered to the corporation by delivery to its registered
office in 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.
ARTICLE 4
DIRECTORS
SECTION 1. Number. The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors consisting of not less than one
director, none of whom needs to be a stockholder. The number of directors for
each year shall be fixed at each annual meeting of stockholders, but if the
number is not so fixed, the number shall remain as it stood immediately prior to
such meeting.
At each annual meeting of stockholders, the stockholders shall elect
directors. Each director so elected shall hold office, subject to the provisions
of law, the Certificate of Incorporation, these By-Laws, or otherwise, until the
next annual meeting of stockholders or until his or her successor is elected and
qualified.
At any time during any year, except as otherwise provided by law, the
Certificate of Incorporation, these By-Laws, or otherwise, the number of
directors may be increased or reduced, in each case by vote of a majority of the
stock issued and outstanding and present in person or represented by proxy and
entitled to vote for the election of directors or a majority of the directors in
office at the time of such increase or decrease, regardless of whether such
majority constitutes a quorum.
SECTION 2. Term of Office. Each director shall hold office until the
next annual meeting of stockholders and until his or her successor is duly
elected and qualified or until his or her earlier death or resignation, subject
to- the right of the stockholders at any time to remove any director or
directors as provided in Section 5 of this Article.
SECTION 3. Resignations. Any director may resign at any time upon
written notice to the Corporation. Such resignation shall take effect at the
time specified therein or shall take effect upon receipt thereof by the
Corporation it no time is specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
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SECTION 4. Vacancies. If any vacancy shall occur among the directors,
or if the number of directors shall at any time be increased, the directors then
in office, although less than a quorum, by a majority vote may fill the
vacancies or newly-created directorships, or any such vacancies or newly-created
directorships may be filled by the stockholders at any meeting.
SECTION 5. Removal by Stockholders. Except as otherwise provided by
law, the Certificate of Incorporation or otherwise, the holders of record of the
capital stock of the Corporation entitled to vote for the election of directors
may, by a majority vote, remove any director or directors, with or without
cause, and, in their discretion, elect a new director or directors in place
thereof.
SECTION 6. Meetings of the Newly Elected Board. The first meeting of
the members of each newly elected Board of Directors shall be held (a) at such
time and place either within or without the State of Delaware as shall be
suggested or provided, by resolution of the stockholders at the meeting at which
such newly elected Board was elected, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or (b) if not so suggested or
provided for by resolution of the stockholders or if a quorum shall not be
present, at such time and place as shall be consented to in writing by a
majority of the newly elected directors, provided that written or printed notice
of such meeting shall be given to each of the other directors in the same manner
as provided in Article 4, Section 7(b) (ii) of these Bylaws with respect to the
giving of notice for special meetings of the Board except that it shall not be
necessary to state the purpose of the meeting in such notice, or (c) regardless
of whether or not the time and place of such meeting shall be suggested or
provided for by resolution of the stockholders, at such time and place as shall
be consented to in writing by all of the newly elected directors.
Every director of the Corporation, upon his election, shall qualify by
accepting the office of director, and his attendance at, or his written approval
of the minutes of, any meeting of the Board subsequent to his election shall
constitute his acceptance of such office; or he may execute such acceptance by a
separate writing, which shall be placed in the minute book.
SECTION 7. Notice of Meetings; Waiver of Notice.
(a) Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such times and places either within or without the State
of Delaware as shall from time to time be fixed by resolution adopted by a
majority of the full Board. Any business may be transacted at a regular meeting.
<PAGE> 10
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(b) Special Meetings.
(i) be called at any time by the Chairman of the Board, the
President, any Vice President, the Secretary, or any of the directors. The place
may be within or without the State of Delaware as designated in the notice.
(ii) Written notice of each special meeting of the Board of
Directors, stating the place, date and hour of the meeting and the purpose or
purposes thereof, shall be sent to each Director by telecopier or overnight
courier, confirmed by mail, at least five business days before the day on which
the meeting is to be held, or delivered to the director personally at least two
business days before the day on which the meeting is to be held. If mailed, such
notice shall be deemed to be delivered when it is deposited in the United States
mail with postage thereon addressed to the director at the director's residence
or usual place of business. If given by telecopier or overnight courier, such
notice shall be deemed to be delivered when it is delivered to the courier
company or sent by telecopier. The notice may be given by any person having
authority to call the meeting.
(iii) "Notice" and "call" with respect to such meeting shall
be deemed to be synonymous.
(c) Waiver of Notice. Whenever any notice is required to be given to
any director under any law, the Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the director entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance by a director at a meeting shall constitute a
waiver of notice of such meeting, except when the director attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because it was not lawfully called or convened.
Neither the business to be transacted at, nor the purposes of, any regular or
special meeting of the directors or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or these Bylaws.
SECTION 8. Votes. Except as otherwise provided by law, the Certificate
of Incorporation or otherwise, the vote of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
SECTION 9. Quorum and Adjournment. Except as otherwise provided by law,
the Certificate of Incorporation or otherwise, a majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time without notice other than announcement of
the adjournment at the meeting, and at such adjourned meeting at which a quorum
is present any business may be transacted which might have been transacted at
the meeting as originally noticed.
<PAGE> 11
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SECTION 10. Compensation. Directors shall receive compensation for
their services, as such, and for service on any Committee of the Board of
Directors, as fixed by resolution of the Board of Directors and for expenses of
attendance at each regular or special meeting of the Board or any Committee
thereof. Nothing in this Section shall be construed to preclude a director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 11. Action By Consent of Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Such consent shall be treated as a vote adopted at a meeting for all purposes.
Such consents may be executed in one or more counterparts and not every Director
or committee member need sign the same counterpart.
SECTION 12. Reliance on Records. A director, or a member of any
committee designated by the Board of Directors, shall, in the performance of his
duties, be fully protected in relying in good faith upon the records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of the Corporation's officers or employees, or
committees of the Board, or by any other person as to matters the director
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation.
ARTICLE 5
COMMITTEES OF DIRECTORS
SECTION 1. The Board of Directors may, by resolution or resolutions
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more directors of the Corporation. The Board 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.
SECTION 2. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members 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.
SECTION 3. Any such committee, to the extent provided in the resolution
of the Board of Directors or in these Bylaws, shall have and may exercise all of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee
<PAGE> 12
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shall have the power or authority of the Board with respect to amending the
Certificate of Incorporation, 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; and, unless the resolution, these
Bylaws or the Certificate of Incorporation expressly so provide, no such
committee shall have power or authority to declare a dividend, to authorize the
issuance of stock or to adopt a Certificate of ownership and Merger.
SECTION 4. All committees so appointed shall, unless otherwise provided
by the Board of Directors, keep regular minutes of the transactions at their
meetings and shall cause them to be recorded in books kept for that purpose in
the office of the Corporation and shall report the same to the Board at its next
meeting. The Secretary or an Assistant Secretary of the corporation may act as
secretary of the committee if the committee so requests.
SECTION 5. Term of Office. Each member of a committee shall hold office
until the first meeting of the Board of Directors following the annual meeting
of stockholders (or until such other time as the Board of Directors may
determine, either in the vote establishing the committee or at the election of
such member or otherwise) and until his or her successor is elected and
qualified, or until he or she sooner dies, resigns, is removed, is replaced by
change of membership or becomes disqualified by ceasing to be a director (where
membership on the Board is required), or until the committee is sooner abolished
by the Board of Directors.
ARTICLE 6
OFFICERS
SECTION 1. Officers. The Board of Directors shall elect a President, a
Secretary and a Treasurer, and, in their discretion, may elect a Chairman of the
Board, a Vice Chairman of the Board, a Controller, and one or more Executive
Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers
and Assistant Controllers as deemed necessary or appropriate. Such officers
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders (or at such other meeting as the
Board of Directors determines), and each shall hold office for the term provided
by the vote of the Board, ,except that each will be subject to removal from
office in the discretion of the Board as provided herein. The powers and duties
of more than one office may be exercised and performed by the same person.
SECTION 2. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors, at any regular or
special meeting.
<PAGE> 13
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SECTION 3. Chairman of the Board. The Chairman of the Board of
Directors, if elected, shall be a member of the Board of Directors and shall
preside at its meetings. The Chairman shall advise and counsel with the
President, and shall perform such duties as from time to time may be assigned to
him or her by the Board of Directors.
SECTION 4. President. The President shall be the chief executive
officer of the Corporation. Subject to the directions of the Board of Directors,
the President shall have and exercise direct charge of and general supervision
over the business and affairs of the Corporation and shall perform all duties
incident to the office of the chief executive officer of a corporation and such
other duties as from time to time may be assigned to him or her by the Board of
Directors. The President may but need not be a member of the Board of Directors.
SECTION 5. Executive Vice Presidents and Vice Presidents. Each
Executive Vice President and Vice President shall have and exercise such powers
and shall perform such duties as from time to time may be assigned to him or to
her by the Board of Directors or the President.
SECTION 6. Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders and of the Board of Directors in books provided for
the purpose; shall see that all notices are duly given in accordance with the
provisions of law and these By-Laws; the Secretary shall be custodian of the
records and of the corporate seal or seals of the Corporation; shall see that
the corporate seal is affixed to all documents the execution of which, on behalf
of the Corporation under its seal, is duly authorized, and, when the seal is so
affixed, he or she may attest the same; the Secretary may sign, with the
President, an Executive Vice President or a Vice President, certificates of
stock of the Corporation; and, in general, the Secretary shall perform all
duties incident to the office of secretary of a corporation, and such other
duties as from time to time may be assigned to him or her by the Board of
Directors.
SECTION 7. Assistant Secretaries. The Assistant Secretaries in order of
their seniority shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe or as from time to time may be
assigned by the Secretary.
SECTION 8. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; may endorse for collection on behalf of the Corporation checks, notes
and other obligations; may sign receipts and vouchers for payments made to the
Corporation; may sign checks
<PAGE> 14
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of the Corporation, singly or jointly with another person as the Board of
Directors may authorize, and pay out and dispose of the proceeds under the
direction of the Board; the Treasurer shall render to the President and to the
Board of Directors, whenever requested, an account of the financial condition of
the Corporation; the Treasurer may sign, with the President, or an Executive
Vice President or a vice President, certificates of stock of the Corporation;
and in general, shall perform all the duties incident to the office of treasurer
of a corporation, and such other duties as from time to time may be assigned by
the Board of Directors.
SECTION 9. Assistant Treasurers. The Assistant Treasurers in order of
their seniority shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties as the Board of Directors shall prescribe or as from time to time may be
assigned by the Treasurer.
SECTION 10. Controller. The Controller, if elected, shall be the chief
accounting officer of the Corporation and shall perform all duties incident to
the office of a controller of a corporation, and, in the absence of or
disability of the Treasurer or any Assistant Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as the
Board of Directors shall prescribe or as from time to time may be assigned by
the President or the Treasurer.
SECTION 11. Assistant Controllers. The Assistant Controllers in order
of their seniority shall, in the absence or disability of the Controller,
perform the duties and exercise the powers of the Controller and shall perform
such other duties as the Board of Directors shall prescribe or as from time to
time may be assigned by the Controller.
SECTION 12. Subordinate Officers. The Board of Directors may appoint
such subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
SECTION 13. Compensation. The Board of Directors shall fix the
compensation of all officers of the Corporation. It may authorize any officer,
upon whom the power of appointing subordinate officers may have been conferred,
to fix the compensation of such subordinate officers.
SECTION 14. Removal. Any officer of the Corporation may be removed,
with or without cause, by action of the Board of Directors.
SECTION 15. Bonds. The Board of Directors may require any officer of
the Corporation to give a bond to the Corporation,
<PAGE> 15
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conditional upon the faithful performance of his or her duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
ARTICLE 7
CERTIFICATES OF STOCK
SECTION 1. Form and Execution of Certificates. The interest of each
stockholder of the Corporation shall be evidenced by a certificate or
certificates for shares of stock in such form as the Board of Directors may from
time to time prescribe. The certificates of stock of each class shall be
consecutively numbered and signed by the Chairman or Vice Chairman of the Board,
if any, the President, an Executive Vice President or a Vice President and by
the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer
of the Corporation, and may be countersigned and registered in such manner as
the Board of Directors may by resolution prescribe, and shall bear the corporate
seal or a printed or engraved facsimile thereof. Where any such certificate is
signed by a transfer agent or transfer clerk acting on behalf of the
Corporation, the signatures of any such Chairman, Vice Chairman, President,
Executive Vice President, Vice President, Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary may be facsimiles, engraved or printed. In case
any officer or officers, who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates, shall
cease to be such officer or officers, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued and
delivered by the Corporation as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers.
In case the corporate seal which has been affixed to, impressed on, or
reproduced in any such certificate or certificates shall cease to be the seal of
the Corporation before such certificate or certificates have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued and
delivered by the Corporation as though the seal affixed thereto, impressed
thereon or reproduced therein had not ceased to be the seal of the Corporation.
Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to law, the Certificate of Incorporation, these
By-Laws, or any agreement to which the Corporation is a party, shall have the
restriction noted conspicuously on the certificate, and shall also set forth, on
the face or back, either the full text of the restriction or a statement of the
existence of such restriction and (except if such
<PAGE> 16
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restriction is imposed by law) a statement that the Corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
Every certificate issued when the Corporation is authorized to issue
more than one class or series of stock shall set forth on its face or back
either the full text of the preferences, voting powers, qualifications, and
special and relative rights of the shares of each class and series authorized to
be issued, or a statement of the existence of such preferences, powers,
qualifications and rights, and a statement that the Corporation will furnish a
copy thereof to the holder of such certificate upon written request and without
charge.
SECTION 2. Transfer of Shares. The shares of the stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof in person or by his or her attorney lawfully constituted, upon surrender
for cancellation of certificates for the same number of shares, with an
assignment and power of transfer endorsed thereon or attached thereto, duly
executed, with such proof or guaranty of the authenticity of the signature as
the Corporation or its agents may reasonably require. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly 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,
save as expressly provided by law or by the Certificate of Incorporation. It
shall be the duty of each stockholder to notify the Corporation of his or her
post office address.
SECTION 3. Closing of Transfer Books. The stock transfer books of the
Corporation may, if deemed appropriate by the Board of Directors, be closed for
such length of time not exceeding fifty (50) days as the Board may determine,
preceding the date of any meeting of stockholders or the date for the payment of
any dividend or the date for the allotment of rights or the date when any
issuance, change, conversion or exchange of capital stock shall go into effect,
during which time no transfer of stock on the books of the Corporation may be
made.
SECTION 4. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix 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: (a) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, the
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Certificate of Incorporation or otherwise, not be more than sixty (60) nor less
than ten (10) days before the date of such meeting; (b) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall, unless otherwise required by law, the
Certificate of Incorporation or otherwise, not be more than ten (10) days from
the date upon which the resolution fixing the record date is adopted by the
Board of Directors; and (c) in the case of any other action, shall not be more
than sixty (60) days prior to such other action. If no record date is fixed: (a)
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; (b) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the Board of Directors is required by 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 in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (c) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. 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.
SECTION 5. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate of stock, a new certificate may be issued under
the following conditions:
(a) The owner of said certificate shall file with the Secretary or
any Assistant Secretary of the Corporation an affidavit giving
the facts in relation to the ownership, and in relation to the
loss or destruction of said certificate, stating its number
and the number of shares represented thereby; such affidavit
shall be in such form and contain such statements as shall
satisfy the President, any Executive Vice President, Vice
President, the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer, that said certificate
has been accidentally destroyed or lost, and that a new
certificate ought to be issued in lieu thereof. Upon being so
satisfied, any such officer may require such owner to furnish
the Corporation a bond in such penal sum and in such form as
he or she may deem advisable, and with a surety or sureties
approved by him or her, to indemnify and save harmless the
Corporation from any claim, loss, damage or liability which
may be occasioned by the issuance of a new certificate in lieu
thereof. Upon such bond being so filed, if so required,
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a new certificate for the same number of shares shall be
issued to the owner of the certificates so lost or destroyed;
and the transfer agent and registrar, if any, of stock shall
countersign and register each new certificate upon receipt of
a written order signed by any such officer, and thereupon the
Corporation will save harmless said transfer agent and
registrar in the premises. In case of the surrender of the
original certificate, in lieu of which a new certificate has
been issued, or the surrender of such new certificate, for
cancellation, the bond of indemnity given as a condition of
the issue of such new certificate may be surrendered; or
(b) The Board of Directors of the Corporation may by resolution
authorize and direct any transfer agent or registrar of stock
of the Corporation to issue and register respectively from
time to time without further action or approval by or on
behalf of the Corporation new certificates of stock to
replace certificates reported lost, stolen or destroyed upon
receipt of an affidavit of loss and bond of indemnity in form
and amount and with surety satisfactory to such transfer agent
or registrar in each instance or upon such terms and
conditions as the Board of Directors may determine.
SECTION 6. Uncertificated Shares. The Board of Directors of the
Corporation may by resolution provide that one or more of any or all classes or
series of the stock of the Corporation shall be uncertificated shares, subject
to the provisions of Section 158 of the Delaware General Corporation Law.
ARTICLE 8
EXECUTION OF DOCUMENTS
SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on
the Corporation's bank accounts and all bills of exchange and promissory notes,
and all acceptances, obligations and other instruments for the payment of money,
shall be signed by such officer or officers, or agent or agents, as shall be
thereunto authorized from time to time by the Board of Directors, which may in
its discretion authorize any such signatures to be facsimile.
SECTION 2. Execution of Contracts, Assignments, etc. Unless the Board
of Directors shall have otherwise provided generally or in a specific instance,
all contracts, agreements, endorsements, assignments, transfers, stock powers,
or other instruments shall be signed by the President, any Executive Vice
President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. The Board of Directors may, however, in
its discretion, require any or all such instruments to be signed by any two or
more of such officers, or
<PAGE> 19
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may permit any or all of such instruments to be signed by such other officer or
officers, agent or agents, as it shall be thereunto authorized from time to
time.
SECTION 3. Execution of Proxies. The President, any Executive Vice
President or any Vice President, and the Secretary, the Treasurer, any Assistant
Secretary or any Assistant Treasurer, or any other officer designated by the
Board of Directors, may sign on behalf of the Corporation proxies to vote upon
shares of stock of other companies standing in the name of the Corporation.
ARTICLE 9
INSPECTION OF BOOKS
The Board of Directors shall determine from time to time whether, and
if allowed, to what extent and at what time and places and under what conditions
and regulations, the accounts and books of the Corporation (except such as may
by law be specifically open to inspection) or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
inspect any account or book or document of the Corporation, except as conferred
by the laws of the State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the stockholders of the Corporation.
ARTICLE 10
FISCAL YEAR
The fiscal year of the Corporation shall be January 1 to December 31.
The Board of Directors shall have power to fix and from time to time to change
the fiscal year of the Corporation.
ARTICLE 11
AMENDMENTS
These By-Laws may be altered, amended, changed or repealed and new
By-Laws adopted by the stockholders or, to the extent provided in the
Certificate of Incorporation, by the Board of Directors, in either case at any
meeting called for that purpose at which a quorum shall be present. Any by-law,
whether made, altered, amended, changed or repealed by the stockholders or the
Board of Directors may be repealed, amended, changed, further amended, changed,
repealed or reinstated, as the case may be, either by the stockholders or by the
Board of Directors, as herein provided; except that this Article may be altered,
amended, changed or repealed only by vote of the stockholders.
<PAGE> 20
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ARTICLE 12
LIABILITY AND INDEMNIFICATION
SECTION 1. Indemnification. The Corporation shall indemnify 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 (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, trustee,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 2. Derivative Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, trustee, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
<PAGE> 21
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SECTION 3. Attorneys' Fees. To the extent that any person referred to
in Paragraphs (a) and (b) of this Article 12 has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to therein,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 4. Determination of Indemnity. Any indemnification under
paragraphs (a) and (b) of this Article 12 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, trustee, officer, employee
or agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in such paragraphs (a) and (b) of this Article 12.
Such determination shall be made (1) by the Board of Directors by a majority
vote of the directors who were not parties to such action, suit or proceeding,
even though less than a quorum, or (2) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written opinion, or
(3) by the stockholders.
SECTION 5. Advance Payment. Expenses (including attorney's fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking reasonably satisfactory to the Board
of Directors by or on behalf of such director or officer to repay such amount
(including an evaluation of his or her ability to so repay) if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article 12. Such expenses (including
attorney's fees) incurred by other employees and agents of the Corporation may
be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
SECTION 6. Non-Exclusive Remedy. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Paragraphs of this
Article 12 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, by-law, 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 such office.
SECTION 7. Insurance. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
trustee, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his
<PAGE> 22
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status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article 12.
SECTION 8. Merger and Consolidation. For purposes of this Article 12,
references to "the Corporation" include, in addition to the resulting
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued would have had power and authority to indemnify its
directors, officers and employees or agents so that any person who is or was a
director, trustee, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, trustee, 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 Article 12 with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 9. Other Enterprises. For purposes of this Article 12,
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 mean only such service as is specifically authorized
by the Corporation's Board of Directors, and shall include any service as a
director, trustee, officer, employee or agent of the Corporation which imposes
duties on, or involves services by, such director, trustee, 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 Article
12.
SECTION 10. Survival of Indemnity. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article 12 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
<PAGE> 1
Exhibit 3.5
AMENDED AND RESTATED
BY-LAWS OF
NET.GENESIS CORP.
Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS
1.1 These by-laws are subject to the certificate of incorporation of
the corporation. In these by-laws, references to the certificate of
incorporation and by-laws mean the provisions of the certificate of
incorporation and the by-laws as are from time to time in effect.
Section 2. OFFICES
2.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
2.2 Other Offices. The corporation 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.
Section 3. STOCKHOLDERS
3.1 Location of Meetings. All meetings of the stockholders shall be
held at such place either within or without the State of Delaware as shall be
designated from time to time by the board of directors. Any adjourned session of
any meeting shall be held at the place designated in the vote of adjournment.
3.2 Annual Meeting. The annual meeting of stockholders shall be held at
10:00 a.m. on the fourth Wednesday in May in each year (unless that day be a
legal holiday at the place where the meeting is to be held, in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday) (the "Specified Date"), or at such other date and time as shall be
designated from time to time by the board of directors, at which the
stockholders shall elect a board of directors and transact such other business
as may be required by law or these by-laws or as may properly come before the
meeting.
3.3 Special Meeting in Place of Annual Meeting. If the election for
directors shall not be held on the day designated by these by-laws, the
directors shall cause the election to be held as soon thereafter as convenient,
and to that end, if the annual meeting is omitted on the day herein provided
therefor or if the election of directors shall not be held thereat, a special
meeting of the stockholders may be held in place of such omitted meeting or
election, and any business transacted or election held at such special meeting
shall have the same effect as if transacted or held at the annual meeting, and
in such case all references in these by-laws to the annual meeting of the
stockholders, or to the annual election of directors, shall be deemed to refer
to or include such special meeting. Any such special meeting shall be called and
the purposes thereof shall be specified in the call, as provided in Section 3.4.
3.4 Notice of Annual Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such
<PAGE> 2
meeting not less than ten nor more than sixty days before the date of the
meeting. Such notice may specify the business to be transacted and actions to be
taken at such meeting. No action shall be taken at such meeting unless such
notice is given, or unless waiver of such notice is given by the holders of
outstanding stock having not less than the minimum number of votes necessary to
take such action at a meeting at which all shares entitled to vote thereon were
voted. Prompt notice of all action taken in connection with such waiver of
notice shall be given to all stockholders not present or represented at such
meeting.
3.5 Other Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law or by the
certificate of incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of a majority of the
board of directors. Such request shall state the purpose or purposes of the
proposed meeting and business to be transacted at any special meeting of the
stockholders. Business transacted at any special meeting of stockholders shall
be limited to matters relating to the purpose or purposes stated in the notice
of meeting.
3.6 Notice of Special Meeting. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten nor more than
sixty days before the date of the meeting, to each stockholder entitled to vote
at such meeting. No action shall be taken at such meeting unless such notice is
given, or unless waiver of such notice is given by the holders of outstanding
stock having not less than the minimum number of votes necessary to take such
action at a meeting at which all shares entitled to vote thereon were voted.
Prompt notice of all action taken in connection with such waiver of notice shall
be given to all stockholders not present or represented at such meeting.
3.7 Notice of Stockholder Business at Annual Meeting. The following
provisions of this Section 3.7 shall apply to the conduct of business at any
annual meeting of the stockholders. (As used in this Section 3.7, the term
annual meeting shall include a special meeting in lieu of an annual meeting.)
(a) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i)
pursuant to the corporation's notice of meeting, (ii) by or at the direction of
the board of directors or (iii) by any stockholder of the corporation who is a
stockholder of record at the time of giving of the notice provided for in
Section 3.7(b), who is entitled to vote at such meeting and who has complied
with the notice procedures set forth in Section 3.7(b).
(b) For business to be properly brought before any annual
meeting of the stockholders by a stockholder pursuant to clause (iii) of 3.7(a),
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 less than sixty (60) days prior to the date for such annual
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if the annual meeting of
stockholders is to be held on a date prior
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<PAGE> 3
to the Specified Date, and if less than seventy (70) days' notice or prior
public disclosure of the date of such annual or special meeting is given or
made, notice by the stockholder to be timely must be so delivered or received
not later than the close of business on the tenth (10th) day following the
earlier of the date on which notice of the date of such meeting was mailed or
the day on which public disclosure was made of the date of such meeting. 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 meeting and the reasons for
conducting such business at the meeting, (ii) the name and address, as they
appear on the corporation's books, of the stockholder proposing such business,
the name and address of the beneficial owner, if any, on whose behalf the
proposal is made, and the name and address of any other stockholders or
beneficial owners known by such stockholder to be supporting such proposal,
(iii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record, by the beneficial
owner, if any, on whose behalf the proposal is made and by any other
stockholders or beneficial owners known by such stockholder to be supporting
such proposal, and (iv) any material interest of such stockholder of record
and/or of the beneficial owner, if any, on whose behalf the proposal is made, in
such proposed business and any material interest of any other stockholders or
beneficial owners known by such stockholder to be supporting such proposal in
such proposed business, to the extent known by such stockholder.
(c) Notwithstanding anything in these by-laws to the contrary,
no business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this Section 3.7. The person presiding at the annual
meeting shall, if the facts warrant, determine that business was not properly
brought before the meeting and in accordance with the procedures prescribed by
these by-laws, and if he should so determine, he shall so declare at the meeting
and any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 3.7, a
stockholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended (or any successor provision), and the rules and
regulations thereunder with respect to the matters set forth in this Section
3.7.
(d) This provision shall not prevent the consideration and
approval or disapproval at an annual meeting of reports of officers, directors
and committees of the board of directors, but, in connection with such reports,
no new business shall be acted upon at such meeting unless properly brought
before the meeting as herein provided.
3.8 Stockholder List. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and 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 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place
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<PAGE> 4
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
3.9 Quorum of Stockholders. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise required by
law, or by the certificate of incorporation or by these by-laws. Except as
otherwise provided by law, no stockholder present at a meeting may withhold his
shares from the quorum count by declaring his shares absent from the meeting.
3.10 Adjournment. Any meeting of stockholders may be adjourned from
time to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws, which time and place shall be
announced at the meeting, by a majority of votes cast upon the question, whether
or not a quorum is present. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than thirty
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.
3.11 Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, objecting
to or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. Except as provided by
law, a revocable proxy shall be deemed revoked if the stockholder is present at
the meeting for which the proxy was given. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and, if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally. The authorization of a proxy may but need not be limited to specified
action, provided, however, that if a proxy limits its authorization to a meeting
or meetings of stockholders, unless otherwise specifically provided such proxy
shall entitle the holder thereof to vote at any adjourned session but shall not
be valid after the final adjournment thereof.
3.12 Inspectors. The directors or the person presiding at the meeting
may, but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote
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<PAGE> 5
with fairness to all stockholders. On request of the person presiding at the
meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
3.13 Action by Vote. When a quorum is present at any meeting, whether
the same be an original or an adjourned session, a plurality of the votes
properly cast for election to any office shall elect to such office and a
majority of the votes properly cast upon any question other than an election to
an office shall decide the question, except when a larger vote is required by
law, by the certificate of incorporation or by these by-laws. No ballot shall be
required for any election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.
3.14 No Action by Consent. Any action required or permitted to be taken
by the stockholders of the corporation must be effected at a duly constituted
annual or special meeting of such stockholders and may not be effected by any
consent in writing by such stockholders.
Section 4. DIRECTORS
4.1 Number. The number of directors which shall constitute the whole
board shall not be less than two nor more than nine, except that whenever there
shall be only one stockholder, such number shall be not less than one. Within
the foregoing limits, the number of directors shall be determined by resolution
of the board of directors and may be increased or decreased at any time or from
time to time by the directors by vote of a majority of directors then in office,
except that any such decrease by vote of the directors shall only be made to
eliminate vacancies existing by reason of the death, resignation or removal of
one or more directors. The directors shall be elected at the annual meeting of
the stockholders, except as provided in Section 4.7 of these by-laws. Directors
need not be stockholders.
4.2 Tenure. Except as otherwise provided by law, by the certificate of
incorporation or by these by-laws, each director shall hold office until the
next annual meeting and until his successor is elected and qualified, or until
he sooner dies, resigns, is removed or becomes disqualified.
4.3 Classes of Directors. The board of directors shall be and is
divided into three classes: Class I, Class II and Class III, each having as
nearly as possible the same number of directors. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class III, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class II and the other shall be a member of Class III, unless
otherwise provided from time to time by resolution adopted by the board of
directors.
4.4 Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the
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<PAGE> 6
date of the annual meeting in 2001; and each initial director in Class III shall
serve for a term ending on the date of the annual meeting in 2002; and provided
further, that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
4.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (a) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (b) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the board of directors among the
three classes of directors so as to ensure that the classes have as nearly as
possible the same number of directors. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the board of directors.
4.6 Powers. The business of the corporation shall be managed by or
under the direction of the board of directors which shall have and may exercise
all the powers of the corporation and do all such lawful acts and things as are
not by law, the certificate of incorporation or these by-laws directed or
required to be exercised or done by the stockholders.
4.7 Vacancies. Any vacancy in the board of directors, however
occurring, including a vacancy resulting from an enlargement of the board, shall
be filled by the vote of a majority of the directors then in office, although
less than a quorum, or by the sole remaining director. When one or more
directors shall resign from the board, effective at a future date, a majority of
the directors then in office, including those who have resigned, shall have
power to fill such vacancy or vacancies, the vote or action by writing thereon
to take effect when such resignation or resignations shall become effective. A
director elected to fill a vacancy shall hold office until the next election of
the class for which such director has been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
The directors shall have and may exercise all their powers notwithstanding the
existence of one or more vacancies in their number, subject to any requirements
of law or of the certificate of incorporation or of these by-laws as to the
number of directors required for a quorum or for any vote or other actions.
4.8 Nomination of Directors. The following provisions of this Section
4.8 shall apply to the nomination of persons for election to the board of
directors at any annual meeting or special meeting of stockholders.
(a) Nominations of persons for election to the board of
directors of the corporation at any annual meeting or special meeting of
stockholders may be made (i) by or at the direction of the board of directors or
(ii) by any stockholder of the corporation who is a
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<PAGE> 7
stockholder of record at the time of giving of notice provided for in Section
4.8(b), who is entitled to vote for the election of directors at the meeting and
who has complied with the notice procedures set forth in Section 4.8(b).
(b) Nominations by stockholders shall be made pursuant to
timely notice in writing to the secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation, not less than sixty (60) days
prior to the date for the annual meeting, regardless of any postponements,
deferrals or adjournments of that meeting to a later date; provided, however,
that if the annual meeting of stockholders or a special meeting in lieu thereof
is to be held on a date prior to the Specified Date, and if less than seventy
(70) days' notice or prior public disclosure of the date of such annual or
special meeting is given or made, notice by the stockholder to be timely must be
so delivered or received not later than the close of business on the tenth
(10th) day following the earlier of the day on which notice of the date of such
annual or special meeting was mailed or the day on which public disclosure was
made of the date of such annual or special meeting. Such stockholder's notice
shall set forth (i) as to each person whom the stockholder proposes to nominate
for election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, or pursuant to any other then
existing statute, rule or regulation applicable thereto (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (ii) as to the stockholder giving the notice
(A) the name and address, as they appear on the corporation's books, of such
stockholder and (B) the class and number of shares of the corporation which are
beneficially owned by such stockholder and also which are owned of record by
such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf
the nomination is made, (A) the name and address of such person and (B) the
class and number of shares of the corporation which are beneficially owned by
such person. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to determine
the eligibility of such proposed nominee as a director. At the request of the
board of directors, any person nominated by the board of directors for election
as a director shall furnish to the Secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
(c) No person shall be eligible for election as a director of
the corporation at any annual meeting or special meeting of stockholders unless
nominated in accordance with the procedures set forth in this Section 4.8. The
person presiding at the meeting shall, if the facts warrant, determine that a
nomination was not made in accordance with the procedures prescribed by these
by-laws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 4.8, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended (or
any successor provision), and the rules and regulations thereunder with respect
to the matters set forth in this by-law.
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<PAGE> 8
4.9 Committees. The board of directors may, by vote of a majority of
the whole board, (a) designate, change the membership of or terminate the
existence of any committee or committees, each committee to consist of one or
more of the directors; (b) designate one or more directors as alternate members
of any such committee who may replace any absent or disqualified member at any
meeting of the committee; and (c) determine the extent to which each such
committee shall have and may exercise the powers and authority of the board of
directors in the management of the business and affairs of the corporation,
including the power to authorize the seal of the corporation to be affixed to
all papers which require it and the power and authority to declare dividends or
to authorize the issuance of stock; excepting, however, such powers which by
law, by the certificate of incorporation or by these by-laws they are prohibited
from so delegating. In the absence or disqualification of any member of such
committee and his alternate, if any, the member or members thereof present at
any meeting and not disqualified from voting, whether or not constituting 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. Except as
the board of directors may otherwise determine, any committee may make rules for
the conduct of its business, but unless otherwise provided by the board or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these by-laws for the conduct of business by the board of
directors. Each committee shall keep regular minutes of its meetings and report
the same to the board of directors upon request.
4.10 Regular Meeting. Regular meetings of the board of directors may be
held without call or notice at such place within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of the stockholders.
4.11 Special Meetings. Special meetings of the board of directors may
be held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the president, or by
one-third or more in number of the directors, reasonable notice thereof being
given to each director by the secretary or by the president or by any one of the
directors calling the meeting.
4.12 Notice. It shall be reasonable and sufficient notice to a director
to send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting, addressed to him at his usual or last
known business or residence address or to give notice to him in person or by
telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any director if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
director who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a waiver
of a notice need specify the purposes of the meeting.
4.13 Quorum. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, at any meeting of the
directors a majority of the directors
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then in office shall constitute a quorum. In the event one or more of the
directors shall be disqualified to vote at any meeting, then the required quorum
shall be reduced by one for each director so disqualified, provided that a
quorum shall not in any case be less than one-third of the total number of
directors constituting the whole board. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
4.14 Action by Vote. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the board of directors.
4.15 Action Without a Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, 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 the members of the board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the records of the meetings of the board or of such
committee. Such consent shall be treated for all purposes as the act of the
board or of such committee, as the case may be.
4.16 Participation in Meetings by Conference Telephone. Unless
otherwise restricted by the certificate of incorporation or these by-laws,
members of the board of directors or of any committee thereof may participate in
a meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at such meeting.
4.17 Compensation. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix from time to time the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and the performance of their responsibilities as directors and may be
paid a fixed sum for attendance at each meeting of the board of directors and/or
a stated salary as director. No such payment shall preclude any director from
serving the corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The board of directors may also
allow compensation for members of special or standing committees for service on
such committees.
4.18 Interested Directors and Officers.
(a) No contract or transaction between the corporation and one
or more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of the corporation's directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
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(1) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
(2) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the board
of directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
4.19 Resignation or Removal of Directors. Directors of the corporation
may be removed only for cause by the affirmative vote of the holders of at least
two-thirds of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at an election of directors. Any director may
resign at any time by delivering his resignation in writing to the president or
the secretary or to a meeting of the board of directors. Such resignation shall
be effective upon receipt unless specified to be effective at some other time;
and without in either case the necessity of its being accepted unless the
resignation shall so state. No director resigning and (except where a right to
receive compensation shall be expressly provided in a duly authorized written
agreement with the corporation) no director removed shall have any right to
receive compensation as such director for any period following his resignation
or removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise; unless in the case of
a resignation, the directors, or in the case of removal, the body acting on the
removal, shall in their or its discretion provide for compensation.
Section 5. NOTICES
5.1 Form of Notice. Whenever, under the provisions of law, or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, such notice may be given by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Unless written notice by mail is required by law, written notice may also be
given by telegram, cable, telecopy, commercial delivery service, telex or
similar means, addressed to such director or stockholder at his address as it
appears on the records of the corporation, in which case such notice shall be
deemed to be given when delivered into the control of the
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persons charged with effecting such transmission, the transmission charge to be
paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery (in person or by telephone)
shall be deemed given at the time it is actually given.
5.2 Waiver of Notice. Whenever notice is required to be given under the
provisions of law, the certificate of incorporation or these by-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders, directors or members of a
committee of the directors need be specified in any written waiver of notice.
Section 6. OFFICERS AND AGENTS
6.1 Enumeration; Qualification. The officers of the corporation shall
be a president, a treasurer, a secretary and such other officers, if any, as the
board of directors from time to time may in its discretion elect or appoint
including without limitation one or more vice presidents. Any officer may be,
but none need be, a director or stockholder. Any two or more offices may be held
by the same person. Any officer may be required by the board of directors to
secure the faithful performance of his duties to the corporation by giving bond
in such amount and with sureties or otherwise as the board of directors may
determine.
6.2 Powers. Subject to law, to the certificate of incorporation and to
the other provisions of these by-laws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.
6.3 Election. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting or by written consent. At any time or from time to
time, the directors may delegate to any officer their power to elect or appoint
any other officer or any agents.
6.4 Tenure. Each officer shall hold office until the first meeting of
the board of directors following the next annual meeting of the stockholders and
until his successor is elected and qualified unless a shorter period shall have
been specified in terms of his election or appointment, or in each case until he
sooner dies, resigns, is removed or becomes disqualified. Each agent of the
corporation shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.
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6.5 President and Vice Presidents. The president shall be the chief
executive officer and shall have direct and active charge of all business
operations of the corporation and shall have general supervision of the entire
business of the corporation, subject to the control of the board of directors.
He shall preside at all meetings of the stockholders and of the board of
directors at which he is present, except as otherwise voted by the board of
directors.
The president or treasurer shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
Any vice presidents shall have such duties and powers as shall be
designated from time to time by the board of directors or by the president.
6.6 Treasurer and Assistant Treasurers. The treasurer shall be the
chief financial officer of the corporation and shall be in charge of its funds
and valuable papers, and shall have such other duties and powers as may be
assigned to him from time to time by the board of directors or by the president.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
treasurer.
6.7 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the stockholders, of the board of directors and of committees of
the board of directors in a book or series of books to be kept therefor and
shall file therein all writings of, or related to, action by stockholder or
director consent. In the absence of the secretary from any meeting, an assistant
secretary, or if there is none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof. Unless a transfer agent has
been appointed, the secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all stockholders and the number of shares registered in the name of
each stockholder. The secretary shall have such other duties and powers as may
from time to time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
secretary.
6.8 Resignation and Removal. Any officer may resign at any time by
delivering his resignation in writing to the president or the secretary or to a
meeting of the board of directors. Such resignation shall be effective upon
receipt unless specified to be effective at some other time, and without in any
case the necessity of its being accepted unless the resignation shall so state.
The board of directors may at any time remove any officer either with or without
cause. The board of directors may at any time terminate or modify the authority
of any agent. No officer resigning and (except where a right to receive
compensation shall be expressly provided in a duly authorized written agreement
with the corporation) no officer removed shall have any right to any
compensation as such officer for any period following his resignation or
removal,
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or any right to damages on account of such removal, whether his compensation be
by the month or by the year or otherwise; unless in the case of a resignation,
the directors, or in the case of removal, the body acting on the removal, shall
in their or its discretion provide for compensation.
6.9 Vacancies. If the office of the president or the treasurer or the
secretary becomes vacant, the directors may elect a successor by vote of a
majority of the directors then in office. If the office of any other officer
becomes vacant, any person or body empowered to elect or appoint that office may
choose a successor. Each such successor shall hold office for the unexpired term
of his predecessor, and in the case of the president, the treasurer and the
secretary until his successor is chosen and qualified, or in each case until he
sooner dies, resigns, is removed or becomes disqualified.
Section 7. CAPITAL STOCK
7.1 Stock Certificates. Each stockholder shall be entitled to a
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the certificate of incorporation and the by-laws, be prescribed from time to
time by the board of directors. Such certificate shall be signed by the
president or a vice-president and (i) the treasurer or an assistant treasurer or
(ii) the secretary or an assistant secretary. Any of or all the signatures on
the certificate may be a facsimile. In case an officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the time
of its issue.
7.2 Lost Certificates. The board of directors may direct a new
certificate or certificates to 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. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require 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 and/or to give the corporation a bond in such sum 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.
Section 8. TRANSFER OF SHARES OF STOCK
8.1 Transfer on Books. Subject to any restrictions with respect to the
transfer of shares of stock, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the board of directors
or the transfer agent of the corporation may reasonably require. Except as may
be
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otherwise required by law, by the certificate of incorporation or by these
by-laws, the corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to receive notice and to vote or to give any
consent with respect thereto and to be held liable for such calls and
assessments, if any, as may lawfully be made thereon, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
Section 9. GENERAL PROVISIONS
9.1 Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. 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. If no record date is fixed,
(a) 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;
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed; and
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating to such purpose.
9.2 Dividends. Dividends upon the capital stock of the corporation may
be declared by the board of directors at any regular or special meeting or by
written consent, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the certificate of
incorporation.
9.3 Payment of Dividends. 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 directors
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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
directors shall think conducive to the interest of the corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
9.4 Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
9.5 Fiscal Year. The fiscal year of the corporation shall begin on the
first day of January in each year and shall end on the last day of December next
following, unless otherwise determined by the board of directors.
9.6 Seal. The board of directors may, by resolution, adopt a corporate
seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
Section 10. INDEMNIFICATION
The following provisions shall apply with respect to the
indemnification of, and advancement of expenses to, certain parties as set forth
below:
10.1 General.
The corporation shall indemnify each 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 (other than an action by or in the right of the corporation), by
reason of the fact that such person is or was, or has agreed to become, a
director or officer of the corporation, or is or was serving or has agreed to
serve, at the request of the corporation, as a director, officer or trustee of,
or in a similar capacity with, another corporation (including any partially or
wholly owned subsidiary of the corporation), partnership, joint venture, trust
or other enterprise (including any employee benefit plan) (each of such persons
being referred to as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection with such action, suit or proceeding and any appeal therefrom, if (i)
the Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in, or not opposed to, the best interests of the corporation and
(ii) with respect to any criminal action or proceeding, the Indemnitee had no
reasonable cause to believe the Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Indemnitee did
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not act in good faith, did not act in a manner that the Indemnitee reasonably
believed to be in, or not opposed to, the best interests of the corporation or,
with respect to any criminal action or proceeding, did not have reasonable cause
to believe that the Indemnitee's conduct was unlawful. Notwithstanding anything
to the contrary in this Section 10, except as set forth in Section 10.3(b), the
corporation shall not indemnify an Indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
corporation.
The corporation shall indemnify any Indemnitee who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that the Indemnitee is
or was, or has agreed to become, a director or officer of the corporation, or is
or was serving as a director, officer or trustee of, or in a similar capacity
with, another corporation (including any partially or wholly owned subsidiary of
the corporation), partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably incurred
by the Indemnitee or on the Indemnitee's behalf in connection with such action,
suit or proceeding and any appeal therefrom, if the Indemnitee acted in good
faith and in a manner the Indemnitee reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which the Indemnitee shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
that the Court of Chancery of the State of Delaware shall deem proper.
Notwithstanding any other provision of this Section 10, to the
extent that an Indemnitee has been successful, on the merits or otherwise
(including a disposition without prejudice), in defense of any action, suit or
proceeding referred to in Section 10.1, or in defense of any claim, issue or
matter therein, or on appeal from any such action, suit or proceeding, the
Indemnitee shall be indemnified against all expenses (including attorneys' fees)
actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf
in connection therewith. Without limiting the foregoing, if any action, suit or
proceeding is disposed of, on the merits or otherwise (including a disposition
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that
the Indemnitee did not act in good faith and in a manner the Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe the Indemnitee's conduct was
unlawful, the Indemnitee shall be considered for the purposes hereof to have
been wholly successful with respect thereto.
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If any Indemnitee is entitled under any provision of this
Section 10.1 to indemnification by the corporation for a portion, but not all,
of the expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement actually and reasonably incurred by the Indemnitee or on the
Indemnitee's behalf, the corporation shall indemnify the Indemnitee for the
portion of such expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement to which the Indemnitee is entitled.
10.2 Advancement of Expenses.
Subject to Section 10.3(b), in the event that the corporation does not
assume a defense pursuant to 10.3(a) of any action, suit, proceeding or
investigation of which the corporation receives notice under this Section 10,
any expenses (including attorneys' fees) incurred by an Indemnitee in defending
a civil or criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the corporation in advance of the final disposition
of such matter; provided, however, that the payment of such expenses incurred by
an Indemnitee in advance of the final disposition of such matter shall be made
only upon receipt of an undertaking by or on behalf of the Indemnitee to repay
all amounts so advanced in the event that it shall ultimately be determined that
the Indemnitee is not entitled to be indemnified by the corporation as
authorized in this Section 10. Any such undertaking by an Indemnitee shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment.
10.3 Procedures.
As a condition precedent to any Indemnitee's right to be
indemnified, the Indemnitee must promptly notify the corporation in writing of
any action, suit, proceeding or investigation involving the Indemnitee for which
indemnity will or may be sought. With respect to any action, suit, proceeding or
investigation of which the corporation is so notified, the corporation will be
entitled to participate therein at its own expense and/or to assume the defense
thereof at its own expense, with legal counsel reasonably acceptable to the
Indemnitee; provided that the corporation shall not be entitled, without the
consent of the Indemnitee, to assume the defense of any claim brought by or in
the right of the corporation or as to which counsel for the Indemnitee shall
have reasonably concluded that there may be a conflict of interest or position
on any significant issue between the corporation and the Indemnitee in the
conduct of the defense of such claim. After notice from the corporation to the
Indemnitee of its election so to assume such defense, the corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
in Section 10.1. The Indemnitee shall have the right to employ the Indemnitee's
own counsel in connection with such claim, but the fees and expenses of such
counsel incurred after notice from the corporation of its assumption of the
defense thereof shall be at the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been authorized by the corporation,
(ii) counsel to the Indemnitee has reasonably concluded that there may be a
conflict of interest or position on any significant issue between the
corporation and the Indemnitee in the conduct of the defense of such action or
(iii) the corporation has not in fact employed counsel to assume the defense of
such action, in each of
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which cases the fees and expenses of counsel for the Indemnitee shall be at the
expense of the corporation except as otherwise expressly provided by this
Section 10.
In order to obtain indemnification or advancement of expenses
pursuant to this Section 10, an Indemnitee shall submit to the corporation a
written request therefor, which request shall include documentation and
information as is reasonably available to the Indemnitee and is reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification or advancement of expenses. Any such indemnification or
advancement of expenses shall be made promptly, and in any event within sixty
days after receipt by the corporation of the written request of the Indemnitee,
unless with respect to requests under Sections 10.1(a), 10.1(B) or 10.2, the
corporation determines, by clear and convincing evidence, within such sixty-day
period, that any Indemnitee did not meet the applicable standard of conduct set
forth in 10.1(A), 10.1(B) or 10.2. Such determination shall be made in each
instance by (i) a majority vote of the directors of the corporation consisting
of persons who are not at that time parties to the action, suit or proceeding in
question ("disinterested directors"), even though less than a quorum, (ii) a
majority vote of a quorum of the outstanding shares of capital stock of all
classes entitled to vote for directors, which quorum shall consist of
stockholders who are not at that time parties to the action, suit, proceeding or
investigation in question, (iii) independent legal counsel (who may be regular
legal counsel to the corporation), or (iv) a court of competent jurisdiction.
The right of an Indemnitee to indemnification or advancement
of expenses pursuant to this Section 10 shall be enforceable by the Indemnitee
in any court of competent jurisdiction if the corporation denies, in whole or in
part, a request of an Indemnitee in accordance with Section 10.3(b) or if no
disposition thereof is made within the sixty-day period referred to in Section
10.3(b). Unless otherwise provided by law, the burden of proving that an
Indemnitee is not entitled to indemnification or advancement of expenses
pursuant to this Section 10 shall be on the corporation. Neither the failure of
the corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met any applicable standard of conduct, nor an actual
determination by the corporation pursuant to Section 10.3(b) that the Indemnitee
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The Indemnitee's expenses (including attorneys' fees)
incurred in connection with successfully establishing the Indemnitee's right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the corporation.
10.4. Rights Not Exclusive.
The right of an Indemnitee to indemnification and advancement of
expenses pursuant to this Section 10 shall not be deemed exclusive of any other
rights to which the Indemnitee may be entitled under any law (common or
statutory), agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in the Indemnitee's official capacity and as to
action in any other capacity while holding office for the corporation, and shall
continue as to an Indemnitee who has ceased to serve in the capacity with
respect to which the
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Indemnitee's right to indemnification or advancement of expenses accrued, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Section 10 shall be deemed to
prohibit, and the corporation is specifically authorized to enter into,
agreements with officers and directors providing indemnification rights and
procedures supplemental to those set forth in this Section 10. The corporation
may, to the extent authorized from time to time by its board of directors, grant
indemnification rights to other employees or agents of the corporation or other
persons serving the corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Section 10. In addition, the corporation
may purchase and maintain insurance, at its expense, to protect itself and any
director, officer, employee or agent of the corporation or another corporation
(including any partially or wholly owned subsidiary of the corporation),
partnership, joint venture, trust or other enterprise (including any employee
benefit plan) against any expense, liability or loss incurred by such a person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
expense, liability or loss under the General corporation Law of the State of
Delaware.
10.5. Subsequent Events.
No amendment, termination or repeal of this Section 10 or of
any relevant provisions of the General corporation Law of the State of Delaware
or any other applicable law shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions of this Section 10 with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the effective
date of such amendment, termination or repeal. If the General corporation Law of
the State of Delaware is amended after adoption of this Section 10 to expand
further the indemnification permitted to any Indemnitee, then the corporation
shall indemnify the Indemnitee to the fullest extent permitted by the General
corporation Law of the State of Delaware, as so amended, without the need for
any further action with respect to this Section 10.
If the corporation is merged into or consolidated with another
corporation and the corporation is not the surviving corporation, the surviving
corporation shall assume the obligations of the corporation under this Section
10 with respect to any action, suit, proceeding or investigation arising out of
or relating to any actions, transactions or factors occurring prior to the date
of such merger or consolidation.
10.6. Invalidation.
If any or all of the provisions of this Section 10 shall be invalidated
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Indemnitee as to any expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with any
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including an action by or in the right of the corporation, to
the fullest extent permitted by any applicable provision of this Section 10 that
shall not have been
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invalidated and to the fullest extent permitted by the General Corporation Law
of the State of Delaware or any other applicable law.
10.7. Definitions.
Unless defined elsewhere in this Amended and Restated Certificate of
Incorporation, any term used in this Section 10 and defined in Section 145(h) or
(i) of the General Corporation Law of the State of Delaware shall have the
meaning ascribed to such term in such Section 145(h) or (i), as the case may be.
Section 11. AMENDMENTS
11.1 By the Board of Directors. These by-laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a majority
of the directors present at any regular or special meeting of the board of
directors at which a quorum is present.
11.2 By the Stockholders. Notwithstanding any other provision of these
by-laws, and notwithstanding the fact that a lesser percentage may be specified
by law, these by-laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of at least eighty percent (80%)
of the shares of the capital stock of the corporation issued and outstanding and
entitled to vote at any regular or special meeting of stockholders, provided
notice of such alteration, amendment, repeal or adoption of new by-laws shall
have been stated in the notice of such regular or special meeting.
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<PAGE> 1
Exhibit 10.1
net.Genesis Corp.
1995 INCENTIVE STOCK OPTION PLAN
TABLE OF CONTENTS
SECTION Page
1. PURPOSE .................................................. 1
2. ADMINISTRATION OF THE PLAN ............................... 1
3. OPTION SHARES ............................................ 1
4. AUTHORITY TO GRANT OPTIONS ............................... 1
5. WRITTEN AGREEMENT ........................................ 2
6. ELIGIBILITY .............................................. 2
7. OPTION PRICE ............................................. 2
8. DURATION OF OPTIONS ...................................... 3
9. RESTRICTION ON EXERCISE OF OPTIONS ....................... 3
10. EXERCISE OF OPTIONS ...................................... 3
11. NONTRANSFERABILITY OF OPTIONS ............................ 4
12. TERMINATION OF EMPLOYMENT OF OPTIONEE WITH THE COMPANY ... 5
13. REQUIREMENTS OF LAW ...................................... 5
14. NO RIGHTS AS STOCKHOLDER ................................. 6
15. EMPLOYMENT OBLIGATION .................................... 6
16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE .......... 6
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE ............... 7
18. AMENDMENT OR TERMINATION OF PLAN ......................... 8
20. EFFECTIVE DATE AND DURATION OF THE PLAN .................. 13
<PAGE> 2
net.Genesis Corp.
1995 INCENTIVE STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1995 Incentive Stock option Plan (the "Plan") is to
encourage key employees of net.Genesis Corp. (the "Company") to continue their
association with the Company, by providing favorable opportunities for such
persons to participate in the ownership of the Company and in its future growth
through the granting of stock options (the "Options") designed to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). A person to whom an option has
been granted pursuant to the Plan is hereinafter referred to as an "Optionee".
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors, which shall
have the authority to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan. All questions
of interpretation and application of such rules and regulations, of the Plan or
of Options granted thereunder shall be subject to the determination, which shall
be final and binding, of a majority of the Board of Directors. The Plan shall be
administered in such a manner as to Permit those Options granted hereunder and
specially designated under Section 4 hereof to qualify as "incentive stock
options" as described in Section 422A of the Code.
3. OPTION SHARES
The stock subject to options under the Plan shall be shares of the
Company's common stock, no par value per share (the "Stock"). At no time shall
the number of shares of Stock with respect to which outstanding Options have
been granted plus the number of shares of Stock issued as a result of the
exercise of options under the Plan and which are still outstanding exceed in the
aggregate 1,316,809 shares (the "Option Pool"); provided that such aggregate
number of shares shall be subject to adjustment in accordance with the
provisions of Section 17. In the event that any outstanding Option shall expire
for any reason or shall terminate by reason of the death or severance of
employment of the Optionee, the surrender of any such option, or any other
cause, the shares of Stock allocable to the unexercised portion of such option
may again be subject to an option under the Plan. Should the Company repurchase
any shares of Stock which were acquired pursuant to the exercise of options
granted under the Plan, such shares may be returned to the Option Pool pursuant
to a vote of the Board of Directors, subject, however, to the Option Pool size
limitation set forth above.
4. AUTHORITY TO GRANT OPTIONS
The Board of Directors may grant from time to time, to such eligible
individuals as it shall from time to time determine, an option or Options to buy
a stated-number of shares of
<PAGE> 3
Stock under the terms and conditions of the Plan. Subject only to any applicable
limitations set forth elsewhere in the Plan, the number of shares of Stock to be
covered by any option shall be as determined by the Board of Directors.
5. WRITTEN AGREEMENT
Options granted hereunder shall be embodied in written option
agreements (which need not be identical) in such forms as the Board of Directors
may from time to time approve (each an "Option Agreement"). Option Agreements
shall be subject to the terms and conditions prescribed herein and shall be
signed by the Optionee and by the President or any Vice President of the Company
for and in the name and on behalf of the Company. The written Option Agreement
for any Option may contain such provisions not inconsistent with this Plan as
the Board of Directors in its discretion may deem advisable.
6. ELIGIBILITY
The individuals who shall be eligible for grant of options under the
Plan shall be key employees (including officers who may be members of the
Board), who render services of special importance to the management, operation,
or development of the Company and who have contributed or may be expected to
contribute materially to the success of the Company.
If required to insure compliance with Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"), the selection of a director as a
participant and the number of shares for which an option may be granted to such
director shall be determined either (i) by the Board of Directors, of which a
majority, as well as a majority of the directors acting in the matter, shall be
"disinterested persons" (as hereinafter defined) or (ii) by, or only in
accordance with, the recommendations of a committee of three or more persons
having full authority to act in the matter, of which all members shall be
"disinterested persons". For purposes of the Plan, a director or member of such
committee shall be deemed to be "disinterested" only if such person qualifies as
a "disinterested person" within the meaning of Rule 16.b-3 under the Exchange
Act, or any successor rule, as such term is interpreted from time to time.
7. OPTION PRICE
The price at which shares may be purchased pursuant to an option shall
be specified by the Board of Directors at the time the option is granted, but
shall not be less than the fair market value of the shares of Stock on the date
the option is granted. In the case of any employee who owns (or is considered
under Section 424(d) as owning) stock possessing more than ten percent (10%.) of
the total combined voting power of all classes of stock of the Company, the
price at which shares may be so purchased pursuant to an incentive stock option
shall be not less than one hundred ten percent (110%) of the fair market value
of the Stock on the date the ISO is granted.
For purposes of the Plan, the "fair market value" of a share of Stock
on any date specified herein shall mean (a) the last reported sales price,
regular way, or, in the event that no sale takes place on such day, the average
of the reported lowest closing bid and asked prices, regular way,
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<PAGE> 4
in either case (i) as reported on the New York Stock Exchange Composite Tape, or
(ii) if the Stock is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities-...exchange on which such
security is listed or admitted to trading, or (iii) if not then listed or
admitted to trading on any national securities exchange, on the NASDAQ National
Market System; or (b) if the stock is not quoted on such National Market System,
(i) the average of the closing bid and asked prices on each such day in the
over-the-counter market as reported by NASDAQ, or (ii) if bid and asked prices
for such security on each such day shall not have been reported through NASDAQ,
the average . of the bid and asked prices for such day as furnished by any New
York Stock Exchange member firm regularly-making a market in such security
selected for such purpose by the Board of Directors; or (c) if the Stock is not
then listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof determined in good faith by the
Board of Directors as of a date which is within thirty (30) days of the date as
of which the determination is to be made; provided, however, that any method of
determining fair market value employed by the Board of Directors with respect to
an ISO shall be consistent with any applicable laws or regulations pertaining to
"incentive stock options".
8. DURATION OF OPTIONS
The duration of any option shall be specified by the Board of Directors
in the Option Agreement, but no Option shall be exercisable after the
expiration-of ten (10) years from the date such option is granted. In the case
of any employee who owns (or is considered under Section 4 24(d) of the Code as
owning) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, no Option shall be
exercisable after the expiration of five (5) years from the date such option is
granted. The Board of Directors, in its sole and absolute discretion, may extend
any Option theretofore granted subject to the aforesaid limits and may provide
that an Option shall be exercisable during its entire duration or during any
lesser period of time.
9. RESTRICTION ON EXERCISE OF OPTIONS
Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined as of the time the Option is granted) of the Stock with
respect to which ISOs may be exercisable for the first time by an Optionee
during any calendar year (under the Plan or any other incentive stock option
plan(s) of the Company) shall not exceed $100,000. Subject to the foregoing,
each Option may be exercised so long as it is valid and outstanding from time to
time, in part or as a whole, in such manner and subject to such conditions as
the Board of Directors, in its sole and absolute discretion, may provide in the
option Agreement.
10. EXERCISE OF OPTIONS
Each Option may be exercised from time to time in such amounts as is
provided in the Option Agreement by the delivery of written notice to the
Company setting forth the number of shares with respect to which the Option is
to be exercised, accompanied by payment of the option price of such shares,
which payment shall he made, subject to the alternative provisions of this
Section, in cash or by such cash equivalents, payable to the order of the
Company in an
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<PAGE> 5
amount in United States dollars equal to the option price of such shares, as the
Board of Directors in its discretion shall consider acceptable. Such notice
shall be delivered in person to the Secretary of the Company or shall be sent by
registered mail, return receipt requested, to the Secretary of the Company, in
which case delivery shall be deemed made on the date such notice is deposited in
the mail.
Alternatively, payment of the option price may be made, in whole or in
part, in shares of Stock owned by the Optionee; provided, however, that the
Optionee may not make payment in shares of Stock that he acquired upon the
earlier exercise of any ISO, unless he has held the shares until at least two
(2) years after the date the ISO was granted and at least one (1) year after the
date the ISO was exercised. If payment is made in whole or in part in shares of
Stock, then the Optionee shall deliver to the Company in payment of the option
price of the shares with respect of which such Option is exercised (i)
certificates registered in the name of such Optionee representing a number of
shares of Stock legally and beneficially owned by such optionee, free of all
liens, claims and encumbrances of every kind and having a fair market value on
the date of delivery of such notice equal to the option price of the shares with
respect to which such option is to be exercised, such certificates to be
accompanied by stock powers duly endorsed in blank by the record holder of the
shares represented by such certificates; and (ii) if the option price of the
shares with respect to which such Option is to be exercised exceeds such fair
market value, cash or such cash equivalents payable to the order to the Company,
in an amount in United States dollars equal to the amount of such excess, as the
Board of Directors in its discretion shall consider acceptable. Notwithstanding
the foregoing provisions of this Section, the Board of Directors, in its sole
discretion, may refuse to accept shares of Stock in payment of the option price
of the shares with respect to which such option is to be exercised and, in that
event, any certificates representing shares of Stock which were delivered to the
Company with such written notice shall be returned to such Optionee together
with notice by the Company to such Optionee of the refusal of the Board of
Directors to accept such shares of Stock.
Alternatively, if the Option Agreement so specifies, payment of the
option price may be made in part by a promissory note executed by the optionee
and collaterally secured by the Stock obtained upon exercise of the Option,
providing for repayment at such time or times as the Board of Directors shall
specify; provided, however, (a) that such promissory note shall provide for
repayment no later than five (5) years from the date of exercise and for
interest at a rate not less than the "base" rate announced on the date of
exercise by [BANK] and (b) the payment of such exercise price by promissory note
does not violate any applicable laws or regulations, including, without
limitation, margin lending rules. The decision as to whether to permit partial
payment by a promissory note for Stock to be issued upon exercise of any option
granted shall rest entirely in the discretion of the Board of Directors.
As promptly as practicable after the receipt by the Company of (i)
written notice from the optionee setting forth the number of shares with respect
to which such Option is to be exercised and (ii) payment of the option price of
such shares in the form required by the foregoing provisions of this Section,
the Company shall cause to be delivered to such optionee certificates
representing the number of shares with respect to which such Option has been so
exercised.
11. NONTRANSFERABILITY OF OPTIONS
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<PAGE> 6
No Option shall be transferable by the Optionee, either voluntarily or
by operation of law, except by will or pursuant to the laws of descent and
distribution. During the life of an Optionee, an option shall be exercisable
only by such Optionee.
12. TERMINATION OF EMPLOYMENT OF OPTIONEE WITH THE COMPANY
Options shall be exercisable after the Optionee's termination of
employment with the Company only within the period of three (3) months after the
date the Optionee ceases to be in the employ of the Company, and only to the
extent to which the Optionee was entitled to exercise the option immediately
prior to the termination of his or her employment. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age under the then established rules of
the Company, the option shall terminate on the earlier of such date of
expiration or three (3) months after the date of such retirement. In the event
of the death of the holder of an Option before the date of expiration of such
option and while in the employ of the Company or during the three (3) month .
period described in the preceding sentence, or in the event of the retirement of
the Optionee for reasons of disability (within the meaning of Section 22(e)(3)
of the Code), such Option shall terminate on the earlier of such date of
expiration or one (1) year following the date of such death or retirement. After
the death of the Optionee, his or her executors, administrators or any persons
to whom his or her Option may be transferred by will or by the laws of descent
and distribution shall have the right at any time prior to such termination to
exercise the Option to the extent to which the Optionee was entitled to exercise
the Option on the date of his or her death.
Authorized leave of absence or absence on military or government
service shall not constitute severance of the employment relationship between
the Company and the Optionee for purposes of the Plan, provided that either (i)
such absence is for a period of no more than ninety (90) days or (ii) the
Optionee's right to re-employment after such absence is guaranteed either by
statute or by contract.
13. REQUIREMENTS OF LAW
The Company shall not be required to sell or issue any shares of Stock
upon the exercise of any Option if the issuance of such shares shall constitute
or result in a violation by the Optionee or the Company of any provisions of any
law, statute or regulation of any governmental authority. Specifically, in
connection with the Securities Act of 1933, as amended (the "Securities Act"),
and any applicable state securities or "blue sky" law (a "Blue Sky Law"), upon
exercise of any Option the Company shall not be required to issue such shares
unless the Board of Directors has received evidence satisfactory to it to the
effect that the holder of such Option will not transfer such shares except
pursuant to a registration statement in effect under the Securities Act and Blue
Sky Laws or unless an opinion of counsel satisfactory to the Company has been
received by the Company to the effect that such registration and compliance is
not required. Any determination in this connection by the Board of Directors
shall be final, binding and conclusive. The Company shall not be obligated to
take any other affirmative action in order to cause the exercise of an option or
the issuance of shares of Stock pursuant thereto to comply
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<PAGE> 7
with any law or regulations of any governmental authority, including, without
limitation, the Securities Act or applicable Blue Sky laws.
Notwithstanding any other provision of the Plan to the contrary, the
Company may refuse to permit transfer of shares of Stock if in the opinion of
its legal counsel such transfer would violate federal or state securities laws
or subject the Company to liability thereunder. Any sale, assignment, transfer,
pledge or other disposition of shares of Stock received upon exercise of any
option (or any other shares or securities derived therefrom) which is not in
accordance with the provisions of this section shall be void and of no effect
and shall not be recognized by the Company.
The Company shall not be required to sell or issue any shares upon the
exercise of any Option if the Board of Directors is advised by counsel that the
issuance of such shares would result in the termination of any then effective
election of the Company to be taxed as an S corporation pursuant to the Code.
Legend on Certificates. The Board of Directors may cause any
certificate representing shares of Stock acquired upon exercise of an option
(and any other shares or securities derived therefrom) to bear a legend to the
effect that the securities represented by such certificate have not been
registered under the Securities Act or any applicable state securities laws, and
may not be sold, assigned, transferred, pledged or otherwise disposed of except
in accordance with the Plan and applicable agreements binding the holder and the
Company or any of its stockholders.
14. NO RIGHTS AS STOCKHOLDER
No Optionee shall have rights as a stockholder with respect to shares
covered by his or her Option until the date of issuance of a stock certificate
for such shares. Except as otherwise provided in Section 17 no adjustment for
dividends or other rights shall be made if the record date therefor is prior to
the date of issuance of such certificate.
15. EMPLOYMENT OBLIGATION
Nothing in this Plan nor the granting of any option under this Plan
shall (i) impose upon the Company any obligation to employ or continue to employ
any Optionee, or to engage or retain the services of any person, (ii) diminish
or affect the right of the Company to terminate the employment or services of
any person or (iii) affect the ability of the Company to increase or decrease
the compensation of any person. The existence of any Option shall not be taken
into account in determining any damages relating to termination of employment
for any reason.
16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE
Notwithstanding anything to the contrary in the Plan, if the Board of
Directors determines, after full consideration of the facts presented on behalf
of both the Company and an Optionee, that
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<PAGE> 8
(a) the Optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment by or involvement with the Company which damaged the Company
or has made unauthorized disclosure of trade secrets or other
proprietary information of the Company or of a third party who has
entrusted such information to the Company, or
(b) the Optionee's employment or involvement was otherwise terminated
for "cause", as defined in any employment agreement with the Optionee,
if applicable, or if there is no such agreement, as determined by the
Board of Directors, which may determine that "cause" includes among
other matters the failure or inability of the Optionee to carry out his
or her assigned duties diligently and in a manner satisfactory to the
Company,
then the Optionee's right to exercise an Option shall terminate as of the date
of such act (in the case of (a)) or such termination (in the case of (b)) and
the Optionee shall forfeit all unexercised Options. If an optionee whose
behavior the Company asserts falls within the provisions of (a) or (b) above has
exercised or attempts to exercise an Option prior to a decision of the Board of
Directors, the Company shall not be required to recognize such exercise until
the Board of Directors has made its decision and, in the event of any exercise
shall have taken place, it shall be of no force and effect (and void ab initio)
if the Board of Directors makes an adverse determination; provided, however, if
the Board of Directors finds in favor of the Optionee then the Optionee will be
deemed to have exercised such Options retroactively as of the date he or she
originally gave written notice of his or her attempt to exercise or actual
exercise, as the case may be. The decision of the Board of Directors as to the
cause of an Optionee's discharge and the damage done to the Company shall be
final, binding and conclusive. No decision of the Board of Directors, however,
shall affect in any manner the finality of the discharge of such Optionee by the
Company.
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE
The existence of outstanding Options shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the Company or any issue of bonds, debentures, preferred or preference stock,
whether or not convertible into the Stock or other securities, ranking prior to
the Stock or affecting the rights thereof, or warrants, rights or options to
acquire the same, or the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business or any other corporate
act or proceeding, whether of a similar character or otherwise.
The number of shares of Stock in the Option Pool (less the number of
shares theretofore delivered upon exercise of options) and the number of shares
of Stock covered by any outstanding Option and the price per share payable upon
exercise thereof shall be proportionately adjusted for any increase or decrease
in the number of issued and outstanding shares of Stock resulting from the
subdivision, split, combination or consolidation of shares of Stock or any other
capital adjustment, the payment of a Stock dividend or any other increase in
such shares effected without receipt of consideration by the Company or any
other decrease therein effected without a
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<PAGE> 9
distribution of cash or property in connection therewith, provided, however,
that no adjustment shall be made that would constitute a modification as defined
in Section 424(h)(3) of the Code.
Upon the occurrence of a Change of Control as defined in this Section
17: (i) after the effective date of such Change of Control, each holder of an
outstanding Option, shall be entitled, upon exercise of such Option, to receive,
in lieu of shares of Stock (or consideration based upon the fair market value of
Stock), shares of such stock or other securities, cash or property (or
consideration based upon shares of such stock or other securities, cash or
property) as the holders of shares of Stock received in connection with the
Change of Control; and (ii) the vesting schedule, if any, of each unexercised
and unexpired Option, shall, effective immediately prior to the effective date
of such Change of Control, be accelerated by twelve (12) months such that an
additional number of shares, equal to the number that under the terms of the
Option in question would have vested had the holder remained employed during the
twelve (12) month period following the effective date of the Change of Control,
will vest immediately prior to the effective date of the Change of Control.
A "Change of Control" shall mean the occurrence of any one of the
following events: (i) any "person" becomes a "beneficial owner" (as such terms
are defined in Rule 13d-3 promulgated under the Securities and Exchange Act of
1934, as amended) (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then outstanding
securities; (ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or (iii) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets.
Except as expressly provided herein, the issue by the Company of shares
of Stock or other securities of any class or securities convertible into or
exchangeable or exercisable for shares of Stock or other securities of any class
for cash or property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall he made
with respect to, the number, class or price of shares of Stock then subject to
outstanding options.
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<PAGE> 10
18. AMENDMENT OR TERMINATION OF PLAN
The Board may, in its sole and absolute discretion, modify, revise or
terminate the Plan at any time and from time to time; provided, however, that
without the further approval of the holders of at least a majority of the
outstanding shares of Stock, the Board may not (a) materially increase the
benefits accruing to Optionees under the Plan or make any "modifications" as
that term is defined under Section 424(h)(3) (or its successor) of the Code if
such increase in benefits or modifications would adversely affect (i) the
availability to the Plan of the protections of Section 16(b) of the Securities
Exchange Act, if applicable to the Company, or (ii) the qualification of the
Plan or any options for "incentive stock option" treatment under Section 422 of
the Code; (b) change the aggregate number of shares of Stock which may be issued
under Options pursuant to the provisions of the Plan; (c) reduce the option
price at which ISOs may be granted to an amount less than the fair market value
per share, or 110% of fair market value as the case may be, at the time the
Option is granted; or (d) change the class of persons eligible to receive ISOs.
Notwithstanding the preceding sentence, the Board shall in all events have the
power and authority to make such changes in the Plan and in the regulations and
administrative provisions hereunder or in any outstanding option as, in the
opinion of counsel for the Company, may be necessary or appropriate from time to
time to enable any Option granted pursuant to the Plan to qualify as an ISO or
such other stock option as may be defined under the Code, as amended from time
to time, so as to receive preferential federal income tax treatment. The
termination or any modification or amendment of the Plan shall not, without the
consent of an Optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the Optionee affected, the Board may
amend outstanding option agreements in a manner not inconsistent with the Plan.
19. CERTAIN-RIGHTS OF THE COMPANY
Unless an Optionee's Option Agreement specifically provides to the
contrary, or an Optionee has entered into an employment, stockholder or other
agreement with the Company which provides for the repurchase of options or stock
in the event such Optionee's employment or involvement with the Company
terminates, the provisions of this Section 19 shall apply to each option granted
under the Plan and to the shares of Stock acquired on exercise thereof.
a. Justifiable Termination of Employment or Involvement. if the
Optionee's employment by or involvement with the Company is terminated on
account of any circumstance listed in Section 16 (a) or (b) (a "Justifiable
Termination"), the Company shall have the right to repurchase all or any of the
shares of Stock acquired by the Optionee pursuant to the exercise of any options
(or any other shares or securities derived from such shares of Stock) at the
lesser of (i) the exercise price per share or (ii) the Repurchase Price. If the
option price for any repurchased shares has been paid by the Optionee's
promissory note pursuant to Section 10, then the repurchase price for such
shares of Stock shall be first applied to the repayment of the outstanding
amount, if any, due under such note in respect of the repurchased shares, and
any accrued but unpaid interest thereon. The Company's right to repurchase
shares of Stock (or other shares or securities) may be exercised at any time
during the period beginning on the date of the Optionee's termination of
employment and ending ninety (90) days after the later of (a) the date of such
termination and (b) the date on which shares of Stock (or other shares or
securities)
-9-
<PAGE> 11
subject to the repurchase rights of this Section are acquired by the Optionee.
Any such shares of Stock (or other shares or securities) as to which the-Company
does not exercise its repurchase rights within such period shall thereafter be
free of the restrictions of this Section.
b. Right of First Refusal on Dispositions by Optionee. An optionee may
not sell, assign, transfer or otherwise dispose of any Unvested Stock (as
defined below) without the prior written approval of the Company. In the event
an optionee proposes to sell, assign, transfer or otherwise dispose of any or
all of his Vested Stock (as defined below), or with the Company's written
approval, Unvested Stock, the optionee will notify in writing (the
"Notification") the Company of the optionee's intention to do so, specifying the
number of shares of Option Stock proposed to be transferred (the "Offered
Shares"), the name of the person or persons to whom the optionee proposes to
transfer the offered Shares (or if no particular purchaser is identified, then
the general class of persons to whom he proposes to transfer the Offered
Shares), and a price per share which shall be the minimum price at which he
proposes to effect the transfer (the "Minimum Price"). The Notification shall
contain a copy or recitation of all the terms and conditions of the proposed
transfer of the offered Shares at the Minimum Price to such person or persons
(or class of persons) and an undertaking that a condition of such transfer shall
be the agreement of each transferee to be bound by and be deemed to be an
optionee for the purposes of this Plan. The Notification shall offer to sell to
the Company the Offered Shares, free and clear of any liens or encumbrances in
favor of third persons, at (a) in the case of Vested Stock, the Minimum Price
and (b) in the case of Unvested Stock, the price the optionee acquired the
Offered Shares, adjusted for all splits, stock dividends and similar adjustments
(the "Acquisition Price").
The Company shall act upon the offer of the optionee by giving written
notice (the "Company's Notice") to the optionee setting forth the Company's
intention as to any or all of the Offered Shares. The Company's Notice shall be
given as soon as practicable after receipt of the Notification, and in all
events within thirty (30) days after such receipt, such thirty (30) day period
being herein referred to as the "Company's Acceptance Period."
In the event the Company shall elect to purchase or acquire any of the
offered Shares, written notice to the optionee of such election to purchase or
so acquire any of the Offered Shares shall, when taken in conjunction with the
Notification, be deemed to constitute a valid and legally binding purchase and
sale agreement as to those Offered Shares.
If the Company fails to accept the offer to sell all of the Offered
Shares, the optionee shall be free to proceed to sell all but not less than all
of the remaining Offered Shares to the person or persons (or class of persons)
specified in the Notification at not less than the Minimum Price. If the
optionee fails to complete his proposed sale within a period of ninety (90) days
after the date of the Notification, then the Offered Shares shall once again be
subject to the requirement of a prior offer pursuant to the provisions of this
Section.
The closing of a purchase and sale of Offered Shares pursuant hereto
shall take place at the principal executive offices of the Company on the
ninetieth (90th) day following the date of the Notification unless another time
is mutually agreed upon, at which time the optionee shall deliver the stock
certificate or certificates representing the Offered Shares so sold (duly
endorsed
-10-
<PAGE> 12
or accompanied by a duly executed stock power or assignment to effect transfer
of ownership to the purchaser or purchasers on the records of the Company)
against the Optionee's receipt of payment in cash (by certified check, bank
cashier's check or wire transfer).
c. Involuntary Disposition. It is the intent of the Company that any
involuntary disposition of the shares of Option Stock of the Company owned by an
optionee and still subject to the restrictions under Section 19 of this Plan,
including dispositions pursuant to a divorce or separation proceeding or any
other judicial proceeding, be subject to the prior rights of the Company
hereunder and that any such disposition be deemed to be an offer to sell to the
Company (a) all shares of Unvested Stock at the Acquisition Price and (b) all
shares of Vested Stock at the Repurchase Price.
The Company shall act upon the deemed offer under this Section within
the time periods and following the procedures set forth in Section 19(a), with
the date of the deemed offer being the later of the date of the Company's
receipt of written notice setting forth the existence of such an involuntary
disposition event and the date of such involuntary disposition event, such later
date being the date of Notification for the purpose of Section 19(a).
Repurchase Price. As used herein the term "Repurchase Price" shall mean
the fair market value of a share of Stock as determined by the Company's
independent accountants. In making their determination of-fair market value of a
share of Stock the accountants will not take into account that the Stock may be
illiquid or may constitute a minority interest in the Company. The fees and
expenses of the accountants will be paid equally by the Company and the
Stockholder or the Stockholder's estate, as the case may be.
Company Note. The term "Company Note" shall mean a promissory note of
the Company having a maturity of no more than five (5) years, with equal annual
principal payments and bearing interest on the same terms as the Company is
required to pay under its bank loans from its primary lending bank, or, if it is
not then a borrower, on the same terms as it last was required to pay on such
borrowings or, if it has not been a-borrower within the prior twelve months, at
an annual rate equal to the prime or base commercial lending rate announced by
on the date of the note plus one percent (1%) per annum. The note shall provide
that if interest is not paid on a due date, the accrued interest shall be added
to the principal of the note as of such due date. The note shall provide for
prepayment without penalty of principal and interest in whole or in part at any
time. The note shall by its terms be subordinate to, and the holder of the note
by receiving the same shall be deemed to have subordinated payment thereof to,
indebtedness of the Company then or thereafter existing to banks, financial
institutions or others who provide debt based working capital to the Company;
provided, however, that so long as the Company shall not be in default with
respect to said indebtedness, the holder of the note shall be entitled to
receive payments of the principal of and interest accrued upon the note in
accordance with its terms.
d. Permitted Transfers; Lifting of Restrictions. The provisions of
Section 19 shall not apply to any proposed sale, assignment, transfer or other
disposition of Vested Stock pursuant to a registration statement filed by the
Company pursuant to the Securities Act of 1933, as amended (a "Public
Offering").
-11-
<PAGE> 13
As used herein, the term "Vested Stock" shall mean and include for any
optionee at any time the meaning set forth in the applicable written option
agreement for the Option Stock to which it applies. The term "Unvested Stock"
shall mean and include for any optionee at any time the number of shares of
Option Stock which are not Vested Stock.
e. Death of An Optionee. In the event of the death of an optionee he
will be deemed to have voluntarily terminated his Relationship with the Company
and to have offered to sell to the Company all of his Unvested Stock at the
Acquisition Price.
The Company shall act upon the deemed offer of a deceased optionee as
soon as practicable after the death of the optionee and in any event within
ninety (90) days. If the Company fails to accept the offer to sell all of a
deceased optionee's shares, the representative of the deceased optionee may
proceed to sell, distribute or otherwise dispose of said shares, subject to the
other provisions of this Plan.
f. Disability of An Optionee. In the event of the disability of an
optionee which materially prevents the optionee from performing his work for the
Company, he will be deemed to have voluntarily terminated his Relationship with
the Company and to have offered to sell to the Company all of his Unvested Stock
at the Acquisition Price.
The Company shall act upon the offer of a disabled optionee as soon as
practicable after such disability of the optionee and in any event within ninety
(90) days. If the Company fails to accept the offer to sell all of a disabled
optionee's shares, the disabled optionee or representative of the disabled
optionee may proceed to sell, distribute or otherwise dispose of said shares,
subject to the other provisions of this Plan.
g. Termination of Employment or Other Relationship with the Company. In
the event an optionee's employment by the Company (or if the optionee is not an
employee, his or her active consulting, work or other involvement with the
Company) is terminated voluntarily, for cause or without cause, the terminated
optionee will be deemed to have offered to sell to the Company all Unvested
Stock in the Company owned by him and still subject to the restrictions in this
Section 19 at the Acquisition Price. The employment or other active involvement
of an optionee with the Company is hereinafter referred to as the optionee's
"Relationship" with the Company. The determination of whether an optionee's
Relationship with the Company has terminated shall be made by the Board of
Directors, whose determination shall be final and binding on the optionee.
The Company shall act upon the offer of a terminated optionee within
ninety (90) days of termination. If the Company fails to accept the offer to
sell all of a terminated optionee's shares, such terminated optionee may proceed
to sell, distribute or otherwise dispose of said shares, subject to the other
provisions of this Plan.
h. Securities Laws; Transfers In Violation of Plan. Notwithstanding any
other provision of this Plan the Company may refuse to permit transfer of the
Offered Shares if in the opinion of its legal counsel such transfer would
violate securities laws or subject the Company to liability thereunder. Any
sale, transfer, pledge or other disposition of shares of Stock which is
-12-
<PAGE> 14
not in accordance with the provisions of this Section 19 shall be void and of no
effect and shall not be recognized by the Company.
20. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective and shall be deemed to have been
adopted on ________________ subject only to ratification by the holders of at
least a majority of the outstanding shares of Stock within twelve (12) months
after such date. Unless the Plan shall have terminated earlier, the Plan shall
terminate on the tenth (10th) anniversary of its effective date, and no option
shall be granted pursuant to the Plan after the day preceding the tenth (10th)
anniversary of its effective date.
-13-
<PAGE> 15
Exhibit 1 to Stock Option Plan
Form of Incentive Stock Option Certificate
net.Genesis Corp.
*** Stock Option Agreement
Option Certificate Number: _______________________
Specific Terms of the Option
Subject to the terms and conditions hereinafter set forth and the terms
and conditions of the net.Genesis Corp. 1995 Incentive Stock Option Plan (the
"Plan"), net.Genesis Corp., a Delaware corporation (the "Company") hereby grants
the following option to purchase Common Stock, no par value per share (the
"Stock") of the Company:
1. Name of Person to Whom the Option is granted (the "Optionee"):
_________________________________________.
2. Date of Grant of Option: _____________________ .
3. An Option for _____________ shares of Common Stock.
4. Option Exercise Price (per share): $_____________.
5. Term of Option: Subject to Section 9 below, this option expires at
5:00 pm Eastern Time on _____________________________.
6. Exercise Schedule: Provided that on the dates set forth below the
Optionee is still employed by the Company or, if the Optionee is not employed by
the Company the Optionee is still actively involved in the Company (as
determined by the Board of Directors) the Option will become exercisable as
follows and as provided in Section 9 below:
<TABLE>
<CAPTION>
The Option will Cumulative
On This Become Exercisable as Number
Date To This Number of Shares Exercisable
<S> <C> <C>
</TABLE>
-1-
<PAGE> 16
Does Section 19 of the Plan apply to Stock covered by this Option?
Yes ________ No ________
net.Genesis Corp.
By:_________________________________ X________________________________
Title: (Signature of Optionee)
Date:
Optionee's Address: ___________________________________________________________
-2-
<PAGE> 17
OTHER TERMS OF THE OPTION
WHEREAS, the Board of Directors (the "Board") has authorized the grant
of stock options upon certain terms and conditions set forth herein; and
WHEREAS, the Board has authorized the grant of this stock option
pursuant and subject to the terms of the Plan, a copy of which is available from
the Company and is hereby incorporated herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Optionee agree as
set forth on the first page hereof and as follows:
7. Grant. Pursuant and subject to the Plan, the Company does hereby
grant to the Optionee a stock option (the "Option") to purchase from the Company
the number of shares of its Common Stock set forth in Section 3 on the first
page hereof upon the terms and conditions set forth in the Plan and upon the
additional terms and conditions contained herein. This Option is intended to
qualify for special federal income tax treatment as an "incentive stock option"
pursuant to Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code").
8. Option Price. This Option may be exercised at the option price per
share of Stock -set forth in Section 4 on page 1 hereof, subject to adjustment
as provided herein and in the Plan.
9. Term and Exercisability of Option. This Option shall expire on the
date determined pursuant to Section 5 on page 1 hereof and shall be exercisable
prior to that date in accordance with and subject to the conditions set forth in
the Plan and those conditions, if any, set forth in Section 6 on page 1 hereof.
In addition in the event that before this option has been exercised in full, the
Optionee ceases to be an employee of the Company for any reason other than death
or a termination for dishonesty or other "cause" as provided in Section 16 of
the Plan, the Optionee may exercise this Option to the extent that he or she
might have exercised it on the date of termination of his or her employment,
during the period ending on the earlier of (i) the date on which the option
expires in accordance with Section 5 of this Agreement or (ii) three months
after the date of termination of the Optionee's employment by the Company. In
the event of the death of the Optionee before this Option has been exercised in
full, the personal representative of the Optionee may exercise this Option to
the extent that the Optionee might have exercised it on the date of his or her
death, during the period ending on the earlier of (i) the date on which the
Option expires in accordance with Section 5 of this Agreement or (ii) the first
anniversary of the date of the Optionee's death.
10. Method of Exercise. To the extent that the right to purchase shares
of Stock has accrued hereunder, this Option may be exercised from time to time
by written notice to the Company substantially in the form attached hereto as
Exhibit A, stating the number of shares with respect to which this Option is
being exercised, and accompanied by payment in full of the option price for the
number of shares to be delivered, by means of payment acceptable to the Company
in accordance with Section 10 of the Plan. As soon as practicable after its
receipt of
-3-
<PAGE> 18
such notice, the Company shall, without transfer or issue tax to the Optionee
(or other person entitled to exercise this option), deliver to the Optionee (or
other person entitled to exercise this option), at the principal executive
offices of the Company or such other place as shall be mutually acceptable, a
certificate or certificates for such shares out of theretofore authorized but
unissued shares or reacquired shares of its Stock as the Company may elect;
provided, however, that the time of such delivery may be postponed by the
Company for such period as may be required for it with reasonable-diligence to
comply with any applicable requirements of law. Payment of the option price may
be made in cash or cash equivalents, [or, in accordance with the terms and
conditions of Section 10 of the Plan, (a) in whole or in part in shares of
Common Stock of the Company, or (b) in part by promissory note of the Optionee
in the form attached hereto as Exhibit B; provided, however, that the Board
reserves the right upon receipt of any written notice of exercise from the
Optionee to require payment in cash with respect to the shares contemplated in
such notice]. If the Optionee (or other person entitled to exercise this Option)
fails to pay for and accept delivery of all of the shares specified in such
notice upon tender of delivery thereof, his or her right to exercise this Option
with respect to such shares not paid for may be terminated by the Company.
11. Non-assignability of Option Rights. This Option shall not be
assignable or transferable by the Optionee except by will or by the laws of
descent and distribution. During the life of the Optionee, this Option shall be
exercisable only by him or her.
12. Compliance with Securities Act. The Company shall not be obligated
to sell or issue any shares of Stock or other securities pursuant to the
exercise of this option unless the shares of Stock or other securities with
respect to which this Option is being exercised are at that time effectively
registered or exempt from registration under the Securities Act of 1933, as
amended, and applicable state securities laws. In the event shares or other
securities shall be issued which shall not be so registered, the Optionee hereby
represents, warrants and agrees that he or she will receive such shares or other
securities for investment and not with a view to their resale or distribution,
and will execute an appropriate investment letter satisfactory to the Company
and its counsel.
13. Legends. The Optionee hereby acknowledges that the stock
certificate or certificates evidencing shares of Stock or other securities
issued pursuant to any exercise of this option will bear a legend setting forth
the restrictions on their transferability described in Section 12 hereof and,
if-applicable to this Option, in Section 19 of the Plan.
14. Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any shares of Stock or other securities covered by
this Option until the date of issuance of a certificate to him or her for such
shares or other securities. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
15. Notice to Company of Disqualifying Disposition. The Optionee hereby
agrees that he or she will promptly give notice to the Company in the event that
he or she sells, transfers, exchanges or otherwise disposes of any shares of
Stock or other securities obtained pursuant to any exercise of this option
before the day after the later of (a) the second anniversary
-4-
<PAGE> 19
of the date of grant set forth at the conclusion of this Agreement and (b) the
first anniversary of-the date on which the shares of Stock or other securities
were transferred to him or her pursuant to his or her exercise of this Option.
16. Termination or Amendment of Plan. The Board may in its sole and
absolute discretion at any time terminate or from time to time modify and amend
the Plan, but no such termination or amendment will affect rights and
obligations under this option.
17. Effect Upon Employment. Nothing in this option or the Plan shall be
construed to impose any obligation upon the-Company to employ the Optionee or to
retain the Optionee in its employ, or continue its involvement with, the
Optionee.
18. Time for Acceptance. Unless the Optionee shall evidence his
acceptance of this option by execution of this Agreement within seven (7) days
after its delivery to him or her, the Option and this Agreement shall be null
and void.
19. General Provisions.
a. Amendment; Waivers. This Agreement, including the Plan, contains the
full and complete understanding and agreement of the parties hereto as to the
subject matter hereof and may not be modified or amended, nor may any provision
hereof be waived, except by a further written agreement duly signed by each of
the parties. The waiver by either of the parties hereto of any provision hereof
in any instance shall not operate as a waiver of any other provision hereof or
- -in any other instance.
b. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
c. Construction. This Agreement is to be construed in accordance with
the terms of the Plan. In case of any conflict between the Plan and this
Agreement, the Plan shall control. The titles of the sections of this Agreement
and of the Plan are included for convenience only and shall not be construed as
modifying or affecting their provisions. The masculine gender shall include both
sexes; the singular shall include the plural and the plural the singular unless
the context otherwise requires.
d. Notices. Any notice in connection with this Agreement shall be
deemed to have been properly delivered if it is in writing and is delivered in
hand or sent by registered mail to the party addressed as follows, unless
another address has been substituted by notice so given:
To the Optionee: To his or her address as listed on the
books of the Company.
-5-
<PAGE> 20
To the Company: net.Genesis Corp.
526 Beacon Street
Boston, Massachusetts 02215-2396
Copy to:
Sullivan & Worcester
One Post Office Square
Boston, MA 02109
Attention: Joseph G. Hadzima, Jr.
-6-
<PAGE> 21
EXHIBIT A to Incentive Stock Option
[FORM FOR EXERCISE OF INCENTIVE STOCK OPTION]
net.Genesis Corp.
526 Beacon Street
Boston, Massachusetts 02215-2396
RE: Exercise of Incentive Stock Opt-ion under net.Genesis Corp, 1995
Stock Option Plan
Gentlemen:
Please take notice that the undersigned hereby elects to exercise the
stock option granted to ________________________ on ________________, 199__ by
and to the extent of purchasing ____________ shares of the Common Stock of
net.Genesis Corp. for the option price of $________ per share, subject to the
terms and conditions of the incentive Stock Option Agreement between
_________________ and net.Genesis Corp. dated as of ___________199__.
The undersigned encloses herewith payment, in cash or in such other
property as is permitted under the Plan, of the purchase price for said shares.
If the undersigned is making payment of any part of the purchase price by
delivery of shares of Common Stock of net.Genesis Corp., he or she hereby
confirms that he or she has investigated and considered the possible income tax
consequences to him or her of making such payments in that form.
The undersigned hereby specifically confirms to net.Genesis Corp. that
he or she is acquiring said shares for investment and not with a view to their
sale or distribution, and that said shares shall he held subject to all of the
terms and conditions of said Incentive Stock Option Agreement.
Very truly yours,
Date (Signed by __________________________or other
party duly exercising option)
-7-
<PAGE> 1
Exhibit 10.2
NET.GENESIS CORP.
1999 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the net.Genesis Corp. 1999 Stock Incentive Plan
(the "Plan"). The purpose of the Plan is to encourage and enable officers and
employees of net.Genesis Corp. (the "Company") or its Subsidiaries and certain
other persons providing services to or acting as directors of the Company to
acquire a proprietary interest in the Company. It is anticipated that providing
such persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company and its
stockholders, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company. The Company intends that
this purpose will be effected by the granting of Awards (as defined below) under
the Plan.
The following terms shall be defined as set forth below:
"Award" or "Awards", except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Statutory Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share
Awards and Stock Appreciation Rights.
"Board" means the Board of Directors of the Company.
"Cause" means (i) any material breach by the participant of any agreement
to which the participant and the Company are both parties, (ii) any act (other
than Normal Retirement) or omission to act by the participant which may have a
material and adverse effect on the Company's business or on the participant's
ability to perform services for the Company, including, without limitation, the
commission of any crime (other than minor traffic violations), or (iii) any
material misconduct or material neglect of duties by the participant in
connection with the business or affairs of the Company or any Subsidiary or
Affiliate of the Company.
"Change of Control" shall have the meaning set forth in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" shall have the meaning set forth in Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the Code.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"Eligible Person" shall have the meaning set forth in Section 4.
"Fair Market Value" on any given date means the closing price per share of
the Stock on such date as reported by a nationally recognized stock exchange,
or, if the Stock is not listed on such an exchange, as
<PAGE> 2
reported by NASDAQ, or, if the Stock is not quoted on NASDAQ, the fair market
value of the Stock as determined by the Committee.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"IPO" shall have the meaning set forth in Section 5.
"IPO Director" shall have the meaning set forth in Section 5.
"IPO Effective Date" shall have the meaning set forth in Section 5.
"Non-Employee Director" any director of the Company who is not an employee
of the Company or any Subsidiary.
"Non-Statutory Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries in accordance with the retirement policies of the
Company and its Subsidiaries then in effect.
"Outside Director" means any director who (i) is not an employee of the
Company or of any "affiliated group," as such term is defined in Section 1504(a)
of the Code, which includes the Company (an "Affiliate"), (ii) is not a former
employee of the Company or any Affiliate who is receiving compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
Company's or any Affiliate's taxable year, (iii) has not been an officer of the
Company or any Affiliate and (iv) does not receive remuneration from the Company
or any Affiliate, either directly or indirectly, in any capacity other than as a
director. "Outside Director" shall be determined in accordance with Section
162(m) of the Code and the Treasury regulations issued thereunder.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means an Award granted pursuant to Section 8.
"Restricted Stock" shall have the meaning set forth in Section 6.
"Restricted Stock Award" means an Award granted pursuant to Section 6.
"Request" shall have the meaning set forth in Section 9.
"Stock" means the Common Stock, $.001 par value per share, of the Company,
subject to adjustments pursuant to Section 3.
"Stock Appreciation Right" means an Award granted pursuant to Section 9.
"Subsidiary" means a subsidiary as defined in Section 424 of the Code.
"Unrestricted Stock Award" means an award granted pursuant to Section 7.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS
2
<PAGE> 3
(a) Committee. The Plan shall be administered by a committee of the Board
(the "Committee") consisting of not less than two (2) Outside Directors, but the
authority and validity of any act taken or not taken by the Committee shall not
be affected if any person administering the Plan is not an Outside Director. The
Committee shall select one of its members as its chairman and shall hold its
meetings at such times and places as it shall deem advisable. A majority of its
members shall constitute a quorum, and all actions of the Committee shall
require the affirmative vote of a majority of its members. Any action may be
taken by a written instrument signed by all of the members, and any action so
taken shall be as fully effective as if it had been taken by a vote of a
majority of the members at a meeting duly called and held. Except as
specifically reserved to the Board under the terms of the Plan, the Committee
shall have full and final authority to operate, manage and administer the Plan
on behalf of the Company. Action by the Committee shall require the affirmative
vote of a majority of all members thereof.
(b) Powers of Committee. The Committee shall have the power and authority
to grant and modify Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the persons to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Statutory Stock Options, Restricted Stock,
Unrestricted Stock, Performance Shares and Stock Appreciation Rights, or
any combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards; provided, however, that no such action shall adversely affect
rights under any outstanding Award without the participant's consent;
(v) to accelerate the exercisability or vesting of all or any portion
of any Award;
(vi) subject to the provisions of Section 5(b), to extend the period
in which any outstanding Stock Option or Stock Appreciation Right may be
exercised;
(vii) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals;
(viii) to delegate to other persons the responsibility for performing
ministerial actions in furtherance of the Plan's purpose; and
(ix) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
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(a) Shares Issuable. The maximum number of shares of Stock with respect to
which Awards (including Stock Appreciation Rights) may be granted under the
Plan, subject to adjustment upon changes in capitalization of the Company as
provided in this Section 3, shall be 3,500,000 shares of Stock, which number
shall increase by 500,000 shares on each of the first three anniversaries of the
date of adoption of the Plan, up to a maximum of 5,000,000 shares of Stock. For
purposes of this limitation, the shares of Stock underlying any Awards which are
forfeited, canceled, reacquired by the Company or otherwise terminated (other
than by exercise) shall be added back to the shares of Stock with respect to
which Awards may be granted under the Plan so long as the participants to whom
such Awards had been previously granted received no benefits of ownership of the
underlying shares of Stock to which the Awards related. Subject to such overall
limitation, any type or types of Award may be granted with respect to shares,
including Incentive Stock Options. Shares issued under the Plan may be
authorized but unissued shares or shares reacquired by the Company.
(b) Limitation on Awards. In no event may any Plan participant be granted
Awards (including Stock Appreciation Rights) with respect to more than 1,000,000
shares of Stock in any calendar year. The number of shares of Stock relating to
an Award granted to a Plan participant in a calendar year that is subsequently
forfeited, cancelled or otherwise terminated shall continue to count toward the
foregoing limitation in such calendar year. In addition, if the exercise price
of an Award is subsequently reduced, the transaction shall be deemed a
cancellation of the original Award and the grant of a new one so that both
transactions shall count toward the maximum shares issuable in the calendar year
of each respective transaction.
(c) Stock Dividends, Mergers, etc. In the event that after approval of the
Plan by the stockholders of the Company in accordance with Section 17, the
Company effects a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities with
respect to which Awards may thereafter be granted (including without limitation
the limitations set forth in Sections 3(a) and (b) above), (ii) the number and
kind of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares.
(d) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances. Shares which may be delivered under
such substitute awards may be in addition to the maximum number of shares
provided for in Sections 3(a) and 3(b).
SECTION 4. ELIGIBILITY
Awards may be granted to officers, directors and employees of the Company
or its Subsidiaries and to consultants and other individuals providing services
to the Company or its Subsidiaries ("Eligible Persons").
SECTION 5. STOCK OPTIONS
The Committee may grant Stock Options to Eligible Persons pursuant to the
Plan. Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve. Stock Options granted under the Plan
may be either Incentive Stock Options or Non-Statutory Stock Options. Unless
otherwise so designated, an Option shall be a Non-Statutory Stock Option. To the
extent that any option does not qualify as an Incentive Stock Option, it shall
constitute a Non-Statutory Stock Option.
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No Incentive Stock Option shall be granted under the Plan after the tenth
anniversary of the earlier of (i) the date of adoption of the Plan by the Board
or (ii) the date on which the Plan is approved by the stockholders as set forth
in Section 17.
Non-Statutory Stock Options shall automatically be granted to all
Non-Employee Directors as follows:
(1) Each Non-Employee Director who is serving on the Board on the
effective date (the "IPO Effective Date") of the initial public
offering (the "IPO") of the Stock and who continues to serve
after the closing of the IPO (an "IPO Director") shall be granted
an Option to purchase 25,000 shares of Stock as of the IPO
Effective Date, such Option to vest in annual installments over
three years from the date of grant.
(2) Following the IPO, each Non-Employee Director who is not an IPO
Director shall be granted an Option to purchase 25,000 shares of
Stock at the close of business on the date such Non-Employee
Director is first elected to serve on the Board, such Option to
vest in annual installments over three years from the date of
grant.
(3) Following the IPO, each Non-Employee Director who is serving on
the Board at the adjournment of any annual meeting which begins
after the date of his or her election shall be granted an Option
to purchase 5,000 shares of Stock at the close of business on the
date of each such adjournment, such Option to be fully vested
upon the date of grant.
Subject to execution by the Non-Employee Director of an appropriate option
agreement, the Committee may grant additional Non-Statutory Stock Options to
purchase a number of shares to be determined by the Committee in recognition of
services provided by a Non-Employee Director in his or her capacity as a
director, provided that such grants are in compliance with the requirements of
Rule 16b-3, as promulgated under the Securities Exchange Act of 1934, as amended
from time to time ("Rule 16b-3").
The Committee in its discretion may determine the effective date of Stock
Options, provided, however, that grants of Incentive Stock Options shall be made
only to persons who are, on the effective date of the grant, employees of the
Company or any Subsidiary. Stock Options granted pursuant to this Section 5
shall be subject to the following terms and conditions and the terms and
conditions of Sections 10 and 15 and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:
(a) Exercise Price. The exercise price per share for the Stock covered
by a Stock Option granted pursuant to this Section 5 shall be determined by
the Committee at the time of grant but shall be, in the case of Incentive
Stock Options, not less than one hundred percent (100%) of Fair Market
Value on the date of grant. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the
Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation and
an Incentive Stock Option is granted to such employee, the option price
shall be not less than one hundred ten percent (110%) of Fair Market Value
on the grant date.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
(10) years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation and
an Incentive Stock Option is granted to such employee, the term of such
option shall be no more than five (5) years from the date of grant.
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(c) Exercisability; Rights of a Stockholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date. The Committee may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part, by delivering written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods:
(i) in cash, by certified or bank check or other instrument
acceptable to the Committee;
(ii) in the form of shares of Stock that are not then subject to
restrictions, if permitted by the Committee, in its discretion. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date;
(iii) by the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such
payment procedure. The Company need not act upon such exercise notice
until the Company receives full payment of the exercise price; or
(iv) by any other means (including, without limitation, by
delivery of a promissory note of the optionee payable on such terms as
are specified by the Committee; provided, however, that the interest
rate borne by such note shall not be less than the lowest applicable
federal rate, as defined in Section 1247(d) of the Code) which the
Committee determines are consistent with the purpose of the Plan and
with applicable laws and regulations.
The delivery of certificates representing shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt from
the Optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements contained in the Stock
Option or imposed by applicable law.
(e) Non-transferability of Options. Except as the Committee may provide
with respect to a Non-Statutory Stock Option, no Stock Option shall be
transferable other than by will or by the laws of descent and distribution and
all Stock Options shall be exercisable, during the optionee's lifetime, only by
the optionee.
(f) Annual Limit on Incentive Stock Options. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Stock with respect
to which incentive stock options granted under this Plan and any other plan of
the Company or its Subsidiaries become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000.
(g) Form of Settlement. Shares of Stock issued upon exercise of a Stock
Option shall be free of all restrictions under the Plan, except as otherwise
provided in this Plan.
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SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Award. The Committee in its discretion may
grant Restricted Stock Awards to any Eligible Person, entitling the recipient to
acquire, for a purchase price determined by the Committee, shares of Stock
subject to such restrictions and conditions as the Committee may determine at
the time of grant ("Restricted Stock"), including continued employment and/or
achievement of pre-established performance goals and objectives.
(b) Acceptance of Award. A participant who is granted a Restricted Stock
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within 10 days (or such shorter date as the
Committee may specify) following the delivery of written notice to the
participant of the Award by making payment to the Company of the specified
purchase price of the shares covered by the Award and by executing and
delivering to the Company a written instrument that sets forth the terms and
conditions applicable to the Restricted Stock in such form as the Committee
shall determine.
(c) Rights as a Stockholder. Upon complying with Section 6(b) above, a
participant shall have all the rights of a stockholder with respect to the
Restricted Stock, including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Restricted Award. Unless the Committee
shall otherwise determine, certificates evidencing shares of Restricted Stock
shall remain in the possession of the Company until such shares are vested as
provided in Section 6(e) below.
(d) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment by the
Company and its Subsidiaries for any reason (including death, Disability, Normal
Retirement and for Cause), the Company shall have the right, at the discretion
of the Committee, to repurchase shares of Restricted Stock with respect to which
conditions have not lapsed at their purchase price, or to require forfeiture of
such shares to the Company if acquired at no cost, from the participant or the
participant's legal representative. The Company must exercise such right of
repurchase or forfeiture within 60 days following such termination of employment
(unless otherwise specified in the written instrument evidencing the Restricted
Stock Award).
(e) Vesting of Restricted Stock. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of the
Restricted Stock and the Company's right of repurchase or forfeiture shall
lapse. Subsequent to such date or dates and/or the attainment of such
pre-established performance goals, objectives and other conditions, the shares
on which all restrictions have lapsed shall no longer be Restricted Stock and
shall be deemed "vested." The Committee at any time may accelerate such date or
dates and otherwise waive or, subject to Section 13, amend any conditions of the
Award.
(f) Waiver, Deferral and Reinvestment of Dividends. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
(a) Grant or Sale of Unrestricted Stock. The Committee in its discretion
may grant or sell to any Eligible Person shares of Stock free of any
restrictions under the Plan ("Unrestricted Stock") at a purchase price
determined by the Committee. Shares of Unrestricted Stock may be granted or sold
as described in the preceding sentence in respect of past services or other
valid consideration.
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(b) Restrictions on Transfers. The right to receive unrestricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered, other than
by will or the laws of descent and distribution.
SECTION 8. PERFORMANCE SHARE AWARDS
Nature of Performance Shares. A Performance Share Award is an award
entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any Eligible
Person. The Committee in its discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured, and all
other limitations and conditions applicable to the awarded Performance Shares.
SECTION 9. STOCK APPRECIATION RIGHTS
The Committee in its discretion may grant Stock Appreciation Rights to any
Eligible Person (i) alone or (ii) simultaneously with the grant of a Stock
Option and in conjunction therewith or in the alternative thereto. A Stock
Appreciation Right shall entitle the participant upon exercise thereof to
receive from the Company, upon written request to the Company at its principal
offices (the "Request"), a number of shares of Stock (with or without
restrictions as to substantial risk of forfeiture and transferability, as
determined by the Committee in its sole discretion), an amount of cash, or any
combination of Stock and cash, as specified in the Request (but subject to the
approval of the Committee in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash payment), having an
aggregate Fair Market Value equal to the product of (i) the excess of Fair
Market Value, on the date of such Request, over the exercise price per share of
Stock specified in such Stock Appreciation Right or its related Option,
multiplied by (ii) the number of shares of Stock for which such Stock
Appreciation Right shall be exercised. Notwithstanding the foregoing, the
Committee may specify at the time of grant of any Stock Appreciation Right that
such Stock Appreciation Right may be exercisable solely for cash and not for
Stock.
SECTION 10. TERMINATION OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
(a) Incentive Stock Options:
(i) Termination by Death. If any participant's employment by the
Company and its Subsidiaries terminates by reason of death, any Incentive
Stock Option owned by such participant may thereafter be exercised to the
extent exercisable at the date of death, by the legal representative or
legatee of the participant, for a period of one year (or such longer period
as the Committee shall specify at any time) from the date of death, or
until the expiration of the stated term of the Incentive Stock Option, if
earlier.
(ii) Termination by Reason of Disability or Normal Retirement.
(A) Any Incentive Stock Option held by a participant whose
employment by the Company and its Subsidiaries has terminated by
reason of Disability may thereafter be exercised, to the extent it was
exercisable at the time of such termination, for a period of 180 days
from the date of such termination of employment, or until the
expiration of the stated term of the Option, if earlier.
(B) Any Incentive Stock Option held by a participant whose
employment by the Company and its Subsidiaries has terminated by
reason of Normal Retirement may thereafter be exercised, to the extent
it was exercisable at the time of such termination, for
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a period of 90 days from the date of such termination of employment,
or until the expiration of the stated term of the Option, if earlier.
(C) The Committee shall have sole authority and discretion to
determine whether a participant's employment has been terminated by
reason of Disability or Normal Retirement.
(D) Except as otherwise provided by the Committee at the time of
grant, the death of a participant during a period provided in this
Section 10(a)(ii) for the exercise of an Incentive Stock Option shall
extend such period for one (1) year from the date of death, subject to
termination on the expiration of the stated term of the Option, if
earlier.
(iii) Termination for Cause. If any participant's employment by the
Company and its Subsidiaries has been terminated for Cause, any Incentive
Stock Option held by such participant shall immediately terminate and be of
no further force and effect; provided, however, that the Committee may, in
its sole discretion at the time of such termination, provide that such
Option can be exercised for a period of up to 60 days from the date of
termination of employment, or until the expiration of the stated term of
the Option, if earlier.
(iv) Other Termination. Unless otherwise determined by the Committee,
if a participant's employment by the Company and its Subsidiaries
terminates for any reason other than death, Disability, Normal Retirement
or for Cause, any Incentive Stock Option held by such participant may
thereafter be exercised, to the extent it was exercisable on the date of
termination of employment, for 60 days from the date of termination of
employment, or until the expiration of the stated term of the Option, if
earlier.
(b) Non-Statutory Stock Options and Stock Appreciation Rights. Any
Non-Statutory Stock Option or Stock Appreciation Right granted under the Plan
shall contain such terms and conditions with respect to its termination as the
Committee, in its discretion, may from time to time determine.
SECTION 11. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any Federal, state or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(b) Payment in Shares. A Participant may elect, with the consent of the
Committee, to have such tax withholding obligation satisfied, in whole or in
part, by (i) authorizing the Company to withhold from shares of Stock to be
issued pursuant to an Award a number of shares with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due with respect to such Award, or (ii) transferring to the
Company shares of Stock owned by the participant with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
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(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; and
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. However, no such amendment,
unless approved by the stockholders of the Company, shall be effective if it
would cause the Plan to fail to satisfy the incentive stock option requirements
of the Code
SECTION 14. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS
(a) Upon the occurrence of a Change of Control as defined in this Section
15:
(i) after the effective date of such Change of Control, each holder of
an outstanding Stock Option, Restricted Stock Award, Performance Share
Award or Stock Appreciation Right shall be entitled, upon exercise of such
Award, to receive, in lieu of shares of Stock (or consideration based upon
the Fair Market Value of Stock), shares of such stock or other securities,
cash or property (or consideration based upon shares of such stock or other
securities, cash or property) as the holders of shares of Stock received in
connection with the Change of Control; and
(ii) the vesting schedule, if any, of each unexercised and unexpired
Stock Option, Restricted Stock Award, Performance Share Award and Stock
Appreciation Right, shall, effective immediately prior to the effective
date of such Change of Control, be accelerated by twelve (12) months such
that an additional number of shares, equal to the number that under the
terms of the Award in question would have vested had the holder remained
employed during the twelve (12) month period following the effective date
of the Change of Control, will vest immediately prior to the effective date
of the Change of Control.
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" becomes a "beneficial owner" (as such terms are
defined in Rule 13d-3 promulgated under the Securities and Exchange Act of
1934, as amended) (other than the Company,
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any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
(ii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation or other entity, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
SECTION 16. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Committee may
require each person acquiring shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities laws and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan or any
Award under the Plan does not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 17. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon approval by the holders of a majority
of the shares of capital stock of the Company present or represented and
entitled to vote at a meeting of stockholders.
SECTION 18. GOVERNING LAW
This Plan shall be governed by, and construed and enforced in accordance
with, the substantive laws of the Commonwealth of Massachusetts without regard
to its principles of conflicts of laws.
* * *
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Exhibit 10.3
NET.GENESIS CORP.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The net.Genesis Corp. 1999 Employee Stock Purchase Plan (the "Plan") is
intended to provide a method whereby employees of net.Genesis Corp. (the
"Company") will have an opportunity to acquire an ownership interest (or
increase an existing ownership interest) in the Company through the purchase of
shares of the Common Stock of the Company. It is the intention of the Company
that the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
SECTION 2. DEFINITIONS
"Compensation" means, for the purpose of any Offering pursuant to this
Plan, base pay in effect as of the Offering Commencement Date (as hereinafter
defined). Compensation shall not include any deferred compensation other than
contributions by an individual through a salary reduction agreement to a cash or
deferred plan pursuant to Section 401(k) of the Code or to a cafeteria plan
pursuant to Section 125 of the Code.
"Board" means the Board of Directors of the Company.
"Committee" means the Compensation Committee of the Board.
"Common Stock" means the common stock, $.001 par value per share, of the
Company.
"Company" shall also include any Parent or Subsidiary of net.Genesis Corp.
designated by the Board, unless the context otherwise requires.
"Employee" means any person who is customarily employed at least 20 hours
per week and more than five months in a calendar year by the Company.
"Parent" shall mean any present or future corporation which is or would
constitute a "parent corporation" as that term is defined in Section 424 of the
Code.
"Subsidiary" shall mean any present or future corporation which is or would
constitute a "subsidiary corporation" as that term is defined in Section 424 of
the Code.
SECTION 3. ELIGIBILITY
(a) Participation in the Plan is completely voluntary. Participation in any
one or more of the offerings under the Plan shall neither limit, nor require,
participation in any other offering.
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(b) Each Employee shall be eligible to participate in the Plan on the first
Offering Commencement Date, as hereafter defined, following the completion of 3
months of continuous service with the Company. Notwithstanding the foregoing, no
Employee shall be granted an option under the Plan:
(i) if, immediately after the grant, such Employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any Parent or Subsidiary; for purposes of this Paragraph the
rules of Section 424(d) of the Code shall apply in determining stock
ownership of any Employee; or
(ii) which permits his rights to purchase stock under all Section 423
employee stock purchase plans of the Company and any Parent or Subsidiary
to exceed $25,000 of the fair market value of the stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding; for purposes of this Paragraph, the rules of Section 423(b)(8)
of the Code shall apply.
SECTION 4. OFFERING DATES
The right to purchase stock hereunder shall be made available by a series
of offerings of such duration as the Committee determines (the "Offering" or
"Offerings") to Employees eligible in accordance with Paragraph 3 hereof. The
Committee will, in its discretion, determine the applicable date of commencement
("Offering Commencement Date") and termination date ("Offering Termination
Date") for each Offering. Participation in any one or more of the Offerings
under the Plan shall neither limit, nor require, participation in any other
Offering.
SECTION 5. PARTICIPATION
Any eligible Employee may become a participant by completing a payroll
deduction authorization form provided by the Company and filing it with the
office of the Company's Treasurer 20 days prior to an applicable Offering
Commencement Date, as determined by the Committee pursuant to Paragraph 4. A
participant who obtains shares of Common Stock in one Offering will be deemed to
have elected to participate in each subsequent Offering, provided such
participant is eligible to participate during each such subsequent Offering and
provided that such participant has not specifically elected not to participate
in such subsequent Offering. Such participant will also be deemed to have
authorized the same payroll deductions under Paragraph 6 hereof for each such
subsequent Offering as in the immediately preceding Offering; provided however,
that, during the enrollment period prior to each new Offering, the participant
may elect to change such participant's payroll deductions by submitting a new
payroll deduction authorization form.
SECTION 6. PAYROLL DEDUCTIONS
(a) At the time a participant files his or her authorization for a payroll
deduction, he or she shall elect to have deductions made from his or her pay on
each payday during any Offering in which he or she is a participant at a
specified percentage of his or her Compensation as determined on the applicable
Offering Commencement Date; said percentage shall be in increments of one
percent up to a maximum percentage of 10%.
(b) Payroll deductions for a participant shall commence on the applicable
Offering Commencement Date when his or her authorization for a payroll deduction
becomes effective and subject to the last sentence of Paragraph 5 shall end on
the Offering Termination Date of the Offering to which such authorization is
applicable unless sooner terminated by the participant as provided in Paragraph
10.
(c) All payroll deductions made for a participant shall be credited to his
or her account under the Plan. A participant may not make any separate cash
payment into such account.
2
<PAGE> 3
(d) A participant may withdraw from the Plan at any time during the
applicable Offering period.
SECTION 7. GRANTING OF OPTION
(a) Except as provided in clause (ii) of Paragraph 3(b), on the Offering
Commencement Date of each Offering, a participating Employee shall be deemed to
have been granted an option to purchase a maximum number of shares of the Common
Stock equal to two times an amount determined as follows: 85% of the market
value per share of the Common Stock on the applicable Offering Commencement Date
shall be divided into an amount equal to the percentage of the Employee's
Compensation which he has elected to have withheld (but no more than 10%)
multiplied by the Employee's Compensation over the Offering period. Such market
value per share of the Common Stock shall be determined as provided in clause
(i) of Paragraph 7(b).
(b) The option price of the Common Stock purchased with payroll deductions
made during each such Offering for a participant therein shall be the lower of:
(i) 85% of the closing price per share on the Offering Commencement
Date as reported by a nationally recognized stock exchange, or, if the
Common Stock is not listed on such an exchange, as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq")
National Market System or, if the Common Stock is not listed on the Nasdaq
National Market System, 85% of the mean of the bid and asked prices per
share on the Offering Commencement Date or, if the Common Stock is not
traded over-the-counter, 85% of the fair market value on the Offering
Commencement Date as determined by the Committee; and
(ii) 85% of the closing price per share on the Offering Termination
Date as reported by a nationally recognized stock exchange, or, if the
Common Stock is not listed on such an exchange, as reported by the Nasdaq
National Market System or, if the Common Stock is not listed on the Nasdaq
National Market System, 85% of the mean of the bid and asked prices per
share on the Offering Termination Date or, if the Common Stock is not
traded over-the-counter, 85% of the fair market value on the Offering
Termination Date as determined by the Committee.
SECTION 8. EXERCISE OF OPTION
(a) Unless a participant gives written notice to the Treasurer of the
Company as hereinafter provided, his option for the purchase of Common Stock
with payroll deductions made during any Offering will be deemed to have been
exercised automatically on the Offering Termination Date applicable to such
Offering for the purchase of the number of full shares of Common Stock which the
accumulated payroll deductions in his or her account at that time will purchase
at the applicable option price (but not in excess of the number of shares for
which options have been granted the Employee pursuant to Paragraph 7(a)), and
any excess in his or her account at that time, other than amounts representing
fractional shares, will be returned to him or her.
(b) Fractional shares will not be issued under the Plan and any accumulated
payroll deductions which would have been used to purchase fractional shares
shall be automatically carried forward to the next Offering unless the
participant elects, by written notice to the Treasurer of the Company, to have
the excess cash returned to him or her.
SECTION 9. DELIVERY
The Company will deliver to each participant (as promptly as possible after
the appropriate Offering Termination Date), a certificate representing the
Common Stock purchased upon exercise of his or her option.
3
<PAGE> 4
SECTION 10. WITHDRAWAL AND TERMINATION
(a) Prior to the Offering Termination Date for an Offering, any participant
may withdraw the payroll deductions credited to his or her account under the
Plan for such Offering by giving written notice to the Treasurer of the Company.
All of the participant's payroll deductions credited to such account will be
paid to him or her promptly after receipt of notice of withdrawal, without
interest, and no future payroll deductions will be made from his or her pay
during such Offering. The Company will treat any attempt to borrow by a
participant on the security of accumulated payroll deductions as an election to
withdraw such deductions.
(b) A participant's election not to participate in, or withdrawal from, any
Offering will not have any effect upon his eligibility to participate in any
succeeding Offering or in any similar plan which may hereafter be adopted by the
Company.
(c) Upon termination of the participant's employment for any reason,
including retirement but excluding death, the payroll deductions credited to his
account will be returned to him or her, or, in the case of his or her death, to
the person or persons entitled thereto under Paragraph 14.
(d) Upon termination of the participant's employment because of death, his
or her beneficiary (as defined in Paragraph 14) shall have the right to elect,
by written notice given to the Company's Treasurer prior to the expiration of a
period of 90 days commencing with the date of the death of the participant,
either:
(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or
(ii) to exercise the participant's option for the purchase of stock on
the Offering Termination Date next following the date of the participant's
death for the purchase of the number of full shares which the accumulated
payroll deductions in the participant's account at the date of the
participant's death will purchase at the applicable option price (subject
to the limitation contained in Paragraph 7(a)), and any excess in such
account will be returned to said beneficiary. In the event that no such
written notice of election shall be duly received by the office of the
Company's Treasurer, the beneficiary shall automatically be deemed to have
elected to withdraw the payroll deductions credited to the participant's
account at the date of the participant's death and the same will be paid
promptly to said beneficiary.
SECTION 11. INTEREST
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participating Employee.
SECTION 12. STOCK
(a) The maximum number of shares of Common Stock available for issuance and
purchase by Employees under the Plan, subject to adjustment upon changes in
capitalization of the Company as provided in Paragraph 17, shall be 300,000
shares of Common Stock, which number shall increase by 70,000 shares on each of
the first three anniversaries of the date of adoption of the Plan, up to a
maximum of 510,000 shares of Common Stock.
(b) The participant will have no interest in stock covered by his or her
option until such option has been exercised.
4
<PAGE> 5
SECTION 13. ADMINISTRATION
The Plan shall be administered by the Committee. The interpretation and
construction of any provision of the Plan and adoption of rules and regulations
for administering the Plan shall be made by the Committee. Determinations made
by the Committee with respect to any matter or provision contained in the Plan
shall be final, conclusive and binding upon the Company and upon all
participants, their heirs or legal representatives. Any rule or regulation
adopted by the Committee shall remain in full force and effect unless and until
altered, amended, or repealed by the Committee.
SECTION 14. DESIGNATION OF BENEFICIARY
A participant shall file with the Treasurer of the Company a written
designation of a beneficiary who is to receive any Common Stock and/or cash
under the Plan. Such designation of beneficiary may be changed by the
participant at any time by written notice. Upon the death of a participant and
upon receipt by the Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by him or her under the
Plan, the Company shall deliver such Common Stock and/or cash to such
beneficiary. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Common Stock and/or cash to
the executor or administrator of the estate of the participant. No beneficiary
shall prior to the death of the participant by whom he or she has been
designated, acquire any interest in the Common Stock and/or cash credited to the
participant under the Plan.
SECTION 15. TRANSFERABILITY
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive Common Stock under
the Plan may be assigned, transferred, pledged, or otherwise disposed of in any
way by the participant other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Paragraph 10.
SECTION 16. USE OF FUNDS
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
SECTION 17. EFFECT OF CHANGES OF COMMON STOCK
If the Company shall subdivide or reclassify the Common Stock which has
been or may be subject to options under this Plan, or shall declare thereon any
dividend payable in shares of such Common Stock, or shall take any other action
of a similar nature affecting such Common Stock, then the number and class of
shares of Common Stock which may thereafter be subject to options under the Plan
(in the aggregate and to any participant) shall be adjusted accordingly and in
the case of each option outstanding at the time of any such action, the number
and class of shares which may thereafter be purchased pursuant to such option
and the option price per share shall be adjusted to such extent as may be
determined by the Committee, with the approval of independent public accountants
and counsel, to be necessary to preserve the rights of the holder of such
option.
SECTION 18. AMENDMENT OR TERMINATION
The Board may at any time terminate or amend the Plan. No such termination
shall affect options previously granted, nor may an amendment make any change in
any option theretofore granted which would
5
<PAGE> 6
adversely affect the rights of any participant holding options under the Plan
without the consent of such participant.
SECTION 19. NOTICES
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received by the Treasurer of the Company.
SECTION 20. MERGER OR CONSOLIDATION
In the event of a proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
each outstanding option shall be assumed or an equivalent option substituted by
the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the option, the Offering then in progress shall be shortened by
setting a new Offering Termination Date (the "New Offering Termination Date").
The New Offering Termination Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten business days prior to the New Offering Termination Date, that the
Offering Termination Date for the participant's option has been changed to the
New Offering Termination Date and that the participant's option shall be
exercised automatically on the New Offering Termination Date, unless prior to
such date the participant has withdrawn from the Offering as provided in Section
10 hereof.
SECTION 21. APPROVAL OF STOCKHOLDERS
The Plan is subject to the approval of the stockholders of the Company
within twelve months before or after the adoption of the Plan by the Board, such
approval to take place either at the next annual meeting of stockholders, at any
special meeting of the stockholders for which one of the purposes shall be to
act upon the Plan, or by written consent of the stockholders.
SECTION 22. GOVERNMENTAL AND OTHER REGULATIONS
The Plan, and the grant and exercise of the rights to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as may, in the opinion of counsel for the
Company, be required. The Plan shall be governed by, and construed and enforced
in accordance with, the provisions of Sections 421, 423 and 424 of the Code and
the substantive laws of the State of Delaware. In the event of any inconsistency
between such provisions of the Code and any such laws, such provisions of the
Code shall govern to the extent necessary to preserve favorable federal income
tax treatment afforded employee stock purchase plans under Section 423 of the
Code.
* * *
6
<PAGE> 1
EXHIBIT 10.4
LEASE
1. PARTIES. ROBERT A. JONES and K. GEORGE NAJARIAN, Trustees of
ATHENAEUM REALTY NOMINEE TRUST, under a Declaration of Trust dated October 3,
1979, recorded at the Middlesex South Registry District of the Land Court as
Document #592998 and recorded with the Middlesex South Registry of Deeds, in
Book 15102, at Page 13, and not individually, ("LESSOR"), which expression shall
include its heirs, successors and assigns where the context so permits, does
hereby lease to net.Genesis Corp., a Massachusetts Corporation, ("LESSEE") which
expression shall include its successors, administrators, and assigns where the
context so permits, and the LESSEE hereby leases and shall peaceably hold and
enjoy the follow described premises:
2. PREMISES. Portions of the third floor, of the building at 215 First
Street, Cambridge, Middlesex County, Massachusetts, ("The Building") containing
sixteen thousand (16,000) square feet of space, all as described in Exhibit A
attached hereto and shown on the plan in said Exhibit A (the "Leased Premises"),
together with all improvements therein and together with all appurtenances
thereto, including but not limited to the right to use in common, with others
entitled thereto, the entrances, lobby, hallways, stairways, loading docks, and
elevators, necessary for access to and enjoyment of said Leased Premises.
The Leased Premises shall have as appurtenant thereto: (a) the right to
use in common with others entitled thereto, the entrances, lobbies, hallways,
stairways, walkways, sidewalks, driveways, loading docks, elevators and other
common facilities in the building containing any
<PAGE> 2
portion of the Leased Premises necessary for access to and enjoyment of the
Leased Premises, or portion, and (b) the pipes, conduits, wires, and appurtenant
equipment serving the Leased Premises, or portion thereof, in common with other
portions of the building containing any part of the Leased premises, subject,
however, to the following rights which are expressly excepted and reserved by
LESSOR: (i) the right, from time to time and after adequate advanced notice, to
install, maintain, use, repair, relocate, place and replace utility lines,
pipes, ducts, conduits, wires, gas, electric, or any other meters and fixtures
located on or passing through any portion of the Leased Premises to serve other
portions of the LESSOR's property of which the Leased Premises, or a portion
thereof, are a part provided the above work does not materially impair the
appearance of LESSEE's use of the Leased Premises and provided that if LESSOR's
work reduces the square footage available to the LESSEE then the rent due under
this Lease shall be reduced accordingly; (ii) the right to enter into, upon and
across any portion of the Leased Premises after adequate advanced notice to
exercise any reserved right of LESSOR hereunder or to complete LESSOR's
construction of the Leased Premises, or part thereof, and the Building; and
(iii) the right from time to time after adequate advanced notice to make
alterations or additions to the Building and to construct other buildings or
improvements on the Lot and to make additions to such buildings or improvements,
and to permit others to do so from time to time all as LESSOR may determine in
its sole discretion, and without LESSEE's consent in any instance; any such
alterations or additions being performed to the greatest possible extent in a
manner so as not unreasonably to interfere with the LESSEE's use and occupancy
of the Leased Premises.
Subject to LESSOR's reserved rights specified above, there shall be
appurtenant to the
<PAGE> 3
Leased Premises the right to park twenty (20) passenger motor vehicles in the
parking areas adjacent to the Building. LESSOR reserves the right to designate
the locations of the spaces with adequate advance notice to be utilized for such
parking rights by written notice to LESSEE, and to change the location of any or
all of such spaces by notice to LESSEE at any time and from time to time as
LESSOR shall solely determine. The parking spaces provided hereunder need not be
contiguous. Additional parking may be leased on a month-to-month basis at fair
market value, subject to availability.
3.1 TERM. The Term of this Lease shall be for a term of five (5) years
commencing on the Commencement Date. The Commencement Date shall be the latter
of:
(a) the date the Leased Premises are "ready for
occupancy" as that term is defined in Paragraph 3.2;
or
(b) December 1, 1996.
3.1.1. PHASED OCCUPANCY. In the event a portion of the Leased Premises
are substantially completed and ready for occupancy, and LESSOR shall have given
notice to LESSEE thereof, then LESSEE shall have the right to commence use and
occupancy of such portion of the Leased Premises subject to the terms and
conditions of this Lease. During the period of such partial use and occupancy,
Base Rent and additional rent payable under Paragraphs 4 and 5 hereof shall be
payable on a pro rata basis in the same proportion as the square footage of the
space being used and occupied bears to the total square footage of the Leased
Premises, and LESSEE shall perform, comply with and abide by all of its
obligations, undertakings and covenants as if, and to the same extent, as though
the term has commenced.
<PAGE> 4
3.2 COMPLETION OF IMPROVEMENTS. The Leased Premises shall be considered
"ready for occupancy" on the date upon which the improvements described in
Exhibit C hereto to be constructed by LESSOR at its sole cost and expense with
respect to the Leased premises are substantially completed, and LESSEE is given
a copy of a certificate of occupancy issued by the City of Cambridge Building
Department covering the Leased Premises. The Leased Premises shall be deemed
substantially completed notwithstanding that completion of work and adjustment
of equipment and fixtures or minor items of uncompleted work (so-called "punch
list" work items) remain to be done, if such work can be completed after
occupancy has been taken without causing unreasonable interference with LESSEE's
use of the Leased Premises. Except for latent defects and except to the extent
to which the LESSEE shall have given the LESSOR written notice, not later than
thirty (30) days after the Commencement Date, of matters or items as to which
the LESSOR has not properly performed its obligations with respect to the
construction and installation of the improvements called for under the Lease,
the LESSEE shall have no claim that the LESSOR has failed to perform such
obligations, and LESSEE's taking possession shall be conclusive evidence as
against LESSEE that said space and improvements were in good order and
satisfactory condition when LESSEE took possession. Notwithstanding the above,
during the first year of the Lease, the LESSEE may also give LESSOR notice of
any items it believes LESSOR has not properly performed its obligations with
respect to and that LESSEE did not discover until after thirty (30) days after
the Commencement Date because of the seasonality of that item (i.e., air
conditioning). The LESSOR shall complete all items of work not properly
performed as to which the LESSEE shall have given the LESSOR
<PAGE> 5
such timely notices as soon as conditions practicably permit thereafter in such
a manner as not to unreasonably disturb the LESSEE or its business operations
carried out in the Leased Premises.
4. RENT. LESSEE covenants and agrees to pay to LESSOR annual base rent
("Base Rent") in the amounts set forth or provided for below, by equal payments
of one-twelfth of such annual rate on the first day of each calendar month in
advance, the first monthly payment to be made on the first anniversary of the
Commencement Date, and by payment in advance of a pro-rata portion of a monthly
payment for any portion of a month at the beginning or end of the Term; all
payments to be made to LESSOR or such agent, and at such place, as LESSOR shall
from time to time in writing designate, the following being now so designated:
ATHENAEUM REALTY NOMINEE TRUST
c/o THE ATHENAEUM GROUP
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142-1268
The annual Base Rent during the Term is the sum of the following:
(i) Year 1 - $104,000.00
Years 2 - 5 - 200,000.00, plus;
(ii) the annual fair rental value of LESSEE's parking
spaces from Paragraph 2 above. ("Parking"). During
the term of this Lease, the fair rental value of the
LESSEE's parking spaces shall be $85.00 per space per
month.
Each rent payment shall be due and payable on the first of the month
for which the rent payment is applicable. Any installment not paid within five
(5) days of the due date will be subject to a late charge of five (5%) percent.
<PAGE> 6
4A. PREPAID RENT. Upon the Commencement Date, LESSEE shall pay to
LESSOR twelve (12) months rent for amounts due under Paragraphs 4(i) and 5 of
this Lease. The amount prepaid shall be comprised of the first year rental rate
($6.50 per RSF), common area charges due under Paragraph 5.1 ($2.13 per RSF) and
real estate tax charges due under Paragraph 5.3.2 ($2.01 per RSF). The total
amount due from LESSOR on the Commencement Date shall be One Hundred Seventy
Thousand Two Hundred Forty ($170,240.00) Dollars. The payment shall fulfill
LESSEE's rental obligations (other than for parking and utilities which are
separately metered to LESSEE) for Year One of this Lease.
5. RENT ADJUSTMENTS.
5.1 RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE BUILDING.
Commencing as of the Commencement Date and with respect to any calendar year
falling within the Term, or fraction of a calendar year at the beginning or end
of the Term, the LESSEE shall pay to the LESSOR, as additional rent, the
"LESSEE's Proportionate Building Share" (defined below) of operating expenses
attributable to the Building ("CAO Building") shall include, but is not limited
to, the following: all costs and expenses incurred by the LESSOR in connection
with the insurance, operation, repair, maintenance and cleaning of or for the
Building and heating, plumbing, elevators, electrical, air-conditioning and
other systems thereof, trash removal, janitorial services, security systems and
general expenses incurred by the LESSOR in connection with the insurance,
operation and maintenance of the Building (and not other tenants' spaces), to
keep the same safe, secure and in first-class order and condition.
LESSEE's Proportionate Building Share shall be that percentage, which
is equal to the
<PAGE> 7
<PAGE> 8
ratio of the square footage of space constituting the Leased Premises to the
aggregate square footage of space in the Building.
The LESSEE's Proportionate Building Share with respect to the Leased
Premises is 5.61 percent.
5.2 MONTHLY PAYMENTS. Except as provided in Paragraph 4A. above,
beginning with the calendar year in which the Commencement Date occurs, and in
subsequent years during the Term of this Lease, the LESSEE shall pay to the
LESSOR pro rata monthly installments of amounts due under Paragraphs 5.1 on
account of projected CAO Building for such year, calculated by the LESSOR on the
basis of the best and most recent budget or data available. Appropriate
adjustments of estimated amounts shall be made between LESSOR and LESSEE
promptly after the close of each calendar year to account for actual CAO
Building for such year, except that LESSOR may, at its option, credit any amount
due from it to LESSEE as provided above against any sums then due from LESSEE to
LESSOR under this Lease. The balance of any amounts due shall be paid within
twenty (20) days after written notice thereof
5.3 RENT ADJUSTMENT - TAXES.
5.3.1 LESSOR TO PAY TAXES. The LESSOR shall be responsible for the
payment. before the same become delinquent, of all general and special taxes of
every kind and nature, including assessments for local improvements, and other
governmental charges which may be lawfully charged, assessed or imposed (herein
collectively called the "Taxes") upon the Building.
At any time during the Term if the present system of ad valorem
taxation of real property shall be changed to that in lieu of the whole or any
part of the ad valorem tax on real property,
<PAGE> 9
there shall be assessed on LESSOR a capital levy or other tax on the gross rents
received with respect to the Building or a federal, state, county, municipal, or
other local income, franchise, excise or similar tax, assessment, levy or charge
(distinct from any now in effect) measured by or based, in whole or in part,
upon any such gross rents, then any and all of such taxes, assessments, levies
or charges to the extent so measured or based, shall be deemed to be included
within the term "Taxes" but only to the extent that the same would be payable if
the Lot and the Building were the only property of LESSOR.
5.3.2 LESSEE's SHARE OF TAXES. The LESSEE shall pay to the LESSOR, as
additional rent, the LESSEE's Proportionate Building Share of that portion of
the Taxes attributable to the Building.
5.3.3 RENT ADJUSTMENT - PAYMENT. Beginning with the calendar year in
which the Commencement Date occurs and in subsequent years during the Term of
this Lease, LESSEE shall pay to the LESSOR monthly installments of one-twelfth
of the amounts due to LESSOR under Paragraphs 5.4.1 and 5.4.2 on account of
projected Taxes for such year, calculated by the LESSOR on the basis of the best
and most recent data available as set forth in a statement from LESSOR (and,
when available, based upon the real estate tax bill covering any such period).
Appropriate adjustments of estimated amounts shall be made between LESSOR and
LESSEE promptly after LESSOR shall have received the tax bill covering any such
period. The LESSEE shall have the right to inspect and audit the LESSOR's books
as they relate to the calculation of CAO Building expenses and Taxes. The
expense of inspecting and auditing LESSOR's books, as aforesaid, shall be borne
by LESSEE, unless said audit results in a variance
<PAGE> 10
which is greater than five (5%) percent, in which event the cost of the audit
shall be borne by LESSOR.
5.4.4 TAX ADJUSTMENT. If the LESSOR or any other tenant (excluding
LESSEE) in the Building shall construct an addition to the Building, or
construct improvements within the Building of unusual value so as to result in
an increase in Taxes over the Taxes which would have been assessed to that
Building but for such construction, there shall not be included in Taxes for
purposes of this Lease the amount of such increase in Taxes unless such
additions or improvements directly benefit the LESSEE. If the LESSEE, or the
LESSOR at the direction of the LESSEE, shall construct improvements within the
Leased premises, or any part thereof, of unusual value so as to result in an
increase in Taxes over the Taxes which would have been assessed to the Building,
or part, but for such unusually valuable improvements, the LESSEE shall be
responsible for the payment of the full amount of such increase.
6. UTILITIES AND OTHER SERVICES.
(a) The LESSEE shall pay charges for all heat,
air-conditioning, electricity, and water and sewer use charges and all other
utilities separately metered or sub-metered to the Leased Premises, and LESSEE
shall be responsible for all utility company deposits applicable to the supply
of such services to the Leased Premises. LESSEE shall also be responsible for
the payment of its proportionate share of all water and sewer use and utilities
or separately metered or sub-metered to the Leased Premises all as reasonably
determined by LESSOR. Upon request by the LESSOR, the LESSEE shall provide the
LESSOR with evidence of payment of such charges. LESSEE shall defend, indemnify
and hold LESSOR harmless from and against any
<PAGE> 11
claim or liability arising for such charges for which LESSEE is responsible.
(b) LESSOR agrees to furnish reasonable heat to the stairways,
elevators and other common areas in the Building, or portions thereof, as
necessary for comfortable occupancy and to provide adequate lighting to
passageways and stairways and all parking areas and walkways providing access
from the Building to the parking area in the evening during customary business
hours on regular business days, and to furnish ordinary repairs and cleaning of
the common areas and facilities of the Building and to the parking areas and
removal of snow and ice reasonably promptly after snowfall and ice accumulation
have ended to all walkways, access ways and approaches to the Building and the
parking lots as is customary in or about similar buildings in Cambridge. LESSEE
shall have access to the Leased Premises on a 365 day per year, 24 hours per day
basis. LESSOR shall, at its own costs, provide for LESSEE to be listed on all
Building tenant directories. LESSOR shall not be liable to LESSEE for any
compensation or reduction of rent by reason of inconvenience or annoyance or for
loss of business arising from the necessity of LESSOR or its agent entering the
Leased Premises, or for LESSOR's repairing the Leased Premises if such repair
is not performed by LESSOR, or for making repairs or renovations to any portion
of the Building, however, the necessity may occur unless the same is due to the
LESSOR's gross negligence. In case LESSOR is prevented or delayed from making
any such repairs or alterations, or supplying the utilities or services provided
for herein, or performing any other covenant or duty to be performed on LESSOR's
part, by reason of any cause beyond LESSOR's control, LESSOR shall not be liable
to LESSEE therefor, nor shall LESSEE be entitled to any abatement or reduction
of rent by reason thereof.
<PAGE> 12
nor shall the same give rise to a claim in LESSEE's favor that such failure
constitutes actual or constructive, total or partial, eviction from the Leased
Premises, or any portion thereof. LESSOR reserves the right to stop any service
or utility system, when necessary by reason of accident or emergency, or until
necessary repairs have been completed.
(c) To the extent that LESSOR has installed separate meters
for all utilities including heat, electricity, water and sewer, and
air-conditioning, the LESSEE shall pay its utility charges directly to the
suppliers of such utility services, as billed by the LESSOR within ten (10) days
of receipt of said bill and at least before the same become delinquent. If there
are not separate meters, then LESSEE shall pay its pro rata share of the utility
cost, as billed by LESSOR. The LESSEE and LESSOR shall have the right to audit
said charges and payments upon reasonable notice.
7. USE OF LEASED PREMISES. The LESSEE shall use the Leased Premises
only for the purpose of general offices.
8. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or
occupation shall be conducted in the Leased Premises or use made thereof which
shall be unlawful, improper, noisy or offensive, or be contrary to any law or
any municipal by-law or ordinance in force in the City of Cambridge. LESSEE
shall keep the Leased Premises equipped with all safety appliances and shall
procure and keep in force all licenses and permits required by law or ordinance
of any public authority because of the uses made of the Leased Premises by
LESSEE and shall maintain in good condition on the Leased Premises all safety
and fire protection devices required by the Board of Fire Underwriters, or other
body having similar
<PAGE> 13
functions, and of every insurance company and policy by which LESSOR or LESSEE
is insured. If any use of the Leased Premises results in the cancellation of
any insurances carried by LESSOR, or increases the cost thereof, the LESSEE
shall on demand reimburse the LESSOR all extra insurance premiums incurred as a
result of such use of the Leased Premises by the Leased Premises results in the
cancellation of any insurances carried by LESSOR, or increases the cost thereof,
the LESSEE shall on demand reimburse the LESSOR all extra insurance premiums
incurred as a result of such use of the Leased Premises by the LESSEE.
9. RISK OF LOSS OF PERSONAL EFFECTS. LESSEE acknowledges and agrees
that all of the furnishings, equipment, effects and property of LESSEE and of
all persons claiming by through or under LESSEE which may be on the Leased
Premises or elsewhere in any building in the Complex, shall be at the sole risk
and hazard of LESSEE and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by LESSOR, except that
LESSOR shall in no event be indemnified or held harmless or exonerated from any
liability to LESSEE or to any other person, arising from any injury, loss,
damage or liability caused by LESSOR's negligence.
9A. INSURANCE - WAIVER OF SUBROGATION. LESSOR agrees to keep the
Building (and LESSEE agrees to keep all LESSEE's equipment, machinery and
fixtures therein) insured in amounts equal to the replacement cost of the same,
against fire and other perils included in a standard extended coverage
endorsement, and against breakdown of boilers and other machinery and equipment,
and LESSEE agrees to procure and keep in force comprehensive
<PAGE> 14
general liability insurance indemnifying LESSEE against all claims and damages
for any injury to or death of person or damage to property which may be claimed
to have occurred upon or to have been caused by activities or conditions within
the Leased Premises and indemnifying LESSOR to the extent any such claims and
demands are the responsibility or obligation of LESSEE pursuant to this lease or
as a matter of law, in amounts not less than $500,000 for property damage,
$500,000 for injury or death of one person, and $1,000,000 for injury or death
of more than one person in a single accident.
All insurance required hereunder shall be written by insurance carriers
qualified to do business and in good standing in Massachusetts and approved by
LESSOR, which approval shall not be unreasonably withheld. All policies of
insurance, shall name LESSOR and LESSEE as the insured parties. Each required
policy of insurance shall provide that, notwithstanding any act or omission of
LESSEE which might otherwise result in forfeiture of said insurance: (A) it
shall not be canceled nor its coverage reduced without at least ten (10) days
prior written notice to each insured named therein, and (B) any proceeds shall
be first payable to LESSOR or to holder of any mortgage encumbering the Leased
Premises, as their respective interests may appear.
As of the commencement of the Term hereof, and thereafter not less than
fifteen (15) days prior to the expiration dates of the expiring policies, the
original policies to be obtained by LESSEE hereto issued by the respective
insurers or certificates thereof including photocopies of the original policies,
shall be delivered to LESSOR.
Any insurance carried by either party with respect to the Leased
Premises or property therein or occurrences thereon shall include a clause or
endorsement denying to the insurer rights
<PAGE> 15
of subrogation against the other party to the extent rights have been waived by
the insured prior to occurrence of injury or loss. Each party, notwithstanding
any provisions of this Lease to the contrary, hereby waives any rights of
recovery against the other for injury of loss due to hazards covered by such
insurance to the extent of the indemnification received thereunder.
10. MAINTENANCE OF PREMISES. LESSEE shall pay its proportionate share
of the expenses and services set out in Paragraph 5 above. The LESSEE agrees to
maintain the Leased Premises in the same condition as they are at the
commencement of the Term or as they may be put in during the Term of this Lease,
reasonable wear and tear, damage by fire, other casualty and eminent domain, and
matters for which LESSOR is responsible hereunder only excepted, to provide its
own interior janitorial service, to install and maintain its own security system
as it considers appropriate and, whenever necessary, to replace plate glass and
other glass therein with that of the same quality as that damaged or injured.
LESSEE shall maintain and LESSEE shall pay for the maintenance of the HVAC
System servicing the Leased Premises. The LESSEE shall not permit the Leased
Premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste.
LESSEE shall obtain written consent of LESSOR before erecting any sign on or
about the Leased Premises, which consent shall not be unreasonably withheld or
delayed. LESSEE further covenants and agrees: to take all reasonably necessary
actions to insure that smoke, fumes, vapors and odors will not permeate any
building containing the Leased Premises and will be removed only through the
exhaust and ventilating system servicing the Leased Premises; to keep the Leased
Premises free of pests, roaches and vermin; to keep all trash garbage and debris
stored on the Leased Premises (and not in any other portions of the Lot or the
<PAGE> 16
Building) in adequate covered containers, approved by LESSOR and placed in
locations or areas approved by LESSOR in writing and to arrange for the regular
removal thereof once each day; to provide for the frequent and adequate cleaning
of the Leased Premises and all walls, floors, fixtures and equipment therein
consistent with its use. LESSOR shall maintain in good condition the structural
elements and the roof of the Building, the mechanical equipment and systems in
the Building (other than such equipment and systems which are located within or
exclusively serve the Leased Premises, and other than LESSEE's maintenance
obligations otherwise provided herein), and the common areas of the Building.
11. ALTERATIONS - ADDITIONS. The LESSEE shall not make structural
alterations or additions to the Leased Premises, but may make nonstructural
alterations and improvements, provided the LESSOR consents thereto in advance in
writing in each instance, which consent shall not be unreasonably withheld or
delayed provided that LESSOR is furnished with detailed plans and specifications
reasonably approved by LESSOR. All such allowed alterations or additions shall
be at LESSEE's expense and shall be in quality at least equal to the present
construction. LESSEE shall not permit any mechanics' liens, or similar liens, to
remain upon the Leased Premises for labor and materials furnished to LESSEE or
claimed to have been furnished to LESSEE in connection with work of any
character performed or claimed to have been performed at the direction of
LESSEE, and shall cause any such lien to be released of record forthwith without
cost to LESSOR. Any alterations, or improvements made by the LESSEE, except for
moveable partitions and furnishings, installed at the LESSEE's cost, shall
become the property of the LESSOR at the termination of Lease as provided
herein.
<PAGE> 17
EXHIBIT C
October 18, 19___
Lessor's Work Scope For net.Genesis Corp.
DESIGN
architectural engineering services including PE
stamped plans.
as-built plans
operation manuals (as applicable)
CONSTRUCTION
permits, insurance, supervision
demo demolition (some existing walls, existing
mens/womens rooms, floors)
reconstruction of conference rooms per attached plan
kitchen provide building standard cabinetry @ kitchen area
with color approval by Lessee
provide appliance book-ups (tenant provides its own
equipment)
interior open ceiling in new area
repair/replace ceiling in area that currently has
dropped ceiling
painted drywall partitions for new wall areas
replace broken or stained exterior windows
doors to match existing doors
lock/hardware on doors
paint new and existing GWB (2 coats)
repair/cosmetic treatment of freight elevator areas.
flooring VCT: Armstrone Excelon in non-carpet areas.
26 ou. carpet throughout. Lessee to select color.
carpet manufacturer to be determined
plumbing/hvac men's & women's rooms (new)
clean/repair existing small restroom at east end of
space
sprinkler system adjusted for any changes required
due to new construction
plumbing at kitchen and bathrooms
upgraded or new HVAC system as needed. (mftr. to be
determined)
electrical new light fixtures at approximate 1/100 spacing.
ada build-out comply with ADA standards
appliance all code compliance including fire
Lessor agrees to use best efforts to assist Lessee in making any design changes
Lessee desires, provided that said changes do not materially interfere with
Lessor's construction schedule. At the time Lessee request a change, Lessor
shall provide Lessee with an allowance for the cost of the Lessor's scope above
for the item being changed and will either pay Lessee that amount or bill Lessee
for the incremental cost of the change made. For example, if Lessee chooses to
replace the carpet with a higher grade carpet that costs $5,000 more. Lessee
could pay the $5,000 cost increase to Lessor for the substitution. Upon request,
Lessor will provide upgrade costs estimates for Lessee.
<PAGE> 18
EXHIBIT B
SUBLET PREMISES
<PAGE> 19
215 First Street
Cambridge, Massachusetts 02142
(the "Building")
OVERLANDLORD'S CONSENT
October 8, 1999
A. The undersigned Overlandlord, as Landlord, under a certain lease dated
October 23, 1996 (the "Lease), by and between Cambridge Athenaeum LLC,
a Delaware limited liability company, successor in interest to Robert
A. Jones and K. George Najarian, Trustees of Athenaeum Realty Nominee
Trust, Landlord, and net.Genesis Corp., a Massachusetts corporation,
Tenant, for premises in the Building (the "Premises"), hereby consents
to a sublease ("Sublease") by and between, net.Genesis Corp., as
Sublandlord, and iXL-Boston, Inc., a Delaware corporation, as
Subtenant, for office premises on the third (3rd) floor of the Building
("Sublet Premises"), provided that:
1. A copy of any notice sent pursuant to said Sublease shall be
sent to: Beacon Capital Partners, Inc., One Federal Street,
Boston, Massachusetts 02110, Attention: Treasurer.
2. Subtenant shall have no right, without Overlandlord's prior
written consent, to further sublet the Sublet Premises or any
portion thereof nor shall the Subtenant have any right,
without Overlandlord's prior written consent, to assign said
sublease.
3. Subtenant shall name Overlandlord as an additional insured
party under any liability insurance policy which Subtenant is
required to maintain and,
<PAGE> 20
prior to taking possession of the Sublet Premises, Subtenant
shall deliver to Overlandlord a certificate of such insurance.
B. Nothing herein contained shall:
1. Be deemed to diminish or relieve net.Genesis Corp. of its
primary responsibility as party-tenant under the Lease;
2. Be deemed in any way to limit, restrict, or diminish
Overlandlord's rights under the Lease;
3. Extend, or otherwise increase, Overlandlord's obligations
under the Lease; or
4. Extend the term of the Lease.
Without limiting the foregoing, in the event that the Lease is
terminated for any reason, Subtenant shall have no further right to
occupy the Sublet Premises.
C. Anything to the contrary to provisions and conditions of this
Overlandlord's Consent which is contained in any instrument of sublease
shall be null and void and of no force and effect so far as it relates
to the rights and obligations of Overlandlord.
D. By executing this Overlandlord's Consent, the Overlandlord shall not be
deemed to have consented to any work proposed to be performed by Tenant
or Subtenant in the Premises. Any and all alterations, additions and
improvements in or to the Sublet Premises shall be subject to
Overlandlord's prior written consent.
-2-
<PAGE> 21
E. The undersigned Overlandlord hereby reserves its right to withhold
consent where the Lease allows the Landlord to withhold consent.
OVERLANDLORD:
CAMBRIDGE ATHENAEUM LLC,
a Delaware limited liability company
By: Kendall Athenaeum LLC,
a Delaware limited liability company, its manager
By: Beacon/PW Kendall LLC, a Delaware limited
liability company, its manager
By: Beacon Capital Partners, L.P., a Delaware
limited partnership d/b/a Beacon Capital
Partners Limited Partnership, its manager
By: Beacon Capital Partners, Inc.,
a Maryland corporation, its,
General Partner
By: /s/ Illegible Signature
----------------------------
Name:
---------------------------
Title:
--------------------------
Hereunto Duly Authorized
-3-
<PAGE> 22
With respect to all such LESSEE work, LESSEE further agrees as follows:
that such work shall commence only after all required municipal and other
governmental permits and authorizations have been obtained (the LESSOR agreeing
to promptly upon request join in any application therefor at the LESSEE's
expense, whenever necessary) and all such work shall be done in a good and
workmanlike manner in compliance with building and zoning laws and with all
other laws, ordinances, regulations and requirements of all federal, state and
municipal agencies, and in accordance with the requirements and policies issued
by any insurer of LESSOR or LESSEE; that all such work shall be prosecuted with
reasonable dispatch to completion; that at all times when any such work is in
progress, LESSEE shall maintain or cause to be maintained adequate worker's
compensation insurance for those employed in connection therewith with respect
to whom death or injury claims could be asserted against LESSOR, the LESSEE or
the Leased Premises and comprehensive general liability or builder's risk
insurance (for mutual benefit of LESSEE and LESSOR) in coverages reasonably
approved by LESSOR; and that all such work of LESSEE shall be coordinated with
any work being performed by LESSOR and other tenants of the building in which
the work is taking place in such manner as to maintain harmonious labor
relations and not to interfere with the operation of the Building or the
construction work of others.
12. ASSIGNMENT - SUBLEASING. The LESSEE shall not assign or sublet the
whole or any part of the Leased Premises without the LESSOR's prior written
consent, which consent shall not be unreasonably withheld or delayed. Except,
however, such consent is not required for a Sublease to any entity which is
majority-owned by the Sublessor. Notwithstanding
<PAGE> 23
such consent, LESSEE shall remain liable to LESSOR for the payments of all rent
and for the full performance of the covenants and conditions of this Lease.
12A. QUIET ENJOYMENT, COVENANT OF TITLE. The LESSEE, on paying the rent and
other charges hereunder, as and when the same shall become due and payable and
observing and performing the covenants, conditions and agreements contained in
this Lease on the part of the LESSEE to be observed and performed, all as herein
provided, shall and may lawfully, peaceably and quietly have, hold and enjoy the
Leased Premises during the Term, subject to all of the terms and provisions
hereof, without hindrance, ejection or disturbance by the LESSOR or by any
person or persons claiming by, through or under the LESSOR or by anyone claiming
paramount title.
13. SUBORDINATION. The Lease and LESSEE's interest hereunder, except as
hereinafter provided, shall be subordinate to the lien of any present or future
mortgage or mortgages upon the Leased Premises or any property of which the
Leased Premises are a part, irrespective of the time of execution or the time of
recording of any such mortgage or mortgages. The word "mortgage" as used in this
Paragraph shall mean mortgages, deeds of trust, and other similar instruments
held by any lender and all modifications, extensions, renewals and replacements
thereof. This Paragraph is self-operative, and no further instrument of
subordination shall be required by the holder of any such mortgage so long as
the subordination is made and granted upon the condition that, in the event of
any entry by the holder of any such mortgage to foreclose a foreclosure of any
such mortgage by entry or by sale or an acquisition by the holder of any such
mortgage of LESSOR's interest under this Lease or in the Leased Premises
<PAGE> 24
through foreclosure or otherwise, LESSEE shall peaceably hold and enjoy the
Leased Premises as a lessee of such holder, upon the same terms, covenants and
conditions as set forth in this Lease without any hindrance or interruption from
such holder. In the event of such entry, foreclosure or acquisition, LESSEE
shall recognize the holder of the mortgage with respect to which such action is
taken as the LESSOR under this Lease. As used in this Paragraph, the word
"holder" includes any person claiming through or under any such mortgage,
including any purchaser at a foreclosure sale, and the word "LESSEE" shall
include LESSEE's successors and assigns. The word "mortgage" as used in this
Paragraph shall mean mortgages, deeds of trust, and other similar instruments
held by any institutional lender and all modifications, extensions, renewals and
replacements thereof. This Paragraph 13 is self-operative, and no further
instrument of subordination shall be required. LESSOR shall use reasonable
efforts to obtain a Subordination; Non-disturbance and Attornment agreement from
LESSOR's mortgagee for this Lease.
Notwithstanding the self-operative effect of this Paragraph 13, the LESSEE
agrees to execute such further documents in recordable form as the LESSOR or any
lender may reasonably require, consistent with the terms of this Paragraph 13
and 21. Should the LESSEE fail to execute and deliver to the LESSOR any such
document within ten (10) days of a written notice requesting the LESSEE to
execute and deliver such document, LESSEE shall pay to LESSOR (as liquidated
damages and not as a penalty) the sum of $500.00 per day for each day after such
tenth (10th) day during which such failure to deliver such instrument continues.
14. LESSOR'S ACCESS. The LESSOR or agents of the LESSOR may, at
<PAGE> 25
reasonable times, upon reasonable prior notice, and so as not to unreasonably
interfere with the LESSEE's business, enter to view the Leased Premises, and may
remove placards and signs not approved and affixed as herein provided, and make
repairs and alterations as LESSOR should elect to do, and may show the Leased
Premises to others, with reasonable prior notice at any time within four (4)
months before the expiration of the term, may affix to any suitable part of the
Leased Premises a notice for letting or selling the Leased Premises or property
of which the Leased Premises are a part and keep the same so affixed without
hindrance or molestation.
15. INDEMNIFICATION AND LIABILITY. The LESSEE and LESSOR shall defend, save
harmless and indemnify each other from any claims of liability for injury, loss,
accident or damage to any person or property while on the Leased Premises, if
not due to the negligence of either party, or its employees or agents, and to
any person or property anywhere occasioned by any omission, fault, negligence or
other misconduct of either party and persons for whose conduct either party is
legally responsible.
16. HOLDING OVER. For each month or portion thereof LESSEE shall remain in
possession of the Leased Premises or any portion thereof after the termination
of this Lease, whether by lapse of time or otherwise, LESSEE agrees to pay to
LESSOR one and one-half times the total of the Base Rent set forth in Paragraph
4 in effect for the period immediately prior to LESSEE's holding, over and one
and one-half times the Additional Rent provided for under this Lease then
applicable, and also to pay all damages sustained by LESSOR on account thereof;
the provisions of this Paragraph shall not operate as a waiver by LESSOR of any
right of re-entry provided in this Lease.
<PAGE> 26
16A. FURTHER LESSEE COVENANTS. LESSEE further covenants and agrees during
the Term and such further time as LESSEE holds any part of the Leased Premises:
(a) to pay when due all rent and other sums herein specified, without
offset, deduction or counterclaim except as otherwise specifically provided in
this Lease;
(b) not to obstruct in any manner any portion of any building, not hereby
leased or the sidewalks or approaches to such building or any inside windows or
doors;
(c) that neither the original LESSOR nor any successor LESSOR who or which
is a trustee or a partnership, nor any beneficiary of the original LESSOR or any
successor LESSOR nor any partner, general or limited, or such partnership shall
be personally liable under any term, condition, covenant, obligation or
agreement expressed herein or implied hereunder or for any claim or damage or
cause at law or in equity arising out of the occupancy of the Leased Premises or
the use or maintenance of the Building and LESSEE specifically agrees to look
solely to the LESSOR's interest in the Building for the recovery of any judgment
against LESSOR; and
(d) if any payment of rent or other sums due hereunder is not paid within
five (5) days of the due date, LESSEE shall pay to LESSOR a late charge equal to
five (5%) percent of the unpaid amount per month, or part thereof, that such
amount remains unpaid.
17. FIRE, CASUALTY.
17.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND "PARTIAL DAMAGE." The term
"substantial damage", as used herein shall refer to damage which is of such a
character that the same cannot, in ordinary course, be expected to be repaired
within
<PAGE> 27
ninety (90) calendar days from the time that such repair work would commence.
Any damage which is not "substantial damage" is "partial damage." In the event
of substantial damage to the Building, the LESSOR shall notify the LESSEE as
soon as is practicable and in no event later than thirty (30) days after such
damage of LESSOR's estimated time for repair of such damage.
17.2 PARTIAL DAMAGE TO THE BUILDING. If during the Lease Term there shall
be partial damage to the Building by fire or other casualty and if such damage
shall materially interfere with the LESSEE's use of the Leased Premises as
contemplated by this Lease, the LESSOR shall, to the extent insurance proceeds
are available to LESSOR, promptly proceed to restore the Building to
substantially the condition in which it was immediately prior to the occurrence
of such damage. Notwithstanding the foregoing, if there shall be partial damage
to the Building, and if such damage shall materially interfere with LESSEE's use
of the Leased Premises as contemplated by this Lease occurring during the last
twelve (12) months of the Lease Term of such a character that the same cannot,
in ordinary course, be expected to be repaired within thirty (30) days from the
time such repair work would begin, the LESSOR or LESSEE may, within ten (10)
days of the date of such damage, elect to terminate this Lease. If such election
is not made, the LESSOR shall promptly proceed with such restoration.
17.3 SUBSTANTIAL DAMAGE TO THE BUILDING. If during the Lease Term there
shall be substantial damage to the Building by fire or other casualty and if
such damage shall materially interfere with the LESSEE's use of the Leased
Premises as contemplated by this Lease, the LESSOR shall, to the extent
insurance proceeds are available to LESSOR, promptly restore the Building to an
architectural unit that is not. less suitable than that which existed prior
<PAGE> 28
to such fire or casualty, unless the LESSOR or the LESSEE, within forty-five
(45) days after the occurrence of such damage, shall give notice to the other of
its election to terminate this Lease. If at any time during such forty-five (45)
day period the LESSOR notifies the LESSEE of its intention to restore the
Building, the LESSEE must then give notice to the LESSOR, within ten (10) days
of its receipt of the LESSOR's notice of intention to restore the Building, as
to whether the LESSEE will elect to terminate the Lease. Should the LESSEE fail
to elect to terminate the Lease within such ten (10) day period, the LESSEE's
right to terminate under this Paragraph 17.3 shall expire. If the LESSOR
proceeds with the restoration of the Building and if such damage shall not have
been repaired to the extent necessary for the LESSEE to resume its normal
business operations at the Leased Premises by the end of the 180th day following
the date of such fire or casualty, or if the LESSOR shall fail diligently to
cause such repair and restoration work to be performed, then the LESSEE may, at
any time thereafter while the damage remains unrepaired, terminate this Lease
upon notice to the LESSOR. If the LESSOR or the LESSEE shall give such notice of
termination, then this Lease shall terminate as of the date of such notice with
the same force and effect as if such date were the date originally established
as the expiration date hereof.
17.4 ABATEMENT OF RENT. If during the Lease Term the Building shall be
damaged by fire or casualty and if such damage shall materially interfere with
the LESSEE's use of the Leased Premises as contemplated by this Lease, a just
proportionate amount of the rent and other charges payable by the LESSEE
hereunder shall abate proportionately for the period in which, by reason of such
damage, there is such interference with the LESSEE's use of the Leased
<PAGE> 29
18. DEFAULT AND BANKRUPTCY. In the event that:
(a) The LESSEE shall, after the applicable five (5) day grace period,
default in the payment of any installment of rent or other sum herein specified;
or
(b) The LESSEE shall default in the observance or performance of the
LESSEE's covenants, agreements, or obligations hereunder (except as provided in
Paragraph 18(a) above) and the LESSEE shall not cure such default within thirty
(30) days after written notice thereof or if such default cannot be cured within
thirty (30) days, then if LESSEE shall not commence to cure the same within
thirty (30) days and diligently pursue the curing of the same; or
(c) LESSEE makes any assignment for the benefit of creditors, commits any
act of bankruptcy or files a petition under any bankruptcy or insolvency law; or
if such a petition is filed against LESSEE or any guarantor of LESSEE's
obligations under this Lease and is not dismissed within thirty (30) days; or if
a receiver or similar offer becomes entitled to LESSEE's leasehold hereunder and
it is not returned to LESSEE within thirty (30) days, or if such leasehold is
taken on execution or other process of law in any action against LESSEE; then in
any such case the LESSOR shall have the right thereafter, while such default
continues, to reenter and-take complete possession of the Leased Premises, to
declare the term of this Lease ended, and remove the LESSEE's effects at
LESSEE's sole cost and expense, without prejudice to any remedies which might be
otherwise used for arrears of rent or other default. The LESSEE shall indemnify
the LESSOR against all loss and reasonable payment of rent and other payments
which the LESSOR may incur by reason of such termination during the residue of
the term. In the event of default, LESSOR shall use its reasonable efforts to
re-let the Leased Premises so as
<PAGE> 30
to mitigate any damages to the LESSEE hereunder.
If the LESSEE shall default, in the observance or performance of any
conditions or covenants on its part to be observed or performed under or by
virtue of any of the provisions of this Lease and after the expiration of any
period within which the LESSEE is entitled to cure such default as is provided
above in this Paragraph 18, the LESSOR, without being under any obligation to do
so and without thereby waiving such default, may remedy such default for the
account and at the expense of the LESSEE. If the LESSOR makes any expenditures
or incurs any obligations for the payment of money in connection therewith,
including but not limited to, reasonable attorney's fees, (except for
unsuccessful suits against the LESSEE) in instituting, prosecuting, or
defending any action or proceeding, such sums paid or obligations incurred, with
interest at the rate of twelve (12%) per annum and costs, shall be paid to the
LESSOR by the LESSEE as additional rent.
Nothing contained in this Lease shall limit or prejudice the right of
LESSOR to claim and obtain in proceedings for bankruptcy, insolvency or like
proceedings by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which the damages are to be claimed or proved,
whether or not the amount be greater, equal to or less than the amount of the
loss or damages referred to above.
18A. DEFAULT OF LANDLORD AND MORTGAGE RIGHTS. LESSOR shall in no event
be in default in the performance of any of LESSOR's obligations hereunder unless
and until LESSOR shall have failed to perform such obligations within thirty
(30) days or such
<PAGE> 31
additional time as is reasonably required to correct any such default after
receipt of written notice by LESSEE to LESSOR properly specifying wherein LESSOR
has failed to perform any such obligation. LESSEE agrees to give any mortgagee,
by registered mail, a copy of any notice of default served upon the LESSOR,
provided that prior to such notice the LESSEE has been notified in writing of
the identity and address (by way of Notice of Assignment of Rents and Leases, or
otherwise) of the address of such mortgagee. The LESSEE further agrees that if
the LESSOR shall have failed to cure such default within the time provided for
in this Lease, then the mortgagee shall have an additional sixty (60) days
within which to cure such default or if such default cannot be cured within that
time, then such additional time as may be necessary if within sixty (60) days
the mortgagee has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure) in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
18B. BANKRUPTCY OR INSOLVENCY.
(a) LESSEE's INTEREST NOT TRANSFERABLE. Neither LESSEE's interest in this
Lease nor any estate hereby created in LESSEE nor any interest herein or therein
shall pass to any trustee, except as may specifically be provided pursuant to
the Bankruptcy Code (11 USC Sec. 101, et seq.) or to any receiver or assignee
for the benefit of creditors or otherwise by operation of law.
(b) TERMINATION OF LEASE. Notwithstanding anything to the contrary
contained in this Lease, in the event the interest or estate created in LESSEE
hereby shall be
<PAGE> 32
taken in execution or by other process of law or if LESSEE or LESSEE's
guarantor, if any, or LESSEE's executors, administrators or assigns, if any,
shall be adjudicated insolvent or bankrupt pursuant to the provisions of any
state law of an order for the relief of such entity shall be entered pursuant to
the Bankruptcy Code, or if a receiver or trustee of the property of LESSEE or
LESSEE's guarantor, if any, shall be appointed by reason of the insolvency or
inability of LESSEE or LESSEE's guarantor, if any, to pay its debts or if any
assignment shall be made of the property of LESSEE, or LESSEE's guarantor, if
any, for the benefit of creditors, then and in any such events this Lease and
all rights of LESSEE hereunder shall automatically cease and terminate with the
same force and effect as though the date of such event were the date originally
established herein and fixed for the expiration of the term and LESSEE shall
vacate and surrender the Leased Premises but shall remain liable as herein
provided.
(c) LESSEE's OBLIGATION TO AVOID CREDITORS' PROCEEDINGS. LESSEE or LESSEE's
guarantor, if any, shall not cause or give cause for the appointment of a
trustee or receiver of the assets of LESSEE or LESSEE's guarantor, if any, and
shall not make any assignment for the benefit of creditors or become or be
adjudicated insolvent. The allowance of any petition under any insolvency law,
except under the Bankruptcy Code or the appointment of a trustee or receiver of
LESSEE or LESSEE's guarantor, if any, or of the assets of either of them, shall
be conclusive evidence that LESSEE caused or gave cause therefor, unless such
allowance of the petition or the appointment of a trustee or receiver is vacated
within ninety (90) days after such allowance or appointment. Any act described
in this paragraph shall be deemed a material breach of LESSEE's obligation
hereunder and this Lease shall thereupon automatically
<PAGE> 33
terminate. LESSEE does, in addition, reserve any and all other remedies provided
in this Lease or in the law.
(d) RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of a
petition by or against LESSEE under the Bankruptcy Code, LESSEE, as debtor and
as debtor-in-possession, and any trustee who may be appointed agree as follows:
(i) to perform each and every obligation of LESSEE under this Lease including,
but not limited to, the manner of-operation of this Lease, until such time as
this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (ii) to pay monthly, in advance, on the first day of each
month, as reasonable compensation for use and occupancy of the Leased Premises,
an amount equal to all fixed annual Base Rent, additional rent and other charges
otherwise due pursuant to this Lease; (iii) to reject or assume this Lease
within sixty (60) days of the appointment of such trustee under Chapter 7 of the
Bankruptcy Code or within one hundred twenty (120) days (or such shorter term as
LESSOR, in its sole discretion, may deem reasonable, so long as notice of such
period is given) of the filing of a petition under any other chapter; (iv) to
give LESSOR at least forty-five(45) days' prior written notice of any proceeding
relating to any assumption of this Lease; (v) to give at least thirty (30) days'
prior written notice of any abandonment of the Leased Premises, with any such
abandonment to be deemed a rejection of this Lease and an abandonment of any
property not previously removed from the Leased Premises; (vi) to do all other
things of benefit to LESSOR otherwise required under the Bankruptcy Code; (vii)
to be deemed to have rejected this Lease in the event of the failure to comply
with any of the above: and (viii) to have consent to the entry of any order by
an
<PAGE> 34
appropriate United States Bankruptcy Court providing all of the above, waiving
notice and hearing of the entry of same.
No default of this Lease by LESSEE, either prior to or subsequent to the
filing of such a petition, shall be deemed to have been waived unless expressly
done so in writing by LESSOR. It is understood and agreed that this is a Lease
of real property and that, therefore, Sec. 365(b) (3) of the Bankruptcy Code is
applicable to any proposed assumption of this Lease in a bankruptcy case.
Included within and in addition to any other conditions or obligations
imposed upon LESSEE or its successor in the event of assumption and/or
assignment are the following: (i) the cure of any monetary defaults and the
reimbursement of pecuniary loss immediately upon entry of a court order
providing for assumption and/or assignment; (ii) [intentionally omitted]; (iii)
the use of the leased Premises as set forth in the reference data section of
this Lease and the quality, quantity and/or lines of merchandise of any goods
or services required to be offered for sale are unchanged; (iv) the payment of
any sums which may then be due or which may thereafter become due under the
provisions of this Lease; (v) the debtor, debtor-in-possession, trustee or
assignee of such entity demonstrates in writing that it has sufficient
background, including, but not limited to, substantial commercial experience
in buildings of comparable size and financial ability to operate a commercial
establishment out of the Leased Premises in the manner contemplated in this
Lease, and meets all other reasonable criteria of LESSOR as did LESSEE upon
execution of this Lease; (vi) the prior written consent of any mortgagee to
which this Lease has been assigned as collateral security; and (vii) the Leased
Premises at all times remains a
<PAGE> 35
single store (if retail) and no physical changes of any kind may be made to
the Leased Premises unless in compliance with the applicable provisions of this
Lease.
Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall, upon demand, execute and
deliver to LESSOR an instrument confirming such assumption in accordance with
the terms of Paragraph 21 hereof.
19. NOTICE. Any notice from the LESSOR to the LESSEE relating to the Leased
Premises or to the occupancy thereof shall be deemed duly served, if mailed,
registered or certified mail, return receipt requested, postage prepaid,
addressed to the LESSEE, net.Genesis Corp., Attention: President at the Leased
Premises and to
JOHN D. PATTERSON, JR., ESQ.
FOLEY HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MA 02109
Any notice from the LESSEE to the LESSOR relating to the Leased Premises or
to the occupancy thereof, shall be deemed duly served, if mailed to the LESSOR
by registered or certified mail, return receipt requested, postage prepaid,
addressed to the LESSOR at such address as the LESSOR may from time to time
advise in writing. All rent and notices shall be paid and sent to the LESSOR
at:
ATHENAEUM REALTY NOMINEE TRUST
c/o THE ATHENAEUM GROUP
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142-1268
<PAGE> 36
20. RULES AND REGULATIONS. The LESSOR shall have the right to institute and
to change from time to time, rules and regulations for the use of the Building
by commercial office Lessees, and by commercial retail lessees, which shall be
reasonable in all instances and shall be uniformly applicable to all commercial
Lessees in the Building and the LESSEE agrees to abide thereby.
21. PARAGRAPH HEADINGS. The paragraph headings throughout this instrument
are for convenience and reference only, and the words contained therein shall in
no way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this Lease.
22. SURRENDER. The LESSEE shall at the expiration or other termination of
this Lease remove all LESSEE's goods and effects from the Leased Premises
(including, without hereby limiting the generality of the foregoing, all signs
and lettering affixed or painted by the LESSEE, either inside or outside the
Leased Premises). LESSEE shall deliver to the LESSOR the Leased Premises and all
keys, locks thereto, and other fixtures connected therewith, and all alterations
and additions made to or upon the Leased Premises, in the same condition as they
were at the commencement of the term, or as they were put in during the term
hereof, reasonable wear and tear and damage by fire or other casualty only
excepted. In the event of the LESSEE's failure to remove any of the LESSEE's
property from the Leased Premises, LESSOR is hereby authorized without liability
to LESSEE for loss or damage thereto, and at the sole risk of LESSEE, to remove
and store any of the property at LESSEE's expense or to retain the same under
LESSOR's control or to sell at public or private sale, with reasonable notice
any or all of
<PAGE> 37
the property not so removed, and to apply the net proceeds of such sale to the
payment of any sum due hereunder.
23. OPTION TO EXTEND. If the LESSEE is not then in default, LESSOR does
hereby grant to LESSEE the option to extend this Lease for one (1) additional
five (5) year term, commencing on the expiration of the Initial Term upon the
same terms and conditions as herein contained except the annual Base Rent set
forth in Paragraph 4 hereof shall be at the rate set forth below. LESSEE's
desire to extend the Lease shall be communicated by written notice from LESSEE
and received by LESSOR at least seven (7) months prior to the expiration of the
Initial Term. LESSOR shall provide LESSEE at least six (6) months prior to the
expiration of the initial term with its reasonable estimate of the then current
market value for comparable space in Cambridge. LESSEE shall notify LESSOR at
least four (4) months prior to the expiration of the Initial Term of its
decision to accept or reject LESSOR's rent.
24. BROKER. The LESSOR and LESSEE each represent and warrant to the other
that each has had no dealings with any Brokers other than William F. Baker of
Thompson Doyle & Company concerning this Lease, and each party agrees to
indemnify and hold the other harmless for any damages occasioned to the other by
reason of a breach of this representation and warranty. LESSOR shall pay a
commission to Thompson Doyle & Company.
25. ESTOPPEL CERTIFICATE. LESSOR and LESSEE each agree at any time from
time to time, upon not less than ten (10) days prior notice to execute,
acknowledge and deliver to the other, a statement in writing, certifying to the
extent possible that this Lease is unmodified and in full force and effect, or
if there have been modifications, that the same is in
<PAGE> 38
full force and effect as modified and stating such modifications and otherwise
certifying if there exists any default under the terms of this Lease and such
other information as may be reasonably requested concerning this Lease by the
other party or any other third party with a bona fide interest. Should either
party fail to deliver to the other party any such statement within ten (10) days
of receipt of a written notice requesting any such statement, the party failing
to deliver any such statement shall pay to the requesting party, the sum of
$500.00 per day (as liquidated damages and not as a penalty), for each day after
such tenth (10th) day during which such failure continues.
26. SECURITY DEPOSIT. Waived.
27. MISCELLANEOUS.
(a) Upon written request from LESSOR, LESSEE shall submit annual financial
statements to the LESSOR including statements of cash flow. If the LESSEE is a
publicly traded corporation it shall supply LESSOR, on a quarterly basis, with
its 10-Q filings.
(b) The LESSOR reserves the right to assign or transfer any and all of its
right title and interest under the Lease, including but not limited to the
benefit of all covenants of the LESSEE hereunder. Notwithstanding anything
contained in this Lease to the contrary, it is specifically understood and
agreed that the obligations imposed under the LESSOR hereunder shall be binding
upon the LESSOR and LESSOR's successors in interest only with respect to
breaches occurring during and prior to LESSOR's and LESSOR's successors'
ownership of LESSOR's interest hereunder and LESSOR and its said successors in
interest shall not be liable for acts and occurrences arising from and after the
transfer of their interest as LESSOR
<PAGE> 39
hereunder.
(c) This Lease shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, as the same may from time to time
exist.
(d) This Lease contains all of the agreements of the parties with respect
to the subject matter thereof and supersedes all prior oral and written
negotiations and dealings between them with respect to such subject matter. The
agreement of the parties contained in this Lease shall not be modified or
amended unless such modification or amendment is in writing and signed by the
parties.
(e) The LESSEE acknowledges that LESSEE has not been influenced to enter
into this Lease nor has it relied upon any warranties or representations not set
forth or incorporated in this Lease or previously made in writing.
(f) If any term or provision of this Lease or the application thereof to
any person or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Lease or the application of such term or provisions to persons
or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each term and provision of this
Lease shall be valid and enforced to the fullest extent permitted by law.
The undersigned Trustees of the ATHENAEUM REALTY NOMINEE TRUST do hereby
certify that they were each authorized by all of the beneficiaries of said Trust
to acknowledge the within Lease on behalf of the Trustees.
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands and
common seals this 23rd day of October, 1996.
<PAGE> 40
LESSOR:
ATHENAEUM REALTY NOMINEE TRUST
/s/ Robert A. Jones, Trustee /s/ [Illegible Signature]
- ----------------------------------- -------------------------------
NAME: Robert A. Jones, Trustee WITNESS
OFFICE: Trustee
Hereunto Duly Authorized.
/s/ K. George Najarian, Trustee /s/ [Illegible Signature]
- ------------------------------------ -------------------------------
NAME: K. George Najarian, Trustee WITNESS
OFFICE: Trustee
Hereunto Duly Authorized
LESSEE
net.Genesis Corp.
/s/ Rajat Bhargava /s/ Marianne Cucotta
- ----------------------------------- --------------------------------
NAME: Rajat Bhargava WITNESS
OFFICE: President
Hereunto Duly Authorized
/s/ Rajat Bhargava /s/ Marianne Cucotta
- ----------------------------------- --------------------------------
NAME: Rajat Bhargava WITNESS
OFFICE: Treasurer
Hereunto Duly Authorized
<PAGE> 1
Exhibit 10.5
SUBLEASE
SUBLEASE made as of the _ day of October, 1999, by and between
NET.GENESIS CORP., a Delaware corporation having a place of business at 150
CambridgePark Drive, Cambridge, Massachusetts 02140, ATTN: John P. Delea, CFO
("Sublandlord") and WL-BOSTON, INC., a Delaware corporation having a place of
business at 215 First Street, Cambridge, Massachusetts 02142-1268, ATTN: Mr. Ned
Carboni ("Subtenant").
WITNESSETH:
WHEREAS, by lease dated October 23, 1996 (the "Overlease"), a copy of
which is attached hereto as Exhibit A, Beacon Capital Partners, as successors to
Robert A. Jones and K. George Najarian, Trustees of the Athenaeum Realty Nominee
Trust ("Landlord") leased to Sublandlord a portion of the building located at
215 First Street, Cambridge, Massachusetts (the "Building") more particularly
described in the Overlease (the "Leased Premises"); and
WHEREAS, Sublandlord and Subtenant have agreed to enter into an
agreement pursuant to which Subtenant will occupy the Leased Premises comprised
of a portion of the third floor of the Building and shown on the plan attached
hereto as Exhibit B, containing approximately 16,000 rentable square feet (the
"Sublet Premises").
<PAGE> 2
NOW, THEREFORE, the parties hereto agree as follows:
1. DEMISE
Sublandlord hereby subleases the Sublet Premises to Subtenant and
Subtenant hereby hires and sublets the Sublet Premises from Sublandlord, upon
and subject to the terms and conditions hereinafter stated or incorporated
herein by reference. Capitalized terms not otherwise defined herein shall have
the meanings specified in the Overlease.
2. TERM
The term of this Sublease ("Term") shall be twenty-seven (27) months,
beginning on October 1, 1999 ("Commencement Date") and ending at midnight on
December 31, 2001, unless sooner terminated as this Sublease provides; provided
however, that, as provided in section 8.5 of this Sublease, in no event shall
the obligation of any party arise until the Sublease has received the written
approval of the Landlord. Subtenant shall have no option to extend the term of
this Sublease or the term of the Overlease. Subtenant's use of the Sublet
Premises shall be upon such terms (including the payment of Base Rent) as the
parties shall agree.
3. USE
Subtenant shall use and occupy the Sublet Premises solely for the
purpose of general offices and related purposes.
4. RENT
4.1 Base Rent
Subtenant shall pay to Sublandlord rent ("Base Rent") for the
use and occupancy of the Sublet Premises at the rate of $32,000.00 per month
($24.00 per rentable square foot) for the Term. Such monthly rent shall be paid,
in advance and without offset, on or before the first day of the month for each
month during the Term.
4.2 Electricity and Other Utilities
-2-
<PAGE> 3
Subtenant shall pay to Sublandlord, as additional rent, on or
before the first day of the month for each month during the Term, full
reimbursement of the cost of providing electricity to the Sublet Premises, which
are separately metered. Said payment shall be made within twenty (20) days after
Sublandlord notifies (and, if requested by Subtenant, provides a copy of the
bill to) Subtenant of the amount thereof.
4.3 Additional Rent
To the extent that under the Overlease Sublandlord is
obligated to pay additional rent as "Rent Adjustments" defined in Section 5 of
the Overlease, whether such additional rent is to reimburse Landlord for taxes,
operating expenses, common area maintenance charges or other expenses incurred
by the Landlord in connection with the Building, Subtenant shall pay to
Sublandlord, one hundred percent (100%) of such additional rent (to the extent
such additional rent is attributable to events occurring during the term of this
Sublease). Such payment shall be made in pro rata monthly installments due from
Subtenant to Sublandlord no fewer than five (5) days prior to the date upon
which Sublandlord's payment of such Additional Rent is due to the Landlord.
Sublandlord agrees that if the amount of Additional Rent is not set forth in the
Overlease, but is determined based on a notice from the Landlord, Sublandlord
will promptly notify Subtenant of the amount due and Subtenant will promptly,
but in event more than five (5) days, pay such Additional Rent.
-3-
<PAGE> 4
5. INCORPORATION OF OVERLEASE
Except as otherwise expressly provided herein, all of the terms,
covenants and conditions of the Overlease are incorporated herein by reference
and made a part hereof with the same force and effect as if set forth in their
entirety, provided that the terms and conditions hereof shall be controlling
whenever the terms and conditions of the Overlease are contradictory to or
inconsistent with terms and conditions hereof, and provided further that those
incorporated provisions of the Overlease which are protective and for the
benefit of Landlord shall in this Sublease be deemed to be protective and for
the benefit of both Landlord and Sublandlord, that references therein to
"LESSOR" and "LESSEE" shall be deemed to refer to "Sublandlord" and "Subtenant,"
respectively, that references therein to "this lease" shall be deemed to refer
to this Sublease, and that references therein to the "Leased Premises" or
"Premises" shall be deemed to refer to the Sublet Premises.
6. COVENANTS OF THE PARTIES
6.1 Performance of Overlease
Subtenant covenants and agrees to faithfully observe and
perform all of the terms, covenants and conditions of the Overlease on its part
to be performed pursuant to the provisions hereof, and neither to do nor cause
to be done, nor suffer, nor permit any act or thing to be done which would or
might cause the Overlease or the rights of Sublandlord as tenant thereunder to
be canceled, terminated, forfeited or surrendered, or which would or might make
Sublandlord liable for any damages, claims or penalties. Sublandlord covenants
and agrees that it will take no action, nor cause to be done, nor suffer, nor
permit any act or thing to be done which would or might cause the Overlease or
the rights of Sublandlord as tenant thereunder to be canceled, terminated,
forfeited or surrendered or which would or might adversely affect Subtenant's
rights hereunder.
-4-
<PAGE> 5
6.2 Indemnification
To the maximum extent that this Sublease may be made effective
according to law, Subtenant agrees that it will protect and indemnify
Sublandlord and Landlord and save Sublandlord and Landlord harmless from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, attorneys' fees and
expenses) imposed upon or incurred by or asserted against Sublandlord or
Landlord by reason of: (i) any accident, injury to or death of persons or damage
to or loss of property, by theft or otherwise, occurring on or about the Sublet
Premises or any part thereof, unless arising out of the negligence of
Sublandlord or Sublandlord's agents or employees; and (ii) any failure on the
part of Subtenant to perform, fulfil or observe any of Subtenant's
representations, warranties or agreements set forth in this Sublease. In case
any action, suit or proceeding is brought against Sublandlord by reason of any
such occurrence, Subtenant, upon Sublandlord's request, shall at Subtenant's
expense, cause such action, suit or proceeding to be resisted and defended by
counsel designated by Subtenant's insurance carrier and reasonably acceptable to
Sublandlord.
6.3 No Sublandlord Maintenance, etc. Obligation
Notwithstanding anything contained in this Sublease to the
contrary, Sublandlord shall not have any obligation to construct, maintain,
alter or repair the Sublet Premises, the Building, or any parking area or other
facility or improvement thereon or appurtenant thereto or to provide Subtenant
with any service of any kind or description whatsoever, nor shall Sublandlord
be responsible for the performance of Landlord's obligations under the
Overlease or be liable in damages or otherwise for any negligence of Landlord or
for any damage or injury suffered by Subtenant as a result of any act or failure
to act by Landlord or any default by
-5-
<PAGE> 6
Landlord in fulfilling its obligations under the Overlease. If Landlord shall
default in any of its obligations to Sublandlord, Sublandlord shall cooperate
with Subtenant, upon request by Subtenant and at Subtenant's sole cost and
expense, in enforcing Sublandlord's rights against Landlord under the Overlease.
6.4 Insurance
Any insurance carried by Subtenant with respect to the Sublet
Premises and property therein or occurrences thereon shall include a clause or
endorsement denying to the insurer rights of subrogation against Sublandlord to
the extent rights have been waived by Subtenant prior to the occurrence of
injury or loss and shall name Sublandlord as an additional insured party.
Subtenant, for itself, its successors and assigns, notwithstanding any provision
of this Sublease to the contrary, hereby waives any rights of recovery against
Sublandlord or its successors and assigns, for injury or loss due to hazards
covered by insurance to the extent of the injury or loss covered thereby.
6.5 No Liability For Landlord Default
Sublandlord will not incur any liability whatsoever to
Subtenant for any injury, inconvenience, incidental or consequential damages
incurred or suffered by Sublandlord as a result of the exercise by Landlord of
any of the rights reserved to Landlord under the Overlease, nor shall such
exercise constitute a constructive eviction or a default by Sublandlord
hereunder, unless due to Sublandlord's breach of its covenants, obligations or
representations herein.
6.6 Condition of Sublet Premises
The Sublet Premises are being leased "as is." Any alteration
to the Sublet Premises by the Subtenant must be approved by the Sublandlord and
the Landlord prior to the
-6-
<PAGE> 7
start of any such work and such approval may be withheld in Sublandlord's and
Landlord's discretion.
6.7 Defaults by Subtenant
If Subtenant fails to pay Base Rent or additional rent under
this Sublease or fails to perform or observe any of this Sublease's terms,
conditions or covenants, then Sublandlord, in addition to and not in limitation
of any rights otherwise available to it, shall have the same rights and remedies
for such default as the Overlease gives Landlord for Tenant's defaults, with the
same force and effect as though this Sublease contained all such provisions
relating to any such default or defaults in full, and Subtenant shall have all
Tenant's obligations under the Overlease, except as this Sublease modifies the
Overlease, for such default. Without limiting the preceding, upon Subtenant's
default, Sublandlord may terminate this Sublease by giving Subtenant written
notice specifying a date, not less than five (5) days from the notice date, on
which this Sublease shall terminate, and on such date this Sublease's Term shall
end. As incorporated in this Sublease, the five (5) day period set forth in
Overlease Section 18 shall be three (3) days and the thirty (30) day period set
forth in Overlease Section 18 shall be twenty (20) days.
7. TERMINATION
If the Overlease is terminated pursuant to the terms of the Overlease
or otherwise: (i) this Sublease shall terminate simultaneously therewith; and
(ii) any unearned rent paid in advance shall be refunded to Subtenant unless
such termination was the result of a breach by Subtenant of any term, covenant
or condition of this Sublease.
8. MISCELLANEOUS
8.1 Notices
-7-
<PAGE> 8
All notices, demands or other communications to be given, made
or sent by either party to the other under this Sublease shall be deemed to have
been fully given, made or sent when made in writing and mailed, by certified
mail, return receipt requested, postage prepaid, addressed to the party at its
address identified at the beginning of this Sublease, or to such other address
or addresses as may from time to time hereafter be designated by the parties by
like notice. A copy of notice to Subtenant shall also be given to Subtenant's
attorney, James S. Altenbach, Esquire, c/o Minkin & Snyder, One Buckhead Plaza,
3060 Peachtree Road, Suite 1100, Atlanta, Georgia 30305; and a copy of notice
to Sublandlord shall also be given to Sublandlord's attorney, Sandra Shapiro,
Esq., c/o Foley, Hoag & Eliot LLP, One Post Office Square, Boston, MA 02109.
8.2 Effect
This Sublease shall be binding upon the parties hereto and
their respective successors and assigns.
8.3 Applicable Law
This Sublease shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts.
8.4 Modification, etc.
Neither this Sublease nor any provision hereof may be waived,
modified, amended, discharged or terminated, except by an instrument in writing
signed by the party against which the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument. This Sublease constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof.
-8-
<PAGE> 9
8.5 Consent of Landlord
The obligations of the parties hereto are conditional upon the
written consent of Landlord to the subletting of the Sublet Premises to
Subtenant.
8.6 Severability
If any term or provision of this Sublease or the application
thereof to any person or circumstance shall to any extent be held invalid or
unenforceable, the remainder of this Sublease or the application of such term or
provision to other persons or circumstances shall not be affected thereby, and
each term and provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law.
8.7 Waiver, etc.
No failure by Sublandlord to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial rent
during the continuance of such breach, shall constitute a waiver of any such
breach or of any such term. Sublandlord's consent in one instance hereunder
shall not relieve Subtenant of the requirement of obtaining Sublandlord's
consent in any other instance.
8.8 No Broker
Subtenant and Sublandlord hereby represent and warrant that
neither has not dealt with any broker in connection with the transactions
contemplated by this Sublease except The Staubach Company, as to Subtenant and
CB Richard Ellis/Whittier Partners, as to Sublandlord both of whose commissions
and/or consulting fees shall be paid by Sublandlord) and shall each indemnify
the other for the failure of this representation and warranty.
8.9 Assignment and Sublease.
-9-
<PAGE> 10
Subtenant shall not assign, transfer or otherwise encumber
this Sublease or any interest in this Sublease, by operation of law or
otherwise, nor sublet or otherwise permit others to use all or part of the
Sublet Premises, and any such assignment, transfer, encumbrance, sublease or
other arrangement shall be void. Notwithstanding any other term in this
Sublease, any transfer, hypothecation, assignment or change in control of
Subtenant's stock, or the stock of its parent corporation, shall be deemed a
sublease or assignment of this Sublease or an event giving Sublandlord the right
to terminate this Sublease.
8.10 Warranties and Representations.
Subtenant represents and warrants that in entering into this
Sublease, Subtenant has not relied on any person's statements or representations
concerning the Sublet Premises or any other matter concerning this Sublease,
but has relied solely upon such investigations, examinations and inspections as
Subtenant has chosen to make or have made. Subtenant acknowledges that
Sublandlord has given Subtenant ample opportunity to fully investigate, examine
and inspect the Sublet Premises and the building and land of which the Sublet
Premises are a part.
8.11 Security Deposit.
At the time of execution of this Sublease, Subtenant shall pay
to Sublandlord a security deposit in the amount of Sixty-Four Thousand and
No/100 Dollars ($64,000.00) as security for the performance of the obligations
of the Subtenant to be performed in accordance with this Sublease. At the time
of execution of this Sublease, Subtenant shall also pay to Sublandlord the first
months rent.
8.12 Holding Over
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In the event Subtenant shall not immediately surrender the
Sublet Premises on the expiration or earlier termination of the Sublease,
Subtenant shall be obligated to pay monthly installments of Base Rent in an
amount equal to one hundred fifty percent (150%) times the Base Rent.
9. PARKING
Subtenant shall have the right to park twenty (20) passenger motor
vehicles in the parking area adjacent to the Building, subject to the provisions
of Section 2 of the Overlease. Subtenant shall pay the rental value of the
parking spaces as determined by the Landlord.
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed under seal by their duly authorized officers as of date first above
written.
SUBLANDLORD:
net.Genesis Corp.
By: /s/ John Delea
-------------------------------
Its Chief Financial Officer
Hereunto duly authorized
SUBTENANT:
WL-Boston, Inc.
By: /s/ Carl P. Helfrich
-------------------------------
Its Carl P. Helfrich, its Vice President
Hereunto duly authorized
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EXHIBIT 10.6
DATE OF LEASE EXECUTION:
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Section 1.1:
LANDLORD: BRE/CambridgePark Office II L.L.C., a Delaware limited
liability company
MANAGING AGENT: Spaulding and Slye Services Limited Partnership
LANDLORD'S & MANAGING AGENTS ADDRESS:
Spaulding and Slye Services Limited Partnership
125 CambridgePark Drive
Cambridge, MA 02140
LANDLORD'S REPRESENTATIVE: John M. Kane
TENANT: net.Genesis Corp., a corporation organized under the laws of
the State of Delaware.
TENANT'S ADDRESS (FOR NOTICE AND BILLING):
net.Genesis Corp.
150 CambridgePark Drive
Cambridge, Massachusetts 02140
TENANT'S REPRESENTATIVE: John P. Delea, CFO
BUILDING: The building located at 150 CambridgePark Drive, Cambridge,
Massachusetts.
LOT: The parcel of land on which the Building is located and described in
Exhibit A.
PREMISES: The space located on the third (3rd) floor of the Building as shown on
Exhibit B.
RENTABLE FLOOR AREA OF THE PREMISES: approximately 24,554 square feet
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TOTAL RENTABLE FLOOR AREA OF THE BUILDING: approximately 252,180 square feet
SCHEDULED TERM COMMENCEMENT DATE: August 15,1999
LEASE TERM OR TERM: Commencing on the Term Commencement Date as defined in
Section 3.1 hereof and continuing for five (5) years
thereafter, plus the partial month at the beginning of the
Term, if any, unless sooner terminated as provided herein
ANNUAL RENT: $34.00 per square foot of Rentable Floor Area of the
Premises, or $69,569.67 per calendar month, and
proportionally at such rate for any partial month (net of
Tenant's charges for electrical consumption in the
Premises).
BASE ANNUAL ELECTRICITY CHARGE: $1.00 per square foot of Rentable Floor Area
of the Premises
BASE ANNUAL OPERATING COSTS: All of Landlord's Operating Costs (other than
real estate taxes) for calendar year 1999
(i.e., January 1, 1999 through December 31,
1999), together with all real estate taxes for
fiscal year 2000 (i.e., July 1, 1999 through
June 30, 2000).
TENANT'S PROPORTIONATE SHARE: 9.74%
PERMITTED USES: Office Uses
COMMERCIAL GENERAL LIABILITY INSURANCE:
$1,000,000 bodily injury, property damage combined single
limit per occurrence, $2,000,000 annual aggregate.
BROKER: Spaulding and Slye Services Limited Partnership and CB Richard
Ellis/Whittier Partners
SECURITY DEPOSIT: $280,000.00
TENANT'S PARKING ACCESS CARDS: 74
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TENANT IMPROVEMENT ALLOWANCE: $351,783 (including architectural and
engineering fees, and an amount not to
exceed $2.00 per square foot of Rentable
Floor Area of the Premises for network
cabling).
1.2 EXHIBITS.
The exhibits listed below in this section are incorporated in this
Lease by reference and are to be construed as part of this Lease:
EXHIBIT A Description of Lot
EXHIBIT B Plan showing Premises.
EXHIBIT C Landlord's Services
EXHIBIT D Rules and Regulations
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE II
PREMISES AND TERM ................................................................................................. 7
2.1 DESCRIPTION OF PREMISES ....................................................................................... 7
2.2 TERM .......................................................................................................... 7
2.3 OPTION TO EXTEND .............................................................................................. 7
ARTICLE III
CONSTRUCTION ...................................................................................................... 9
3.1 TERM COMMENCEMENT DATE ........................................................................................ 9
3.2 DELIVERY OF PREMISES .......................................................................................... 9
3.3 PREPARATION OF PREMISES FOR OCCUPANCY ......................................................................... 10
3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION ................................................................. 11
3.5 ALTERATIONS AND ADDITIONS ..................................................................................... 12
3.6 REPRESENTATIVES ............................................................................................... 13
ARTICLE IV
RENT .............................................................................................................. 13
4.1 ANNUAL RENT ................................................................................................... 13
4.2 ANNUAL OPERATING COST ESCALATION .............................................................................. 13
4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION
PAYMENT ....................................................................................................... 15
4.4 ELECTRICITY ................................................................................................... 16
4.5 CHANGE OF FISCAL YEAR ......................................................................................... 17
4.6 PAYMENTS ...................................................................................................... 17
ARTICLE V
LANDLORD'S COVENANTS .............................................................................................. 17
5.1 LANDLORD'S COVENANTS DURING THE TERM .......................................................................... 17
5.1.1 Building Services ...................................................................................... 17
5.1.2 Additional Building Services ........................................................................... 18
5.1.3 Repairs ............................................................................................... 18
5.1.4 Tenant Directory ..................................................................................... 18
5.1.5 Food Service .......................................................................................... 18
5.1.6 Quiet Enjoyment ........................................................................................ 19
5.2 INTERRUPTIONS ................................................................................................. 19
ARTICLE VI
TENANT'S COVENANTS ................................................................................................. 20
6.1 TENANT'S COVENANTS DURING THE TERM ............................................................................ 20
</TABLE>
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<TABLE>
<S> <C>
6.1.1 Tenant's Payments ...................................................................................... 20
6.1.2 Repairs and Yielding Up ................................................................................ 20
6.1.3 Occupancy and Use ...................................................................................... 21
6.1.4 Rules and Regulations .................................................................................. 22
6.1.5 Safety Appliances ...................................................................................... 22
6.1.6 Assignment and Subletting .............................................................................. 22
6.1.7 Indemnity .............................................................................................. 23
6.1.8 Tenant's Insurance ..................................................................................... 24
6.1.9 Tenant's Worker's Compensation Insurance ............................................................... 24
6.1.10 Landlord's Right of Entry ............................................................................. 24
6.1.11 Loading ............................................................................................... 25
6.1.12 Landlord's Costs ...................................................................................... 25
6.1.13 Tenant's Property ..................................................................................... 25
6.1.14 Labor or Materialmen's Liens .......................................................................... 25
6.1.15 Changes or Additions .................................................................................. 25
6.1.16 Holdover .............................................................................................. 26
6.1.17 Security .............................................................................................. 26
6.1.18 Tenant Financial Statements ........................................................................... 26
ARTICLE VII
DAMAGE AND DESTRUCTION; CONDEMNATION .............................................................................. 26
7.1 FIRE OR OTHER CASUALTY ........................................................................................ 26
7.2 EMINENT DOMAIN ................................................................................................ 28
ARTICLE VII
RIGHTS OF MORTGAGEE ............................................................................................... 29
8.1 PRIORITY OF LEASE ............................................................................................. 29
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S
LIABILITY ..................................................................................................... 30
8.3 MORTGAGEE'S ELECTION .......................................................................................... 31
8.4 NO PREPAYMENT OR MODIFICATION, ETC ............................................................................ 31
8.5 NO RELEASE OR TERMINATION ..................................................................................... 31
8.6 CONTINUING OFFER .............................................................................................. 32
8.7 MORTGAGEE'S APPROVAL .......................................................................................... 32
ARTICLE IX
DEFAULT ........................................................................................................... 32
9.1 EVENTS OF DEFAULT ............................................................................................. 32
9.2 TENANTS OBLIGATIONS AFTER TERMINATION ......................................................................... 33
ARTICLE X
MISCELLANEOUS ..................................................................................................... 34
10.1 NOTICE OF LEASE .............................................................................................. 34
10.2 (Intentionally Omitted) ...................................................................................... 35
</TABLE>
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<TABLE>
<S> <C>
10.3 NOTICES FROM ONE PARTY TO THE OTHER .......................................................................... 35
10.4 BIND AND INURE ............................................................................................... 35
10.5 NO SURRENDER ................................................................................................. 35
10.6 NO WAIVER, ETC ............................................................................................... 35
10.7 NO ACCORD AND SATISFACTION ................................................................................... 36
10.8 CUMULATIVE REMEDIES .......................................................................................... 36
10.9 LANDLORD'S RIGHT TO CURE ..................................................................................... 36
10.10 ESTOPPEL CERTIFICATE ........................................................................................ 37
10.11 WAIVER OF SUBROGATION ....................................................................................... 37
10.12 ACTS OF GOD ................................................................................................. 37
10.13 BROKERAGE ................................................................................................... 37
10.14 SUBMISSION NOT AN OFFER ..................................................................................... 38
10.15 APPLICABLE LAW AND CONSTRUCTION ............................................................................. 38
10.16 AUTHORITY OF TENANT ......................................................................................... 39
ARTICLE XI
SECURITY DEPOSIT .................................................................................................. 39
</TABLE>
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ARTICLE II
PREMISES AND TERM
2.1 DESCRIPTION OF PREMISES.
Subject to and with the benefit of the provisions of this Lease,
Landlord hereby leases to Tenant, and Tenant leases from Landlord, the Premises,
excluding exterior faces of exterior walls, the common facilities area and
building service fixtures and equipment serving exclusively or in common other
parts of the Building.
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto: (a) common walkways, driveways, hallways,
lobbies, ramps, loading docks and stairways located in the Building or on the
parcel on which the Building is located (the "Lot"), (b) building service
fixtures and equipment serving the Premises including elevators, (c) the parking
facility, if any, on a first-come, first-served basis in the location from time
to time designated by Landlord, Tenant's use not to exceed the number of
Tenant's Parking Access Cards, and (d) if the Premises include less than the
entire Rentable Floor Area of any floor, the common toilets in the central core
area of such floor. Such rights shall be always subject to the Rules and
Regulations set forth in Exhibit E, attached hereto and incorporated herein by
reference, as the same may be amended by the Landlord from time to time and such
other reasonable Rules and Regulations from time to time established by the
Landlord by suitable notice to Tenant, and to the right of the Landlord to
designate and change from time to time such areas, facilities, fixtures and
equipment.
2.2 TERM.
To have and to hold for a period (the "Term") commencing on the Term
Commencement Date (as defined in Section 3.1 hereof) and continuing for the
Term, unless sooner terminated as provided herein.
2.3 OPTION TO EXTEND.
Tenant shall have the right and option to extend the Term for one (1)
additional period of five (5) years (the "Extension Term") commencing upon the
expiration of the original Term referred to in Section 1.1 (the "Original
Term"), provided that Tenant shall give Landlord notice of Tenant's exercise of
such option at least nine (9) months prior to the expiration of the Original
Term and provided further that no event of default by Tenant exists hereunder,
and no condition exists which with the giving of notice or the passage of time,
or both, would constitute an event of default hereunder, at either the time of
giving such notice or at the time of the commencement of such Extension Term.
Prior to the exercise by Tenant of such option, the expression "Term" shall mean
the Original Term, and after the exercise by Tenant of such option, the
expression "Term" shall mean the Original Term as it has
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<PAGE> 8
been extended by the Extension Term. Except as expressly otherwise provided in
the following paragraph and except for this Section 2.3 hereof, all the terms,
covenants, conditions, provisions and agreements in the Lease contained shall be
applicable to the Extension Term. If Tenant shall give notice of its exercise of
said option to extend in the manner and within the time period provided
aforesaid, the Term shall be extended upon the giving of such notice without the
requirement of any further action on the part of either Landlord or Tenant. If
Tenant shall fail to give timely notice of the exercise of any such option as
aforesaid, Tenant shall have no right to extend the Term of this Lease, time
being of the essence of the foregoing provisions.
The Annual Base Rent payable during the Extension Term shall be the
amount being the greater of (i) the Annual Base Rent in effect for the Lease
Year immediately preceding the commencement of the Extension Term or (ii) the
Fair Market Rent for the Premises, as determined below, as of the commencement
of the Extension Term. If for any reason the Annual Base Rent payable during the
Extension Term has not been determined as of the commencement of the Extension
Term, Tenant shall pay the Annual Base Rent payable during the Original Term
until the Annual Base Rent for the Extension Term is determined, at which time,
an appropriate adjustment, if any, shall be made.
For purposes here, the Fair Market Rent shall mean the fair rent for
the Premises as of the commencement of the Extension Term under market
conditions then existing. Fair Market Rent shall be determined by agreement
between Landlord and Tenant, but if Landlord and Tenant are unable to agree upon
the Fair Market Rent at least six (6) months prior to the date upon which the
Fair Market Rent is to take effect, then the Fair Market Rent shall be
determined by appraisal made as hereinafter provided by a board of three (3)
reputable independent commercial real estate consultants, appraisers, or
brokers, each of whom shall have at least ten years of experience in the north
suburban Boston office rental market and each of whom is hereinafter referred to
as "appraiser". Tenant and Landlord shall each appoint one such appraiser and
the two appraisers so appointed shall appoint the third appraiser. The cost and
expenses of each appraiser appointed separately by Tenant and Landlord shall be
borne by the party who appointed the appraiser. The cost and expenses of the
third appraiser shall be shared equally by Tenant and Landlord. Landlord and
Tenant shall appoint their respective appraisers at least five (5) months prior
to commencement of the period for which Fair Market Rent is to be determined and
shall designate the appraisers so appointed by notice to the other party. The
two (2) appraisers so appointed and designated shall appoint the third appraiser
at least four (4) months prior to the commencement of such period and shall
designate such appraisers by notice to Landlord and Tenant. The board of three
(3) appraisers shall determine the Fair Market Rent of the space in question as
of the commencement of the period to which the Fair Market Rent shall apply and
shall notify Landlord and Tenant of their determinations at least sixty (60)
days prior to the commencement of such period. If the determinations of the Fair
Market Rent of any two (2) or all three
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(3) appraisers shall be identical in amount, said amount shall be deemed to be
the Fair Market Rent of the subject space. If the determinations of all three
(3) appraisers shall be different in the amount, the average of the two values
nearest in amount shall be deemed the Fair Market Rent. The Fair Market Rent of
the subject space determined in accordance with the provisions of this Section
shall be binding and conclusive on Tenant and Landlord.
Time is of the essence of the foregoing provisions.
ARTICLE III
CONSTRUCTION
3.1 TERM COMMENCEMENT DATE.
The Term of this Lease shall commence on, and the Term Commencement
Date shall be, the earliest of (a) the date on which the Premises shall be
deemed ready for occupancy in accordance with Section 3.3. below, or (b) the
date on which Tenant commences beneficial use of the Premises, or (c) the
Scheduled Term Commencement Date, subject to extension for the period of any
delay caused by Landlord. In no event shall Landlord be deemed to have caused a
delay by withholding its approval to Tenant's proposed Plans or Contractor (as
those terms are defined in Section 3.3 below), so long as Landlord has responded
to Tenant within the time periods set forth in Section 3.3 hereof.
As soon as may be convenient after the Term Commencement Date has been
determined, Landlord and Tenant agree to join with each other in the execution,
in recordable form, of a written Declaration in which the Term Commencement Date
and specified term of this Lease shall be stated.
3.2 DELIVERY OF PREMISES.
Tenant acknowledges that Tenant has had an opportunity to inspect the
Premises. Except as set forth hereinafter, the Premises, shall be delivered to
Tenant As Is, Where Is with all faults and without representation, warranty or
guaranty of any kind by Landlord to Tenant. Landlord agrees to give Tenant, and
its Architect, Contractor and subcontractors reasonable access to the Premises
to permit Tenant to prepare drawings and obtain permits and approvals with
respect to Tenant's Work (as defined below). Tenant's access to and use and
occupancy of the Premises prior to the Term Commencement Date shall be subject
to all of the provisions of this Lease, other than the payment of Annual Rent
and electricity changes.
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3.3 PREPARATION OF PREMISES FOR OCCUPANCY.
Subject to the provisions hereof, Tenant shall undertake all work to
prepare the Premises for Tenant's use and occupancy in accordance with Plans
approved as set forth below ("Tenant's Work") at Tenant's sole cost and expense,
except that Landlord shall reimburse Tenant in an amount not to exceed the
Tenant Improvement Allowance, which amount shall include an amount with respect
to network cabling not to exceed $2.00 per square foot of Rentable Floor Area of
the Premises. Provided that Tenant is not then in default under any provision of
this Lease or, if Tenant is in default, that Tenant cures the same within the
applicable cure period, if any, the Tenant Improvement Allowance shall be
payable by Landlord to Tenant to reimburse Tenant for architectural fees payable
to Tenant's architect (the "Architect"), upon notice to Tenant accompanied by
the Architect's invoice therefor and to pay the Contractor (as defined
hereinafter) directly upon notice to Landlord from time to time, accompanied by
invoices from the Contractor which have been approved by the Architect. After
the entire amount of the Tenant Improvement Allowance has been paid out by
Landlord, Tenant shall bear all additional costs to complete Tenant's Work at
Tenant's sole cost and expense; provided, however, that Tenant may elect to have
Landlord fund an additional amount of the cost of Tenant's Work not to exceed
$5.00 per square foot of Rentable Floor Area of the Premises by written
notice given to Landlord no later than the commencement of Tenant's Work
specifying the additional amount to be funded (the "Additional Allowance"), in
which event such additional amount shall be amortized over the Original Term of
the Lease, together with interest thereon at the rate of twelve percent (12%)
per annum, and added to the Annual Rent payable by Tenant to Landlord hereunder.
If any portion of the Tenant Improvement Allowance or Additional Allowance
remains after the completion of Tenant's Work, it shall not be payable or
credited to Tenant in any manner whatsoever. Tenant's contractor (the
"Contractor") shall be subject to the prior approval of Landlord, such approval
not to be unreasonably withheld, and to be given or withheld within ten (10)
business days of Tenant's notice to Landlord stating the name and address of the
proposed Contractor and requesting Landlord's approval of the same. The Premises
shall be deemed ready for occupancy on the date on which Tenant's Work has been
substantially completed as reasonably determined by Landlord. In any event,
Tenant's Work shall be deemed to have been substantially completed when Tenant
has obtained a Certificate of Occupancy therefor or other authorization from the
City of Cambridge to occupy the Premises for the Permitted Uses.
For purposes hereof, Tenant shall submit a complete set of proposed
plans and specifications (collectively, "Plans") showing Tenant's Work to
Landlord. No later than five (5) business days thereafter, Landlord shall either
approve or disapprove the Plans, specifying by notice to Tenant in reasonable
detail the respects in which the Plans are disapproved. If Landlord disapproves
the Plans, Tenant shall submit to
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<PAGE> 11
Landlord revised Plans which respond to the items of disapproval specified in
Landlord's notice no later than five (5) days from Landlord's notice of
disapproval. Thereafter, Landlord shall have five (5) days from Tenant's
submission of the Plans to Landlord to approve or disapprove the revised Plans
in accordance with the foregoing and, in case of disapproval, Tenant shall have
an additional five (5) days to submit revised Plans responding to the items of
disapproval specified in Landlord's notices. The parties shall work diligently
and in good faith to agree upon approved Plans.
Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises to normal office use on lease
termination or increasing the cost of construction, insurance or taxes on the
Building or of Landlord's services called for by Section 5.1 unless Tenant first
gives assurances acceptable to Landlord that such readaptation will be made
prior to such termination without expense to Landlord and makes provisions
acceptable to Landlord for payment of such increased cost. Landlord will also
disapprove any alterations or additions requested by Tenant which will delay
completion of the Premises. Tenant's construction, installation of furnishings,
and later changes or additions shall be coordinated with any work being
performed by Landlord in such manner as to maintain harmonious labor relations
and not to damage the Building or Lot or interfere with Building operations.
3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building and the Lot.
Either party may inspect the work of the other at reasonable times and promptly
shall give notice of observed defects. Landlord's obligations under Sections 3.2
and 3.3, if any, shall be deemed to have been performed when Tenant commences to
occupy any portion of the Premises for the Permitted Uses except for items which
are incomplete or do not conform with the requirements of Section 3.1 and as to
which Tenant shall in either case have given written notice to Landlord within
three (3) weeks after such commencement, unless the particular item is used only
during a season other than the season in which the Term Commencement Date
occurs, in which case such notice shall given within three (3) weeks from
commencement of use of such item in the first applicable season following the
Term Commencement Date. If Tenant shall not have commenced to occupy the
Premises for the Permitted Uses within thirty (30) days after the Term
Commencement Date, a certificate of completion by a licensed architect or
registered engineer shall be conclusive evidence that Landlord has performed all
such obligations except for items stated in such certificate to be incomplete or
not in conformity with such requirements. Tenant acknowledges that the Building
may be undergoing substantial renovation during the Term of the Lease.
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Tenant acknowledges that its quiet enjoyment and access to the Demised Premises
during the Term may be disturbed by the noise, dust, vibrations and other
effects of demolition in the Building, provided, however, that Landlord shall
use reasonable and diligent efforts to avoid undue interference with Tenant's
use of the Premises.
3.5 ALTERATIONS AND ADDITIONS.
This Section 3.5 shall apply before and during the Term. Tenant shall
not make any alterations and additions to the Premises except in accordance with
plans and specifications first approved by Landlord. In no event shall any
alterations or additions be considered or approved by Landlord which (a) involve
or might affect any structural or exterior element of the Building or building
mechanical, electrical or plumbing systems, including the common facilities of
the Building, or (b) will require unusual expense to readapt the Premises to
normal office use on Lease termination or increase the cost of construction or
of insurance or taxes on the Building or the Lot. All alterations and additions
shall become a part of the Premises, unless and until Landlord, at its option,
shall specify the same for removal at the time of Landlord's approval of the
alterations and additions pursuant to Section 6.1.2. All of Tenant's alterations
and additions and installation and delivery of telephone systems, furnishings,
and equipment shall be coordinated with any work being performed by Landlord and
shall be performed in such manner, and by such persons as shall maintain
harmonious labor relations and not cause any damage to the Building or
interference with Building construction or operation and, except for
installation of furnishings, equipment and telephone systems, and except as
otherwise expressly set forth herein, shall be performed by general contractors
first approved by Landlord. Before commencing any work Tenant shall: secure all
licenses and permits necessary therefor; deliver to Landlord a statement of the
names of all its contractors and subcontractors (the identity of which must have
been previously approved by Landlord as hereinabove contemplated) and the
estimated cost of all labor and material to be furnished by them; and cause each
contractor to carry (i) worker's compensation insurance in statutory amounts
covering all the contractor's and subcontractor's employees and (ii)
comprehensive public liability insurance with such limits as Landlord may
reasonably require, but in no event less than a combined single limit of
$1,500,000 (all such insurance to be written in companies approved by Landlord
and insuring Landlord and Tenant as well as the contractors), and to deliver to
Landlord certificates of all such insurance. Tenant agrees to pay promptly when
due, and to defend and indemnify Landlord from and against, the entire cost of
any work done on the Premises by Tenant, its agents, employees or independent
contractors, and not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Building or the
Lot and immediately to discharge any such liens which may so attach. Tenant
shall pay within fourteen (14) days after being billed therefor by Landlord, as
additional rent, one hundred percent (100%) of any increase in real estate
taxes on the Premises not otherwise billed to Tenant which shall at any time
after the commencement of the
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Term, result from any alteration, addition or improvement to the Premises made
by or on behalf of Tenant.
In connection with the installation of telecommunication equipment by
Tenant, such installation shall occur only in such locations and in such a
manner as approved in writing by the Landlord and none of such wires, ducts or
equipment shall be located in areas outside the Premises (provided, however,
that Tenant may install wires and cables in risers and ducts outside the
Premises which are in existence on the date of this Lease and for which there
exists, in Landlord's sole discretion, adequate space for Tenant's wires and
cables). Telephone switches, antennae, electronic distribution boxes and similar
equipment shall only be located within the Premises. Landlord shall not be
liable for any loss, damage or interruption of service related to such
facilities.
3.6 REPRESENTATIVES.
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article III upon approval and other
actions on the party's behalf by Landlord's Representative in the case of
Landlord or Tenant's Representative in the case of Tenant or by any person
designated in substitution or addition by notice to the other party.
ARTICLE IV
RENT
4.1 ANNUAL RENT.
Tenant agrees to pay rent to Landlord without any offset or reduction
whatever (except as made in accordance with the express provisions of this
Lease), the Annual Rent in equal monthly installments in advance on the first
day of each calendar month included in the Term after the Term Commencement
Date; and for any portion of a calendar month at the beginning or end of the
Term, at the proportionate rate payable for such portion, in advance.
4.2 ANNUAL OPERATING COST ESCALATION.
In addition to Annual Rent, Tenant shall pay to Landlord as additional
rent, Tenant's Proportionate Share of Annual Operating Costs (as
hereinafter defined) which is in excess of Base Annual Operating Costs
("Tenant's Escalation Payment"). Tenant's Proportionate Share of Annual
Operating Costs shall be determined by multiplying Annual Operating Costs by a
fraction, the numerator of which is the Rentable Floor Area of the Premises and
the denominator of which is the Total Rentable Floor Area of the Building. In
the event that the Building is not fully
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occupied, such Annual Operating Costs shall be adjusted to reflect the costs
which would be incurred if the Building were 95% occupied.
Annual Operating Costs shall mean the actual expenses paid or incurred
by Landlord in the operation, maintenance and management of the Building and Lot
and all real estate taxes and assessments, general or special, ordinary or
extraordinary, foreseen or unforeseen, imposed upon the Building and Lot and any
future improvement of whatever kind thereto or thereon. Annual Operating Costs
shall include without limitation:
(a) real estate taxes on the Building and Lot and off-site parking
areas; (b) installments and interest on assessments for public betterment or
public improvements; (c) expenses of any proceedings for abatement of taxes and
assessments with respect to any fiscal year or fraction of a fiscal year; (d)
service, repair, replacement and other maintenance to the Building and Lot and
components thereof; (e) wages and salaries (and taxes and other charges imposed
upon employers with respect to such wages and salaries) and fringe benefits and
worker's compensation insurance premiums paid to persons employed by the
Landlord for rendering service in the operation, maintenance, and repair of the
Building and Lot and related facilities and off-site parking areas and
amenities; (f) cost of independent contractors hired for the operation,
maintenance and repair of the Building and Lot and related facilities and
amenities (which payments may be to affiliates of Landlord provided the same are
at reasonable rates consistent with the type of occupancy and the services
rendered); (g) costs of electricity, steam, water, fuel, heating, lighting, air
conditioning, sewer, and other utilities chargeable to the operation and
maintenance of the Building and Lot net of tenant's electric; (h) cost of
insurance including insurance deductible for and relating to the Building and
the Lot, including fire and extended coverage (or such greater coverages as
Landlord may elect to carry), elevator, boiler, sprinkler leakage, water damage,
public liability and property damage, plate glass, and rent protection; (i)
costs of supplies; (j) costs of window cleaning, janitorial services, security
services, landscaping, snow and ice removal and painting; (k) sales or use taxes
on supplies and services; (l) consulting, accounting fees, legal, tax appeal,
engineering and other professional fees and expenses; (m) management fees not to
exceed five percent (5%) of gross revenues generated by the Building; (n)
contributions, costs or expenses related to common areas or facilities and
off-site parking areas of any office park or development of which the Building
or Lot are a part, (o) alterations and improvements to the Building and Lot
which are not capital in nature made by reason of any requirement of any
insurance underwriters or any federal, state, or local statutes, regulations,
ordinances, or any other duly constituted public authorities having jurisdiction
over the Building and Lot; and (p) all Expense of Operation of the Food Services
as defined in section 5.1.5 and (q) without limiting any of the foregoing, any
other expense or charge which, in accordance with sound accounting and
management principles generally accepted, would be construed as an operating
expense. The term Operating Costs shall not
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include the interest and amortization on mortgages for the Building and Lot or
leasehold interests therein; any charge for depreciation; leasing commissions or
legal fees for the negotiation and enforcement of leases; and the cost of
special services rendered to tenants (including Tenant) for which a special
charge is made.
In the event Landlord shall make a capital expenditure for Essential
Capital Improvements, as hereinafter defined, during any year, the annual
amortization of such expenditure (determined by dividing the amount of the
expenditure by the useful life of the improvement, as determined by Landlord),
together with interest at the greater of the Prime Rate prevailing plus 2% or
Landlord's actual borrowing rate for such Essential Capital Improvements shall
be deemed part of Annual Operating Costs for each year of such useful life.
As used herein, "Essential Capital Improvement" means any of the following:
(i) a labor saving device, energy saving device or other installation,
improvement or replacement which reduces Operating Costs as referred to above,
whether or not voluntary or required by governmental mandate; or
(ii) an installation, change, improvement, addition, alteration, or
removal of any architectural barriers, whether or not the foregoing are
structural in nature, made by reason of any governmental requirement whether or
not such governmental requirement exists on the date of the execution of this
Lease if such governmental requirement is or will be applicable generally to
similar office buildings; or
(iii) an installation or improvement which directly enhances the health
or safety of tenants in the Building generally, whether or not voluntary or
required by governmental mandate (as for example, without limitation, for life
safety or security); or
(iv) costs or expenditures incurred in replacing compressors and
refrigeration equipment in order to comply with regulations regarding ozone
depleting refrigerants or resulting from the excessive cost of or inability to
obtain such materials.
4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT.
If, with respect to any fiscal year or fraction thereof during the
Term, Landlord estimates that Tenant will be obligated to pay Tenant's
Escalation Payment, then Tenant shall pay, as additional rent, on the first day
of each month of such fiscal year and each ensuing fiscal year thereafter, an
estimate equal to 1/12th of Tenant's Escalation Payment for the respective
fiscal year ("Estimated Monthly Operating Expense Cost Payments"), with an
appropriate additional payment or refund to be made within 30 days after
Landlord's Statement (as hereafter defined) is delivered to Tenant. Landlord may
adjust such Estimated Monthly Annual Operating Cost
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Payment from time to time and at any time during a fiscal year, and Tenant shall
pay, as additional rent, on the first day of each month following receipt of
Landlord's notice thereof, the adjusted Estimated Monthly Annual Operating Cost
Payment.
As soon as practicable after the end of each fiscal year ending during
the Term and after lease termination, Landlord shall render a statement
("Landlord's Statement") in reasonable detail and according to usual accounting
practices certified by Landlord and showing for the preceding fiscal year or
fraction thereof, as the case may be, Landlord's Annual Operating Costs,
Tenant's Proportionate Share thereof, and Tenant's Escalation Payment, as
defined above.
4.4 ELECTRICITY.
Tenant will be billed for electricity for Tenant's lights and outlet
consumption on a monthly basis based on an annual estimate of $1.00 per rentable
square foot. Should the actual average expense to Landlord per square foot for
Tenant's electricity be different, an additional charge or a credit will be made
at the end of each year's occupancy to be paid with or credited against the next
monthly charge for Tenant's electricity. Notwithstanding the foregoing, Landlord
reserves the right to assess Tenant's charge for electricity based on an
engineer's survey of Tenant's electrical usage conducted from time to time or on
the sub-metering of all or part of the Premises. Such charges for Tenant's
electricity shall be paid by Tenant as additional rent at the same time and in
the same manner as payments of Annual Rent.
Tenant covenants and agrees that its use of electric current shall not
exceed 4.0 watts per square foot of usable floor area and that its total
connected lighting load will not exceed the maximum load from time to time
permitted by applicable governmental regulations. In the event Tenant introduces
into the Premises personnel or equipment which overloads the capacity of the
Building's electrical system or in any other way interferes with the system's
ability to perform properly, supplementary systems including check meters may,
if and as needed, at Landlord's option, be provided by Landlord, at Tenant's
expense. Landlord shall not in any way be liable or responsible to Tenant for
any loss or damage or expense which Tenant may sustain or incur if, during the
Term of this Lease, either the quantity or character of electric current is
changed or electric current is no longer available or suitable for Tenant's
requirements due to a factor or cause beyond Landlord's control.
Landlord reserves the exclusive right to provide electric and other
utility service to the Building. Tenant may request permission from Landlord
(which consent may be withheld in its sole discretion) to arrange electric and
other utility service exclusively serving the Premises. Should such permission
be granted, however, such service shall be installed only in such locations and
in such manner as shall be specifically approved by Landlord in its reasonable
discretion, Tenant shall be responsible for restoration of any damage caused by
such installation and Tenant
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shall be responsible for removal of such installations at the termination of
this Lease. Landlord may limit Tenant's choice of electrical or other
utility providers in order to avoid proliferation of such services to the
Building or for any other reason. In no event, however, shall Landlord be
responsible for any damages or inconvenience caused by interruption in or poor
quality of electricity or other utility services provided to the Building or the
Premises unless such damages are caused by the negligence of Landlord, its
agents or employees.
4.5 CHANGE OF FISCAL YEAR.
Landlord shall have the right from time to time to change the periods
of accounting under Section 4.2 to any annual period other than a calendar year,
and upon any such change all items referred to in Section 4.2 shall be
appropriately apportioned. In all Landlord's Statements rendered under Section
4.2, amounts for periods partially within and partially without the accounting
periods shall be appropriately apportioned, and any items which are not
determinable at the time of a Landlord's Statement shall be included therein on
the basis of Landlord's estimate, and with respect thereto Landlord shall render
promptly after determination a supplemental Landlord's Statement, and
appropriate adjustment shall be made according thereto. All Landlord's
Statements shall be prepared on an accrual basis of accounting.
4.6 PAYMENTS.
All payments of Annual Rent and additional rent shall be made to
Managing Agent, or to such other person as Landlord may from time to time
designate. If any installment of Annual Base Rent or additional rent or payments
due on account of leasehold improvements is paid more than 10 days after the
due date thereof, at Landlord's election, it shall bear interest at a rate equal
to the average prime commercial rate from time to time established by the three
largest national banks in Boston, Massachusetts plus 4% per annum from such due
date, which interest shall be immediately due and payable as further additional
rent.
ARTICLE V
LANDLORD'S COVENANTS
5.1 LANDLORDS COVENANTS DURING THE TERM.
Landlord covenants during the Term:
5.1.1 Building Services - To furnish during normal working hours heat,
air-conditioning, elevator service and hot and chilled water service and after
normal working hours on business days cleaning service as shown in Exhibit D.
"Normal working hours" shall mean the hours of 8:00 a.m. through 6:00 p.m.
Monday through
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Friday and the hours of 8:00 a.m. through 1:00 p.m. on Saturdays, and no hours
on legal holidays and Sundays; provided, however, that Tenant shall have access
to the Building 24 hours a day, 365 days a year, by means of a key or other
access device to the main lobby of the Building to be provided to Tenant by
Landlord. Tenant shall pay when due all amounts and charges for such services
during hours other than normal working hours and shall indemnify and hold
harmless Landlord from and against any and all claims, liabilities, damages,
losses, costs and expenses (including reasonable attorneys' fees) in connection
therewith. Landlord is not and shall not be required to furnish to Tenant or any
other occupant of the Premises telephone or other communication service.
5.1.2 Additional Building Services - To furnish, through Landlord's
employees or independent contractors, reasonable additional Building operation
services upon reasonable advance request of Tenant at equitable rates including
an administrative fee from time to time established by Landlord to be paid by
Tenant;
5.1.3 Repairs - Except as otherwise provided in Article VII, to make
such repairs to the roof, exterior walls, floor slabs, other structural
components and common facilities of the Building as may be necessary to keep
them in serviceable condition; and
5.1.4 Tenant Directory - To include Tenant's name on the Tenant
directory maintained by Landlord in the main lobby of the Building and on the
floor of the Building on which the Premises are located, and to provide a
Building standard sign on or adjacent to the entrance door to the Premises.
5.1.5 Food Service - Landlord (or any affiliate or agent designated by
Landlord) may provide, within the Building or any building in the office park in
which the Building is located known as CambridgePark (an "Office Park
Building"), a food service of a size, type, location and serving capacity as
Landlord shall deem suitable, in its sole discretion. All losses incurred by
Landlord in operating the food service facility during any fiscal year and
properly allocable to the Building and other Office Park Buildings (the "Food
Service Losses") shall be added to the Landlord's Annual Operating Costs for the
year in which such losses were incurred for the purpose of calculating the
Tenant's Escalation Payment pursuant to Section 4.2. All profits realized by the
Landlord in operating the food service facility during any fiscal year and
properly allocable to the Building and other Office Park Buildings (the "Food
Service Profits") shall be credited against the Landlord's Annual Operating
Costs for the Building and other Office Park Buildings for such year. For the
purposes of this Section 5.1.5, the Food Service Profits of Losses for any year
shall be calculated by deducting from the Gross Receipts of the Food Service (as
hereinafter defined) all Expenses of Operation (as hereinafter defined). Gross
Receipts of the Food Service as used herein are defined to mean the total amount
in dollars of the actual prices charged, in cash, for food and beverages served
at the facility, excluding
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sums collected for any sales tax or excise tax. The Expenses of Operation of the
food service shall mean all expenses of operating the food service facility,
including without limitation, salaries, wages, employment taxes and fringe
benefits, food service administration costs, food costs, concessionaire's costs,
operating costs, equipment maintenance and repair costs, if any, plus an annual
return to the Landlord upon its investment in establishing the food service
facility (including without limitation the cost of furniture, equipment,
furnishings, and related mechanical systems) equal to fifteen percent (15%) of
its investment or $50,000, whichever is less.
If during any six-month period, the mathematical average of the number
of luncheon meals served by the food service facility per day is fewer than 300,
or the Food Service Losses incurred by the Landlord in operating the food
service facility during such six-month period exceed $25,000, then the Landlord
shall have the right and option, in its sole discretion, to take any steps
necessary to reduce or eliminate the losses (including without limitation,
modification or termination of the food service), unless one hundred percent
(100%) of the tenants occupying the Building agree that the Landlord's Annual
Operating Costs hereunder for the purpose of calculating the Annual Operating
Expense Escalation shall include one hundred percent (100%) of the Food Service
Losses, without limitation.
Landlord reserves the right to approve Tenant's use of a food service
operator other than the Landlord's food service operator, if any. Such approval
will not be unreasonably withheld.
5.1.6 Quiet Enjoyment - That Landlord has the right to make this Lease
and that Tenant on paying the rent and performing its obligations hereunder
shall peacefully and quietly have, hold and enjoy the Premises throughout the
Term without any manner of hindrance or molestation from Landlord or anyone
claiming under Landlord, subject however to all the terms and provisions hereof.
5.2 INTERRUPTIONS.
Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance, injury, death or for
loss of business arising from power or other utility losses or shortages, air
pollution or contamination, or from the necessity of Landlord's entering the
Premises for any of the purposes in this Lease authorized, or for repairing the
Premises or any portion of the Building or the Lot or for any interruption or
termination (by reason of any cause reasonably beyond Landlord's control,
including without limitation, loss of any applicable license or government
approval) of the food service provided by Landlord pursuant to Section 5.1.5. In
case Landlord is prevented or delayed from making any repairs, alterations or
improvements, or furnishing any service or performing any other covenant or duty
to be performed on Landlord's part, by reason of any cause beyond
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Landlord's reasonable control, Landlord shall not be liable to Tenant therefor,
nor, except as expressly otherwise provided in Article VII, shall Tenant be
entitled to any abatement or reduction of rent by reason thereof, nor shall the
same give rise to a claim in Tenant's favor that such failure constitutes actual
or constructive total or partial, eviction from the Premises.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
Landlord also reserves the right to institute such policies, programs
and measures as may be necessary, required or expedient for the conservation or
preservation of energy or energy services or as may be necessary or required to
comply with applicable codes, rules, regulations or standards.
ARTICLE VI
TENANT'S COVENANTS
6.1 TENANT'S COVENANTS DURING THE TERM.
Tenant covenants during the Term and such further time as Tenant
occupies any part of the Premises:
6.1.1 Tenant's Payments - To pay when due (a) all Annual Rent, (b) all
taxes which may be imposed on Tenant's personal property in the Premises
(including, without limitation, Tenant's fixtures and equipment) regardless to
whomever assessed, (c) as additional rent, Tenant's Escalation Payments, (d) all
charges by public utilities for electricity, telephone (including service
inspections therefor) and other services rendered to the Premises not otherwise
required hereunder to be furnished by Landlord without charge and not consumed
in connection with any services required to be furnished by Landlord without
charge, (e) as additional rent, all costs for Landlord's Work attributable to
change orders and any work performed in the Premises by Landlord or Tenant in
excess of Landlord's Work, and (f) as additional rent, all charges to Landlord
for services rendered pursuant to Section 5.1.2 hereof
6.1.2 Repairs and Yielding Up - Except as otherwise provided in Article
VII and Section 5.1.3, to keep the Premises in good order, repair and condition,
reasonable wear only excepted, including making repairs to the HVAC and
electrical systems resulting from the design or construction of such systems as
part of Tenant's Work; and at the expiration or termination of this Lease
peaceably to yield up the
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Premises and all alterations and additions therein, including all telephone and
data wiring installed by or at the request of tenant, in such order, repair and
condition, first removing all goods and effects of Tenant and any alterations
and additions, the removal of which is required by agreement or specified to be
removed by Landlord by notice to Tenant at the time of approval of the
alterations and additions, and repairing all damage caused by such removal and
restoring the Premises and leaving them clean and neat.
6.1.3 Occupancy and Use - Continuously from the Commencement Date, to use
and occupy the Premises only for the Permitted Uses; not to injure or deface the
Building or the Lot; to keep the Premises clean and in a neat and orderly
condition; and not to permit in the Premises any use thereof which is improper,
offensive, contrary to law or ordinances, or liable to create a nuisance or to
create an unsafe or hazardous condition, or to invalidate or increase the
premiums for any insurance on the Building or its contents or liable to render
necessary any alteration or addition to the Building; not to dump, flush, or in
any way introduce any Hazardous Materials or any other toxic substances into the
septic, sewage or other waste disposal system serving the Premises, not to
generate, store or dispose of Hazardous Materials in or on the Premises, or the
Lot or dispose of Hazardous Materials from the Premises to any other location
without the prior written consent of Landlord and then only in compliance with
the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C.
Section 6901 et seq., and all other applicable laws, ordinances and regulations;
to notify Landlord of any incident which would require the filing of a notice
under applicable federal, state, or local law; not to use, store or dispose of
Hazardous Materials on the Premises without first submitting to Landlord a list
of all such Hazardous substances and all permits required therefor and
thereafter providing to Landlord on an annual basis Tenant's certification that
all such permits have been renewed with copies of such renewed permits; and to
comply with the orders and regulations of all governmental authorities with
respect to zoning, building, fire, health and other codes, regulations,
ordinances or laws applicable to the Premises. As used herein, "Hazardous
Materials" shall mean and include, but shall not be limited to, any petroleum
product and all hazardous or toxic substances or wastes including any
asbestos-containing materials, waste oils, solvents and chlorinated oils,
polychlorinated biphenyls (PCBs), or substances which are included under or
regulated by any federal, state or local law, rule or regulation (whether now
existing or hereafter enacted or promulgated, as they may be amended from time
to time) pertaining to the environment, contamination or clean-up (all such
laws, rules and regulations being referred to collectively as the "Environmental
Laws"), including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 and
regulations adopted pursuant to said Act. Notwithstanding the foregoing, Tenant
may store and use cleaning fluids, copier toner and other materials customarily
used incidental to normal office use in usual amounts, provided the same are
stored, used and disposed of in strict compliance with all Environmental Laws.
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6.1.4 Rules and Regulations - To comply with the Rules and Regulations
set forth in Exhibit E and all other reasonable Rules and Regulations hereafter
made by Landlord, of which Tenant has been given notice, for the care and use of
the Building and the Lot and their facilities and approaches, it being
understood that Landlord shall not be liable to Tenant for the failure of other
tenants of the Building to conform to such Rules and Regulations.
6.1.5 Safety Appliances - To keep the Premises equipped with all safety
appliances required by law or ordinance or any other regulation of any public
authority because of any use made by Tenant and to procure all licenses and
permits so required because of such use and, if requested by Landlord, to do any
work so required because of such use, it being understood that the foregoing
provisions shall not be construed to broaden in any way Tenant's Permitted Uses.
6.1.6 Assignment and Subletting.
Not without the prior written consent of Landlord to assign,
mortgage, pledge, encumber, sell or transfer this Lease, in whole or in part, to
make any sublease, or to permit occupancy of the Premises or any part thereof by
anyone other than Tenant, voluntarily or by operation of law (it being
understood that in no event shall Landlord consent to any such assignment,
sublease or occupancy if the same is on terms more favorable to the successor
occupant than to the then occupant); as additional rent, to reimburse Landlord
promptly for reasonable legal and other expenses incurred by Landlord in
connection with any request by Tenant for consent to assignment or subletting;
no assignment or subletting shall affect the continuing primary liability of
Tenant (which, following assignment, shall be joint and several with the
assignee); no consent to any of the foregoing in a specific instance shall
operate as a waiver in any subsequent instance. Landlord's consent to any
proposed assignment or subletting shall not be unreasonably withheld, but is
required both as to the terms and conditions thereof, and as to the
creditworthiness of the proposed assignee or subtenant and the consistency of
the proposed assignee's or subtenant's business with other uses and tenants in
the Building. In the event that any assignee or subtenant pays to Tenant any
amounts in excess of the Annual Rent and additional rent then payable hereunder,
or pro rata portion thereof on a square footage basis for any portion of the
Premises, Tenant shall promptly pay fifty percent (50%) of said excess to
Landlord as and when received by Tenant. If Tenant requests Landlord's consent
to assign this Lease or sublet more than thirty-five (35%) of the Premises,
Landlord shall have the option, exercisable by written notice to Tenant given
within ten (10) days after receipt of such request, to terminate this Lease as
of a date specified in such notice which shall be not less than thirty (30) or
more than sixty (60) days after the date of such notice. Landlord may, in its
sole discretion, withhold consent to any proposed assignment or subletting to
another tenant of the Building or an affiliate of such tenant or an entity (or
affiliate of any
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entity) with which Landlord was negotiating for space in the Building during the
preceding eighteen (18) months.
If, at any time during the Term of this Lease, Tenant is:
(i) a corporation, limited liability company or a trust
(whether or not having shares of beneficial interest) and there shall occur any
change in the identity of a majority of the persons then having power to
participate in the election or appointment of the directors, trustees or other
persons exercising like functions and managing the affairs of Tenant; or
(ii) a partnership or association or otherwise not a natural
person (and is not a corporation, limited liability company or a trust) and
there shall occur any change in the identity of a majority of the persons who
then are members of such partnership or association or who comprise Tenant;
Tenant shall so notify Landlord and Landlord may terminate this Lease by notice
to Tenant given within ninety (90) days thereafter if, in Landlord's reasonable
judgment, the credit of Tenant is thereby materially impaired. This paragraph
shall not apply if the initial Tenant named herein is a corporation and the
outstanding voting stock thereof is listed on a recognized securities exchange.
6.1.7 Indemnity - To defend, with counsel approved by Landlord, all
actions against Landlord, Managing Agent, any partner, member, trustee,
stockholder, officer, director, employee or beneficiary of Landlord or Managing
Agent, holders of mortgages secured by the Premises or the Building and Lot and
any other party having an interest in the Premises ("Indemnified Parties") with
respect to, and to pay, protect, indemnify and save harmless, to the extent
permitted by law, all Indemnified Parties from and against, any and all
liabilities, losses damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of any
nature arising from or related to (i) injury to or death of any person, or
damage to or loss of property, on the Premises or connected with the use,
condition or occupancy of the Premises, unless caused by the negligence of
Landlord or its servants or agents, (ii) violation of this Lease, or (iii) any
act, fault, omission, or other misconduct of Tenant or its agents, employees,
contractors, licensees, sublessees or invitees or (iv) the use, generation,
storage or disposal of Hazardous Materials by Tenant or its agents, employees or
invitees on the Premises, the Building or Lot or any portion thereof or any
surrounding area, including, without limitation, any and all liabilities,
losses, damages, costs, expenses (including reasonable attorneys' fees and
expenses), causes of action, suits, claims, demands or judgments of any nature
arising from or related to removal or other remediation of any Hazardous
Materials or precautions required to protect against the release of Hazardous
Materials by Tenant or its agents, employees, contractors, licensees,
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sublessees or invitees into the environment to the extent required by any
Environmental Laws (as defined below).
6.1.8 Tenant's Insurance - To maintain (a) all risk property insurance
in amounts sufficient to fully cover Tenant's improvements and all property in
the Premises which is not owned by Landlord and (b) commercial general liability
insurance on the Premises, with Landlord named as an additional insured,
indemnifying Landlord and Tenant against all claims and demands for (i) injury
to or death of any person or damage to or loss of property, on the Premises or
adjoining walks, streets or ways, or connected with the use, condition or
occupancy of any of the foregoing unless caused by the negligence of Landlord or
its servants or agents, (ii) violation of this Lease, or (iii) any act, fault or
omission, or other misconduct of Tenant or its agents, employees, contractors,
licensees, sublessees or invitees, in amounts which shall, at the beginning of
the Term, be at least equal to the limits set forth in Section 1.1, and from
time to time during the Term, shall be for such higher limits, if any, as are
customarily carried in the area in which the Premises are located on property
similar to the Premises and used for similar purposes, and shall be written on
the "Occurrence Basis," and to furnish Landlord with certificates thereof. Such
insurance shall be effected under valid and enforceable policies with insurers
authorized to do business in Massachusetts as stock or mutual companies that are
rated in the current edition of Best's Key Rating Guide, Property and Casualty
as A and as Class VII or higher. Such policies shall name Landlord and Tenant
as the insureds as their respective interests may appear. Not later than the
first to occur of (a) the Commencement Date or (b) the commencement of any
activities by Tenant in or about the Premises and thereafter not less than
thirty (30) days prior to the expiration dates of the expiring policies
theretofore furnished pursuant to this Section 6.1.8, Tenant shall deliver to
Landlord certificates of insurance issued by the insurers evidencing all such
policies in form satisfactory to Landlord, accompanied by evidence satisfactory
to Landlord of payment of the first installment of the premiums. Each such
policy shall provide that it may not be canceled and that its form, terms or
conditions may not be changed without at least thirty (30) days' prior written
notice to each insured named therein.
6.1.9 Tenant's Worker's Compensation Insurance - To keep all of
Tenant's employees working in the Premises covered by worker's compensation
insurance in statutory amounts and to furnish Landlord with certificates
thereof.
6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's
agents entry after prior oral or written notice (provided that no notice shall
be required in the event of an emergency): to examine the Premises at reasonable
times and, if Landlord shall so elect, to make repairs or replacements; to
remove, at Tenant's expense, any changes, additions, signs, curtains, blinds,
shades, awnings, aerials, or the like not consented to in writing; and to show
the Premises to prospective tenants
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during the twelve (12) months preceding expiration of the Term and to
prospective purchasers and mortgagees at all reasonable times.
6.1.11 Loading - Not to place Tenant's Property, as defined in Section
6.1.13, upon the Premises so as to exceed a rate of fifty (50) pounds of live
load per square foot and not to move any safe, vault or other heavy equipment
in, about or out of the Premises except in such manner and at such times as
Landlord shall in each instance approve; Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other leased space in the Building shall be
placed and maintained by Tenant in settings of cork, rubber, spring, or other
types of vibration eliminators sufficient to eliminate such vibration or noise.
6.1.12 Landlord's Costs - In case Landlord shall be made party to any
litigation commenced by or against Tenant or by or against any parties in
possession of the Premises or any part thereof claiming under Tenant, to pay, as
additional rent, all costs including, without implied limitation, reasonable
counsel fees incurred by or imposed upon Landlord in connection with such
litigation to the extent Landlord prevails in such litigation and, as additional
rent, also to pay all such costs and fees incurred by Landlord in connection
with the successful enforcement by Landlord of any obligations of Tenant under
this Lease.
6.1.13 Tenant's Property - All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of Tenant and of all
persons claiming by, through or under Tenant which, during the continuance of
this Lease or any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises or elsewhere in the Building or on the Lot shall
be at the sole risk and hazard of Tenant, and if the whole or any part thereof
shall be destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft, or from any
other cause, no part of said loss or damage is to be charged to or to be borne
by Landlord unless due to the gross negligence of Landlord.
6.1.14 Labor or Materialmen's Liens - To pay promptly when due the
entire cost of any work done on the Premises by Tenant, its agents, employees,
or independent contractors; not to cause or permit any liens for labor or
materials performed or furnished in connection therewith to attach to the
Premises; and immediately to discharge any such liens which may so attach.
6.1.15 Changes or Additions - Not to make any changes or additions to
the Premises without Landlord's prior written consent and only in accordance
with Article III hereto, provided that Tenant shall reimburse Landlord for all
costs incurred by Landlord in reviewing Tenant's proposed changes or additions,
and provided further that, in order to protect the functional integrity of the
Building, all
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changes and additions shall be performed by contractors selected from a list of
approved contractors prepared by Landlord from time to time.
6.1.16 Holdover - To pay to Landlord the greater of twice (a) the then
fair market rent as conclusively determined by Landlord or (b) the total of the
Annual Rent and all additional rent then applicable for each month or portion
thereof Tenant shall retain possession of the Premises or any part thereof after
the termination of this Lease, whether by lapse of time or otherwise, and also
to pay all damages sustained by Landlord on account thereof; the provisions of
this subsection shall not operate as a waiver by Landlord of the right of
reentry provided in this Lease. At the option of Landlord exercised by a written
notice given to Tenant while such holding over continues, such holding over
shall constitute an extension of this Lease for a period of one year.
6.1.17 Security - To indemnify, and save Landlord harmless from any
claim for injury to person or damage to property asserted by any personnel,
employee, guest, invitee or agent of Tenant which is suffered or occurs in or
about the Premises or in or about the Building or the Lot by reason of the act
of any intruder or any other person in or about the Premises, the Building or
the Lot.
6.1.18 Tenant Financial Statements - Tenant shall provide Landlord with
audited financial statements on an annual basis, within ninety (90) days of the
end of Tenant's fiscal year. Except to the extent required by law or compelled
by legal authority, Landlord agrees to keep such statements confidential and not
to disclose the contents thereof to any party other than consultants engaged by
or working with Landlord who shall also be required to keep such statements
confidential.
ARTICLE VII
DAMAGE AND DESTRUCTION; CONDEMNATION
7.1 FIRE OR OTHER CASUALTY.
7.1.1 Subject to the provisions of Section 7.1.2 hereof, in the event
during the Term hereof the Premises shall be partially damaged (as distinguished
from "substantially damaged" as such term is hereinafter defined) by fire,
explosion, casualty or any other occurrence covered or as may be required to be
covered, as herein provided, by Landlord's insurance or by such casualty plus
required demolition, or by action taken to reduce the impact of any such event,
Landlord shall forthwith proceed to repair such damage and restore the Premises,
or so much thereof as was originally constructed or delivered by Landlord to
substantially its condition at the time of such fire, explosion, casualty or
occurrence, provided that Landlord shall not be obligated to expend for such
repair an amount in excess of the insurance proceeds recovered as a result of
such damage and, further provided that
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Tenant is not then in default of any of its obligations under this Lease beyond
any applicable cure period. Landlord shall not be responsible for any delay
which may result from any cause beyond Landlord's reasonable control.
7.1.2 If, however, (i) the Premises should be damaged or destroyed (a)
by fire or other casualty (1) to the extent of twenty-five percent (25%) or more
of the cost of replacement, or (2) so that twenty-five (25%) or more of the
principal area contained in the Premises shall be rendered untenantable, or (b)
by any casualty other than those covered by insurance policies required to be
maintained by Landlord under this Lease (hereinafter "substantially damaged"),
or (ii) the Premises shall be damaged in whole or in part during the last year
of the Term, or (iii) there shall be damage to the Premises of a character as
cannot reasonably be expected to be repaired within nine (9) months from the
date of casualty, or (iv) such restoration involves the demolition of or repair
of damage to twenty-five percent (25%) or more of the Premises, or (v)
applicable law requires the demolition of the Building or forbids the rebuilding
of the damaged portion of the Building, or (vi) such restoration requires
repairs in an amount in excess of the insurance proceeds recovered or
recoverable, or (vii) Landlord's mortgagee shall require that the insurance
proceeds from such damage or destruction be applied against the principal
balance due on any mortgage, Landlord may, at its option, either terminate this
Lease or elect to repair the Premises and Landlord shall notify Tenant as to its
election within ninety (90) days after such fire or casualty. If Landlord elects
to terminate this Lease, the Term hereof shall end on the date specified in the
notice (which shall be the end of a calendar month and not sooner than thirty
(30) days after such election was made). If Landlord does not elect to terminate
this Lease, then Landlord shall perform such repairs set forth in Section 7.1.3
hereof and Tenant shall perform such repairs in the Building as set forth in
Section 7.1.4 hereof, and the Term shall continue without interruption and this
Lease shall remain in full force and effect.
If Landlord has not elected to terminate this Lease and if there shall
be damage to the Premises of a character as cannot (in the judgment of
Landlord's engineer) reasonably be expected to be repaired within nine (9)
months from the date of casualty, then Tenant may, at its option, terminate this
Lease provided that Tenant's election shall be made by notice to Landlord within
thirty (30) days of Landlord's delivery of the estimate of Landlord's engineer
as to the time period required for restoration.
7.1.3 If Landlord does not elect to terminate this Lease as provided in
Section 7.1.2 hereof and if Tenant is not then in default of any of its
obligations under the Lease beyond any applicable cure period provided for
herein, Landlord shall, provided any third party mortgagee of the Building makes
insurance proceeds available for restoration, reconstruct as much of the
Premises as was originally constructed by Landlord (it being understood by
Tenant that Landlord shall not be responsible for any reconstruction of
leasehold improvements, which reconstruction is
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the sole responsibility of Tenant) to substantially its condition at the time of
such damage, but Landlord shall not be responsible for any delays which may
result from any cause beyond Landlord's reasonable control.
7.1.4 If Landlord does not elect to terminate this Lease as provided in
Section 7.1.2 hereof; Tenant shall, at its own cost and expense, repair and
restore the Premises in accordance with the provisions of Section 6.1.15 hereof
to the extent not required to be repaired by Landlord pursuant to the provisions
of this Section 7.1, including, but not limited to, the repairing and/or
replacement of its merchandise, trade fixtures, furnishings and equipment in a
manner and to at least a condition equal to that prior to its damage or
destruction. Tenant agrees to commence the performance of its work when notified
by Landlord that the work to be performed by Tenant can, in accordance with good
construction practices, then be commenced and Tenant shall complete such work
as promptly thereafter as is practicable, but in no event more than 90 days
thereafter.
7.1.5 All proceeds payable from Landlord's insurance policies with
respect to the Premises shall belong to and shall be payable to Landlord. If
Landlord does not elect to terminate this Lease as provided in Section 7.1.2
hereof, Landlord shall disburse and apply so much of any insurance recovery as
shall be necessary against the cost to Landlord of restoration and rebuilding of
Landlord's work referred to in Section 7.1.3 hereof, subject to the prior rights
of any lessor under a ground or underlying lease covering the Building and/or
the holder of any mortgage liens against the Building.
7.1.6 In the event that the provisions of Section 7.1.1 or Section
7.1.2 shall become applicable, the Annual Rent and additional rent shall be
abated or reduced proportionately during any period in which, by reason of such
damage or destruction, Tenant is not able to reasonably use the Premises for the
Permitted Uses, and such abatement or reduction shall continue for the period
commencing with such destruction or damage and ending with the completion by
Landlord of such work of repair and/or reconstruction as Landlord is obligated
to do.
7.2 EMINENT DOMAIN.
If, after the execution and before termination of this Lease, the
entire Premises shall be taken by eminent domain or destroyed by the action of
any public or quasi-public authority, or in the event of conveyance in lieu
thereof, the Term shall cease as of the day possession shall be taken by such
authority, and Tenant shall pay rent up to that date with a pro-rata refund by
Landlord of such rent and additional rent as shall have been paid in advance for
a period subsequent to the date of the taking of possession.
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If less than twenty-five percent (25%) of the Premises shall be so
taken or conveyed, this Lease shall cease only with respect to the parts so
taken or conveyed, as of the day possession shall be taken, and Tenant shall pay
rent up to that day, with an appropriate refund by Landlord of such rent as may
have been paid in advance for a period subsequent to the date of the taking of
possession, and thereafter the Annual Rent shall be equitably adjusted. Pending
agreement of such rental adjustment, Tenant agrees to pay to Landlord the Annual
Rent and additional rent in effect immediately prior to the taking by eminent
domain. Landlord shall at its expense make all necessary repairs or alterations
so as to constitute the remaining premises a complete architectural unit.
If more than twenty-five percent (25%) of the Premises shall be so
taken or conveyed, then the Term shall cease only as respects the part so taken
or conveyed, from the day possession shall be taken, and Tenant shall pay rent
to that date with an appropriate refund by Landlord of such rent as may have
been paid in advance for a period subsequent to the date of the taking of
possession, but Landlord shall have the right to terminate this Lease upon
notice to Tenant in writing within thirty (30) days after such taking of
possession. If Landlord does not elect to terminate the Lease, all of the terms
herein provided shall continue in effect except that the Annual Rent shall be
equitably adjusted, and Landlord shall make all necessary repairs or alterations
so as to constitute the remaining premises a complete architectural unit.
All compensation awarded for any such taking or conveyance, whether for
the whole or a part of the Premises, shall be the property of Landlord, whether
such damages shall be awarded as compensation for diminution in the value of the
leasehold or of the fee of or underlying leasehold interest in the Premises, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such compensation; provided, however, that Tenant shall be
entitled to seek a separate award for Tenant's stock, trade fixtures and
relocation expense.
In the event of any taking of the Premises or any part thereof for
temporary use, this Lease shall be and remain unaffected thereby and rent shall
not abate.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE.
This Lease is and shall continue to be subject and subordinate to any
presently existing mortgage or deed of trust of record covering the Lot or
Building or both (the "mortgaged premises"). The holder of any such
presently existing mortgage or deed of trust shall have the election to
subordinate the same to the rights and interests of Tenant under this Lease
exercisable by filing with the appropriate recording office a
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notice of such election, whereupon the Tenant's rights and interests hereunder
shall have priority over such mortgage or deed of trust.
Unless the option provided for in the next following sentence shall be
exercised, this Lease shall be superior to and shall not be subordinate to, any
mortgage, deed of trust or other voluntary lien hereafter placed on the
mortgaged premises. The holder of any such mortgage, deed of trust or other
voluntary lien shall have the option to subordinate this Lease to the same,
provided that such holder enters into an agreement with Tenant by the terms of
which the holder will agree to recognize the rights of Tenant under this Lease
and to accept Tenant as tenant of the Premises under the terms and conditions of
this Lease in the event of acquisition of title by such holder through
foreclosure proceedings or otherwise and Tenant will agree to recognize the
holder of such mortgage as Landlord in such event, which agreement shall be made
to expressly bind and inure to the benefit of the successors and assigns of
Tenant and of the holder and upon anyone purchasing the mortgaged premises at
any foreclosure sale. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the holder
deems usual or customary.
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY.
The word "mortgage" as used herein includes mortgages, deeds of trust
or other similar instruments evidencing other voluntary liens or encumbrances,
and modifications, consolidations, extensions, renewals, replacements and
substitutes thereof. The word "holder" shall mean a mortgagee, and any
subsequent holder or holders of a mortgage. Until the holder of a mortgage shall
enter and take possession of the Premises for the purpose of foreclosure, such
holder shall have only such rights of Landlord as are necessary to preserve the
integrity of this Lease as security. Upon entry and taking possession of the
Premises for the purpose of foreclosure, such holder shall have all the rights
of Landlord. Notwithstanding any other provision of this Lease to the contrary,
including without limitation Section 10.4, no such holder of a mortgage shall be
liable, either as mortgagee or as assignee, to perform, or be liable in damages
for failure to perform any of the obligations of Landlord unless and until such
holder shall enter and take possession of the Premises for the purpose of
foreclosure, and such holder shall not in any event be liable to perform or for
failure to perform the obligations of Landlord under Section 3.2. Upon entry for
the purpose of foreclosure, such holder shall be liable to perform all of the
obligations of Landlord (except for the obligations under Section 3.2), subject
to and with the benefit of the provisions of Section 10.4, provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance under
said provisions to the owner of the equity of the Premises.
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8.3 MORTGAGEE'S ELECTION.
Notwithstanding any other provision to the contrary contained in this
Lease, if prior to substantial completion of Landlord's obligations under
Article III, any holder of a first mortgage on the mortgaged premises enters and
takes possession thereof for the purpose of foreclosing the mortgage, such
holder may elect, by written notice given to Tenant and Landlord at any time
within ninety (90) days after such entry and taking of possession, not to
perform Landlord's obligations under Article III, and in such event such holder
and all persons claiming under it shall be relieved of all obligations to
perform, and all liability for failure to perform, said Landlord's obligations
under Article III, and Tenant may terminate this Lease and all its obligations
hereunder by written notice to Landlord and such holder given within thirty (30)
days after the day on which such holder shall have given its notice as
aforesaid.
8.4 NO PREPAYMENT OR MODIFICATION, ETC.
Tenant shall not pay Annual Rent, additional rent, or any other charge
more than ten (10) days prior to the due date thereof. No prepayment of Annual
Rent, additional rent or other charge, no assignment of this Lease and no
agreement to modify so as to reduce the rent, change the Term, or otherwise
materially change the rights of Landlord under this Lease, or to relieve Tenant
of any obligations or liability under this Lease, shall be valid unless
consented to in writing by Landlord's mortgagees of record, if any.
8.5 NO RELEASE OR TERMINATION.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i) Tenant
shall have first given written notice of Landlord's act or failure to act to
Landlord's mortgagees of record, if any, specifying the act or failure to act on
the part of Landlord which could or would give basis to Tenant's rights and (ii)
such mortgagees, after receipt of such notice, have failed or refused to correct
or cure the condition complained of within a reasonable time thereafter, but
nothing contained in this Section 8.5 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged premises, if the mortgagee elects to do so, and a reasonable time to
correct or cure the condition if such condition is determined to exist.
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8.6 CONTINUING OFFER.
The covenants and agreements contained in this Lease with respect to
the rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII)
constitute a continuing offer to any person, corporation or other entity, which
by accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such mortgagee; such
mortgagee is hereby constituted a party to this Lease as an obligee hereunder to
the same extent as though its name were written hereon as such; and such
mortgagee shall be entitled to enforce such provisions in its own name. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may reasonably be deemed necessary to implement the provisions
of this Article VIII.
8.7 MORTGAGEE'S APPROVAL.
Landlord's obligation to perform its covenants and agreements hereunder
is subject to the condition precedent that this Lease be approved by the holder
of any mortgage of which the Premises are a part and by the issuer of any
commitment to make a mortgage loan which is in effect on the date hereof.
ARTICLE IX
DEFAULT
9.1 EVENTS OF DEFAULT.
If any default by Tenant continues, in case of Annual Rent, additional
rent or any other monetary obligation to Landlord for more than five (5)
business days after notice (provided that in the event Tenant defaults in a
monetary obligation twice in any twelve (12) month period, notice shall not
thereafter be required), or if Tenant fails to provide an estoppel certificate
in accordance with Section 10.10 hereof, or if any default by Tenant continues
in any other case for more than thirty (30) days after notice and such
additional time, if any, as is reasonably necessary to cure the default if the
default is of such a nature that it cannot reasonably be cured in thirty (30)
days and Tenant promptly commences to cure such default and diligently pursues
such cure without interruption to completion; or if Tenant becomes insolvent,
fails to pay its debts as they fall due, files a petition under any chapter of
the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq., as it may be amended (or any
similar petition under any insolvency law of any jurisdiction), or if such
petition is filed against Tenant; or if Tenant proposes any dissolution,
liquidation, composition, financial reorganization or recapitalization with
creditors, makes an assignment or trust mortgage for benefit of creditors, or if
a receiver, trustee, custodian or similar agent is appointed or takes possession
with respect to any property of Tenant; or if the leasehold hereby created
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is taken on execution or other process of law in any action against Tenant;
then, and in any such case, Landlord and the agents and servants of Landlord
may, in addition to and not in derogation of any remedies for any preceding
breach of covenant, immediately or at any time thereafter while such default
continues and without further notice, at Landlord's election, do any one or more
of the following: (1) give Tenant written notice stating that the Lease is
terminated, effective upon the giving of such notice or upon a date stated in
such notice, as Landlord may elect, in which event the Lease shall be
irrevocably extinguished and terminated as stated in such notice without any
further action, or (2) with or without process of law, in a lawful manner enter
and repossess the Premises as of Landlord's former estate, and expel Tenant and
those claiming through or under Tenant, and remove its and their effects,
without being guilty of trespass, in which event the Lease shall be irrevocably
extinguished and terminated at the time of such entry, or (3) pursue any other
rights or remedies permitted by law. Any such termination of the Lease shall be
without prejudice to any remedies which might otherwise be used for arrears of
rent or prior breach of covenant, and in the event of such termination Tenant
shall remain liable under this Lease as hereinafter provided. Tenant hereby
waives all statutory rights (including, without limitation, rights of
redemption, if any) to the extent such rights may be lawfully waived, and
Landlord, without notice to Tenant, may store Tenant's effects and those of any
person claiming through or under Tenant at the expense and risk of Tenant and,
if Landlord so elects, may sell such effects at public auction or private sale
and apply the net proceeds to the payment of all sums due to Landlord from
Tenant, if any, and pay over the balance, if any, to Tenant.
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION.
In the event that this Lease is terminated under any of the provisions
contained in Section 9.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, (i) the excess of the total rent reserved for the residue of the
Term over the rental value of the Premises for said residue of the Term and (ii)
the unamortized portion of the actual out-of-pocket costs and expenses incurred
by Landlord in completing Landlord's Work and fees and commissions paid to the
Broker, amortized on a straight-line reduction basis from 100% to 0% over the
Term of the Lease set forth in Section 1.1 hereof. In calculating the rent
reserved, there shall be included, in addition to the Annual Rent and all
additional rent, the value of all other consideration agreed to be paid or
performed by Tenant for said residue. Tenant further covenants as an additional
and cumulative obligation after any such ending to pay punctually to Landlord
all the sums and perform all the obligations which Tenant covenants in this
Lease to pay and to perform in the same manner and to the same extent and at the
same time as if this Lease had not been terminated. In calculating the amounts
to be paid by Tenant under the next foregoing covenant, Tenant shall be credited
with any amount paid to Landlord as compensation as provided in the first
sentence of this Section 9.2 and also with the net proceeds of any
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rents obtained by Landlord by reletting the Premises, after deducting all
Landlord's expenses in connection with such reletting, including, without
implied limitation, all repossession costs, brokerage commissions, fees for
legal services and expenses of preparing the Premises for such reletting, it
being agreed by Tenant that Landlord may (i) relet the Premises or any part or
parts thereof for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Term and may grant such concessions and free rent as Landlord in
its sole judgment considers advisable or necessary to relet the same and (ii)
make such alterations, repairs and decorations in the Premises as Landlord in
its sole judgment considers advisable or necessary to relet the same, and no
action of Landlord in accordance with the foregoing or failure to relet or to
collect rent under reletting shall operate or be construed to release or reduce
Tenant's liability as aforesaid.
So long as at least twelve (12) months of the Term remain unexpired at
the time of such termination, in lieu of any other damages or indemnity and in
lieu of full recovery by Landlord of all sums payable under all the foregoing
provisions of this Section 9.2, Landlord may by written notice to Tenant, at any
time after this Lease is terminated under any of the provisions contained in
Section 9.1, or is otherwise terminated for breach of any obligation of Tenant
and before such full recovery, elect to recover and Tenant shall thereupon pay,
as liquidated damages, an amount equal to the aggregate of the Annual Rent and
additional rent accrued under Article IV in the 12 months ended next prior to
such termination plus the amount of Annual Rent and additional rent of any kind
accrued and unpaid at the time of termination and less the amount of any
recovery by Landlord under the foregoing provisions of this Section 9.2 up to
the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
ARTICLE X
MISCELLANEOUS
10.1 NOTICE OF LEASE.
Upon request of either party, both parties shall execute and deliver,
after the Term begins, a notice of this Lease in form appropriate for recording
or registration, and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.
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10.2 (Intentionally Omitted)
10.3 NOTICES FROM ONE PARTY TO THE OTHER.
All notices required or permitted hereunder shall be in writing and
addressed, if to the Tenant, at Tenant's Address or such other address as Tenant
shall have last designated by notice in writing to Landlord and, if to Landlord,
at Landlord's Address or such other address as Landlord shall have last
designated by notice in writing to Tenant. Any notice shall have been deemed
duly given if mailed to such address postage prepaid, registered or certified
mail, return receipt requested, when deposited with the U.S. Postal Service, or
if delivered to such address by hand, when so delivered.
10.4 BIND AND INURE.
The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Landlord named herein and
each successive owner of the Premises shall be liable only for the obligations
accruing during the period of its ownership. The obligations of Landlord shall
be binding upon the assets of Landlord which comprise the Building and the Lot
but not upon other assets of Landlord. No individual partner, member, trustee,
stockholder, officer, director, employee or beneficiary of Landlord shall be
personally liable under this Lease and Tenant shall look solely to Landlord's
interest in the Building and the Lot in pursuit of its remedies upon an event of
default hereunder, and the general assets of the individual partners, trustees,
stockholders, officers, employees or beneficiaries of Landlord shall not be
subject to levy, execution or other enforcement procedure for the satisfaction
of the remedies of Tenant.
10.5 NO SURRENDER.
The delivery of keys to any employee of Landlord or to Landlord's agent
or any employee thereof shall not operate as a termination of this Lease or a
surrender of the Premises.
10.6 NO WAIVER, ETC.
The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this Lease or any of
the Rules and Regulations referred to in Section 6.1.4, whether heretofore or
hereafter adopted by Landlord, shall not be deemed a waiver of such violation
nor prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation, nor
shall the failure of Landlord to enforce any of said Rules and Regulations
against any other tenant in the Building be deemed a
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waiver of any such Rules or Regulations. The receipt by Landlord of Annual Rent
or additional rent with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach by Landlord, unless such waiver be
in writing and signed by Landlord. No consent or waiver, express or implied, by
Landlord to or of any breach of any agreement or duty shall be construed as a
waiver or consent to or of any other breach of the same or any other agreement
or duty.
10.7 NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Annual Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
10.8 CUMULATIVE REMEDIES.
The specific remedies to which Landlord may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which it may be lawfully entitled in case of any
breach or threatened breach by Tenant of any provisions of this Lease. In
addition to the other remedies provided in this Lease, Landlord shall be
entitled to the restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of this
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
10.9 LANDLORD'S RIGHT TO CURE.
If Tenant shall at any time default in the performance of any
obligation under this Lease, Landlord shall have the right, but shall not be
obligated, to enter upon the Premises and to perform such obligation,
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease with respect to such default. In
performing such obligation, Landlord may make any payment of money or perform
any other act. All sums so paid by Landlord (together with interest at the rate
of 4% per annum in excess of the then prime commercial rate of interest being
charged by the three largest national banks in Boston, Massachusetts) and all
necessary incidental costs and expenses in connection with the performance of
any such act by Landlord, shall be deemed to be additional rent under this Lease
and shall be payable to Landlord immediately on demand. Landlord may exercise
the foregoing rights without waiving any other of its rights or releasing Tenant
from any of its obligations under this Lease.
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10.10 ESTOPPEL CERTIFICATE.
Tenant agrees, from time to time, upon not less than 15 days' prior
written request by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing certifying that this Lease is unmodified and in full force
and effect; that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the Annual Rent and additional rent and to perform its other
covenants under this Lease; that there are no uncured defaults of Landlord or
Tenant under this Lease (or, if there have been modifications, that this Lease
is in full force and effect as modified and stating the modifications, and, if
there are any defenses, offsets, counterclaims, or defaults, setting them forth
in reasonable detail); and the dates to which the Annual Rent, additional rent
and other charges have been paid. Any such statement delivered pursuant to this
Section 10.10 shall be in a form reasonably acceptable to and may be relied upon
by any prospective purchaser or mortgagee of premises which include the Premises
or any prospective assignee of any such mortgagee.
10.11 WAIVER OF SUBROGATION.
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrences of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause or endorsement to the extent
of the indemnification received thereunder.
10.12 ACTS OF GOD.
In any case where either party hereto is required to do any act, delays
caused by or resulting from Acts of God, war, civil commotion, fire, flood or
other casualty, labor difficulties, shortages of labor, materials or equipment,
government regulations, unusually severe weather, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or a "reasonable time," and such time shall be deemed to be
extended by the period of such delay.
10.13 BROKERAGE.
Tenant and Landlord represent and warrant that they dealt with no
brokers in connection with this transaction other than the Broker and agree to
defend, with counsel approved by the other, indemnify and save the other
harmless from and against any and all cost, expense or liability for any
compensation, commissions or
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charges claimed by a broker or agent, other than the Broker in connection with
this Lease. Landlord hereby agrees to pay the brokerage fees to the Broker in
connection with the execution and delivery of this Lease.
10.14 SUBMISSION NOT AN OFFER.
The submission of a draft of this Lease or a summary of some or all of
its provisions does not constitute an offer to lease or demise the Premises, it
being understood and agreed that neither Landlord nor Tenant shall be legally
bound with respect to the leasing of the Premises unless and until this Lease
has been executed by both Landlord and Tenant and a fully executed copy has been
delivered to each of them.
10.15 APPLICABLE LAW AND CONSTRUCTION.
This Lease shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts. If any term, covenant, condition or
provision of this Lease or the application thereof to any person or
circumstances shall be declared invalid or unenforceable by the final ruling of
a court of competent jurisdiction having final review, the remaining terms,
covenants, conditions and provisions of this Lease and their application to
persons or circumstances shall not be affected thereby and shall continue to be
enforced and recognized as valid agreements of the parties, and in the place of
such invalid or unenforceable provision, there shall be substituted a like, but
valid and enforceable provision which comports to the findings of the aforesaid
court and most nearly accomplishes the original intention of the parties.
There are no oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions hereof may
be waived or modified, only by instruments in writing executed by Landlord and
Tenant.
The titles of the several Articles and Sections contained herein are
for convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant,
the obligations imposed by this Lease upon Tenant shall be joint and several.
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10.16 AUTHORITY OF TENANT.
Tenant represents and warrants to Landlord (which representations and
warranties shall survive the delivery of this Lease) that: (a) Tenant (i) is
duly organized, validly existing and in good standing under the laws of its
state of incorporation, (ii) has the corporate power and authority to carry on
businesses now being conducted and is qualified to do business in every
jurisdiction where such qualification is necessary and (iii) has the corporate
power to execute and deliver and perform its obligations under this Lease and
(b) the execution, delivery and performance by Tenant of its obligations under
this Lease have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the corporate charter or by-laws of the Tenant or any indenture,
agreement or other instrument to which it is a party or by which it is bound.
ARTICLE XI
SECURITY DEPOSIT
Simultaneously with Tenant's delivery of the executed Lease to
Landlord, Tenant will deliver the Security Deposit (as defined hereinafter) to
Landlord, to be held by Landlord, as security, without interest, for and during
the Term, which deposit shall be returned to Tenant at the termination of this
Lease, after Landlord applies the Security Deposit to any then existing defaults
in accordance herewith. At Tenant's election, Tenant shall provide to Landlord a
cash deposit in the amount of the Security Deposit, or an irrevocable and
unconditional standby documentary letter of credit in the amount of the Security
Deposit (in either case, the "Security Deposit") issued by a bank or other
institution satisfactory to Landlord in its reasonable discretion, naming
Landlord, its successors and assigns as the beneficiary, expiring no less than
one (1) year from the Term Commencement Date and renewing automatically each
year (or at the end of the applicable term thereof) unless the issuing bank has
given Landlord notice at least forty-five (45) days prior to the expiration that
the same will not be renewed, and otherwise in form and substance reasonably
acceptable to Landlord (a "Letter of Credit"). Landlord shall be permitted to
draw upon the Letter of Credit in the event of (i) default by Tenant in any of
its obligations hereunder after the giving of any required notice and the
expiration of any applicable cure period, in which event Landlord may draw upon
all or a portion of the Letter of Credit and apply the proceeds as described
below, or (ii) failure by Tenant to provide to Landlord either a cash deposit in
the amount of the Security Deposit or a replacement or substitute Letter of
Credit in the amount of the Security Deposit, as the same shall be reduced as
set forth below, and otherwise subject to the conditions set forth above, no
less than thirty (30) days prior to the expiration date of the Letter of Credit
then held by Landlord, in which event Landlord may draw upon
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all of the Letter of Credit and, in such event, shall hold the cash proceeds
thereof as the Security Deposit hereunder.
Notwithstanding the foregoing, on the fourth (4th) anniversary of the
Term Commencement Date, the Security Deposit shall be reduced to $70,000,
provided that no event of default by Tenant then exists hereunder, and no
condition exists which with the giving of notice or the passage of time, or
both, would constitute an event of default. If the Security Deposit is held in
cash by Landlord, such reduction shall be accomplished by the return by Landlord
to Tenant of the difference between the Security Deposit then held by Landlord
and $70,000 within fifteen (15) days after the fourth (4th) anniversary date. If
the Security Deposit is held as a Letter of Credit, such reduction shall be
accomplished by automatic reduction, if the terms of the Letter of Credit
delivered to Landlord in accordance with the provisions set forth above so
provides, or, if such Letter of Credit does not so provide, by the delivery by
Tenant to Landlord of either a replacement Letter of Credit in the amount of
$70,000 which complies with the provisions set forth above or a cash Security
Deposit in the amount of $70,000.
The Security Deposit is being delivered by Tenant to Landlord as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease. It is understood and agreed that if any
default by Tenant occurs hereunder and continues after the giving of any
required notice and the expiration of any applicable cure period, Landlord may
use, apply or retain the whole or any part of the Security Deposit so deposited
to the extent required to cure such default or for payment of any sum as to
which Tenant is in such default, if any, or for any sum which Landlord may
expend or may be required to expend by reason of any such default by Tenant
hereunder, if any. It is agreed that Landlord shall always have the right to
apply the Security Deposit or any part thereof, as aforesaid, without prejudice
to any other remedy or remedies which Landlord may have, or Landlord may pursue
any other such remedy or remedies in lieu of applying the Security Deposit. If
all or any part of the Security Deposit is so applied to an obligation of Tenant
hereunder, Tenant shall immediately upon request by Landlord restore the
Security Deposit to its original amount. Tenant shall not have the right to call
upon Landlord to apply all or any part of the Security Deposit to cure any
default or fulfill any obligation of Tenant, but such use shall be solely in the
discretion of Landlord. Upon any conveyance by Landlord of its interest under
this Lease, the Security Deposit may be delivered by Landlord to Landlord's
grantee or transferee. Upon any delivery, Tenant hereby releases Landlord herein
named of any and all liability with respect to look solely to such grantee or
transferee. It is further understood that this provision shall also apply to
subsequent grantees and transferees.
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EXECUTED as a sealed instrument in two or more counterparts on the day
and year first above written.
LANDLORD:
BRE/CAMBRIDGEPARK OFFICE II L.L.C., a
Delaware limited liability company
By: illegible
-------------------
TENANT:
NET.GENESIS CORP.
By:/s/ Lawrence Bohn
--------------------
Name: Lawrence Bohn
Title: President
Hereunto duly authorized
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EXHIBIT A
Description of the Lot
That certain parcel of land with buildings thereon situated in
Cambridge, Middlesex County, Massachusetts, shown as Lot A on a plan entitled
"Subdivision Plan of Land Cambridge, Mass." Scale 1" = 60', dated February 27,
1985, prepared by Harry R. Feldman, Inc. recorded with Middlesex South Registry
of Deeds as Plan No. 1038 of 1985 more particularly bounded and described as
follows:
Northerly by CambridgePark Drive, four hundred seventy-three and 70/100
(473.70) feet;
Easterly by Lot B as shown on said plan, two hundred sixty-two and
50/100 (262.50) feet;
Southerly by said Lot B, sixteen and 70/100 (16.70) feet;
Easterly again by said Lot B, one hundred ten (110.00) feet;
Southerly again by said Lot B, by three lines of two hundred twenty-two
and 24/100 (222.24) feet, two hundred eighteen and 12/100 (218.12) feet and
twenty-three and 28/100 (23.28) feet; and
Westerly by said Lot B, two hundred ninety-five and 15/100 (295.15)
feet.
Containing according to said plan 158,215 square feet.
<PAGE> 43
EXHIBIT B
Plan Showing the Premises
[GRAPHIC OF 10TH FLOOR MAP]
[Spaulding & Slye LOGO] [150 CambridgePark LOGO]
<PAGE> 44
EXHIBIT C
LANDLORD'S SERVICES
I. CLEANING
A. GENERAL
1. All cleaning work will be performed between 8 a.m. and 12
midnight, Monday through Friday, unless otherwise necessary for
stripping, waxing, etc.
2. Abnormal waste removal (e.g., computer installation paper, bulk
packaging, wood or cardboard crates, refuse from cafeteria
operation, etc.) shall be Tenant's responsibility.
B. DAILY OPERATIONS (5 TIMES PER WEEK)
1. Tenant Areas
a. Empty and clean all waste receptacles; wash receptacles as
necessary.
b. Vacuum all rugs and carpeted areas.
c. Empty, damp-wipe and dry all ashtrays.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal receptacles.
f. Refill toilet tissue, towel, soap, and sanitary napkin
dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass (interior and
exterior).
b. Vacuum elevator carpets and wipe down doors and walls.
c. Clean water coolers.
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C. OPERATIONS AS NEEDED (BUT NOT LESS THAN EVERY OTHER DAY)
1. Tenant and Public Areas
a. Buff all resilient floor areas.
D. WEEKLY OPERATIONS
1. Tenant Areas, Lavatories, Public Areas
a. Hand-dust and wipe clean all horizontal surfaces with treated
cloths to include furniture, office equipment, window sills, door
ledges, chair rails, baseboards, convector tops, etc., within
normal reach.
b. Remove finger marks from private entrance doors, light switches,
and doorways.
c. Sweep all stairways.
E. MONTHLY OPERATIONS
1. Tenant and Public Areas
a. Thoroughly vacuum seat cushions on chairs, sofas, etc.
b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet partitions.
F. AS REQUIRED AND WEATHER PERMITTING
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
G. YEARLY
1. Public Areas
a. Strip and wax all resilient tile floor areas.
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II. HEATING, VENTILATING, AND AIR CONDITIONING
1. Heating, ventilating, and air conditioning as required to provide
reasonably comfortable temperatures for normal business day occupancy
(excepting holidays); Monday through Friday from 8:00 a.m. to 6:00
p.m. and Saturday from 8:00 a.m. to 1:00 p.m.
2. Maintenance of any additional or special air conditioning equipment
and the associated operating cost will be at Tenant's expense, which
is estimated at $50 per hour.
III. WATER
Hot water for lavatory purposes and cold water for drinking, lavatory
and toilet purposes, and cold water for Tenant's kitchen and Tenant's
hot water heater (Tenant is to supply hot water heater).
IV. ELEVATORS (IF BUILDING IS ELEVATORED)
Elevators for the use of all tenants and the general public for access
to and from all floors of the Building. Programming of elevators
(including, but not limited to, service elevators) shall be as
Landlord from time to time determines best for the Building as a
whole.
V. RELAMPING OF LIGHT FIXTURES
Tenant will reimburse Landlord for the cost of lamps, ballasts and
starters and the cost of replacing same within the Premises.
VI. CAFETERIA AND VENDING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria operation
shall be Tenant's responsibility to keep clean and sanitary, it being
understood that Landlord's approval of such use must be first obtained
in writing.
2. Vending machines or refreshment service installations by Tenant must
be approved by Landlord in writing and shall be restricted in use to
employees and business callers. All cleaning necessitated by such
installations shall be at Tenant's expense.
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VII. ELECTRICITY
A. Landlord, at Landlord's expense, shall furnish electrical energy
required for lighting, electrical facilities, equipment, machinery,
fixtures, and appliances used in or for the benefit of the Premises,
in accordance with the provisions of the Lease of which this Exhibit
is part.
B. Tenant shall not, without prior written notice to Landlord in each
instance, connect to the Building electric distribution system any
fixtures, appliances or equipment other than normal office machines
such as personal computers, desk-top calculators and typewriters, or
any fixtures, appliances or equipment which Tenant on a regular basis
operates beyond normal building operating hours. In the event of any
such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED
ELECTRICAL COST TO THE PREMISES and a corresponding increase in Annual
Rent by an amount which will reflect the cost to Landlord of the
additional electrical service to be furnished by Landlord, such
increase to be effective as of the date of any such installation. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs provided in Section 4.2 hereof.
C. Tenant's use of electrical energy in the Premises shall not at any
time exceed the capacity of any of the electrical conductors or
equipment in or otherwise serving the Premises. In order to insure
that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without
prior written notice to Landlord in each instance, connect to the
Building electric distribution system any fixtures, appliances or
equipment which operate on a voltage in excess of 120 volts nominal or
make any alteration or addition to the electric system of the
Premises. Unless Landlord shall reasonably object to the connection of
any such fixtures, appliances or equipment, all additional risers or
other equipment required therefor shall be provided by Landlord, and
the cost thereof shall be paid by Tenant upon Landlord's demand. In
the event of any such connection, Tenant agrees to an increase in the
ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES such increase to be
effective as of the date of any such connection. If Landlord and
Tenant cannot agree thereon, such amount shall be conclusively
determined by a reputable independent electrical engineer or
consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs provided in Section 4.2 hereof.
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D. If at any time after the date of this Lease, the rates at which
Landlord purchases electrical energy from the public utility supplying
electric service to the Building, or any charges incurred or taxes
payable by Landlord in connection therewith, shall be increased or
decreased, the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES shall
be increased or decreased, as the case may be, by an amount equal to
the estimated increase or decrease, as the case may be, in Landlord's
cost of furnishing the electricity referred to in Paragraph A above as
a result of such increase or decrease in rates, charges, or taxes. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs as provided in Section 4.2 hereof. Any such increase
or decrease shall be effective as of the date of the increase or
decrease in such rate, charge or taxes.
E. Landlord may, at any time, elect to discontinue the furnishing of
electrical energy. In the event of any such election by Landlord: (1)
Landlord agrees to give reasonable advance notice of any such
discontinuance to Tenant; (2) Landlord agrees to permit Tenant to
receive electrical service directly from the public utility supplying
service to the Building and to permit the existing feeders, risers,
wiring and other electrical facilities serving the Premises to be used
by Tenant and/or such public utility for such purpose to the extent
they are suitable and safely capable; (3) Landlord agrees to pay
such charges and costs, if any, as such public utility may impose in
connection with the installation of Tenant's meters and to make or, at
such public utility's election, to pay for such other installations as
such public utility may require, as a condition of providing
comparable electrical service to Tenant; and (4) Tenant shall
thereafter pay, directly to the utility furnishing the same, all
charges for electrical services to the Premises.
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EXHIBIT D
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety and
well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any continuing
violation of these rules and regulations by Tenant shall constitute a default by
Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii) any
such waiver shall not relieve such tenant from the obligation to comply with
such rule or regulation in the future unless otherwise agreed to by Landlord,
(iii) no waiver granted to any tenant shall relieve any other tenant from the
obligation of complying with these rules and regulations, unless such other
tenant has received a similar written waiver from the Landlord, and (iv) any
such waiver shall not relieve Tenant from any liability to Landlord for any loss
or damage occasioned as a result of Tenant's failure to comply with any rule or
regulation.
1. The entrances, lobbies, passages, corridors, elevators, halls, courts,
sidewalks, vestibules, and stairways shall not be encumbered or
obstructed by Tenant, Tenant's agents, servants, employees, licensees
or visitors or used by them for any purposes other than ingress or
egress to and from the Premises. Landlord shall have the right to
control and operate portions of the Building and the facilities
furnished for common use of the tenants in such manner as Landlord
deems best for the benefit of the tenants generally.
2. The moving in or out of all safes, freight, furniture, or bulky matter
of any description shall take place during the hours which Landlord
may determine from time to time. Landlord reserves the right to
inspect all freight and bulky matter to be brought into the Building
and to exclude from the Building all freight and bulky matter which
violates any of these Rules and Regulations or the Lease of which
these Rules and Regulations are a part. Landlord reserves the right to
have Landlord's structural engineer review Tenant's floor loads on the
Premises at Tenant's expense.
3. Tenant, or the employees, agents, servants, visitors or licensees of
Tenant shall not at any time place waste or discard any rubbish,
paper,
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articles, or objects of any kind whatsoever outside the doors of the
Premises or in the corridors or passageways of the Building. No
animals or birds shall be brought or kept in or about the Building.
Bicycles shall not be permitted in the Building.
4. Tenant shall not place objects against glass partitions or doors or
windows or adjacent to any common space which would be unsightly from
the Building corridors or from the exterior of the Building and will
promptly remove the same upon notice from Landlord.
5. Tenant shall not make noises, cause disturbances, create vibrations,
odors (other than ordinarily acceptable tenant kitchen odors in the
building) or noxious fumes or use or operate any electric or
electrical devices or other devices that emit sound waves or are
dangerous to other tenants and occupants of the Building or that would
interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or
elsewhere, or with the operation of roads or highways in the vicinity
of the Building, and shall not place or install any projections,
antennae, aerials, or similar devices inside or outside of the
Premises, without the prior written approval of Landlord.
6. Tenant may not (without Landlord's approval therefor, which approval
will be signified on Tenant's Plans submitted pursuant to the Lease)
and Tenant shall not permit or suffer anyone to: (a) cook in the
Premises except as accessory to the use of a coffee room/kitchenette
containing a microwave oven; (b) place vending or dispensing machines
of any kind in or about the Premises; (c) at any time sell, purchase
or give away, or permit the sale, purchase, or gift of food in any
form.
7. Tenant shall not: (a) use the Premises for lodging, manufacturing or
for any immoral or illegal purposes; (b) use the Premises to engage in
the manufacture or sale of, or permit the use of spirituous,
fermented, intoxicating or alcoholic beverages on the Premises; or (c)
use the Premises to engage in the manufacture or sale of, or permit
the use of, any illegal drugs on the Premises. Notwithstanding the
foregoing, provided that host liquor liability insurance is maintained
naming Landlord as an additional insured and otherwise complying with
the requirements of Section 6.1.8 of the Lease, Tenant may (i) serve
alcoholic beverages on the Premises at seasonal celebrations, not more
often than quarterly, after notice to Landlord, and (ii) serve wine
and beer at weekly staff parties in the Premises.
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8. No awning or other projections (including antennae) shall be attached
to the outside walls or windows. No curtains, blinds, shades, screens
or signs other than those furnished by Landlord shall be attached to,
hung in, or used in connection with any window or door of the Premises
without prior written consent of Landlord.
9. No signs, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or
inside of the Premises if visible from outside of the Premises.
Interior signs on doors shall be painted or affixed for Tenant by
Landlord or by sign painters first approved by Landlord at the expense
of Tenant and shall be of a size, color and style acceptable to
Landlord.
10. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity
without prior written consent of Landlord. Landlord shall have the
right to prohibit any advertising by Tenant which, in Landlord's
opinion, tends to impair the reputation of the Building or its
desirability for offices, and upon written notice from Landlord,
Tenant will refrain from or discontinue such advertising.
11. Door keys for doors in the Premises will be furnished at the
Commencement of the Lease by Landlord. Tenant shall not affix
additional locks on doors and shall purchase duplicate keys only from
Landlord and will provide to Landlord the means of opening of safes,
cabinets, or vaults left on the Premises. In the event of the loss of
any keys so furnished by Landlord, Tenant shall pay to Landlord the
cost thereof. Each tenant shall, upon the termination of its tenancy,
restore to Landlord all keys of offices, storage and toilet rooms
either furnished to, or otherwise procured by, such tenant.
12. Tenant shall cooperate and participate in all security programs
affecting the Building.
13. Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed and secured.
14. Tenant shall not make any room-to-room canvass to solicit business
from other tenants in the Building, and shall not exhibit, sell or
offer to sell, use, rent or exchange any item or services in or from
the Premises unless ordinarily embraced within Tenant's use of the
Premises as specified in its Lease. Canvassing, soliciting and
peddling in the Building are prohibited and Tenant shall cooperate to
prevent the same.
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Peddlers, solicitors and beggars shall be reported to the Management
Office.
15. Tenant shall not mark, paint, drill into, or in any way deface any
part of the Building or Premises. No boring, driving of nails or
screws (except for picture hanging, etc.), cutting or stringing of
wires shall be permitted, except with the prior written consent of
Landlord, and as Landlord may direct. Tenant shall not construct,
maintain, use or operate within their respective premises any
electrical device, wiring or apparatus in connection with a loud
speaker system or other sound system, except as reasonably required as
part of a communication system approved in writing by Landlord, prior
to the installation thereof. Tenant shall not install any resilient
tile or similar floor covering in the Premises except with the prior
written approval of Landlord. The use of cement or other similar
adhesive material is expressly prohibited.
16. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and shall refrain from
attempting to adjust controls. Tenant shall keep corridor doors dosed
except when being used for access.
17. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances
shall be thrown therein. All damage resulting from misuse of said
fixtures shall be borne by the tenant who, or whose servant,
employees, agents, licensees, invitees, customers or guests shall have
caused the same.
18. Building employees shall not be required to perform, and shall not be
requested by any tenant or occupant to perform, any work outside of
their regular duties, unless under specific instructions from the
office of the Managing Agent of the Building. The requirements of
tenants will be attended to only upon application to Landlord, and any
special requirements shall be billed to Tenant (and paid when the next
installment of rent is due) in accordance with the schedule of charges
maintained by Landlord from time to time or at such charge as is
agreed upon in advance by Landlord and Tenant.
19. Tenant may request heating and/or air conditioning during other
periods in addition to normal working hours by submitting its request
in writing to the office of the Managing Agent of the Building no
later than 2:00 p.m. the preceding work day (Monday through Friday) on
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forms available from the office of the Managing Agent. The request
shall clearly state the start and stop hours of the "off-hour"
service. Tenant shall submit to the Building Manager a list of
personnel authorized to make such request. The Tenant shall be charged
for such operation in the form of additional rent; such charges are to
be determined by the Managing Agent and shall be fair and reasonable
and reflect the additional operating costs involved.
20. Tenant covenants and agrees that its use of the Premises shall not
cause a discharge of more than the gallonage per foot of Premises
Design Floor Area per day of sanitary (non-industrial) sewage allowed
under the sewage discharge permit for the Building. Discharges in
excess of that amount, and any discharge of industrial sewage, shall
only be permitted if Tenant, at its sole expense, shall have obtained
all necessary permits and licenses therefor, including without
limitation permits from state and local authorities having
jurisdiction thereof. Tenant shall submit to Landlord on December 31
of each year of the Term of this Lease a statement, certified by an
authorized officer of Tenant, which contains the following
information: name of all chemicals, gases, and hazardous substances,
used, generated, or stored on the Premises; type of substance (liquid,
gas or granular); quantity used, stored or generated per year; method
of disposal; permit number, if any, attributable to each substance,
together with copies of all permits for such substances; and permit
expiration date for each substance. No flammable, combustible or
explosive fluid, chemical or substance shall be brought into or kept
upon the Premises, the Building or the Lot (other than those fluids or
chemicals customarily used by tenants of other first-class office
buildings in connection with office purposes and then only those types
and quantities permitted under Landlord's policies of insurance for
the Building).
21. Landlord reserves the right to exclude from the Building at all times
any person who is not known or does not properly identify himself to
the Building management. Landlord may, at its option, require all
persons admitted to or leaving the Building between the hours of 6:00
p.m. and 8:00 a.m., Monday through Friday, and at any hour on
Saturdays, Sundays and legal holidays, to register. Each tenant shall
be responsible for all persons for whom it authorizes entry into the
Building, and shall be liable to Landlord for all acts or omissions of
such persons.
22. Landlord reserves the right to inspect all freight to be brought into
the Building and to exclude from the Building all freight which
violates any of these rules and regulations. There shall not be used
in any space or in the common halls of the Building, either by any
tenant or by jobbers
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or others in the delivery or receipt of merchandise, any hand trucks, except
those equipped with rubber tires and side guards.
D-6
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EXHIBIT 10.7
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of January 6, 1999, is
entered into by and between net.Genesis Corp., a Delaware corporation, with its
chief executive office, and principal place of business located at 215 First
Street, Cambridge, Massachusetts 02142 (the "Borrower") and Comdisco, Inc., a
Delaware corporation, with its principal place of business located at 6111 North
River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In
consideration of the mutual agreements contained herein, the parties hereto
agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a
loan in the aggregate principal amount of Four Million and 00/100 Dollars
($4,000,000.00) in two tranches; Three Million Dollars ($3,000,000.00) available
immediately ("Loan I") and One Million Dollars ($1,000,000.00) available upon
the closing of an equity financing (the "Financing") of at least Eight Million
Dollars ($8,000,000.00) in which Borrower's existing venture investors invest
their pro rata portions ("Loan II") each available as further set forth herein
(as the same may from time to time be amended, modified, supplemented or
revised, the "Loan"), which would be evidenced by Subordinated Promissory
Note(s) executed by Borrower substantially in the form of Exhibit A hereto (as
the same may from time to time be amended, modified, supplemented or restated
the "Note(s)").
WHEREAS, Lender is willing to make the Loan on the terms and conditions
set forth in this Agreement, and
WHEREAS, Lender and Borrower agree any Loan hereunder shall be
subordinate to Senior Debt (as defined herein) to the extent set forth in the
Subordination Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "ACCOUNT" means any "account," as such term is defined in Section
9106 of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under all
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purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Borrower under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower (whether or not yet earned by performance on the
part of Borrower or in connection with any other transaction), now in existence
or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is
defined in Section 9105(l)(a) of the UCC.
1.3 "ADVANCE" means each installment made by the Lender to Borrower
pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral.
1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan.
1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance
under the Loan, each to be substantially in the form of Exhibit C attached
hereto, as submitted by Borrower to Lender from time to time.
1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined
in Section 9105(l)(b) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.7 "CLOSING DATE" means the date hereof.
1.8 "COLLATERAL" shall have the meaning assigned to such term in
Section 3 of this Agreement.
1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements
or other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "COPYRIGHTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.11 "COPYRIGHT LICENSE" means any written agreement granting any right
to use any Copyright or Copyright registration now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
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1.12 "DOCUMENTS" means any "documents," as such term is defined in
Section 9105(l)(f) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.13 "EQUIPMENT" means any "equipment," as such term is defined in
Section 9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
1.14 "EXCLUDED AGREEMENTS" means (i) any Warrant Agreement(s) executed
hereunder, and any other warrants (including without limitation, the warrant
agreement dated as of January 6, 1999) to acquire, or agreements governing the
rights of the holders of, any equity security of Borrower, (ii) any stock of the
Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the
Master Lease Agreement dated as of January 6, 1999 (the "Lease") between
Borrower, as lessee, and Lender, as lessor, including, without limitation, any
Equipment Schedules and Summary Equipment Schedules to the Lease executed or
delivered by Borrower pursuant thereto and any other modifications or amendments
thereof, whereby Borrower (as lessee) leases equipment, software, or goods from
Lender (as lessor) to Borrower (as lessee).
1.15 "FACILITY FEE" means with respect to Loan I, one percent (1.00%)
of the principal amount of Loan I and with respect to Loan II, one percent
(1.00%) of the principal amount of Loan II.
1.16 "FIXTURES" means any "fixtures," as such term is defined in
Section 9313(l)(a) of the UCC, now or hereafter owned or acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such
term is defined in Section 9106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, Copyrights, Trademarks, Patents, rights to Intellectual Property,
interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to sue for
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
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<PAGE> 4
1.18 "INSTRUMENTS" means any "instrument," as such term is defined in
Section 9105(l)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.19 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials and
records.
1.20 "INVENTORY" means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest,
and, in any event, shall include, without limitation, all inventory, goods and
other personal property which are held by or on behalf of Borrower for sale or
lease or are furnished or are to be furnished under a contract of service or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.21 "LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.22 "LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of
any financing statement (other than a precautionary financing statement with
respect to a lease that is not in the nature of a security interest) under the
UCC or comparable law of any jurisdiction.
1.23 "LOAN DOCUMENTS" shall mean and include this Agreement, the
Note(s), and any other documents executed in connection with the Secured
Obligations or the transactions contemplated hereby, as the same may from time
to time be amended, modified, supplemented or restated, provided, that the Loan
---------
Documents shall not include any of the Excluded Agreements.
---
1.24 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon:
(i) the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations.
1.25 "MATURITY DATE" means the date thirty-six (36) months from the
Advance Date of each installment of the Loan.
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1.26 "PATENT LICENSE" means any written agreement granting any right
with respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.27 "PATENTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) letters patent of, or rights corresponding thereto in, the United
States or any other county, all registrations and recordings thereof, and all
applications for letters patent of, or rights corresponding thereto in the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to issue in any such applications.
1.28 "PERMITTED LIENS" means any and all of the following: (i) liens in
favor of Lender, (ii) liens related to, or arising in connection with, Senior
Debt.
1.29 "PROCEEDS" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.30 "RECEIVABLES" shall mean and include all of the Borrowers
Accounts, Instruments, Documents, Chattel Paper and General Intangibles whether
secured or unsecured, whether now existing or hereafter created or arising, and
whether or not specifically sold or assigned to Lender hereunder.
1.31 "SECURED OBLIGATIONS" shall mean and include all principal,
interest, fees, costs, or other liabilities or obligations for monetary amounts
owed by Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.32 "SENIOR CREDITOR" means a bank, insurance company, pension fund,
or other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
--------
that Senior Creditor shall not include any officer,
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director, shareholder, venture capital investor, or insider of Borrower, or any
affiliate of the foregoing persons, except upon the express written consent of
Lender.
1.33 "SENIOR DEBT" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to a Senior Creditor
under any Senior Loan Documents, including, but not limited to such amounts as
may accrue or be incurred before or after default or workout or the commencement
of any liquidation, dissolution, bankruptcy, receivership or reorganization by
or against Borrower provided, that Senior Debt shall not include the following
indebtedness or obligations:
(a) obligations incurred after default or workout or the commencement
of any liquidation, dissolution, bankruptcy, receivership, or reorganization
case by or against Borrower, and
(b) debt exceeding One Million Dollars ($1,000,000.00) outstanding at
any one time.
1.34 "SENIOR LOAN DOCUMENTS" means any loan agreement between Borrower
and a Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor pursuant to or in connection with the Senior Debt or
the loan agreement, as the same may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.35 "SUBORDINATION AGREEMENT" means the Subordination Agreement of
even date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.36 "TRADEMARK LICENSE" means any written agreement granting any right
to use any Trademark or Trademark registration now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
1.37 "TRADEMARKS" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.39 "WARRANT AGREEMENT(S)" shall mean those agreements entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit
B-1 and B-2 pursuant to which Borrower granted Lender the right to purchase that
number of shares of Preferred Stock of Borrower as more particularly set forth
therein.
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SECTION 2. THE LOAN
2.1 (a) LOAN I (AVAILABLE IMMEDIATELY):
In consideration for Loan I, Borrower will deliver to Lender a note or
notes substantially in the form of Exhibit A attached hereto (the "Loan I
Note(s)") providing that the outstanding principal amount of the Loan I,
together with interest thereon precomputed at the rate of thirteen and one
half (13.5%) percent per annum, shall be due and payable in nine (9)
monthly payments of interest only, followed by twenty-seven (27) equal
monthly installments of principal and interest, payable on the first day of
each month, to and including the Maturity Date (each, a "Payment Date"). If
any payment under the Loan I Note(s) shall be payable on a day other than a
business day, then such payment shall be due and payable on the next
succeeding business day.
(b) LOAN II (AVAILABLE UPON BORROWER'S COMPLETION OF AN EQUITY
FINANCING OF AT LEAST EIGHT MILLION DOLLARS ($8,000,000.00):
In consideration for Loan II, Borrower shall deliver to Lender a note
or notes in substantially the form of Exhibit A hereto (the "Loan II
Note(s)", and collectively, with the Loan I Notes(s), and as the same
may from time to time be amended, modified, supplemented or restated,
the "Note(s)") providing that the outstanding principal amount of the
Loan II, together with interest thereon precomputed at the rate of
thirteen and one half (13.5%) percent per annum, shall be due and
payable in nine (9) monthly payments of interest only, followed by
twenty-seven (27) equal monthly installments of principal and
interest, payable on the first day of each month, to and including the
Maturity Date (each, a "Payment Date"). If any payment under the Loan
II Note(s) shall be payable on a day other than a business day, then
such payment shall be due and payable on the next succeeding business
day.
In consideration further of Loan II, Borrower shall issue Lender a
Warrant, in the form of Exhibit B-2 attached hereto, to purchase such
number of shares of preferred stock of the series of Preferred Stock
issued in connection with the Financing equal to $150,000 divided by
the Exercise Price, as defined in the Warrant Agreement attached
hereto as Exhibit B-2.
2.2 Borrower shall have the option to prepay the Loan, in whole or in
part, after twelve (12) months from the Closing Date by paying the principal
amount thereon together with all accrued and unpaid interest with respect to
such principal amount, as of the date of such prepayment, without premium. In
the event Borrower prepays the Note(s) within twelve (12) months from the
Closing Date hereof, Borrower shall pay the principal amount together with all
accrued and unpaid interest and a prepayment premium equal to one percent (1%)
of the then outstanding principal amount (the "Prepayment Penalty").
Notwithstanding the foregoing, in the event Borrower prepays the Loan in
conjunction with an initial public offering of Borrowers equity securities, the
Prepayment Penalty shall not apply.
2.3 (a) Notwithstanding any provision in this Agreement, the Note(s),
or any other Loan Document, it is not the parties' intent to contract for,
charge or receive interest at a rate that is greater than the maximum rate
permissible by law which a court of competent jurisdiction shall deem applicable
hereto (which under the laws of the State of Illinois shall be deemed to be the
laws relating to permissible rates of interest on commercial loans) (the
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"Maximum Rate"). If the Borrower actually pays Lender an amount of interest,
chargeable on the total aggregate principal Secured Obligations of Borrower
under this Agreement and the Note(s) (as said rate is calculated over a period
of time from the date of this Agreement through the end of time that any
principal is outstanding on the Note(s)), which amount of interest exceeds
interest calculated at the Maximum Rate on said principal chargeable over said
period of time, then such excess interest actually paid by Borrower shall be
applied first, to the payment of principal outstanding on the Note(s); second,
after all principal is repaid, to the payment of Lender's out of pocket costs,
expenses, and professional fees which are owed by Borrower to Lender under this
Agreement or the Loan Documents; and third, after all principal, costs,
expenses, and professional fees owed by Borrower to Lender are repaid, the
excess (if any) shall be refunded to Borrower, and the effective rate of
interest will be automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in Section 2.1.
(c) Upon and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded
interest, and professional fees, shall bear interest at a rate per annum equal
to the rate set forth in Section 2.1. plus five percent (5%) per annum ("Default
Rate").
2.4 If the Borrower has not repaid the outstanding principal amount
under the Loan in its entirety by the Maturity Date (as defined in the
applicable Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Lender shall have the
right to purchase from the Borrower, at the Exercise Price (adjusted, as set
forth and defined in the Warrant Agreement), an additional number of shares of
Preferred Stock which number shall be determined by (i) multiplying the
outstanding principal amount which is due but unpaid by one (1%) and (ii)
dividing the product thereof by the Exercise Price.
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a security interest in, all of Borrower's right, title and
interest in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
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(f) All other goods and personal property of Borrower whether
tangible or intangible and whether now or hereafter owned or
existing, leased, consigned by or to, or acquired by, Borrower
and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that;
4.1 Borrower owns all right title and interest in and to the
Collateral, free of all liens, security interests, encumbrances and claims
whatsoever, except for Permitted Liens.
4.2 Borrower has the full power and authority to, and does hereby grant
and convey to the Lender, a perfected security interest in the Collateral as
security for the Secured Obligations, free of all liens, security interests,
encumbrances and claims, other than Permitted Liens and shall execute such
Uniform Commercial Code financing statements in connection herewith as the
Lender may reasonably request. Except as set forth herein, no other lien,
security interest, adverse claim or encumbrance has been created by Borrower or
is known by Borrower to exist with respect to any Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in
good standing under the laws of the State of Delaware, and is duly qualified as
a foreign corporation in all jurisdictions in which the nature of its business
or location of its properties require such qualifications and where the failure
to be qualified would have a material adverse effect.
4.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents required to be
delivered or executed in connection herewith, and the Warrant Agreement(s) have
been duly authorized by all necessary corporate action of Borrower, the
individual or individuals executing the Loan Documents and the Warrant
Agreement(s) were duly authorized to do so; and the Loan Documents and the
Warrant Agreement(s) constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization or other similar laws
generally affecting the enforcement of the rights of creditors.
4.5 This Agreement, the other Loan Documents and the Warrant
Agreement(s) do not and will not violate any provisions of Borrower's
Certificate of Incorporation, bylaws or any contract, agreement, law,
regulation, order, injunction, judgment, decree or writ to which the Borrower is
subject, or result in the creation or imposition of any lien, security interest
or other encumbrance upon the Collateral, other than those created by this
Agreement.
4.6 The execution, delivery and performance of this Agreement, the
other Loan Documents and the Warrant Agreement(s) do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof.
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4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage
of time, the giving of notice, or both) constitute a default under any loan
agreement between Borrower and any Senior Creditor.
4.9 Borrower has filed all federal, state and local tax returns, ,
which it is required to file and has duly paid or fully reserved for all taxes
or installments thereof (including any interest or penalties), which have or may
become due pursuant to such returns or pursuant to any assessment received by
Borrower for the three (3) years preceding the Closing Date, if any (including
any taxes being contested in good faith and by appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained comprehensive general liability
insurance against risks customarily insured against in Borrower's line of
business. Such risks shall include, without limitation, the risks of death,
bodily injury and property damage. So long as there are any Secured Obligations
outstanding, Borrower shall also cause to be carried and maintained insurance
upon the Collateral and Borrower's business, covering casualty, hazard and such
other property risks customarily insured against in Borrower's line of business.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee or additional insured, as
appropriate. Borrower shall use commercially reasonable efforts to cause all
policies evidencing such insurance to provide for at least thirty (30) days
prior written notice by the underwriter or insurance company to Lender in the
event of cancellation or expiration. Such policies shall be issued by such
insurers and in such amounts as are reasonably acceptable to Lender.
5.2 Borrower shall and does hereby indemnify and hold Lender, its
agents and shareholders harmless from and against any and all claims, costs,
expenses, damages and liabilities (including, without limitation, such claims,
costs, expenses, damages and liabilities based on liability in tort, including
without limitation, strict liability in tort), including reasonable attorneys'
fees, arising out of the Borrower's disposition or utilization of the
Collateral, other than claims arising at or caused by Lender's gross negligence
or willful misconduct.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30)
days) after the end of each month, unaudited interim financial
statements as of the end of such month (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and
related statements of income and cash flows accompanied by a report
detailing any material contingencies (including the commencement of
any material litigation by or against Borrower) or any other
occurrence that could reasonably be
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expected to have a Material Adverse Effect, all certified by
Borrower's Chief Executive Officer or Chief Financial Officer to be
true and correct;
(b) as soon as practicable (and in any event within ninety (90)
days) after the end of each fiscal year, unqualified audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and
related statements of income and cash flows, and setting forth in
comparative form the corresponding figures for the preceding fiscal
year, certified by a firm of independent certified public accountants
selected by Borrower and reasonably acceptable to Lender, accompanied
by any management report from such accountants;
(c) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its shareholders and copies of
any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor, or any
national securities exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate
Borrower's continuing ability to meet its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and
its attorneys and accountants on reasonable notice to inspect, examine and make
copies and abstracts of the books of account and records of Borrower at
reasonable times during normal business hours. In addition, such representative
of Lender and its attorneys and accountants shall have the right to meet with
management and officers of the Company to discuss such books of account and
records.
6.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be requested by Lender; and take all
further action that may be necessary or desirable, or that Lender may request,
to confirm, perfect, preserve and protect the security interests intended to be
granted hereby, and in addition, and for such purposes only, Borrower hereby
authorizes Lender to execute and deliver on behalf of Borrower and to file such
financing statements, security agreement and other documents without the
signature of Borrower either in Lender's name or in the name of Borrower as
agent and attorney-in-fact for Borrower. The parties agree that a carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any appropriate office in lieu thereof.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender) and shall give Lender immediate written notice thereof.
6.5 Without Lender's prior written consent, Borrower shall not (a)
grant any material extension of the time of payment of any of the Receivables,
(b) to any material extent, compromise, compound or settle the same for less
than the full amount thereof, (c) release to
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<PAGE> 12
any material extent, wholly or partly, any Person liable for the payment
thereof, or allow any material credit or material discount thereon other than
trade discounts granted in the ordinary course of business of Borrower.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with prudent industry practices.
6.7 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender. In the event Lender does not consent to such
assignment the parties agree Borrower shall prepay the Loan in accordance with
Section 2.2 hereof.
6.8 Borrower shall not, without the prior written consent of Lender,
such consent not to be unreasonably withheld, declare or pay any cash dividend
or make a distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey, other than to a
Senior Creditor any equitable, beneficial or legal interest in any material
portion of the assets of Borrower (except inventory sold in the normal course of
business).
6.9 Upon the request of Lender, Borrower shall, during business hours,
make the Inventory and Equipment available to Lender for inspection at the place
where it is normally located and shall make Borrower's log and maintenance
records pertaining to the Inventory and Equipment available to Lender for
inspection. Borrower shall take all action necessary to maintain such logs and
maintenance records in a correct and complete fashion.
6.10 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom. Borrower shall file on or before the due date therefor all personal
property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
6.11 Borrower shall not relocate any item of the Collateral (other than
sale of inventory in the ordinary course of business) except: (i) with the prior
written consent of the Lender not to be unreasonably withheld; and (ii) if such
relocation shall be within the continental United States. If permitted to
relocate Collateral pursuant to the foregoing sentence, unless otherwise agreed
in writing by Lender, Borrower shall first (a) cause to be filed and/or
delivered to the Lender all Uniform Commercial Code financing statements,
certificates or other documents or instruments necessary to continue in effect
the perfected security interest of the Lender in the Collateral, and (b) have
given the Lender no less than thirty (30) days prior written notice of such
relocation.
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6.12 Borrower agrees that Lender may invest up to Two Hundred Fifty
Thousand Dollars ($250,000.00) in Borrower's next round of equity financing and
shall promptly notify Lender of the terms, conditions and timing of such
financing.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on each Advance Date shall be
subject to Lender's satisfactory completion of its due diligence and approval
process, and satisfaction by Borrower or waiver by Lender, in Lender's sole
discretion, of the following conditions:
7.1 (a) The Advance Date occurs on or before July 6, 1999
(b) Borrower shall have entered into a lease with Lender in the
minimum amount of Seven Hundred Fifty Thousand Dollars ($750,000.00).
7.2 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date,
shall have delivered to Lender the following:
(a) executed originals of the Agreement, the Warrant Agreement
attached hereto as Exhibit B-1, and any documents reasonably required
by Lender to effectuate the liens of Lender, with respect to all
Collateral;
(b) a certified copy of resolutions of Borrower's board of
directors evidencing approval of the borrowing and other transactions
evidenced by the Loan Documents and the Warrant Agreement(s);
(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would
have a Material Adverse Effect;
(e) payment of the Facility Fee for Loan I;
(f) such other documents as Lender may reasonably request.
7.3 ADVANCE REQUEST. Borrower shall:
WITH RESPECT TO LOAN I:
(a) deliver to Lender, at least forty-eight (48) hours prior to
the Advance Date, written notice in the form of an Advance Request, or
as otherwise specified by Lender from time to time, specifying the
date and amount of such Advance.
(b) deliver the executed original Loan I Note(s) as set forth in
SECTION 2.
(c) at the time of the request, Borrower shall have achieved at
least seventy-five (75%) or more of its cumulative net income
projections or 125% or
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less of its cumulative net loss projections, as the case may be,
as set forth in its financial projections dated December 3, 1998
for the prior three (3) month period, attached hereto as Exhibit
D.
(d) such other documents as Lender may reasonably request.
WITH RESPECT TO LOAN II:
(a) deliver to Lender, at least forty-eight (48) hours prior to
the Advance Date, written notice in the form of an Advance Request, or
as otherwise specified by Lender from time to time, specifying the
date and amount of such Advance.
(b) deliver the executed original Loan II Note(s) as set forth in
SECTION 2;
(c) pay the Facility Fee for Loan II;
(d) deliver an executed Warrant Agreement as set forth in SECTION
2;
(e) at the time of the request, have achieved at least
seventy-five (75%) or more of its cumulative net income projections
125% or less of its cumulative net loss projections, as the case me
be, as set forth in its financial projections dated December 3, 1998
for the prior three (3) month period, attached hereto as Exhibit D.
(f) at the time of the initial request hereunder, provide
documentation verifying the completion of the Financing.
(g) deliver such other documents as Lender may reasonably
request.
7.4 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a first priority
perfected security interest in the Collateral, subject only to Permitted Liens.
Such actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral.
7.5 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date and each Advance
Date, no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an Event of Default under this
Agreement or any of the Loan Documents and no fact or condition exists that
would (or would, with the passage of time, the giving of notice, or both)
constitute a default under the Senior Loan Documents between Borrower and Senior
Creditor.
7.6 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date, no
event which has had or could reasonably be expected to have a Material Adverse
Effect has occurred and is continuing.
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SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein
called "Events of Default") shall constitute a default hereunder and under the
Note(s) and other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or
other Secured Obligation involving the payment of money under this Agreement,
the Note(s) or any of the other Loan Documents, and such default continues for
more than five (5) days after the due date thereof; or
8.2 Borrower defaults in the performance of any other covenant or
Secured Obligation of Borrower hereunder or under the Note(s) or any of the
other Loan Documents, and such default continues for more than twenty (20) days
after Lender has given notice of such default to Borrower.
8.3 Any representation or warranty made herein by Borrower shall prove
to have been false or misleading in any material respect; or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an
action by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
8.6 Sixty (60) days shall have expired after the appointment, without
the consent or acquiescence of Borrower, of any trustee, receiver or liquidator
of Borrower or of all or any substantial part of the properties of Borrower
without such appointment being vacated; or
8.7 The default by Borrower under any Excluded Agreement(s), any other
promissory note or agreement for borrowed money, or any other agreement between
Borrower and Lender; or
8.8 The occurrence of any default under any lease or other agreement or
obligation of Borrower involving an amount in excess of $100,000.00 or having a
Material Adverse Effect; or the entry of any judgment against Borrower involving
an award in excess of $100,000.00 that would have a Material Adverse Effect,
that has not been bonded or stayed on appeal within thirty (30) days; or
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8.9 The occurrence of any material default under any Senior Loan
Documents.
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at
its option, may declare the Note(s) and all of the other Secured Obligations to
be accelerated and immediately due and payable (provided, that upon the
occurrence of an Event of Default of the type described in Sections 8.4 or 8.5,
the Note(s) and all of the other Secured Obligations shall automatically be
accelerated and made due and payable without any further act), whereupon the
unpaid principal of and accrued interest on such Note(s) and all other
outstanding Secured Obligations shall become immediately due and payable, and
shall thereafter bear interest at the Default Rate set forth in, and calculated
according to, Section 2.3 (c) of this Agreement. Lender may exercise all rights
and remedies with respect to the Collateral under the Loan Documents or
otherwise available to it under applicable law, including the right to release,
hold or otherwise dispose of all or any part of the Collateral and the right to
occupy, utilize, process and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
five (5) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs
and professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in
its sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent
jurisdiction may direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 10. MISCELLANEOUS
10.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement
and the grant of a security interest hereunder shall remain in full force and
effect and all the rights, powers and remedies of Lender hereunder shall
continue to exist until the Secured Obligations
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are paid in full as the same become due and payable and until Lender has
executed a written termination statement (which Lender shall execute within a
reasonable time after full payment of the Secured Obligations hereunder),
reassigning to Borrower, without recourse, the Collateral and all rights
conveyed hereby and returning possession of the Collateral to Borrower. The
rights, powers and remedies of Lender hereunder shall be in addition to all
rights, powers and remedies given by statute or rule of law and are cumulative.
The exercise of any one or more of the rights, powers and remedies provided
herein shall not be construed as a waiver of or election of remedies with
respect to any other rights, powers and remedies of Lender.
10.2 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3 NOTICE. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) IF TO LENDER:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
WITH A COPY TO:
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) IF TO BORROWER:
NET.GENESIS CORP.
Attention: John Delea
215 First Street
Cambridge, MA 02142
Facsimile: (617) 577-9850
Phone: (617) 577-9800
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WITH COPY TO:
FOLEY, HOAG & ELIOT LLP
Attention: John D. Patterson, Jr.
One Post Office Square
Boston, MA 02109
Facsimile: (617) 832-7000
Telephone: (617) 832-1000
or to such other address as each party may designate for itself by like notice.
10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the
other Loan Documents, and the Warrant Agreement(s) constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and thereof, and supersede and replace in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof or thereof
(including, without limitation, Lender's proposal letter dated November 24,
1998), all of which are merged herein and therein. None of the terms of this
Agreement, the Note(s), any of the other Loan Documents or Warrant Agreement(s)
may be amended except by an instrument executed by each of the parties hereto.
10.5 HEADINGS. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 NO WAIVER. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 SURVIVAL. All agreements, representations and warranties contained
in this Agreement, the Note(s), the other Loan Documents and the Warrant
Agreement(s) or in any document delivered pursuant hereto or thereto shall be
for the benefit of Lender and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement.
10.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement, the other
Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note(s), any of the other Loan
Documents or the Warrant Agreement(s), without Lender's express written consent,
and any such attempted assignment shall be void and of no effect. Lender may
assign, transfer, or endorse its rights hereunder and under the other Loan
Documents or Warrant Agreement(s) without prior notice to Borrower, and all of
such rights shall inure to the benefit of Lender's successors and assigns.
10.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save
Lender harmless from, any and all liabilities with respect to, or resulting from
any delay in paying, any and all excise, sales or other similar taxes which may
be payable or determined to be payable
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with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.
10.10 GOVERNING LAW. This Agreement, the Note(s), the other Loan
Documents and the Warrant Agreement(s) have been negotiated and delivered to
Lender in the State of Illinois, and shall not become effective until accepted
by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured
Obligations is due in the State of Illinois. This Agreement, the Note(s), the
other Loan Documents and the Warrant Agreement(s) shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois,
excluding conflict of laws principles that would cause the application of laws
of any other jurisdiction.
10.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings
arising in or under or related to this Agreement, the Note(s), any of the other
Loan Documents or Warrant Agreement(s) may be brought in any state or federal
court of competent jurisdiction located in the State of Illinois. By execution
and delivery of this Agreement, each party hereto generally and unconditionally:
(a) consents to personal jurisdiction in Cook County, State of Illinois; (b)
waives any objection as to jurisdiction or venue in Cook County, State of
Illinois; (c) agrees not to assert any defense based on lack of jurisdiction or
venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement, the Note(s), the
other Loan Documents or Warrant Agreement(s). Service of process on any party
hereto in any action arising out of or relating to this agreement shall be
effective if given in accordance with the requirements for notice set forth in
Section 10.3, above and shall be deemed effective and received as set forth in
Section 10.3, above. Nothing herein shall affect the right to serve process in
any other manner permitted by law or shall limit the right of either party to
bring proceedings in the courts of any other jurisdiction.
10.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws.
EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL
BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY
CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST
LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This
waiver extends to all such Claims, including, without limitation, Claims which
involve persons or entities other than Borrower and Lender; Claims which arise
out of or are in any way connected to the relationship between Borrower and
Lender; and any Claims for damages, breach of contract arising, out of this
Agreement, any other Loan Document or any of the Excluded Agreements, specific
performance, or any equitable or legal relief of any kind.
10.13 CONFIDENTIALITY. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 6 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
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10.14 COUNTERPARTS. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER: NET.GENESIS CORP.
Signature: /s/ John P. Delea
-----------------------------
Print Name: John P. Delea
-----------------------------
Title: V.P. Finance & Administration
-----------------------------
ACCEPTED IN ROSEMONT, ILLINOIS:
LENDER: COMDISCO, INC.
Signature: /s/ James P. Labe
-----------------------------
Print Name: James P. Labe
----------------------------
President
Title: Comdisco Ventures Division
--------------------------
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EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$ DATE:
DUE:
FOR VALUE RECEIVED, net.Genesis Corp., a Delaware corporation (the "Borrower")
hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation
(the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of
payment as the holder of this Secured Promissory Note (this "Note") may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of ______ and 00/100 Dollars ($______) together with
interest at thirteen and one half percent (13.5%) per annum from the date of
this Note to maturity of each installment on the principal hereof remaining from
time to time unpaid, such principal and interest to be paid in 9 monthly
installments of interest only, commencing ______ and on the same day of the
month thereafter to and including ______, followed by 27 equal monthly
installments of $______ each, commencing ______ and on the same day of each
month thereafter to and including ______, such installments to be applied first
to accrued and unpaid interest and the balance to unpaid principal. Interest
shall be computed on the basis of a year consisting of twelve months of thirty
days each.
This Note is one of the Note(s) referred to in, and is executed and delivered in
connection with, that certain Subordinated Loan and Security Agreement dated
January 6, 1998 by and between Borrower and Lender (as the same may from time to
time be amended, modified or supplemented in accordance with its terms, the
"Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
-1-
<PAGE> 22
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: NET.GENESIS CORP.
215 FIRST STREET
CAMBRIDGE, MA 02142
Signature: ___________________________
.
Print Name: ____________________________
Title: ____________________________
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<PAGE> 1
EXHIBIT 10.8
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated January 6, 1999 by and between
COMDISCO, INC. ("Lessor") and NET.GENESIS CORP. ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR
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PURPOSE. Lessor is not responsible for any liability, claim, loss, damage or
expense of any kind (including strict liability in tort) caused by the Equipment
except for any loss or damage caused by the willful misconduct or negligent acts
of Lessor. In no event is Lessor responsible for special, incidental or
consequential damages.
5. Title; Relocation or Sublease; and Assignment
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease Will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
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(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee reserves
its right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term,
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provided re-certification is available and is required by Lessor. The lease term
will continue upon the same terms and conditions until recertification has been
obtained.
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or constitute
a default under, any indenture, mortgage, contract or other instrument to which
it is a party or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course
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of business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. Delivery and Return of Equipment
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
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maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the Rem of Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any
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document or certificate furnished to the Lessor hereunder if that failure or
inaccuracy continues for ten (10) business days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule
by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY
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RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY REQUIRE
LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES
STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or any part of
the Equipment at a public or private sale for cash or credit with the privilege
of purchasing the Equipment. The proceeds from any sale, lease or other
disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 Financial Statements. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial
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Statements" will be deemed to refer to only those statements required by the
Securities and Exchange Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those
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agreements are for the benefit of Lessor and any Assignee or Secured Party and
survive the execution, delivery, expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from
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Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
Casualty Value - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
Default Costs - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of Inventory Equipment to Lessee's
address.
Equipment - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13.1.
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Fair Market Value - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Interim Rent - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Late Charge - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
Schedule,
Schedule - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease,
Secured Party - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
12
<PAGE> 13
Summary Equipment Schedule - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
NET.GENESIS CORP. COMDISCO, INC.
as Lessee as Lessor
By: /s/ John Delea By: /s/ James P. Labe
------------------------------- -------------------------------
Title: V.P. Finance & Administration Title: James P. Labe
President
Comdisco Ventures Division
<PAGE> 14
Duplicate Original
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF JANUARY 6,1998
BETWEEN NET.GENESIS CORP., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease are hereby modified and amended as follows:
1) Section 14.1., "BOARD ATTENDANCE"
Delete this section in its entirety.
2) Section 14.16., "LANDLORD/MORTGAGEE WAIVER"
Delete this Section in its entirety.
NET.GENESIS CORP. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ John Delea By: /s/ James P. Labe
----------------------------------- ------------------------------
James P. Labe
Title: V.P. Finance and Administration Title: President
Comdisco Ventures Division
Date: 1/5/99 Date: Jan. 07, 1999
<PAGE> 15
Duplicate Original
EQUIPMENT SCHEDULE VL-1
DATED AS OF JANUARY 6,1999
TO MASTER LEASE AGREEMENT
DATED AS OF JANUARY 6,1999 (THE "MASTER LEASE")
LESSEE: NET.GENESIS CORP. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Phone: (617) 577-9800 6111 North River Road
Fax: (617) 577-9850 Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
215 First Street
Cambridge, MA 02142
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:
(24 digits maximum)
Location of Equipment: Initial Term: 36 months
same as above (Number of Rent Intervals)
Attn.: Lease Rate Factor:
Months 1-6: 1.500%
Months 7-12: 2.000%
Months 13-36: 3.963%
EQUIPMENT (as defined below): Advance: $31,704.00
Interim Rent: Interest Only
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period January 6, 1999 through January 6, 2000
("Equipment Delivery Period"), for
1
<PAGE> 16
which Lessor receives vendor invoices approved for payment, up to an aggregate
purchase price of $800,000.00 ("Commitment Amount"); excluding custom use
equipment, leasehold improvements, installation costs and delivery costs,
rolling stock, special tooling, "stand-alone" software, application software
bundled into computer hardware, hand held items, molds and fungible items.
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
obtained from a vendor by Lessee for its use subject to Lessor's
prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than April 6, 1999
*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any sale
leaseback Equipment will be placed on lease subject to: (1) Lessor
prior approval of the Equipment; and (2) if approved, at Lessor's
actual net appraised Equipment value pursuant to the schedule below:
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
INVOICE DATE NET EQUIPMENT COST PAID BY LESSOR
- ------------------ ----------------------------------
Between 10/8/98 and 1/6/99 100%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
2
<PAGE> 17
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its inventory
for use by Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary
3
<PAGE> 18
Equipment Schedule to purchase all, but not less than all, of the Equipment
listed therein for a purchase price not to exceed fifteen (15%) of the Equipment
cost and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term or extended term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full force and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. TECHNOLOGY EXCHANGE OPTION
If Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
A. Equipment being replaced with New Technology Equipment shall have an
aggregate original cost equal to or greater than $20,000 and be comprised of
full configurations of equipment.
B. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software or any soft costs financed hereunder including but not limited
to tenant improvements and custom equipment.
C. The cost of the New Technology Equipment must be equal to or greater than the
original equipment cost of the replaced equipment, but in no event shall exceed
150% of the original equipment cost.
D. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
4
<PAGE> 19
The wholesale market value of the equipment being replaced will be established
by Comdisco based upon then current market conditions. Upon the return of the
replaced equipment, the wholesale price will be deducted from the present value
of the remaining rentals and the differential will be added to the cost of the
New Technology Equipment in calculating the new rental. The lease for the New
Technology Equipment will contain terms and conditions substantially similar to
those for the replaced equipment and will have an Initial Term not less than the
balance of the remaining Initial Term for the replaced equipment.
6. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(a) Section 14.18., "DEFINITIONS"
In the definition of "Interim Rent", delete "the pro-rata portion" and
replace with "interest only portion of".
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
NET.GENESIS CORP. COMDISCO, INC.
AS LESSEE AS LESSOR
By: /s/ John Delea By: /s/ James P. Labe
----------------------------- --------------------------
Title: V.P. Finance & Administration Title: James P. Labe
President
Date: 1/5/99 Comdisco Ventures Division
Date: Jan 07 1999
5
<PAGE> 20
Duplicate Original
EQUIPMENT SCHEDULE VL-2
DATED AS OF JANUARY 6,1999
TO MASTER LEASE AGREEMENT
DATED AS OF JANUARY 6,1999 (THE "MASTER LEASE")
LESSEE: NET.GENESIS CORP. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
6111 North River Road
Phone: (617) 577-9800 Rosemont, Illinois 60018
Fax: (617) 577-9850 Attn: Venture Group
Address for Notices:
215 First Street
Cambridge, MA 02142
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:
(24 digits maximum)
Location of Equipment: Initial Term: 36 months
same as above (Number of Rent Intervals)
Attn.: Lease Rate Factor:
Months 1-6: 1.500%
Months 7-12: 2.000%
Months 13-36: 3.963%
EQUIPMENT (as defined below): Advance: $7,926.00
Interim Rent: Interest Only
Software and tenant improvements specifically approved by Lessor, which shall be
delivered to and accepted by Lessee during the period January 6, 1999 through
January 6, 2000 ("Equipment
1
<PAGE> 21
Delivery Period") for which Lessor receives vendor invoices approved for
payment, up to an aggregate purchase price of $200,000.00 ("Commitment Amount");
excluding custom use equipment, installation costs and delivery costs, rolling
stock, special tooling, hand held items, molds and fungible items.
2
<PAGE> 22
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
obtained from a vendor by Lessee for its use subject to Lessor's
prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Salle-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than April 6, 1999
*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any
sale/leaseback Equipment will be placed on lease subject to: (1)
Lessor prior approval of the Equipment; and (2) if approved, at
Lessor's actual net appraised Equipment value pursuant to the
schedule below:
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
INVOICE DATE NET EQUIPMENT COST PAID BY LESSOR
- -------------------------- ---------------------------------
Between 10/8/98 and 1/6/99 100%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessors prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its inventory
for use by Lessee at rates provided by Lessor.
3
<PAGE> 23
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. MISCELLANEOUS
In consideration of Lessor financing software and tenant improvements
hereunder, Lessee agrees in addition to its last Monthly Rent Payment to remit
to Lessor an amount equal to 15% of Lessor's aggregate cost of software and
tenant improvements provided hereunder.
4. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(a) Section 8(d)., "REPRESENTATIONS AND WARRANTIES OF LESSEE"
Delete subparagraph (d) in its entirety.
(b) Section 9. "DELIVERY AND RETURN OF EQUIPMENT"
Delete second, third and fourth sentences in their entirety.
(c) Section 14.18., "DEFINITIONS"
In the definition of "Interim Rent", delete "the pro-rata portion"
and replace with "interest only portion of".
4
<PAGE> 24
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
NET.GENESIS CORP. COMDISCO, INC.
as Lessee as Lessor
By: /s/ John Delea By: /s/ James P. Labe
------------------------------ ----------------------------
Title: VP Finance & Administration Name: James P. Labe
Date: 1/5/99 Title: President
Comdisco Ventures Division
Date: Jan 07 1999
5
<PAGE> 1
Exhibit 10.9
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series E Preferred Stock of
NET.GENESIS CORP.
Dated as of January 6, 1999 (the "Effective Date")
WHEREAS, net.Genesis Corp., a Delaware corporation (the "Company") has
entered into a Subordinated Loan and Security Agreement dated as of January 6,
1999, and related Subordinated Promissory Note(s) (collectively, the "Loans")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Loans, the right to purchase shares of its Series E
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, such number of fully paid and
non-assessable shares of the Company's Series E Preferred Stock ("Preferred
Stock") equal to $450,000 divided by the Exercise Price. The Exercise Price
shall be defined as the lesser of (i) the average of $1.20 (the Series D
Preferred stock price) and the price per share of the Next Round of financing or
(ii) the per share price based on a fully diluted pre-money valuation of Thirty
Million Dollars ($30,000,000.00) to the Next Round. Next Round shall be defined
as (i) preferred stock financing of at least $2,000,000, (ii) the sale,
conveyance disposal, or encumbrance of all or substantially all of the Company's
property or business or Company's merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary corporation) or any other
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of Company is disposed of ("Merger Event"), provided
that a Merger Event shall not apply to a merger effected exclusively for the
purpose of changing the domicile of the company or (iii) an initial public
offering of the Company's Common Stock which such public offering has been
declared effective by the SEC. The number and purchase price of such shares are
subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) five
(5) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days
- 1 -
<PAGE> 2
thereafter, the Company shall issue to the Warrantholder a certificate for the
number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued
to the Warrantholder.
Y = the number of shares of Preferred Stock requested
to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's
Registration Statement relating to such public offering has been
declared effective by the SEC, then the fair market value per share
shall be the product of (x) the initial "Price to Public" specified in
the final prospectus with respect to the offering and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair
market value shall be deemed to be the product of (x) the
average of the closing prices over a twenty-one (21) day
period ending three days before the day the current fair
market value of the securities is being determined and (y) the
number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
or
(b) if actively traded over-the-counter, the fair
market value shall be deemed to be the product of (x) the
average of the closing bid and asked prices quoted on the
NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair
market value of the securities is being determined and (y) the
number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current fair market value of Preferred
Stock shall be the product of (x) the highest price per share which the
Company could obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its
Board of Directors and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the fair market value of Preferred
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
- 2 -
<PAGE> 3
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as then
in effect or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer involved in such conversion), or listing
on any domestic securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered, listed or
approved for listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the cash or the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant immediately
prior to the Merger Event. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
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<PAGE> 4
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If the Company has not paid any
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which
due but unpaid by 1% and (ii) dividing the product thereof by the Exercise
Price.
(f) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit IV (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder;
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
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<PAGE> 5
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A)
17,500,000 shares of Common Stock, of which 2,005,209 shares are issued
and outstanding, and (B) 11,460,481 shares of preferred stock, of which
10,530,463 shares are issued and outstanding and are convertible into
10,530,463 shares of Common Stock on a one-for-one basis, subject to
weighted average anti-dilution protection.
(ii) The Company has reserved 4,000,000 shares of Common Stock
for issuance under its 1995 Incentive Stock Option Plan, under which
3,341,393 options are outstanding at an average price of $0.11 per
share. There are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock or other
securities of the Company.
(iii) The requisite number of stockholders who have preemptive
rights to purchase new issuances of the Company's capital stock in
accordance with the Amended and Restated Stockholder Agreement, dated
November 14, 1995, by and among the Company and the stockholders named
therein, as amended, (the "Stockholder Agreement") have waived such
rights, with respect to the issuance of this Warrant and the Preferred
Stock issuable hereunder, and thus, under the terms of the Stockholder
Agreement, no party to that Agreement will have preemptive rights with
respect to the issuance of this Warrant and the Preferred Stock
issuable hereunder. No shareholder of the Company has preemptive rights
to purchase new issuances of the Company's capital stock, pursuant to
the Company's Certificate of Incorporation.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
this Warrant Agreement, and in the Second Amended and Restated Registration
Rights Agreement dated June 25, 1998, by and among the Company and certain of
its stockholders identified therein, the Company is not, pursuant to the terms
of any other agreement currently in existence, under any obligation to register
under the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i)
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<PAGE> 6
the registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of the applicable
state securities laws.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements to the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time; provided, however, that the Company shall have no such obligation if it
does not, at such time, file any reports with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of tile Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the
Preferred Stock issuable upon exercise of this Warrant is not registered under
the 1933 Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stork then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), or file
reports pursuant to Section 15(d), of the 1934 Act, or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Preferred Stock pursuant to this
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of such rights to
purchase Preferred Stock or of such Preferred Stock which might be made by it in
reliance upon Rule 144 under the 1933 Act may be made only in accordance with
the terms and conditions of that Rule.
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<PAGE> 7
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. RIGHT OF FIRST OFFER.
In accordance with the provisions of Section 3 of the Stockholder, if
the Company proposes to offer any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock ("Shares"),
subject to the exceptions set forth in the Stockholder Agreement, the Company
shall promptly provide Warrantholder with an offer to sell Warrantholder a
portion of such Shares equal to the proportion that the number of shares of
Preferred Stock to be issued upon exercise hereunder or number of shares of
common stock upon conversion thereof, bears to the total number of shares of
common stock of the Company then outstanding (assuming full conversion of all
shares of Preferred Stock). For purposes of this Section 11, the parties agree
that the Warrantholder shall have the rights, under Section 3 of the Stockholder
Agreement, of an "Investor," as such term is defined in such agreement.
Accordingly, but without limiting the generality of the foregoing, with respect
to each proposed issuance of securities to which the terms of this Section 11
might otherwise apply, Warrantholder's rights hereunder shall be deemed waived
if not less than fifty percent (50%) of the Investors (not including
Warrantholder) agree to waive their rights under Section 3 of the Stockholder
Agreement
12. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof,
this Warrant Agreement and all rights hereunder are transferable in whole or in
part by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
13. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shalt be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease
Administration, cc: Legal Department, attn.: General Counsel, (and/or, if by
facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 215
First Street, Cambridge, Massachusetts 02142, Attention: John Delea, cc: Foley,
Hoag & Eliot, LLP, One Post Office Square, Boston, MA 02109, Attention: John D.
Patterson, Jr., (and/or if by facsimile, (617) 577-9850 and (617) 832-7000) or
at such other address as any such party may subsequently designate by written
notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where such party will not have an adequate remedy at law and where
damages will not be readily ascertainable. Each party expressly agrees that it
shalt not oppose an application by the other or any other person entitled to the
benefit of this Agreement requiring specific performance of any or all
provisions hereof or enjoining such party from continuing to commit any such
breach of this Agreement.
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<PAGE> 8
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement shall provide the Warrantholder with an officer's certificate with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: NET.GENESIS CORP.
By: /s/ John Delea
-------------------------------------
Title: V.P. Finance & Administration
-------------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ James P. Labe
-------------------------------------
Title: President Comdisco Ventures Division
-------------------------------------
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<PAGE> 9
EXHIBIT I
NOTICE OF EXERCISE
TO: _____________________________
(1) The undersigned Warrantholder hereby elects to purchase______________
shares of the Series _______ Preferred Stock of
_________________________, pursuant to the terms of the Warrant
Agreement dated the _____ day of ________________, 19__ (the "Warrant
Agreement") between ________________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series ___ Preferred Stock of
________________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in
Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series _______ Preferred Stock in the name of the undersigned or in
such other name as is specified below.
- ----------------------------
(Name)
- ----------------------------
(Address)
Warrantholder COMDISCO, INC.
By:
----------------------------
Title:
----------------------------
Date:
----------------------------
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<PAGE> 10
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned __________________________, hereby acknowledge receipt
of the "Notice of Exercise" from Comdisco, Inc., to purchase ______________
shares of the Series ____ Preferred Stock of _________________, pursuant to the
terms of the Warrant Agreement and further acknowledges that ______________
shares remain subject to purchase under the terms of the Warrant Agreement
COMPANY:
By:__________________________
Title:________________________
Date:_________________________
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<PAGE> 11
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ----------------------------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------------------------
Dated:
-----------------------------------------
Holder's Signature:
-----------------------------
Holder's Address:
-----------------------------
Signature Guaranteed:
------------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.10
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series E Preferred Stock of
NET.GENESIS CORP.
Dated as of January 6,1999 (the "Effective Date")
WHEREAS, net.Genesis Corp., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of January 6, 1999, Equipment
Schedule No. VL-1 and VL-2 dated as of January 6, 1999, and related Summary
Equipment Schedules (collectively, the "Leases") With Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series E Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, such number of fully paid and
non-assessable shares of the Company's Series E Preferred Stock ("Preferred
Stock") equal to $65,000 divided by the Exercise Price. The Exercise Price shall
be defined as the lesser of (i) the average of $1.20 (the Series D Preferred
stock price) and the price per share of the Next Round of financing or (ii) the
per share price based on a fully diluted pre-money valuation of Thirty Million
Dollars ($30,000,000.00) to the Next Round. Next Round shall be defined as (i)
preferred stock financing of at least $2,000,000, (ii) the sale, conveyance
disposal, or encumbrance of all or substantially all of the Company's property
or business or Company's merger into or consolidation with any other corporation
(other than a wholly-owned subsidiary corporation) or any other transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of Company is disposed of "Merger Event"), provided that a Merger
Event shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the company or (iii) an initial public offering of the
Company's Common Stock which such public offering has been declared effective by
the SEC. The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) five (5) years
or (ii) three (3) years from the effective date of the Company's initial public
offering, whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
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<PAGE> 2
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
----------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the dosing
prices over a twenty-One (21) day period ending three days before the
day the current fair market value of the securities is being
determined and (Y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the fair market value of Preferred Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
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<PAGE> 3
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duty registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the cash or the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant immediately
prior to the Merger Event. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shalt be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Companys
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such
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<PAGE> 4
adjustment by the number of shares of Preferred Stock issuable upon the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
of equipment leased pursuant to the Leases exceeds $1,000,000, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shalt be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $1,000,000 by 6.5%, and (ii) dividing the product
thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit IV (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder (A)
at least twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mall, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duty and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement
are not inconsistent with the Company's Charter or Bylaws, do not contravene any
law or governmental rule, regulation or order applicable to it, do not and will
not contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a
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<PAGE> 5
party or by which it is bound, and the Leases and this Warrant Agreement
constitute legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 17,500,000
shares of Common Stock, of which 2,005,209 shares are issued and
outstanding, and (B) 11,460,481 shares of preferred stock, of which
10,530,463 shares are issued and outstanding and are convertible into
10,530,463 shares of Common Stock on an one-for-one basis, subject to
weighted average anti-dilution protection.
(ii) The Company has reserved 4,000,000 shares of Common Stock for
issuance under its 1995 Incentive Stock Option Plan, under which 3,341,393
options are outstanding at an average price of $0.11 per share. There are
no other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued
shares of the Company's capital stock or other securities of the Company.
(iii) The requisite number of stockholders who have preemptive rights
to purchase new issuances of the Company's capital stock in accordance with
the Amended and Restated Stockholder Agreement, dated November 14, 1995, by
and among the Company and the stockholders named therein, as amended, (the
"Stockholder Agreement") have waived such rights, with respect to the
issuance of this Warrant and the Preferred Stock issuable hereunder, and
thus, under the terms of the Stockholder Agreement, no party to that
Agreement will have preemptive rights with respect to the issuance of this
Warrant and the Preferred Stock issuable hereunder. No shareholder of the
Company has preemptive rights to purchase new issuances of the Company's
capital stock, pursuant to the Company's Certificate of incorporation.
(e) Insurance. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, and in the Second Amended and Restated Registration Rights
Agreement dated June 25, 1998, by and among the Company and certain of its
stockholders identified therein, the Company is not, pursuant to the terms of
any other agreement currently in existence, under any obligation to register
under the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time; provided however, that the Company shall have no such obligation if it
does not, at such time, file any reports with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
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<PAGE> 6
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuance upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shalt have been sold without registration
in compliance With Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration, The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), or file
reports pursuant to Section 15(d), of the 1934 Act, or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Preferred Stock pursuant to this
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of such rights to
purchase Preferred Stock or of such Preferred Stock which might be made by it
in reliance upon Rule 144 under the 1933 Act may be made only in accordance with
the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. RIGHT OF FIRST OFFER.
In accordance with the provisions of Section 3 of the Stockholder, if the
Company proposes to offer any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock ("Shares"),
subject to the exceptions set forth in the Stockholder Agreement, the Company
shall promptly provide Warrantholder with an offer to sell Warrantholder a
portion of such Shares equal to the proportion that the number of shares of
Preferred Stock to be issued upon exercise hereunder or number of shares of
common stock upon conversion thereof, bears to the total number of shares of
common stock of the Company then outstanding (assuming full conversion of all
shares of Preferred Stock). For purposes of this Section 11, the parties agree
that the Warrantholder shall have the rights, under Section 3 of the Stockholder
Agreement, of an "Investor," as such term is defined in such agreement.
Accordingly, but without limiting the generality of the foregoing, with respect
to each proposed issuance of securities to which the terms of this Section 11
might otherwise apply, Warrantholder's rights hereunder shall be deemed waived
it not less than fifty percent (50%) of the Investors (not including
Warrantholder) agree to waive their rights under Section 3 of the Stockholder
Agreement.
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<PAGE> 7
12. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
13. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease
Administration, cc: Legal Department, Attention: General Counsel (and/or, if by
facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 215
First Street, Cambridge, Massachusetts 02142, Attention: John Delea, cc: Foley
Hoag & Eliot LLP, One Post Office Square, Boston, MA 02109, Attention: John D.
Patterson, Jr. (and/or if by facsimile, (617) 577-9850 and (617) 832-7000) or at
such other address as any such party may subsequently designate by written
notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where such party will not have an adequate remedy at law and where
damages will not be readily ascertainable. Each party expressly agrees that it
shall not oppose an application by the other or any other person entitled to the
benefit of this Agreement requiring specific performance of any or all
provisions hereof or enjoining such party from continuing to commit any such
breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with an officer's certificate with
respect to the representations, warranties and covenants set forth
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<PAGE> 8
in subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company
shall also supply such other documents as the Warrantholder may from time to
time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duty authorized as of the Effective Date.
COMPANY: NET.GENESIS CORP.
By:/s/ John Delea
Title: VP Finance & Administration
WARRANTHOLDER: COMDISCO
By: /s/ James P. Labe
JAMES P. LABE
Title: PRESIDENT COMDISCO VENTURES DIVISION
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<PAGE> 9
EXHIBIT I
NOTICE OF EXERCISE
To: _____________________
(1) The undersigned Warrantholder hereby elects to purchase ________ shares of
the Series __________ Preferred Stock of pursuant to the terms of the
Warrant Agreement dated the _____ day of _________, 19__ (the "Warrant
Agreement") between _____________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series _________ Preferred Stock
of ______________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in Section
10 of the Warrant Agreement
(3) Please issue a certificate or certificates representing said shares of
Series _______ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
___________________________________________
(Name)
___________________________________________
(Address)
WARRANTHOLDER: COMDISCO, INC.
By: _______________________________________
Title: ____________________________________
Date: _____________________________________
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<PAGE> 10
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ________________, hereby acknowledge receipt of the "Notice
of Exercise" from Comdisco, Inc., to purchase ________ shares of the Series ___
Preferred Stock of pursuant to the terms of the Warrant Agreement and further
acknowledges that ________ shares remain subject to purchase under the terms of
the Warrant Agreement.
COMPANY:
By: ________________________________________
Title: _____________________________________
Date: ______________________________________
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<PAGE> 11
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required Information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and aH rights evidenced
thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated: ____________________________________
Holder's Signature: _______________________
Holder's Address: _________________________
___________________________________________
Signature Guaranteed: __________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant
Agreement.
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<PAGE> 1
Exhibit 10.11
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of the 10th day of June, 1999, by and among
net.Genesis Corp., a Delaware corporation (the "Company"), the holders of the
Company's Series B, Series C and Series D Convertible Preferred Stock listed on
Schedule I attached hereto and the several purchasers (the "Series F Investors")
of the Series F Convertible Preferred Stock, $.001 par value, of the Company,
pursuant to the Purchase Agreement between the Company and the Series F
Investors, dated as of the date hereof (the "Series F Stock Purchase
Agreement"), who are also listed on Schedule 1.
WHEREAS, the Company entered into a Second Amended and Restated
Registration Rights Agreement dated as of June 25, 1998 (the "1998 Agreement")
with the holders of the Company's Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock (the "Series B Investors," the "Series C
Investors" and the "Series D Investors," respectively) in connection with the
sale of the Company's Series D Convertible Preferred Stock to the Series D
Investors;
WHEREAS, the Company proposes to sell shares of its Series F
Convertible Preferred Stock, $.001 par value, to the Series F Investors in the
amounts set forth opposite their respective names on Exhibit 2.01A of the Series
F Stock Purchase Agreement pursuant to the terms of the Series F Stock Purchase
Agreement and it is a condition to the closing of such sale that this Agreement
be executed and delivered by the parties hereto; and
WHEREAS, the Company and the undersigned parties, being the requisite
number of Series B Investors, Series C Investors and Series D Investors, have
agreed to amend and restate the 1998 Agreement and the Series F Investors who
are not parties to the 1998 Agreement have agreed to enter into this Third
Amended and Restated Registration Rights Agreement.
NOW, THEREFORE, the parties hereto hereby agree that the 1998 Agreement
is hereby amended and restated in its entirety as follows:
1. Definitions. The following terms shall be used in this Agreement
with the following respective meanings:
"Affiliate" means (i) any Person directly or indirectly controlling,
controlled by or under common control with another Person; (ii) any Person
owning or controlling ten (10%) percent or more of the outstanding voting
securities of such other Person; (iii) any officer, director or partner of such
Person; and (iv) if such Person is an officer, director or partner, any such
company for which such Person acts in such capacity.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means and includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of this Agreement and (b) any
other securities into which or for which the securities described in (a) above
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor federal statute, and the rules and regulations of the Commission (or
of any other federal agency then administering the Exchange Act) thereunder, all
as the same shall be in effect at the time.
"Holder" means the Investors, any partner of an Investor, and any other
holder of Registrable Stock holding at least 400,000 shares of Registrable Stock
(as adjusted for stock splits, stock dividends, combinations and other
recapitalizations).
"Investors" means the Series B Investors, the Series C Investors, the
Series D Investors and the Series F Investors.
"Initial Public Offering" means the effective date for the Company's
first registration statement covering a public offering of securities of the
Company under the Securities Act.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means any natural person, partnership, corporation or other
legal entity.
"Prior Investors" means the Persons designated as such on Schedule I
attached hereto.
"Registrable Stock" means (a) the Common Stock issued or issuable upon
conversion of the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock or the Series F Preferred Stock, whether or not such
Common Stock is owned by any Investors, (b) all Common Stock, or shares of
Common Stock issuable upon conversion of any other security, now or hereafter
owned by any Series B Investor which is acquired otherwise than upon conversion
of the Series B Preferred Stock after September 18, 1996 so long as it is held
by any Investor or an Affiliate of any Investor, (c) all Common Stock, or shares
of Common Stock issuable upon conversion of any other security, now or hereafter
owned by any Series C Investor which is acquired otherwise than upon conversion
of the Series C Preferred Stock after September 12, 1997 so long as it is held
by any Investor or an Affiliate of any Investor, (d) all Common Stock, or shares
of Common Stock issuable upon conversion of any other security, now or hereafter
owned by any Series D Investor which is acquired otherwise than upon conversion
of the Series D Preferred Stock after June 25, 1998, so long as it is held by
any Investor or an Affiliate of any Investor, (e) all Common Stock, or shares of
Common Stock issuable upon conversion of any other security, now or hereafter
owned by any Series F Investor which is acquired otherwise than upon conversion
of the Series F Preferred Stock after the date of this Agreement so long as it
is held by any Investor or an Affiliate of any Investor, and (f) any other
shares of Common Stock issued in respect of such shares by way of a stock
dividend, or stock split or in connection with a combination of shares,
recapitalization, merger or consolidation or reorganization; provided, however,
that shares of Common Stock shall only be treated as Registrable Stock if and so
long as (i) they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction or (ii)
they have not been sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
to such Common Stock are removed upon the consummation of such sale; and further
provided that shares of Common Stock issued by the Company in a public offering
pursuant to a Registration Statement shall not be deemed to constitute
Registrable Stock, nor shall any shares of Common Stock acquired by an Investor
in the public markets (including, without limitation, any market that may
develop pursuant to Rule 144(a) of the Securities Act) be deemed to be
Registrable Stock.
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"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8, Form S-4, or successor
forms, or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, or any successor
federal statute, and the rules and regulations of the Commission (or of any
other federal agency then administering the Securities Act) thereunder, all as
the same shall be in effect at the time.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock, $.001 par value per share.
"Series C Preferred Stock" means the Company's Series C Convertible
Preferred Stock, $.001 par value per share.
"Series D Preferred Stock" means the Company's Series D Convertible
Preferred Stock, $.001 par value per share.
"Series F Preferred Stock" means the Company's Series F Convertible
Preferred Stock, $.001 par value per share.
2. Required Registration.
(a) At any time after the earlier of (i) one hundred eighty
(180) days after any Registration Statement covering a public offering of
securities of the Company under the Securities Act having become effective and
(ii) four (4) years from the date hereof, the Holder or Holders of at least
fifty (50%) percent of all Registrable Stock then outstanding may by notice in
writing to the Company request the Company to register under the Securities Act
all or any portion of shares of Registrable Stock held by such requesting Holder
or Holders for sale in the manner specified in such notice, provided that the
reasonably anticipated aggregate price to the public of all shares of
Registrable Stock requested to be included in such public offering would exceed
$7,500,000. Notwithstanding anything to the contrary contained herein, the
Company shall not be required to seek to cause a Registration Statement to
become effective pursuant to this Section 2: (A) within a period of ninety (90)
days (one hundred eighty (180) days if the Registration Statement covers an
underwritten distribution) after the effective date of a Registration Statement
filed by the Company (other than a Registration Statement on Forms S-4, S-8 or
any successors thereto), provided that the Company shall use its best efforts to
achieve effectiveness of a registration requested hereunder promptly following
such period if such request is made during such period; (B) if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a Registration
Statement to be filed in the near future due to pending Company events, or that
it would require disclosure of material non-public information relating to the
Company which, in the reasonable opinion of the Board of Directors, should not
be disclosed, then the Company's obligation to use all reasonable efforts to
register, qualify or comply under this Section 2 shall be deferred for a period
not to exceed one hundred twenty (120) days from the date of receipt of written
request from such Holders; provided, however, that the Company may not utilize
this deferral right more than once in any twelve-month period.
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(b) Following receipt of any notice given under this Section 2
by Holders of Registrable Stock, the Company shall immediately notify all
Holders from whom notice has not been received that such registration is to be
effected and shall use its best efforts to register under the Securities Act,
for public sale in accordance with the method of disposition specified in such
notice from requesting Holders, the number of shares of Registrable Stock,
specified in such notice (and in all notices received by the Company from other
Holders within twenty (20) days after the giving of such notice by the Company
to such other Holders). The Holders of a majority of the shares of Registrable
Stock to be sold in such offering may designate the managing underwriter of such
offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld or delayed. The Company shall be obligated to register
Registrable Stock pursuant to this Section 2 on one occasion only, provided,
however, that such obligation shall be deemed satisfied only when a Registration
Statement covering all shares of Registrable Stock, specified in notices
received as aforesaid and which have not been withdrawn by the Holder thereof,
for sale in accordance with the method of disposition specified by the
requesting Holders, shall have become effective. A registration which does not
become effective after the Company has filed a Registration Statement with
respect thereto solely by reason of the refusal of the requesting Holders to
proceed shall be deemed to have been effected by the Company at the request of
such requesting Holders unless such requesting Holders shall have elected to pay
all the Company's reasonable expenses in connection with such registration,
unless such refusal to proceed follows disclosure or discovery of material
adverse information concerning the Company, which information was unknown to
such requesting Holders at the time of such request.
(c) If the Registration Statement is to cover an underwritten
distribution and in the good faith judgment of the managing underwriter of such
public offering the inclusion of all of the Registrable Stock, requested for
inclusion pursuant to this Section 2 would interfere with the successful
marketing of a smaller number of shares to be offered, then the number of shares
of Registrable Stock, to be included in the Offering shall be reduced to the
required level with the participation in such offering to be pro rata among the
Holders requesting such registration, based upon the number of shares of
Registrable Stock owned by such Holders. The Company shall be entitled to
include in any Registration Statement referred to in this Section 2, for sale in
accordance with the method of disposition specified by the requesting Holders,
shares of Common Stock to be sold by the Company for its own account, except as
and to the extent that, in the opinion of the managing underwriter, if any, such
inclusion would adversely affect the marketing of the Registrable Stock to be
sold. Except for registration statements on Forms S-4, S-8 or any successors
thereto, the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other stockholders, from the date of receipt of a notice from requesting
Holders pursuant to this Section 2 until the completion of the period of
distribution of the registration contemplated thereby.
3. Incidental Registration. Each time the Company shall determine to
file a Registration Statement in connection with the proposed offer and sale for
money of any of its securities by it or any of its security holders, the Company
will give written notice of its determination to all Holders of Registrable
Stock. Upon the written request of a Holder given within twenty (20) days after
the giving of any such notice by the Company, the Company will use its best
efforts to cause all such shares of Registrable Stock, the Holders of which have
so requested registration thereof, to be included in such Registration
Statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered. If the Registration Statement is to cover an underwritten
distribution, the Company shall use its best efforts to cause the Registrable
Stock requested for inclusion pursuant to this Section 3 to be included in the
underwriting on the same
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<PAGE> 5
terms and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing underwriter of such
public offering, the inclusion of all of the Registrable Stock requested for
inclusion pursuant to this Section 3 and other securities would interfere with
the successful marketing of a smaller number of shares to be offered, then the
number of shares of Registrable Stock and other securities to be included in the
offering (except for shares to be issued (i) by the Company in an offering
initiated by the Company or (ii) by any other party in an offering initiated by
such party pursuant to registration rights granted to such party) shall be
reduced to the required level by reducing (down to zero, in the Company's
Initial Public Offering, or to not less than thirty (30%) percent thereafter, if
so required) the participation of the Holders of Registrable Stock in such
offering (such reduction to be made to the amounts of shares requested for
inclusion in such offering by such Holders on a pro rata basis among the Holders
of Registrable Stock requesting such registration, based upon the number of
shares of Registrable Stock owned by such Holders).
4. Registration on Form S-3.
(a) If at any time after two (2) years from the date hereof
(i) a Holder or Holders request that the Company file a registration statement
on Form S-3 or any successor thereto for a public offering of all or any portion
of the shares of Registrable Stock held by such requesting Holder or Holders,
the reasonably anticipated aggregate price to the public of which would exceed
$1,000,000, and (ii) the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Registrable Stock specified in such
notice. Whenever the Company is required by this Section 4 to use its best
efforts to effect the registration of Registrable Stock, each of the procedures
and requirements of Section 2 (including but not limited to the requirement that
the Company notify all Holders from whom notice has not been received and
provide them with the opportunity to participate in the offering) shall apply to
such registration, provided, however, that there shall be no limitation on the
number of registrations on Form S-3 which may be requested and obtained under
this Section 4, except that the Company shall not be obligated to effect more
than two registrations under this Section 4 in any twelve (12) month period, and
provided, further, however, that the $7,500,000 minimum dollar amount set forth
in the first sentence of Section 2(a) shall not apply to any registration on
Form S-3 which may be requested and obtained under this Section 4.
(b) If, twelve (12) months after the effective date of the
Company's Initial Public Offering, and if the Company is a registrant entitled
to use Form S-3 or any successor thereto to register shares of Registrable
Stock, then the Company shall use its best efforts to register under the
Securities Act on Form S-3 or any successor thereto, for public sale in
accordance with any method of disposition specified by any Holder or Holders,
all of the shares of Registrable Stock. The Company agrees to maintain the
registration effective as a shelf-registration for a period of two (2) years,
except: (i) within ninety (90) days after the effective date of a Registration
Statement filed by the Company (except for Registration Statements on Forms S-4,
S-8 or any successors thereto) or (ii) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company's shareholders for a Form S-3 Registration Statement to be
effective due to pending Company events, or that keeping such Registration
Statement effective at such time would require disclosure of material non-public
information relating to the Company which, in the reasonable opinion of the
Board of Directors, should not be disclosed, or if the Company intends to file a
Registration Statement within sixty (60) days and agrees to register shares of
the Holders' Registrable Stock therein, provided,
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<PAGE> 6
however, that the Company shall not utilize these rights more than once in any
12-month period, nor for a period of more than ninety (90) days, and further
provided that the shelf-registration shall be kept effective for an additional
period equal to the period of time during which the shelf-registration was not
kept effective pursuant hereto.
5. Registration Procedures. If and whenever the Company is required by
the provisions of Sections 2, 3 or 4 hereof to effect the registration of shares
of Registrable Stock under the Securities Act, the Company will, at its expense,
as expeditiously as possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
Registration Statement with respect to such securities and use its best efforts
to cause such Registration Statement to become and remain effective until the
securities covered by such Registration Statement have been sold, and prepare
and file with the Commission such amendments to such Registration Statement and
supplements to the prospectus contained therein as may be necessary to keep such
Registration Statement effective and such Registration Statement and prospectus
accurate and complete until the securities covered by such Registration
Statement have been sold;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in form and substance reasonably
satisfactory to the managing underwriter, if any, of the public offering and the
Holders participating in such offering;
(c) Furnish to the participating Holders and to the
underwriters such reasonable number of copies of the Registration Statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters and participating Holders may reasonably request in order to
facilitate the public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such Registration Statement under such state securities or blue sky
laws of such jurisdictions (i) as shall be reasonably appropriate for the
distribution of the securities covered by such Registration Statement or (ii) as
such participating Holders and underwriters may reasonably request within twenty
(20) days following the original filing of such Registration Statement, except
that the Company shall not for any purpose be required to execute a general
consent to service of process, to subject itself to taxation, or to qualify to
do business as a foreign corporation in any jurisdiction where it is not so
qualified;
(e) Notify the Holders participating in such registration,
promptly after it shall receive notice, thereof, of the date and time when such
Registration Statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such Registration
Statement has been filed;
(f) Notify the Holders participating in such registration
promptly of any request by the Commission or any state securities commission or
agency for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(g) Prepare and file with the Commission, promptly upon the
request of any such participating Holders, any amendments or supplements to such
Registration Statement or prospectus which, in the opinion of counsel
representing the Company in such Registration (and which counsel is reasonably
acceptable to such participating Holders), is required under the Securities Act
or the rules
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<PAGE> 7
and regulations thereunder in connection with the distribution of the
Registrable Stock by such participating Holders;
(h) Prepare and promptly file with the Commission, and
promptly notify such participating Holders of the filing of, such amendments or
supplements to such Registration Statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(i) In case any of such participating Holders or any
underwriter for any such Holders is required to deliver a prospectus at a time
when the prospectus then in circulation is not in compliance with the Securities
Act or the rules and regulations of the Commission, prepare promptly upon
request such amendments or supplements to such Registration Statement and such
prospectus as may be necessary in order for such prospectus to comply with the
requirements of the Securities Act and such rules and regulations;
(j) Advise such participating Holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission or any state securities commission or agency suspending the
effectiveness of such Registration Statement or the initiation or threatening of
any proceeding for that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
(k) At the request of any such participating Holder (i)
furnish to such Holder on the effective date of the Registration Statement or,
if such registration includes an underwritten public offering, at the closing
provided for in the underwriting agreement, an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the Holder or Holders making such
request, covering such matters with respect to the Registration Statement, the
prospectus and each amendment or supplement thereto, proceedings under state and
federal securities laws, other matters relating to the Company, the securities
being registered and the offer and sale of such securities as are customarily
the subject of opinions of issuer's counsel provided to underwriters in
underwritten public offerings and (ii) use its best effort to furnish to such
Holder letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the Holder or Holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request,
or, if the offering is not underwritten, that in the opinion of such accountants
the financial statements and other financial data of the Company included in the
Registration Statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act, and additionally covering such other financial matters,
including information as to the period ending not more than five (5) business
days prior to the date of such letter with respect to the Registration Statement
and prospectus, as such requesting Holder or Holders may reasonably request;
(l) Use its best efforts to ensure the obtaining of all
necessary approvals from the NASD.
6. Expenses.
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<PAGE> 8
(a) With respect to each registration effected pursuant to
Sections 2, 3 or 4 hereof, all fees, costs and expenses of and incidental to
such registration and the public offering in connection therewith shall he borne
by the Company; provided, however, (i) that security holders participating in
any such registration shall bear their pro rata share of the underwriting
discounts and selling commissions, and (ii) any such fee, cost or expense which
does not constitute a normal fee, cost or expense of such registration and which
is attributable solely to one (1) security holder participating in any such
registration shall be borne by that holder.
(b) The fees, costs and expenses of registration to be borne
as provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of counsel for
the underwriter or underwriters of such securities (if the Company and/or
selling security holders are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of complying
with state securities or blue sky laws of any jurisdictions in which the
securities to be offered are to be registered or qualified, reasonable fees and
disbursements of one counsel for the selling security holders and the premiums
and other costs of policies of insurance insuring the Company against liability
arising out of such public offering.
7. Indemnification and Contribution.
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder of shares of Registrable Stock, whether
or not such Holder's shares of Registrable Stock are included in a Registration
Statement pursuant to the provisions of this Agreement, and any underwriter (as
defined in the Securities Act) for such Holder, and any Person who controls such
Holder or such underwriter within the meaning of the Securities Act, and each of
their successors, from and against, and will reimburse such Holder and each such
underwriter and controlling Person with respect to any and all claims, actions,
demands, losses, damages, liabilities, costs and expenses to which such Holder
or any such underwriter or controlling Person may become subject under the
Securities Act or otherwise, insofar as such claims, actions, demands, losses,
damages, liabilities, costs or expenses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or arise out of any
violation by the Company of any rule or regulation under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration; provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
action, demand, loss, damage, liability, cost or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in reliance upon and in strict conformity with
information furnished by such Holder, such underwriter or such controlling
Person in writing specifically for use in the preparation thereof; and provided,
further, that this indemnity shall not be deemed to relieve any underwriter of
any of its due diligence obligations.
(b) Each Holder of shares of the Registrable Stock which are
included in a registration pursuant to the provisions of this Agreement will,
severally and not jointly, indemnify and hold harmless the Company from and
against, and will reimburse the Company with respect to, any and all losses,
damages, liabilities, costs or expenses to which the Company may become subject
under the Securities Act or otherwise, to the extent that any such loss, damage,
liability, cost or expense arises
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<PAGE> 9
out of or is based upon any untrue or alleged untrue statement of any material
fact contained therein or any amendment or supplement thereto, or arises out of
or is based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
so made in reliance upon and in strict conformity with written information
furnished by such Holder under an instrument duly executed by such Holder and
stated to be specifically for use in the preparation thereof; provided that the
liability of each Holder hereunder shall be limited to the proportion of any
such claim, action, demand, loss, damage, liability, cost or expense which is
equal to the proportion that the public offering price of the shares of
Registrable Stock sold by such Holder under such Registration Statement bears to
the total offering price of all securities sold thereunder, but not, in any
event, to exceed the net proceeds received by such Holder from the sale of
shares of Registrable Stock covered by Registration Statement; and provided,
further, that this indemnity shall not be deemed to relieve any underwriter of
any of its due diligence obligations.
(c) Promptly after receipt by a party to be indemnified
pursuant to the provisions of paragraph (a) or (b) of this Section 7 (an
"indemnified party") of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of paragraph (a) or (b), notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 7 and shall not relieve the indemnifying party
from liability under this Section 7 unless such indemnifying party is prejudiced
by such omission. In case such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of such paragraph (a) and (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall be liable to an indemnified party for any settlement of any action or
claim without the consent of the indemnifying party; no indemnifying party may
unreasonably withhold its consent to any such settlement. No indemnifying party
will consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
Holder of shares of Registrable Stock exercising rights under this Agreement, or
any controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 7 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 7; then, in each such case, the Company and such
Holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportions
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<PAGE> 10
so that such Holder is responsible for the portion represented by the percentage
that the public offering price of its shares of Registrable Stock offered by the
Registration Statement bears to the public offering price of all securities
offered by such Registration Statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the net proceeds to it of
all shares of Registrable Stock sold by it pursuant to such Registration
Statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Securities Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
8. Reporting Requirements Under Securities Exchange Act of 1934. When
it is first legally required to do so, the Company shall register its Common
Stock under Section 12 of the Exchange Act and shall keep effective such
registration and shall timely file such information, documents and reports as
the Commission may require or prescribe under Section 13 of the Exchange Act.
From and after the effective date of the first Registration Statement filed by
the Company, the Company shall (whether or not it shall then be required to do
so) timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 or 15(d) (whichever is applicable) of the
Exchange Act. Immediately upon becoming subject to the reporting requirements of
either Section 13 or 15(d) of the Exchange Act, the Company shall forthwith upon
request furnish any Holder of Registrable Stock (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents filed by the Company with the Commission as such Holder
may reasonably request in availing itself of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 8 are (a) to enable any such Holder to comply with the current public
information requirement contained in Paragraph (c) of Rule 144 under the
Securities Act should such Holder ever wish to dispose of any of the securities
of the Company acquired by it without registration under the Securities Act in
reliance upon Rule 144 (or any other similar or successor exemptive provision),
and (b) to qualify the Company for the use of Registration Statements on Form
S-3. In addition, the Company shall take such other measures and file such other
information, documents and reports, as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 under the Securities
Act (or any similar or successor exemptive provision hereafter in effect) and
the use of Form S-3. The Company also covenants to use its best efforts, to the
extent that it is reasonably within its power to do so, to qualify for the use
of Form S-3. From and after the effective date of the first Registration
Statement filed by the Company, the Company agrees to use its best efforts to
facilitate and expedite transfers of Registrable Stock pursuant to Rule 144
under the Securities Act (or any similar or successor exemptive provision
hereafter in effect), which efforts shall include timely notice to its transfer
agent to expedite such transfers of Registrable Stock.
9. Stockholder Information. The Company may require each Holder of
Registrable Stock as to which any registration is to be effected pursuant to
this Agreement to furnish the Company in a timely manner such information with
respect to such Holder and the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith.
10. Lock-Up Agreements.
(a) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or other distribution of its equity
securities, or any securities convertible into or
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<PAGE> 11
exchangeable or exercisable for such equity securities, during the period, not
to exceed one hundred eighty (180) days (as requested by the managing
underwriter), following the effective date of the Initial Public Offering,
except in connection with any such underwritten offering and except for equity
securities issued pursuant to employee stock option plans or in conjunction with
any merger or consolidation with, or acquisition of the stock or assets of, any
other entity.
(b) Restrictions on Public Sale by the Holders of Registrable
Stock. Each Holder of Registrable Stock agrees that it will not, to the extent
requested by the Company and the managing underwriter of such offering, sell or
otherwise dispose of any Registrable Stock of the Company, including any sale
pursuant to Rule 144, during a period specified by the Company and such
underwriter (not to exceed one hundred eighty (180) days after the effective
date of the Initial Public Offering) except in conjunction with such
underwritten offering; provided that each officer and director of the Company
shall enter into similar agreements.
(c) Restrictions on Public Sale by Subsequent Holders. Except
in a public offering registered under the Securities Act, the Company shall not
issue or sell any equity security unless each recipient thereof agrees in
writing with the Company not to offer to sell or sell such equity security
during a period specified by the Company and the underwriter thereof (not to
exceed one hundred eighty (180) days after the effective date of the Initial
Public Offering), except in conjunction with such underwritten offering.
(d) Amendments. Any provision of this Agreement to the
contrary notwithstanding, no amendment to this Section 10 that would adversely
affect a Holder that is an Investment Company registered under the Investment
Company Act of 1940, as amended, will apply to such Holder unless it has
consented in writing to such amendment.
11. Notices. Any notice required or permitted to be given hereunder
shall be in writing and shall be deemed to be properly given when sent by
registered or certified mail, return receipt requested, by Federal Express, DHL
or other guaranteed overnight delivery service or by facsimile transmission,
addressed as follows:
If to the Company: net.Genesis Corp.
215 First Street
Cambridge, MA 02142
Attention: Larry Bohn, President
Telecopier: (617) 577-9850
with a copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
Telecopier: (617) 832-7000
If to any Investor: To the address of such Investor set forth on
Schedule I attached hereto
and if to any other Holder at such Holder's address for notice as set forth in
the register maintained by the Company, or, as to any of the foregoing, to such
other address as any such party may give the
-11-
<PAGE> 12
others notice of pursuant to this Section, provided that a change of address
shall only be effective upon receipt.
12. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the substantive laws of The Commonwealth of Massachusetts
(without regard to conflict of laws provisions).
13. Waivers; Amendments. No waiver of any right hereunder by any party
shall operate as a waiver of any other right, or of the same right with respect
to any subsequent occasion for its exercise, or of any right to damages. No
waiver by any party of any breach of this Agreement shall be held to constitute
a waiver of any other breach or a continuation of the same breach. All remedies
provided by this Agreement are in addition to all other remedies provided by
law. This Agreement may not be amended except by a writing executed by the
Company and the Holders of at least sixty (60%) percent of the Registrable Stock
and the securities convertible into, exchangeable for or exercisable for
Registrable Stock (calculated on an as converted, exchanged or exercised basis).
14. Other Registration Rights. The Company shall not grant to any third
party any registration rights equivalent to or more favorable than any of those
contained herein, or which would interfere with or delay the exercise by the
holders of Registrable Stock of their registrations rights hereunder, so long as
any of the registration rights under this Agreement remains in effect unless
approved by Holders of sixty (60%) percent of the shares of Registrable Stock,
which approval may require that such rights be granted only pursuant to an
amendment or restatement of this Agreement.
15. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the respective legal representatives, successors
and assigns of the parties hereto; provided, however, that no expansion of the
definition of Holders set forth above shall be effected by this Section 15.
16. Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Prior Understandings. This Agreement represents the complete
agreement of the parties with respect to the transactions contemplated hereby
and supersedes all prior agreements and understandings.
18. Headings. Headings in this Agreement are included for reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.
19. Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
20. Adjustment to Stock. Any reference in this Agreement to a
particular number of shares of the Company's Common Stock or preferred stock, of
any class or series, shall be automatically
-12-
<PAGE> 13
adjusted to account for a stock dividend, stock split or in connection with a
combination of shares, recapitalization, merger or consolidation or
reorganization of the Company.
21. Termination of Registration Rights. The rights of each Holder under
Sections 2 through 4 of this Agreement and the obligations of each such Holder
under Section 10 of this Agreement shall terminate with respect to such Holder
if (a) such Holder holds less than 1% of the outstanding capital stock of the
Company and (b) such Holder is permitted to sell all of its shares of capital
stock of the Company within any 90-day period under Rule 144 of the Securities
Act.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer, and the requisite number of Investors has
duly executed this Agreement (or has caused it to be executed by a duly
authorized officer, partner, trustee or agent, as the case may be), as of the
date first above recited.
ATTEST: net.Genesis Corp.
By:_________________________ By:________________________________
Name: John Delea Name: Larry Bohn
Title: Secretary Title: President
(See counterpart signature pages.)
-13-
<PAGE> 14
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
CHARLES RIVER PARTNERSHIP VII
By: ______________________________________
Name: _______________________________
Title:_______________________________
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:_______________________________
Robert H. Buescher, Manager
BVP IV SPECIAL SITUATIONS L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:_______________________________
Robert H. Buescher, Manager
___________________________________________
Robert H. Buescher
BESSEC VENTURES IV L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:_______________________________
Robert H. Buescher, Manager
Robert H. Buescher, attorney-in-fact
signing for those designated below by the
"*" notation
*_________________________________________
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<PAGE> 15
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
William T. Burgin
BRIMSTONE ISLAND CO. L.P.
*By: ____________________________________
Name:_______________________________
Title:______________________________
*________________________________________
G. Felda Hardymon
*________________________________________
Robert P. Goodman
*________________________________________
Bruce K. Graham
*________________________________________
Robi L. Soni
*________________________________________
Gerald N. Christopher
*________________________________________
Gautam A. Prakash
*________________________________________
Rodney A. Cohen
*________________________________________
Richard R. Davis
*________________________________________
Adam P. Godfrey
BELISARIUS CORPORATION
*By: ____________________________________
Name:_______________________________
Title:______________________________
-15-
<PAGE> 16
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
*________________________________________
John G. MacDonald
*________________________________________
Howard S. Markowitz
*________________________________________
Edward Park
*________________________________________
Robert J.S. Roriston
*________________________________________
Steven L. Williamson
QUENTIN CORPORATION
*By: ____________________________________
Name:_______________________________
Title:______________________________
-16-
<PAGE> 17
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
HAMBRECHT & QUIST
By:______________________________________
Name:_______________________________
Title:______________________________
-17-
<PAGE> 18
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
ONELIBERTY FUND IV
By: OneLiberty Partners IV LLC
By: ___________________________
Stephen J. Ricci, Manager
ONE LIBERTY ADVISORS IV LP
By: OneLiberty Partners IV LLC
By: ___________________________
Stephen J. Ricci, Manager
ST. PAUL VENTURE CAPITAL V, LLC
By:
By:___________________________________
Its
ST. PAUL VENTURE CAPITAL AFFILIATES
FUND I, LLC
By: St. Paul Venture Capital, Inc.
its Manager
By:___________________________________
Its
_______________________________________
Kathy Kirk
-18-
<PAGE> 19
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
PICKREL WOOLEY 1999 TRUST
By:_____________________________________
Name:___________________________________
Title:__________________________________
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<PAGE> 20
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
BankAmerica Ventures
By:______________________________________
Name:____________________________________
Title:___________________________________
GS CAPITAL PARTNERS
By_______________________________________
NEXUS GROUP
By_______________________________________
Boston Milennia Partners Limited Partnership
By: Glen Partners Limited Partnership
By:_____________________________________
Name:_____________________, General Partner
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<PAGE> 21
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
Boston Milennia Associates Partnership
By:_____________________________________
Name:_____________________, General Partner
Seligman Communications and Information
Fund, Inc.
By:______________________________________
Harte-Hanks, Inc.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Hambrecht & Quist Employee Venture Fund,
L.P. II
By: H&Q Venture Management, L.L.C.,
Its General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
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<PAGE> 22
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
Comdisco, Inc.
By:_____________________________________
Name:___________________________________
Title:__________________________________
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<PAGE> 23
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
The Goldman Sachs Group, Inc.
By:____________________________________
Name:__________________________________
Title:_________________________________
Stone Street Fund 1999, L.P.
By: Stone Street 1999 Corp.,
Its General Partner
By:____________________________________
Name:__________________________________
Title:_________________________________
Bridge Street Fund 1999, L.P.
By: Stone Street 1999 Corp.,
Its General Partner
By:____________________________________
Name:__________________________________
Title:_________________________________
-23-
<PAGE> 24
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
SCHEDULE I
BankAmerica Ventures
St. Paul Venture Capital
GS Capital Partners
Nexus Group
Boston Millennia Partners
Seligman Communications and Information Fund, Inc.
Harte Hanks
Robert Buescher
G. Felda Harymond
Christopher Gabrieli
Gabrieli Family Foundation
Michael Barach
David Cowan
Diane mcPartlin
Ravi Mhatre
Guatam Prakash
Robi Soni
Joanna Strober
Rodney Cohen
Richard David
Adam Godfrey
Barbara Henagan
Belisarius Corporation
Robert Roriston
Thomas Ruhm
Quentin Corporation
BVP IV Special Situations L.P.
Bessemer Venture Partners
Bessex Ventures IV L.P.
Robin Gruber
Steve Tolchin
Bill Bock
John Mandile
Kathy Kirk
Chris Paul One
Liberty Fund IV
One Liberty Advisors IV LP
Sean O'Sullivan
-24-
<PAGE> 25
Third Amended and Restated Registration Rights Agreement
*Counterpart Signature Page*
Kistler Associates
Hambrecht & Quist
Robetson Stephens & Co.
Robert Goldman
Joseph Hadzima
Len Evenchick
Richard Harrison
Charles River Partnership VII
William T. Burgin
Brimestone Island Co. L.P.
Niel Browenstein
-25-
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement made as of May 28, 1998 by and between net.
Genesis Corp., a Delaware corporation (the "Company") with its principal place
of business at 215 First Street Cambridge, MA 02124, and Mr. Larry Bohn of
Arlington, Massachusetts (the "Employee").
WHEREAS, the Company wishes to employ the Employee as the President and
Chief Executive Officer; and
WHEREAS, the Employee desires to serve as the President and Chief Executive
Officer of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Company and the Employee agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee, and the Employee
accepts employment with the Company as of February 23, 1998. The Employee's
title and duties at the start of this agreement shall be those of President and
Chief Executive Officer of the Company. As such, the Employee shall report
directly to the Company's Board of Directors.
2. TERM AND TERMINATION.
2.1 Term. There shall be no definite term of employment, and Employee
shall be an employee at will, subject to the provisions of Section 2.2.
2.2 Termination. If the Employee's employment hereunder is terminated
(i) by the Company without Good Cause, (ii) upon a Change of Control; (iii) as
the result of a Forced Relocation; or (iv) as the result of a Diminution in
Responsibility, the Company shall make severance payments to Employee in an
amount equal to one year of his Total Annual Compensation (as defined below),
payable over twelve (12) months (the "Severance Payments"); provided, that the
1999 Tax Bonus and the Change of Control Bonus (each as defined below) shall not
be included in the calculation of Total Annual Compensation.
For purposes of this Agreement the following terms shall have the following
meanings:
"Good Cause" shall mean dishonesty or misappropriation of assets of the
Company by the Employee, gross failure by the Employee to perform his duties to
the Company, the commission by the Employee of a crime involving moral turpitude
or constituting a felony, or a breach by the Employee of any of his obligations
under Section 9 of this Agreement and the Confidentiality, Non-Disclosure and
Non-Competition Agreement referred to therein.
"Change of Control" shall mean a change in control of the Company (and not
any person or entity that hereafter becomes a successor to all or substantially
all of the business or
<PAGE> 2
assets of the Company by reason of a Change of Control) and shall be deemed to
have taken place upon the first to occur of: (i) the closing of a sale or other
disposition (excluding mortgage or pledge) of all or substantially all of the
assets of the Company, or (ii) the closing of a merger or other business
combination of the Company with or into another corporation or entity pursuant
to which the Company will not survive or will survive only as a subsidiary of
another corporation or entity, in either case with the stockholders of the
Company prior to the merger or other business combination holding less than 50%
of the voting shares of the merged or combined companies or entities after such
merger or other business combination. The rights and obligations created by this
Agreement with respect to a Change of Control shall apply only with respect to
the first Change of Control after the date of execution of this Agreement, and
not with respect to any subsequent transaction.
"Diminution in Responsibility" shall mean any action taken by the Company
which has the effect of significantly diminishing the level of responsibility of
the Employee as President and Chief Executive Officer.
"Forced Relocation" shall mean any attempt by the Corporation to
involuntarily relocate the Employee by changing its principal place of business
from its location on the date of this Agreement to any location at least 100
miles away.
"Total Annual Compensation" shall mean the sum of salary and bonuses paid
to Employee during the twelve month period preceding any termination under
Section 2.2 above.
3. COMPENSATION.
3.1 Base Salary. During the term of this Agreement, the Company shall
pay the Employee a base salary, payable in accordance with the Company's
standard schedule for salary payments to its executives (but no less frequently
than monthly) in arrears, in equal installments at an annual rate equal to
$150,000 (the "Base Salary"). At the beginning of each fiscal year, the Board of
Directors shall consider in its discretion increases in the Base Salary.
3.2 Signing Bonus. The Company shall pay Employee a bonus equal to
$51,750 on the date of this Agreement.
3.3 Bonus Plan. In addition to his Base Salary, Employee shall be
eligible to participate in an annual bonus plan to be established by the Company
beginning in calendar year 1999 upon such terms and conditions as shall be
determined by the Board of Directors in its sole and reasonable discretion.
3.4 1999 Tax Bonus. The Company shall pay Employee a bonus equal to
$36,000 on April 1, 1999 provided that Employee is still employed by the
Company, or any successor entity, as of that date.
2
<PAGE> 3
3.5 Change of Control Bonus. The Company shall pay Employee a bonus upon
a Change of Control of the Company (the "Change of Control Bonus") provided (a)
that Employee is employed by the Company as President and Chief Executive
Officer continuously from the date of this Agreement until the closing of any
transaction constituting a Change of Control and (b) that the Change of Control
occurs prior to the date of the closing of an underwritten initial public
offering of shares of the Company's Common Stock. The Change of Control Bonus
shall be as set forth on the attached Schedule A.
3.6 Tax Withholdings. All payments of salary and bonuses to the Employee
shall be made after deduction of any taxes which are required to be withheld
with respect thereto under applicable federal and state laws.
4. BENEFITS. The Executive shall be entitled to participate in all plans or
programs sponsored by the Company for employees in general, including without
limitation, participation in any group health, medical reimbursement, or life
insurance plans.
5. STOCK PURCHASE. On the date of this Agreement Employee is purchasing
1,035,000 shares of the Company's Common Stock at a price of $.05 per share (the
"Shares"). The Shares shall be subject to the terms and conditions of, and
Employee agrees to become a party to and be bound by, (a) the Stock Restriction
and Repurchase Agreement, attached hereto as Exhibit A, and (b) the Amended and
Restated Stockholders Agreement, as amended, dated September 12, 1997, attached
hereto as Exhibit B.
6. EXPENSES. The Company shall reimburse the Employee for all reasonable
business expenses incurred by the Employee in connection with his employment by
the Company, including, without limitation, expenses of travel and
entertainment. The Company shall promptly reimburse the Employee for all such
expenses upon presentation of appropriate vouchers, receipts and other
supporting documents as reasonably required by the Company.
7. DUTY TO PERFORM SERVICES. The Employee shall devote his full time
during normal business hours to rendering services to the Company hereunder, and
shall exert all reasonable efforts in the rendering of such services. Nothing in
this Agreement shall prohibit the Employee from:
(a) making and managing passive investments;
(b) serving on the Board of Directors of any company; and
(c) engaging in religious, charitable or other community or nonprofit
activities,
provided none of the foregoing shall interfere with Employee's duties hereunder.
3
<PAGE> 4
The Employee agrees that in the rendering of all services to the Company
and in all aspects of his employment as a senior level executive of the Company,
he will comply in all material respects with all directives, policies, standards
and regulations from time to time established by the Board of Directors of the
Company to the extent they are not in conflict with this Agreement.
8. VACATIONS; HOLIDAYS; SICK TIME. The Employee shall be entitled to
vacation time, holiday time and sick leave in accordance with the Company's
policies for senior executive officers, as in effect from time to time.
9. EMPLOYEE CONFIDENTIALITY, NON-COMPETITION AND INTELLECTUAL PROPERTY
ASSIGNMENT AGREEMENT. The Employee agrees to execute an Employee
Confidentiality, Noncompetition and Intellectual Property Assignment Agreement
in the form of the attached Exhibit C simultaneously with the execution of this
Agreement.
10. BOARD OF DIRECTORS.
10.1 Election as a Director. The Company will use its best efforts to
cause the Employee to be elected to the Board of Directors of the Company. If
the Employee's employment is terminated for any reason, then the Employee will
be deemed to have resigned from the Board of Directors and from any and all
other positions with the Company or any of its affiliates.
10.2 Chairman of the Board of Directors. If at any time during your
employment by the Company as the Chief Executive Officer, the Company shall
designate a Chairman of the Board of Directors, any such designation shall be
subject to your approval.
11. NOTICES. All notices, requests, demands and other communications
required by or permitted under this Agreement shall be in writing and shall be
sufficiently delivered if delivered by hand or sent by registered or certified
mail, postage prepaid, to the parties at their respective addresses listed
below:
(a) if to the Employee:
Larry Bohn
38 Academy Street
Arlington, MA 02174
(b) if to the Company:
net.Genesis Corp.
215 First Street
Cambridge, MA 02124
4
<PAGE> 5
Any party may change such party's address by such notice to the other parties.
12. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of The Commonwealth of Massachusetts.
13. BINDING UPON SUCCESSORS. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and assigns.
14. PRIOR AGREEMENTS. This Agreement states the entire agreement of the
parties concerning the subject matter hereof, and supersedes all prior
agreements, written or oral, between or among them concerning such subject
matter.
15. SEVERABILITY. In the event that any provision of this Agreement shall
be determined by any court of competent jurisdiction to be invalid, illegal or
otherwise unenforceable, the validity, legality and enforceability of the other
provisions of this Agreement shall not be affected thereby. Any invalid, illegal
or unenforceable provision of this Agreement shall be severed, and after any
such severance, all other provisions hereof shall remain in full force and
effect.
16. WAIVERS AND AMENDMENTS. This Agreement may be amended, modified or
supplemented, and any obligation hereunder may be waived, only by a written
instrument executed by the parties hereto. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate as a waiver of any
subsequent breach. No failure on the part of any party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or remedy by such
party preclude any other or further exercise thereof or the exercise of any
other right or remedy. All rights and remedies hereunder are cumulative and are
in addition to all other rights and remedies provided by law, agreement or
otherwise.
[remainder of this page intentionally left blank]
5
<PAGE> 6
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement on the date first above written.
COMPANY:
NET.GENESIS CORP.
By: /s/ Ted R. Dintersmith,
Charles River Ventures
------------------------------------
Its: Member, Board of Directors
------------------------------------
EMPLOYEE: /s/ Larry Bohn
-------------------------------
Larry Bohn
6
<PAGE> 7
SCHEDULE A
In the event of a Change of Control of the Company prior to the Company's
issuance of any additional class or series of preferred stock, the amount of
your Performance Bonus shall be calculated as follows:
An amount equal to the difference between a) the product obtained by multiplying
the total consideration available for distribution to the holders of the
Company's capital stock as a result of the Change of Control transaction by a
fraction with a numerator equal to 1,035,000 and a denominator equal to the
total number of the Company's then outstanding shares of capital stock on a
fully-diluted basis; and b) any consideration owed and payable to you as holder
of the Shares.
In the event of a Change of Control after the Company's issuance of any
additional class or series of preferred stock with a liquidation preference
superior to the Series C Liquidation Amount (as defined in the Second Amended
and Restated Certificate of Incorporation, (the "New Preferred Stock"), the
amount of your Performance Bonus shall be calculated as follows:
An amount equal to the difference between a) the product obtained by multiplying
the total consideration available for distribution to the holders of the
Company's capital stock minus any liquidation preference paid to holders of the
New Preferred Stock by a fraction with a numerator equal to 1,035,000 and a
denominator equal to the total number of the Company's then outstanding shares
of capital stock on a fully-diluted basis less the number of any shares of New
Preferred Stock which received payment of their liquidation preference; and b)
any consideration owed and payable to you as holder of the Shares.
<PAGE> 1
EXHIBIT 10.13
Boston, Massachusetts
May 4, 1999
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned (the "Payor"), promises to pay to
the order of net.Genesis Corp., a Delaware corporation (the "Company"), the
principal amount of ninety-six thousand three hundred ninety and 00/100 Dollars
($96,390.00), together with interest on the principal balance from time to time
outstanding, commencing on the date hereof, all as herein provided.
1. Payment of Principal and Interest. Subject to prepayment in
accordance with Sections 3 and 4 hereof, the principal balance of this Note
shall be paid on May 4, 2009. Any accrued and unpaid interest on the
outstanding principal balance of this Note shall be due and payable at the time
of the payment of principal.
2. Interest. Interest shall accrue on the outstanding principal amount
hereof, commencing on the date hereof and continuing until the date of payment
of principal in full, at the rate of interest per annum equal to six percent
(6%), simple interest. In the event of any prepayment of principal, interest on
the principal prepaid shall be paid on the date of prepayment.
3. Optional Prepayment. The Payor may, at any time and from time to
time, prepay this Note in whole or in part without premium or penalty. All
amounts prepaid pursuant to this Section 3 shall be applied to the outstanding
principal balance of this Note in inverse order of the Scheduled Installments.
4. Mandatory Prepayment. This Note is being given in partial payment for
810,000 shares of common stock, par value $.001 per share, of the Company
issued to the Payor on the date hereof (the "Shares"), which Shares are subject
to a Stock Restriction Agreement dated as of the date hereof (the "Stock
Restriction Agreement"), to which the Payor and the Company are parties.
Pursuant to the Stock Restriction Agreement, the Payor has granted the Company
certain repurchase rights with respect to the Shares. The Stock Restriction
Agreement provides in pertinent part that the Company may, under certain
circumstances, repurchase all or part of the Shares. In the event of any such
repurchase, or any purchase of the Shares by any other party, all proceeds
received by the Payor or his heirs or his estate shall be paid to the Company in
prepayment of this Note.
[IF THE PAYOR CEASES TO BE AN EMPLOYEE OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES, THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH
ACCRUED AND UNPAID INTEREST THEREON, SHALL BE DUE AND PAYABLE NINETY (90) DAYS
AFTER THE PAYOR'S TERMINATION FROM EMPLOYMENT.]
<PAGE> 2
5. Manner of Payment. All payments under this Note shall be made in
lawful money of the United States of America, in immediately available funds, to
the Company at the address set forth below, or to such other location as the
Company may specify in writing.
6. Collateral. The term "Collateral", as used herein, shall mean (i)
certificates representing the Shares together with stock powers executed in
blank, and any and all dividends, distributions and other rights on or with
respect to, and substitutions for and proceeds of, any of the foregoing; and
(ii) such other collateral as may be approved by the Company. The term
"Liabilities," as used herein, shall mean all obligations of Payor under this
Note. To secure the payment of this Note and all other Liabilities, Payor hereby
grants to and creates for the Company a lien upon and security interest in the
Collateral.
All obligations of Payor, and all rights, powers and remedies of the
Company, expressed herein shall be in addition to, and not in limitation of,
those provided by law or in any written agreement or instrument (other than this
Note) relating to any of the Liabilities or any security therefor.
If Payor shall fail to pay, when due, any amount payable with respect to
any of the Liabilities (a "Default"), (1) this Note may at the option of the
Company, and without demand or notice of any kind, be declared, and thereupon
immediately shall become, due and payable, (2) Payor agrees to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the Company
in endeavoring to collect any of the Collateral, and (3) the Company may
exercise from time to time any rights and remedies available to it as a secured
party under the Uniform Commercial Code as in Effect from time to time in The
Commonwealth of Massachusetts or otherwise available to it. Without limiting the
foregoing, upon Default the Company may to the fullest extent permitted by
applicable law, without notice, advertisement, hearing or process of law of any
kind, sell any or all of the Collateral, free of all rights and claims of Payor
therein and thereto. Any proceeds of such sale may be applied by the Company to
the payment of expenses incurred in connection therewith, including reasonable
attorneys' fees and legal expenses, and any balance of such proceeds may be
applied by the Company toward the payment of such of the Liabilities as may
remain. No delay on the part of the Company in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
the Company of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. The Company's recourse
against the Payor with respect to any of the Liabilities shall not be limited to
a foreclosure on the Collateral and the Payor is and shall remain personally
liable for all Liabilities.
The right is expressly granted to the Company at any time after a
Default to transfer into the Company's name or its nominee any Collateral
pledged hereunder and to exercise, at its option, all of the rights of a
registered owner with respect thereto, including voting rights. Otherwise, any
voting rights shall inure to the benefit of the Payor.
<PAGE> 3
7. Miscellaneous.
(a) Binding Effect. This Note shall inure to the benefit of
the Company and its successors or assignees. This Note shall be binding upon the
Payor and his estate and heirs.
(b) Notices. Any notice, request or other communication
pursuant to this Note shall be deemed duly given if hand delivered or mailed by
certified or registered mail to the Company or the Payor, as the case may be, at
their addresses as set forth below.
(c) Waiver of Demand; Collateral. The Payor waives
presentment, demand, protest and notice of every kind in connection with the
enforcement and collection of this Note.
(d) Governing Law. The execution, delivery and performance of
this Note shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
Executed under SEAL as of the date first above written.
/s/ Lawrence S. Bohn
-----------------------------------
Payor
Name and Address:
Lawrence S. Bohn
38 Academy St.
----------------------------------
Arlington, MA 02174
----------------------------------
The Company:
net.Genesis Corp.
215 First Street
Cambridge, MA 02142
<PAGE> 1
Exhibit 10.14
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
TO PURCHASE SHARES OF THE SERIES F PREFERRED STOCK OF
NET.GENESIS CORP.
DATED AS OF JUNE 10, 1999 (THE "EFFECTIVE DATE")
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to Hambrecht & Quist, LLC (the
"Warrantholder"), and the Warrantholder is entitled, upon the terms and subject
to the conditions hereinafter set forth, to subscribe to and purchase, from the
Company, 114,458 fully paid and non-assessable shares of the Company's Series F
Preferred Stock, $0.001 par value, ("Preferred Stock") at a purchase price of
$3.32 per share (the "Exercise Price"). The number and purchase price of such
shares are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) five
(5) years or (ii) until the effective date of the Company's initial public
offering, whichever is earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the acknowledgment of exercise in the form attached hereto as Exhibit II
(the "Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
<PAGE> 2
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be
issued to the Warrantholder.
Y = the number of shares of Preferred Stock requested
to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's
Registration Statement relating to such public offering has
been declared effective by the SEC, then the fair market value
per share shall be the product of (x) the initial "Price to
Public" specified in the final prospectus with respect to the
offering and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time
of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the
average of the closing prices over a twenty-one (21)
day period ending three days before the day the
current fair market value of the securities is being
determined and (y) the number of shares of Common
Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the
average of the closing bid and asked prices quoted on
the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before
the day the current fair market value of the
securities is being determined and (y) the number of
shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such
exercise;
<PAGE> 3
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current fair market value of
Preferred Stock shall be the product of (x) the highest price
per share which the Company could obtain from a willing buyer
(not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued
shares, as determined in good faith by its Board of Directors
and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the fair
market value of Preferred Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock
on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as then
in effect, or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer involved in such conversion), or listing
on any domestic securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered, listed or
approved for listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
<PAGE> 4
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the cash or the
number of shares of preferred stock or other securities of the successor
corporation resulting from such Merger Event, equivalent in value to that which
would have been issuable if Warrantholder had exercised this Warrant immediately
prior to the Merger Event. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator
<PAGE> 5
of which shall be the total number of all shares of the Company's stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of all shares of the Company's
stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit IV (the "Charter"). The
Company shall provide Warrantholder with prior written notice of any issuance of
its stock or other equity security to occur after the Effective Date of this
Warrant, which notice shall include (a) the price at which such stock or
security is to be sold, (b) the number of shares to be issued, and (c) such
other information as necessary for Warrantholder to determine if a dilutive
event has occurred.
(f) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by
<PAGE> 6
Warrantholder. The notice period shall begin on the date Warrantholder actually
receives a written notice containing all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws and
pursuant to the terms of the Second Amended and Restated Stockholder Agreement
by and among the Company and certain of its stockholders dated June 10, 1999, as
the same may be amended from time to time. The Company has made available to the
Warrantholder true, correct and complete copies of its Charter and Bylaws, as
amended. The issuance of certificates for shares of Preferred Stock upon
exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and this Warrant Agreement is not
inconsistent with the Company's Charter or Bylaws, does not contravene any law
or governmental rule, regulation or order applicable to it, does not and will
not contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and this Warrant Agreement constitutes the legal, valid and binding
agreement of the Company, enforceable in accordance with its terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the
<PAGE> 7
Warrantholder has no present intention of selling or engaging in any public
distribution of the same except pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of the Warrantholder's rights to acquire Preferred Stock
or Preferred Stock issuable on the exercise of such rights shall terminate as to
any particular share of Preferred Stock when (1) such security shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action shall
be recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a share of Preferred Stock
then outstanding as to which such restrictions have terminated shall be entitled
to receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), or file
reports pursuant to Section 15(d), of the 1934 Act, or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Preferred Stock pursuant to this
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be
<PAGE> 8
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of such rights of the Warrantholder to purchase
Preferred Stock or of such Preferred Stock which might be made by it in reliance
upon Rule 144 under the 1933 Act may be made only in accordance with the terms
and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of The
Commonwealth of Massachusetts, without regard to its principles of conflict of
laws.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at One Bush Street, San Francisco, California 94104, Attention: Jeffrey C.
Gustafson (and if by facsimile, (415) 677-7742 and (ii) to the Company at 215
First Street, Cambridge, Massachusetts 02142, Attention: John Delea, with a copy
to Foley, Hoag, Eliot, LLP, One Post Office Square, Boston, MA 02109, Attention:
John D. Patterson, Jr., (and if by facsimile, (617) 577-9850 and (617) 832-7000)
or at such other address as any such party may subsequently designate by written
notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where such party will not have an adequate remedy at law and where
damages will not be readily ascertainable. Each party expressly agrees that it
shall not oppose an application by the other or any other person entitled to the
benefit of this Agreement
<PAGE> 9
requiring specific performance of any or all provisions hereof or enjoining the
such party from continuing to commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: NET.GENESIS CORP.
By: /s/ John Delea
___________________________________________
Title: CFO VP Finance & Administration
________________________________________
Warrantholder: HAMBRECHT & QUIST, LLC
By:___________________________________________
Title:________________________________________
<PAGE> 10
EXHIBIT I
NOTICE OF EXERCISE
TO: _____________________________________
(1) The undersigned Warrantholder hereby elects to purchase _______shares
of the Series F Preferred Stock of net.Genesis Corp. pursuant to the
terms of the Warrant Agreement dated the _______day of
_________________, 1999 (the"Warrant Agreement") between net.Genesis
Corp. and the Warrantholder, and tenders herewith payment of the
purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights to purchase the Series F Preferred Stock of
net.Genesis Corp., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series F Preferred Stock in the name of the undersigned or in such
other name as is specified below.
(Name)_________________________________
(Address)______________________________
Warrantholder: HAMBRECHT & QUIST, LLC
By: ______________________________
Title: ______________________________
Date: ______________________________
<PAGE> 11
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned net.Genesis Corp., hereby acknowledge receipt of the "Notice of
Exercise" from Hambrecht & Quist, LLC to purchase ____shares of the Series F
Preferred Stock of net.Genesis Corp., pursuant to the terms of the Warrant
Agreement, and further acknowledges that ______shares remain subject to purchase
under the terms of the Warrant Agreement.
Company: net.Genesis Corp.
By: __________________________________
Title: __________________________________
Date: __________________________________
<PAGE> 12
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced
thereby are hereby transferred and assigned to
- ------------------------------------------------------------
(Please Print)
whose address is ______________________________________________
- ------------------------------------------------------------
Dated: ________________________
Holder's Signature: ______________
Holder's Address: _______________
- ------------------------------
- ------------------------------
- ------------------------------
Signature Guaranteed: _____________________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement,
without alteration or enlargement or any change whatever.
Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
<PAGE> 1
EXHIBIT 10.15
Confidential Treatment
Requested Pursuant
to Rule 406
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") is between MicroStrategy
Incorporated, a Delaware corporation, with primary offices at 8000 Towers
Crescent Drive, Vienna, Virginia 22182 ("MicroStrategy"), and net.Genesis
Corporation, a Delaware corporation, with primary offices at 150 CambridgePark
Drive, Cambridge, MA 02140 ("Netgen"). The effective date of this Agreement is
October 5, 1999 ("Effective Date").
RECITAL
MicroStrategy and Netgen wish to cooperate such that Netgen can
integrate certain MicroStrategy products with certain Netgen products
to create a value-added application for distribution to Netgen
customers.
These recitals are intended only to summarize the intent of this Agreement. The
actual terms and conditions of the Agreement are stated below.
1. DEFINITIONS
1.1 "Integrated Product" shall mean the Netgen Products and the MicroStrategy
Product, integrated as permitted under Section 2 of this Agreement, and all
Product Releases, Update Releases, and Version Releases thereof, all as more
fully described in Exhibit E. The term Integrated Product shall also include the
Combined Solution (as defined below) until the Integrated Product has been made
generally available or until June 30, 2000, whichever comes first.
1.2 "Combined Solution" shall mean the combination of the Netgen Product and the
unbundled MicroStrategy Product, distributed as permitted under Section 2.2.6.
1.3 "Documentation" shall mean the standard user guides developed and released
by MicroStrategy for use with the MicroStrategy Product.
1.4 "Documentation Media" shall mean the diskettes, CDs or other media
containing Microsoft Word Versions of the Documentation.
1.5 "End User" shall mean any customer of Netgen that licenses or may license
the Integrated Product for use in accordance with the End User License
Agreement, which shall restrict the use of the MicroStrategy Products to use
solely as part of the Integrated Product or the Combined Solution and not for
stand-alone use.
1.6 "Embed" shall mean the integration of the MicroStrategy Products with the
Netgen products so that the MicroStrategy Products are the reporting tools for
the collection technology of Netgen. The integration shall be complete and
seamless so that
1
<PAGE> 2
there are pre-defined filters, templates and reports and that any End User will
not be able to readily use the MicroStrategy Products without the Netgen
Products.
1.7 "Evaluation" shall mean an installation of the MicroStrategy Product as part
of the Integrated Product for a period of thirty (30) days or less, during which
an End User may evaluate the Integrated Product for its internal use.
1.8 "Master Disk" shall mean the standard microcomputer diskettes, CDs, or other
media containing the object code version of the MicroStrategy Product.
1.9 "MicroStrategy Product" shall mean the product specified in Exhibit C
hereto, and includes all Product Releases, Version Releases and Update Releases
provided by MicroStrategy to Netgen as specified in Exhibit C hereto, together
with any bug fixes, patches or other modifications or enhancements provided
pursuant to Section 11.1.
1.10 "Named User" shall mean an individual to whom the End User assigns an
identification number for purposes of tracking use of the Integrated Product. If
and when a Named User no longer has access to the Integrated Product, the End
User may allow an alternate Named User to assume the initial Named User's
identification number and use the Integrated Product in place of the initial
Named User. Typically, the Named User will be an employee of the End User.
1.11 "Netgen Products" shall mean a suite of products as set forth in Exhibit D,
and all Product Releases, Update Releases, and Version Releases thereof.
1.12 "OEM" shall mean a customer of Netgen that has entered into a written
agreement with Netgen to license the Integrated Product, combine such Integrated
Product (provided such OEM does not modify the underlying MicroStrategy Product
in the Integrated Product) with hardware or software that adds value to the
Integrated Product, and license and sublicense such combination under the OEM's
trademark or tradename.
1.13 "OEM Product" shall mean the product developed by an OEM that combines the
Integrated Product with hardware or software that adds value to the Integrated
Product, and license and sublicense such combination under the OEM's trademark
or tradename.
1.14 "Product Release" shall mean a release of a MicroStrategy Product or Netgen
Product which is designated by MicroStrategy or Netgen respectively, in its sole
discretion, as a change in the digit(s) to the left of the decimal point in the
MicroStrategy or Netgen Product version number ({x}.x.x).
1.15 "Reseller" shall mean distributors and subdistributors, including
value-added resellers, within Netgen's distribution channel which market and
deliver Netgen Products or Integrated Products.
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1.16 "Second-line Support" shall mean reproducing and isolating problems, and
jointly developing workarounds for problems and testing software fixes for the
Integrated Product.
1.17 "Update Release" shall mean a release of the MicroStrategy Product or the
Netgen Product which is designated by MicroStrategy or Netgen respectively, in
its sole discretion as a change in the hundredths digit in the MicroStrategy or
Netgen Product version number, (x.x.{x}).
1.18 "Version Release" shall mean a release of the MicroStrategy Product or the
Netgen Product designated by MicroStrategy or Netgen respectively, in its sole
discretion, as a change in the tenths digit in the MicroStrategy or Netgen
Product version number, (x.{x}.x).
2. DELIVERY AND LICENSE
2.1 Delivery by MicroStrategy. MicroStrategy will deliver the MicroStrategy
Product on the Master Disk as set forth in Exhibit C hereto, along with the
Documentation Media by March 31, 2000. MicroStrategy will use reasonable
commercial efforts to support Netgen's development of the Integrated Product, as
more fully set forth in Exhibit C. If MicroStrategy does not deliver the
MicroStrategy Product by March 31, 2000, and/or the MicroStrategy Product does
not meet Netgen's requirements for integration with the Netgen Products by that
date, Netgen may terminate this Agreement immediately, upon written notice to
MicroStrategy, notwithstanding the cure provision for material breach set forth
in Section 6.3.
2.2 License to Netgen. Subject to the terms of this Agreement, MicroStrategy
grants to Netgen the following licenses:
2.2.1 License to Integrate MicroStrategy Product. MicroStrategy grants
to Netgen a non-exclusive, non-transferable and royalty-free license to
reproduce, create derivative works of and use copies of the
MicroStrategy Product to: (i) embed the MicroStrategy Product into the
Netgen Product to create the Integrated Product; (ii) develop Product
Releases, Update Releases, and Version Releases of the Integrated
Product; and (iii) maintain and support the Integrated Product and
Product Releases, Update Releases, and Version Releases thereof.
2.2.2 License to Copy and Distribute Documentation. MicroStrategy
grants to Netgen a non-exclusive, non-transferable and royalty-free
license to copy the Documentation from the Documentation Media solely
for the purpose of distributing copies of the Documentation with the
Integrated Product.
2.2.3 License to Demonstrate. MicroStrategy grants to Netgen a
non-exclusive, non-transferable and royalty-free license to demonstrate
the MicroStrategy Product solely as part of the Integrated Product.
Netgen may copy the MicroStrategy Product for demonstration purposes,
but only as provided in
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Exhibit F. Netgen shall take all reasonable precautions against
unauthorized disclosure or copying of the MicroStrategy Product while
the Integrated Product is being demonstrated. Netgen shall take all
reasonable steps to ensure that the MicroStrategy Product is
inaccessible during inactive demonstration times, delete any
demonstration copies of the MicroStrategy Product upon completion of
any demonstration at a customer site and further exercise commercially
reasonable efforts to ensure the security of the MicroStrategy Product.
2.2.4 License to Grant Evaluation Licenses. MicroStrategy grants to
Netgen a non-exclusive, non-transferable and royalty-free license to
allow Evaluations of the MicroStrategy Product solely as part of the
Integrated Product, but only pursuant to an end-user license agreement
substantially equivalent in terms to the "net.Genesis Software License
Agreement" attached hereto as Exhibit B. Netgen may copy the
MicroStrategy Product for Evaluation, but only as provided in
Exhibit F.
2.2.5 License to Distribute as Part of Integrated Product.
MicroStrategy grants to Netgen the nonexclusive, non-transferable
worldwide right to reproduce, market, sublicense and distribute copies
of the MicroStrategy Product on disk, CD-ROM, or via electronic
download, solely as part of the Integrated Product. Except as otherwise
set forth in Section 2.2.6, this is not a license to market, sublicense
or distribute the MicroStrategy Products or user documentation
separately nor permit the use of the MicroStrategy Products outside of
the Integrated Application, and such action shall be a material breach
of this Agreement.
2.2.6 License to Distribute Existing MicroStrategy Product.
MicroStrategy grants to Netgen the nonexclusive, non-transferable
worldwide right to distribute copies of the MicroStrategy Product,
unbundled, until release of the Integrated Product, but only pursuant
to a written sublicense agreement that, in addition to including
restrictions substantially similar to those contained in the
"net.Genesis Software License Agreement" attached hereto as Exhibit B,
explicitly states that the unbundled MicroStrategy Product may be used
only with the Netgen Products (the "Combined Solution"). This right
shall automatically expire by June 30, 2000. Netgen must replace the
Combined Solution with the Integrated Product for all End Users who
receive a license to the Combined Solution within six (6) months of the
release of the Integrated Product. Except as otherwise set forth in
Section 2.2.6, this is not a license to market, sublicense or
distribute the MicroStrategy Products or user documentation separately
nor permit the use of the MicroStrategy Products outside of the
Integrated Application, and such action shall be a material breach of
this Agreement.
2.3 Terms of Distribution. Except as otherwise set forth in Section
2.2.6, Netgen agrees that it will distribute the MicroStrategy Product
as permitted in section 2.2 only pursuant to an end-user license
agreement substantially equivalent in terms to the "net.Genesis End
User License Agreement" attached hereto as Exhibit B.
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This "net.Genesis End User License Agreement" shall at a minimum: (a) restrict
use of the MicroStrategy Products to use as part of the Integrated Solution; and
(b) restrict use of the MicroStrategy Product to use for analysis of the Web
traffic data combined with other enterprise data sources captured and correlated
by the Integrated Product.
2.4 License Restrictions. Netgen agrees that it shall not, and shall not permit
others to, decompile, disassemble, reverse engineer or otherwise decode or
derive source code of the MicroStrategy Product. In addition, Netgen shall not
rent the Integrated Products, provide third parties with access to the
Integrated Products through a service bureau or commercial time-sharing
arrangement or use the Integrated Products for outsourcing without the prior
written approval of MicroStrategy, which approval shall not be unreasonably
withheld.
2.5 Sublicensing Rights. The licenses granted in Section 2.2 may be sublicensed
to Resellers and OEMs who have executed written agreements with Netgen
containing terms at least as restrictive as those contained herein for the
purpose of facilitating distribution of the Integrated Product and/or creating
and distributing OEM Products. Netgen shall report to MicroStrategy on a monthly
basis the names of all Resellers and OEMs it has sublicensed hereunder.
3. ROYALTIES, PAYMENT TERMS, AND RECORDS
3.1 Royalty Rate. Beginning on October 1, 1999, Netgen shall pay MicroStrategy
[*] Where Netgen sells more than [*] Named User Licenses for the Integrated
Product or the Combined Solution to a given End User, Netgen shall pay
MicroStrategy the fees set forth in Exhibit A for each Named User over [*].
3.2 Reports. Netgen shall prepare and maintain complete and accurate books and
records documenting the licensing of the Integrated Product or Combined Solution
and any compensation received therefrom. In addition, Netgen shall compile
quarterly financial results detailing total product revenue and total
maintenance revenue. Within forty-five (45) days of the close of each quarter,
Netgen shall report to MicroStrategy, in writing, the sale of Integrated
Products or Combined Solutions from the previous quarter including the name,
address and contact person for each customer, a copy of its quarterly financial
statement and the total royalty due MicroStrategy (the "Royalty Report").
3.3 Payments. All payments to MicroStrategy shall be denominated and made in
U.S. dollars, and are due within thirty (30) days of transmitting the Royalty
Report. Payments will be conducted via check drawn from a U.S. bank, or via
cable transfer of funds to a bank account to be specified by MicroStrategy.
Prices listed are exclusive of any shipping costs, import duties, transfer fees,
sales, use, value-added, privilege, excise or
* Confidential treatment requested pursuant to Rule 406
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similar taxes or duties levied upon MicroStrategy, or any other charges or
assessments established by any government agency that are based upon licensing
of the MicroStrategy Product or Integrated Product pursuant to this Agreement,
all of which shall be paid by Netgen with the exception of taxes, duties or fees
based on MicroStrategy's net income.
3.4 Audit Rights. During the term of this Agreement and for a period of two (2)
years thereafter, MicroStrategy shall have the right, at its expense and upon
reasonable notice, to have examined by an independent, certified public
accountant subject to mutually acceptable nondisclosure agreement, Netgen's
books and records once each calendar year, in order to determine and verify
performance under this Agreement. Any discrepancy between royalties paid and
royalties actually due discovered pursuant to such examination shall be payable
within thirty (30) days of completion of the examination. In the event that an
audit discloses underpayment by Netgen of at least (5%) Netgen shall reimburse
MicroStrategy for the costs incurred in conducting the audit.
3.5 Renegotiation. Any time after the first year of this agreement, if more than
[*] is derived from products other than its Web analysis products, which shall
embed the MicroStrategy Products, then Netgen may request a re-negotiation of
the Royalties. Netgen may request such a re-negotiation by sending MicroStrategy
written notification that the threshold has been crossed and Netgen desires to
re-negotiate the royalties. Once Microstrategy receives the notice of
re-negotiation, the parties will meet and confer within ten (10) business days
to choose an independent auditor to determine the percentage of [*] that is not
attributable to Web analysis products and report back to both companies. The
percentage of revenue not attributable to Web analysis products that embed the
MicroStrategy Products shall then be carved out of the [*] definition for future
quarters. Any time after the renegotiated rates take effect, if less than [*] is
derived from products other than Web analysis products then MicroStrategy may
request a re-negotiation of the Royalties. MicroStrategy shall be required to
give Netgen notice of the re-negotiation. If MicroStrategy notifies Netgen of
the re-negotiation, then the definition of [*] shall be reset to the current
definition.
4. MICROSTRATEGY DEVELOPMENT AND MARKETING ASSISTANCE TO NETGEN
4.1 Public Statements. The parties will agree in advance to the text of all
press releases and public disclosures associated with activities under this
Agreement, including without limitation any termination or expiration of this
Agreement. The parties will issue a joint release announcing the joint business
relationship.
4.2 Beta Programs and First Mover Advantage. Netgen and MicroStrategy will have
the option to participate in each other's beta programs. MicroStrategy will
ensure that Netgen be a high-priority alpha and beta site for the MicroStrategy
Product. For the first release of the MicroStrategy Product, Netgen will have
high-priority developer level support and first mover advantage over all other
Web analysis companies.
* Confidential treatment requested pursuant to Rule 406
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4.3 Cooperative Marketing Plan. Netgen and MicroStrategy will exercise their
reasonable endeavors within sixty (60) days of the signing of this Agreement to
draw up a cooperative marketing plan.
4.4 Development Partner Designation. MicroStrategy will work with Netgen and use
commercially reasonable efforts to create a unique, distinct classification for
the partnership and MicroStrategy will not remove this designation during the
term of this Agreement without giving Netgen at least twelve (12) months prior
notice of the change in designation. This classification will enable Netgen to
develop and market a product or interface (to be defined) that will be uniquely
promoted by MicroStrategy to its customer base royalty-free. The purpose of this
is to "seed" the MicroStrategy market with an opportunity to collect Web data.
4.5 Co-Development Efforts. MicroStrategy agrees to co-locate a Netgen engineer
with the development team for the MicroStrategy Product, at mutually agreed upon
times, to use best efforts to incorporate Netgen's feature requirements
necessary to build the Integrated Product, and to otherwise provide the
development support more fully set forth in Exhibit C.
4.6 Right of First Refusal. MicroStrategy agrees to grant Netgen a right of
first refusal to license any new MicroStrategy Product on terms and conditions
substantially identical hereto. However, notwithstanding the foregoing,
MicroStrategy reserves the right to charge additional fees for certain products
if MicroStrategy determines, in its reasonable judgement, that the nature of the
product warrants such additional fees.
4.7 Non-Compete Notification. During the term of this Agreement, MicroStrategy
agrees that it will promote Netgen as a value-added partner. If MicroStrategy
enters the Web analysis business, either through acquisition or development of
an integrated Web analysis software product that combines collection and
analysis of Web site visitor behavior information and correlation of this
behavioral data with other business information on a stand-alone basis in direct
competition with Netgen, MicroStrategy shall give Netgen ninety (90) days prior
written notice before delivering such Web analysis software product to market.
If MicroStrategy provides such notice to Netgen, then Netgen may cancel this
Agreement within ninety (90) days of its receipt of such notice.
6. TERM AND TERMINATION OF AGREEMENT
6.1 Initial Term. The initial term of this Agreement shall be five (5) years
from the Effective Date, and shall be renewed automatically for successive five
(5) year terms unless terminated as set forth below.
6.2 Termination for Convenience. This Agreement may be terminated for
convenience by either party at end of the initial term or any subsequent term,
provided that either party shall give notice of non-renewal to the other party
at least ninety (90) days prior to the end of the then-current term.
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6.3 Termination for Breach. Either party may terminate this Agreement upon the
other party's failure to cure a material default under this Agreement within
thirty (30) days of receipt of written notice of such material default.
6.4 Rights and Duties Upon Termination. Upon termination or expiration of this
Agreement, the duties and rights of the parties shall be as follows:
6.4.1 Netgen's rights granted under this Agreement will terminate and,
except as provided herein, Netgen shall immediately cease reproduction,
distribution and use of the MicroStrategy Product and Documentation, or
any related technical or marketing material. Netgen shall immediately
return to MicroStrategy all Master Disks, Documentation Media and other
copies of the MicroStrategy Product and Documentation, as well as all
MicroStrategy supplied copies of technical and marketing materials
relating to the MicroStrategy Product or of the products of
MicroStrategy. Netgen shall promptly return to MicroStrategy any
Confidential Information belonging to MicroStrategy and MicroStrategy
shall promptly return to Netgen any Confidential Information belonging
to Netgen
6.4.2 Within thirty (30) days of termination of this Agreement, a duly
authorized officer of Netgen shall certify in writing that all of the
items set forth in paragraph 6.4.1 above belonging to MicroStrategy
have been returned to MicroStrategy and a duly authorized officer of
MicroStrategy shall certify in writing that all of the items set forth
in paragraph 6.4.1 above belonging to Netgen have been returned to
Netgen.
6.4.3 Within thirty (30) days of termination of this Agreement, each
party shall pay the other party all sums due and owing under this
Agreement. It is understood and agreed that the rights of termination
and non-renewal set forth in this Agreement shall be absolute, that the
parties have considered that expenses may be incurred in preparing for
performance hereunder, and that financial loss or damage may result
from such termination or non-renewal. It is the express intent of the
parties that neither shall be liable to the other, for direct damages
or incidental or consequential damages or of any kind otherwise, by
reason of termination or non-renewal as herein provided.
6.4.4 Notwithstanding the foregoing, upon termination, Netgen shall be
entitled to retain thirty (30) copies of the MicroStrategy Product in
order to support its existing customers. In the event that termination
results from MicroStrategy's failure to maintain and upgrade the
MicroStrategy Product as required by this Agreement, Netgen shall be
entitled to use the source code of the MicroStrategy Product as
provided in Section 12.
6.5 Survival. The provisions of Sections 2.4, 3.1 - 3.5, 6.4, 7, 8, 9, 10, 12
and 13 shall survive termination or expiration of this Agreement.
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7. WARRANTIES
7.1 Warranty to Netgen. MicroStrategy warrants that for six (6) months after the
date of delivery of the MicroStrategy Product the MicroStrategy Product will
conform in all material respects to the published technical specifications for
the MicroStrategy Product, and that any Product, Version or Update Releases
thereof will conform in all material respects to the published technical
specifications for such Release. MicroStrategy further warrants that
MicroStrategy has not included in the MicroStrategy Product, as delivered to
Netgen, any so-called virus, Trojan Horse, worm or other software routine not
provided for in the specifications that is designed to permit unauthorized
access to erase or otherwise damage, the MicroStrategy Product or any data or
other software of Netgen. For any breach of this warranty, Netgen's exclusive
remedy and MicroStrategy's entire liability shall be, at MicroStrategy's sole
discretion, the correction of the MicroStrategy Product errors that cause breach
of the warranty, replacement of the MicroStrategy Product, or return of the fees
paid to MicroStrategy for the MicroStrategy Product upon Netgen's return of the
MicroStrategy Product to MicroStrategy.
7.2 Disclaimer. OTHER THAN AS SET FORTH ABOVE, NEITHER PARTY HERETO MAKES ANY
WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTIES OF TITLE, NONINFRINGEMENT, MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
7.3 Limitation of Liability. EXCEPT FOR AMOUNTS PAYABLE PURSUANT TO BREACHES OF
SECTIONS 2 (LICENSE GRANTS), SECTION 9 (COMPLIANCE WITH LAWS) AND SECTION 10
(CONFIDENTIAL INFORMATION), OR AMOUNTS PAYABLE PURSUANT TO THIRD PARTY CLAIMS
MADE PURSUANT TO SECTIONS 8 OR 9.1 (INDEMNIFICATION CLAIMS) IN NO EVENT SHALL A
PARTY HERETO BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
PUNITIVE DAMAGES, ARISING OUT OF THIS AGREEMENT. THE FOREGOING LIMITATION OF
LIABILITY SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH DAMAGES
ARE SOUGHT, INCLUDING, WITHOUT LIMITATION, BREACH OF CONTRACT, NEGLIGENCE OR
OTHER TORT. THE FOREGOING LIMITATION DOES NOT APPLY TO DAMAGES ARISING FROM
PERSONAL INJURY CAUSED BY THE NEGLIGENCE OF EITHER PARTY. Except for amounts
payable pursuant to third party claims made pursuant to Sections 8 or 9.1
(Indemnification Claims) or breaches of Section 10 (Confidentiality) in no event
shall either party's liability to the other party under this Agreement exceed
the amount of royalties paid by Netgen for the twelve (12) months preceding such
liability.
7.4 Year 2000 Warranty. MicroStrategy warrants to Netgen through June 30, 2000
that the unmodified MicroStrategy Products will not fail or produce incorrect
results when processing with four (4)-digit dates for the year 2000 or beyond;
provided, however, that MicroStrategy makes no warranty with respect to any such
failure or incorrect result that may arise due to: (i) the quality of the data
sought to be processed
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with the Integrated Product; (ii) the effect of other software not licensed by
MicroStrategy to Netgen or developed by MicroStrategy for Netgen; or (iii) the
use of the software in an operating environment or on a platform not specified
by MicroStrategy. Warranty claims must be brought within the warranty period.
For any breach of this warranty, Netgen's exclusive remedy and MicroStrategy's
entire liability shall be, at MicroStrategy's sole discretion, the correction of
the MicroStrategy Product errors that cause breach of the warranty, replacement
of the MicroStrategy Product, or return of the fees paid to MicroStrategy for
the MicroStrategy Product upon Netgen's return of the Product to MicroStrategy.
8. INDEMNITY
8.1 Defense or Settlement of Claims. MicroStrategy agrees to defend, or at its
option to settle, any claim, suit or proceeding brought against Netgen based on
a third party claim that the MicroStrategy Product, as delivered to Netgen
pursuant to this Agreement, infringes upon any patent or upon any copyright or
violates the trade secret or other intellectual property rights of any third
party in the Territory (hereinafter "Infringement Claims"); provided
MicroStrategy is notified promptly in writing of an Infringement Claim and has
sole control over its defense or settlement, and Netgen provides reasonable
assistance in the defense of same.
8.2 Infringement Cures. Following notice of an Infringement Claim, or if
MicroStrategy believes such a claim is likely, MicroStrategy may at its sole
expense and option (i) procure for Netgen the right to continue to market, use
and have others use, the alleged infringing MicroStrategy Product; (ii) replace
or modify the MicroStrategy Product to make it non-infringing; or (iii) accept
return of the MicroStrategy Product and refund payments made therefor by Netgen.
8.3 Limitation. Notwithstanding any other provision of this Agreement,
MicroStrategy assumes no liability for any Infringement Claims based on: (i)
modification of the MicroStrategy Product, or any part thereof, by Netgen, at
the request of Netgen or to meet any specifications provided by Netgen; (ii)
combination of a MicroStrategy Product with non-MicroStrategy programs, data,
hardware, or other materials, if such infringement claim would have been avoided
by the exclusive use of the unmodified MicroStrategy Product alone. For all
infringement claims to which this Subsection 8.3 is applicable, Netgen agrees to
indemnify and defend MicroStrategy, provided Netgen is notified promptly in
writing of an infringement claim and has sole control over its defense or
settlement, and MicroStrategy provides reasonable assistance in the defense of
same.
8.4 Entire liability. THE FOREGOING PROVISIONS OF THIS SECTION 8 STATE THE
ENTIRE LIABILITY AND OBLIGATIONS OF MICROSTRATEGY AND NETGEN AND THE EXCLUSIVE
REMEDY OF MICROSTRATEGY AND NETGEN, WITH RESPECT TO ANY ALLEGED INTELLECTUAL
PROPERTY INFRINGEMENT BY THE MICROSTRATEGY PRODUCT, OR ANY PART THEREOF.
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9. COMPLIANCE WITH LAWS
9.1 Compliance with Laws. In performing this Agreement both parties agree they
will comply with all applicable laws, rules, regulations and policies and will
render each other harmless and indemnify each other for the failure of the other
party to do so.
9.2 Foreign Corrupt Practices Act. In conformity with the United States foreign
Corrupt Practices Act, Netgen and its employees and agents shall not directly or
indirectly make an offer, payment, promise to pay, or authorize payment, or
offer a gift, promise to give, or authorize the giving of anything of value for
the purpose of influencing an act or decision of an official of any government
(including a decision not to act) or inducing such a person to use his influence
to affect any such governmental act or decision in order to assist Netgen in
obtaining, retaining or directing any such business.
9.3 Export Administration Act. Netgen shall not export or re-export any
MicroStrategy Product, Documentation, or technical data of MicroStrategy to any
country, person entity or end user to which such export would be a violation of
any applicable export restriction. Restricted countries for the purposes of U.S.
law and regulations currently include, but are not necessarily limited to, Cuba,
Iran, Iraq, Libya, North Korea, the Sudan and Syria. Netgen shall do all things
necessary to comply with all applicable laws, rules and regulations concerning
exports of products and technical data of MicroStrategy.
10. PROPRIETARY RIGHTS AND CONFIDENTIAL INFORMATION
10.1 Property Rights in MicroStrategy Product. Netgen agrees that MicroStrategy
owns all right, title, and interest in the MicroStrategy Product and the
Documentation, including, without limitation, the Master Disk and Documentation
Media, now or hereafter subject to this Agreement, and in all of MicroStrategy's
patents, trademarks, trade names, inventions, copyrights, know-how, and trade
secrets relating to the design, manufacture, operation or service of the
MicroStrategy Product. MicroStrategy agrees that Netgen owns all right, title,
and interest in the Netgen Products, and in all of Netgen's patents, trademarks,
trade names, inventions, copyrights, know-how, and trade secrets relating
thereto.
10.2 Confidential Information. "Confidential Information" may be disclosed in
any manner, whether orally, visually, or in tangible form (including, without
limitation, documents, devices, and computer readable media). Tangible materials
that disclose or embody confidential Information shall be marked by the
discloser thereof as "Confidential," "Proprietary," or the substantial
equivalent thereof. Confidential Information that is disclosed orally or
visually shall be identified by the discloser thereof at the time of disclosure
or within thirty (30) days of disclosure and reduced to a written summary by the
discloser who shall mark such summary as "Confidential," Proprietary," or the
substantial equivalent thereof and deliver it to the receiving party by the end
of the
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month following the month in which disclosure occurs. The recipient of such
information shall treat it as Confidential Information pending receipt of such
summary. Notwithstanding and in addition to the foregoing, the MicroStrategy
Product, information relating to MicroStrategy's specifications, designs,
development plans, business plans, business records, prices and customer lists,
shall be deemed to be Confidential Information of MicroStrategy. Notwithstanding
and in addition to the foregoing, the Netgen Product, information relating to
Netgen's specifications, designs, development plans, business plans, business
records, prices and customer lists, shall be deemed to be "Confidential
Information of Netgen."
10.3 Restrictions. Each party acknowledges that during the term of this
Agreement, it will be entrusted with certain Confidential Information and agrees
that it will protect the confidentiality thereof with the same measures it would
use to protect its own similar information, but in no event shall such measures
be less than reasonable in light of general industry practices. Except as
otherwise required by law, each party agrees that for the term of this Agreement
and for a period of five (5) years from termination or expiration, it will not
(i) use such Confidential Information for any purpose except in accordance with
this Agreement, or (ii) disclose any such Confidential Information to any person
(except employees or agents on a need to know basis where such persons have
agreed to be bound by the confidentiality provisions herein), unless such
disclosure is authorized by the other party in writing. The obligations of each
party under this Section 10.3 shall not apply to information which (i) within
thirty (30) days of disclosure hereunder, is shown to have been in a party's
possession without confidentiality restriction prior to such disclosure, (ii)
was generally known in the trade or business in which it is practiced by the
disclosing party at the time of disclosure, or becomes so generally known after
such disclosure, through no act of the receiving party, or (iii) has come into
the possession of the receiving party without confidentiality restriction from a
third party, and such third party is under no obligation to maintain the
confidentiality of such information.
10.4 Judicial Order, Etc. To the extent that a party is ordered to disclose the
other party's Confidential Information pursuant to a judicial or governmental
request, requirement, or order, the disclosing party shall promptly notify the
other party and take reasonable steps to assist the other party in contesting
such request, requirement or order or to otherwise protect the other party's
rights prior to disclosure.
11. MAINTENANCE, SUPPORT AND TRAINING
11.1 Maintenance. MicroStrategy agrees to provide maintenance of the
MicroStrategy Product pursuant to the terms of MicroStrategy's standard
maintenance and support policies and procedures, which are attached hereto as
Exhibit G.
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11.2 Support. Netgen shall be solely responsible for all customer support to
Netgen End-User customers of the Integrated Product. MicroStrategy will make
available Second-line Support via telephone to Netgen in accordance with
MicroStrategy's then current Technical Support Policies and Procedures;
provided, however, that, notwithstanding anything in such Technical Support
Policies and Procedures to the contrary, Netgen shall be entitled to receive
technical support twenty-four (24) hours a day, seven (7) days per week; Netgen
shall be assigned a dedicated point-of-contact Engineer who will be responsible
for managing all of Netgen's technical support issues and who will be available
for on-site support as necessary; and Netgen shall be entitled to weekly status
reports on open issues, monthly status reviews, and quarterly on-site support
meetings.
11.3 Training. MicroStrategy will provide an initial eight (8)-day MicroStrategy
Gold Certification training class for up to fifteen (15) Netgen employees at
Netgen's facility at no charge. This training should provide the appropriate
level of exposure to the MicroStrategy technology for Netgen to develop the
Bundled and Integrated Products. MicroStrategy will also provide a reasonable
number of sales training workshops at Netgen's facility at no charge.
Additionally, MicroStrategy will provide a three (3)-day training class for up
to fifteen (15) Netgen employees at Netgen's facility at no charge for each
major release of the MicroStrategy product. Additional training for Netgen
personnel will be available to Netgen at a thirty percent (30%) discount from
MicroStrategy list prices, plus reasonable expenses.
12. ESCROW
12.1 Escrow Account. Within sixty (60) days of the Effective Date, MicroStrategy
agrees to deposit in an escrow account pursuant to an escrow agreement among
MicroStrategy and a third party escrow agent used by MicroStrategy (currently
Fort Knoxx) (the "Escrow Agent"), a copy of the source code of the MicroStrategy
Product (the "Escrow Material"). The escrow agreement shall contain, at a
minimum, the terms and conditions set forth in this Section 12. MicroStrategy
shall keep Escrow Material current and allow periodic audit by Escrow Agent of
compliance to this provision. Netgen shall bear all fees, expenses and other
costs to open and maintain such escrow account. If a Release Condition (as
defined in Section 12.2 below) occurs, and the Escrow Agent provides the Escrow
Material to Netgen in accordance with the escrow agreement, Netgen agrees to
hold all materials and information in the escrow account in strictest confidence
pursuant to the provisions contained in Section 10, and not to use them for any
purpose other than those purposes contemplated under Section 12.3 below.
12.2 Release. The Escrow Material shall remain under seal and unopened unless
and until a Release Condition occurs. Netgen shall notify MicroStrategy in
writing if it intends to seek release of the Escrow Material from the Escrow
Agent because (a) MicroStrategy has filed for bankruptcy under Chapter 7 or 11
of the Bankruptcy Act or a petition has been filed against MicroStrategy and
such petition has not been withdrawn or dismissed with prejudice within sixty
(60) days of such filing, (b) MicroStrategy ceases to do business in the
ordinary course for a period of at least sixty (60) days, or (c)
13
<PAGE> 14
MicroStrategy materially breaches its support obligations under this Agreement,
and such breach remains uncured for a period of at least sixty (60) days after
MicroStrategy receives written notice of the breach from Netgen (the "Release
Conditions"). If MicroStrategy notifies Netgen in writing that it disputes
whether the Release Condition has occurred, officers of each of the parties
shall negotiate for a period of ten (10) business days to attempt to resolve the
dispute. At the end of such ten (10) business day period, if the parties have
not resolved the dispute, the matter shall be referred to arbitration in the
manner provided in Section 12.4 below.
12.3 License. Upon the release of the Escrow Material pursuant to section 12.2
above, Netgen shall have a non-exclusive, non-transferable license to use and
modify the Escrow Material as necessary to fully exercise the rights granted in
Section 2 hereof, including the right to use, modify and create derivative works
of the Escrow Material solely in order to maintain and support the Integrated
Product, and the right to modify and create derivative works of the Escrow
Material in order to create Product Releases, Version Releases and Update
Releases of the Integrated Product. Netgen shall not distribute, sell or
sublicense the Escrow Material. Subject to the licenses expressly granted in
this Agreement, MicroStrategy shall retain all right, title and interest in and
to the Escrow Material, including any modifications made thereto by Netgen. For
purposes of this section, Netgen may contract with and make the Escrow Material
available to a third party solely for the purpose of exercising its rights under
this section.
12.4 Arbitration. The parties agree that, if MicroStrategy reasonably disputes
the occurrence of the Release Condition as set forth above, it shall submit such
dispute for binding arbitration in accordance with the then-current commercial
arbitration rules of the American Arbitration Association ("Rules"). The
arbitration shall be conducted by one (1) arbitrator appointed in accordance
with the Rules. The sole question before the arbitrator shall be whether the
Release Condition existed at the time of Netgen's notice to MicroStrategy. If
the arbitrator finds that the Release Condition did exist at the time of
Netgen's notice to MicroStrategy, the Escrow Agent is hereby authorized to
release the Escrow Material to Netgen. The non-prevailing party in the
arbitration shall pay all fees and charges of the American Arbitration
Association; each party, however, shall be responsible for the payment of all
fees and expenses connected with the presentation of its respective case.
14
<PAGE> 15
13. MISCELLANEOUS
13.1 Governing Law. This Agreement, and all matters arising out of or relating
to this Agreement, shall be governed by, subject to and construed according to
the laws of the Commonwealth of Virginia, without regard to its principles
regarding conflicts of laws. Any legal action or proceeding relating to this
Agreement shall be instituted in a state court in Fairfax County, Virginia or in
federal court in Alexandria, Virginia. The parties hereto agree to submit to the
jurisdiction of, and agree that venue is proper in, these courts. The parties
hereto exclude the United Nations Convention on Contracts for the sale of Goods
from this Agreement and any transaction between them that may be implemented in
connection with this Agreement.
13.2 Independent Contractors. The Agreement does not create and shall not be
construed as creating any relationship of agency, partnership or employment
between the parties. MicroStrategy and Netgen enter this Agreement as and shall
remain independent contractors.
13.3 Assignment. Netgen shall be entitled to assign this Agreement to the
acquiring party in the event of a merger or consolidation of Netgen with such
acquiring party or in the event of the sale of substantially all of Netgen's
assets. This Agreement shall inure to the benefit of MicroStrategy, its
successors, administrators, heirs and assigns.
13.4 Entire Agreement. This Agreement and the Exhibits hereto represent and
constitute the entire agreement between the parties, may only be amended in
writing signed by both parties, and supersede all prior agreements and
understandings with respect to the matters covered by this Agreement. The
parties acknowledge that they have not relied upon any representations other
than the representations set forth herein.
13.5 Waiver. The waiver of one breach or default hereunder shall not constitute
the waiver of any subsequent breach or default.
13.6 Notices. All notices or reports permitted or required under this Agreement
shall be in writing and shall be delivered in person, mailed by first class
mail, postage prepaid, (registered or certified to the extent available and
airmail if overseas), or sent by telecopy, to the party to receive the notice at
the address set forth at the beginning of this Agreement or such other address
as either party may specify in writing. All such notices shall be effective upon
receipt.
13.7 Force Majeure. Each party shall be excused to the extent its performance is
prevented or delayed by fire, flood, earthquake, supplier delay, or other cause
beyond its reasonable control.
15
<PAGE> 16
13.8 Severability. If any provision of this Agreement is held to be
unenforceable for any reason, such provision shall be reformed only to the
extent necessary to make it enforceable, and such provision shall not affect the
enforceability: (i) of such provision under other circumstances; or (ii) the
remaining provisions hereof under all circumstances.
13.9 Headings. Headings shall not be considered in interpreting this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by their authorized
representatives.
MicroStrategy Corporation: net.Genesis Corporation:
Sanin Bansal Larry Bohn
Name:______________________________ Name:______________________________
COO CEO
Title:_____________________________ Title:_____________________________
/s/Sanin Bansal /s/Larry Bohn
Signature:_________________________ Signature:_________________________
6 Oct 99 5 Oct 99
Date:______________________________ Date:______________________________
16
<PAGE> 17
EXHIBIT A
ROYALTY SCHEDULE (MORE THAN [*] NAMED USERS)
INTEGRATED PRODUCT
<TABLE>
<CAPTION>
TOTAL USERS "PAID" USERS TOTAL COST COST PER "PAID"
SEAT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[ * ]
</TABLE>
Note: "Paid" users refers to the number of users over the [*] users that are
included in the [*] royalty.
* Confidential treatment requested pursuant to Rule 406.
17
<PAGE> 18
EXHIBIT B
DRAFT - NOT FOR SIGNATURE
NET.GENESIS SOFTWARE LICENSE AGREEMENT
THIS IS A LEGAL AGREEMENT ("AGREEMENT") BETWEEN YOU AND NET.GENESIS CORPORATION
("NET.GENESIS").
1. DEFINITIONS
A. "Confidential Information" shall mean the Products, Product
information, trade secrets and technical information disclosed in
relation to this Agreement, the terms and pricing under this Agreement
and all information clearly identified as confidential.
B. "Product" shall mean a computer software program belonging to
net.Genesis's net.Analysis(TM) software family that is identified on
your invoice, for which you are granted a license pursuant to this
Agreement ("Software"); the user guides and manuals associated with the
Software ("Documentation"); and any and all Updates to, or patches and
fixes for, the Software and Documentation. The term "Product" shall not
include any code that has been modified or developed by you.
C. "Technical Support Services" shall mean the maintenance and support
provided by net.Genesis in accordance with net.Genesis's then-current
technical support policies and procedures for the applicable
Product(s).
D. "Update" shall mean any subsequent release of Software and/or
Documentation that is made generally available to licensees subscribing
to Technical Support Services at no additional charge other than media
and handling charges. Updates shall not include any release, option or
future product that net.Genesis licenses separately.
E. "Territory" shall mean all countries of the world, subject however to
all applicable U.S. export restrictions.
2. LICENSE
A. net.Genesis grants to you a non-exclusive and non-transferable license
to use the Software in object code form only for your own internal data
processing and analysis operations, and to use the Documentation in
support of such use of the Software in the Territory, subject to the
terms and conditions of this Agreement. Your use of the Software is
limited to the number of single or multiple CPU systems ("Managed
Server Boxes") and number of users that are specified on your invoice.
In addition to the Software specified on your invoice, and at no
additional cost, net.Genesis grants to you a runtime license to use the
net.Analysis Software Development Kit ("net.Analysis SDK") solely for
the purpose of using the Product(s) or installing and using bug fixes
and product enhancements from net.Genesis or its certified partners.
B. net.Genesis grants to you a non-exclusive, non-transferable license to
make object code copies of the Software for archival, disaster recovery
and routine backup as is reasonably necessary. You may make a
reasonable number of copies of the Documentation, or parts thereof, for
internal use at your place of business. All titles, trademarks,
copyright and restricted rights notices shall be reproduced in all
Product copies. All copies of the Products are subject to the terms of
this Agreement.
C. net.Genesis shall retain all title, copyright and other proprietary
rights in the Software and Documentation. You shall not acquire any
rights, express or implied, in the Products, other than those specified
in this Agreement.
3. AUDIT
net.Genesis shall have the right, at its expense, to conduct an audit
to verify that you are using the Products to process and analyze data
generated by the number of servers specified on your invoice, and that
the Products are being used by the number of users specified on your
invoice. Any such audit shall be conducted during regular business
hours and shall not unreasonably interfere with your business
activities. If an audit reveals that you have distributed or allowed
use of the Products in excess
18
<PAGE> 19
of the use permitted by this Agreement, you shall pay net.Genesis for
such unauthorized use based on the net.Genesis price list in effect at
the time the audit is completed. If the underpaid fees exceed five
percent (5%) of the license fees paid, then you shall pay net.Genesis's
reasonable costs of conducting the audit. net.Genesis shall conduct
audits not more than once per year; provided however that if the
underpaid fees exceed five percent (5%) of the license fees paid then
net.Genesis shall be entitled to conduct a second audit within the same
year.
4. UNAUTHORIZED USE
You may not: (i) market, license, distribute, transfer, sublicense or
otherwise commercially exploit the Software or Documentation; (ii)
permit the use of the Software or Documentation by others or otherwise
operate the Software for third parties (e.g., as a service bureau or
data processing service); (iii) modify the Software or translate or
port the Software or Documentation into any other computer or human
language without the prior written consent of net.Genesis; (iv)
disassemble, reverse engineer or decompile the Software or cause or
permit reverse engineering, disassembly or decompilation of the
Software, except to the extent that applicable law expressly allows
such actions; (v) publish or provide the results of any benchmark or
comparison tests run on the Software to any third party, without the
prior written consent of net.Genesis; or (vi) sell, lend, rent, give,
assign or otherwise transfer or dispose of the Software or the
Documentation.
5. LIMITED WARRANTIES AND DISCLAIMERS
A. Software Warranty. net.Genesis warrants, for a period of ninety (90)
days from the date the Software is delivered or, if the Software is
installed by net.Genesis, from the date the Software is installed (the
"Warranty Period") that the Software, if operated as directed, will
substantially achieve the functionality described in the Documentation.
net.Genesis also warrants that the unmodified Software will not produce
errors processing date data in connection with the year change from
December 31, 1999 to January 1, 2000 when used in accordance with the
instructions, recommendations, and exceptions set forth in the
Documentation, provided all other products (e.g., other software,
firmware, and hardware) used with the Software properly exchange date
data with the Software. Notwithstanding the foregoing, net.Genesis
makes no warranty with respect to failures that are caused directly by
the underlying hardware and operating system software on which the
Software is used if such underlying hardware and operating system has
not been approved by net.Genesis for use with the Software.
B. Media Warranty. net.Genesis warrants that the media containing the
Software, if provided by net.Genesis, is free from defects in material
and workmanship under normal use for thirty (30) days from the date of
your invoice.
C. Conditions to Limited Warranties. The limited warranties in this
Section 5 are conditioned upon your use of the Software in accordance
with the instructions provided in the Documentation. The limited
warranties set forth in this Section 5 shall not apply to the extent
that an error occurs because of and would not have occurred but for:
(i) modifications made to the Software by a party other than
net.Genesis; (ii) your failure to implement enhancements provided to
you by net.Genesis; or (iii) your use of the Software in connection
with any computer equipment or devices not meeting the minimum
requirements set forth in the Documentation.
D. Disclaimers. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW,
NET.GENESIS AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH REGARD TO THE SOFTWARE AND
DOCUMENTATION.
net.Genesis does not warrant that the Software will meet your
requirements or operate with all equipment and software configurations.
Furthermore, you acknowledge that due to the complex nature of computer
software, however, it is impossible to ensure that the Software is
completely error free, will operate without interruption or that all
Software errors will be corrected. To the extent you obtain any
pre-production releases of the Software, such Software is distributed
"as is" with no warranty of any kind.
E. Exclusive Remedies. For breach of any of the warranties contained in
this Section 5, your exclusive remedy, and net.Genesis's entire
liability, shall be: (i) to replace defective media returned within
thirty (30) days of the date of your invoice; or (ii) at net.Genesis's
sole discretion, to correct Software errors that cause breach of the
warranty, to replace the Software, or to advise you how to achieve
substantially the same functionality described in the Documentation.
19
<PAGE> 20
6. LIMITATION OF LIABILITY
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT WILL
NET.GENESIS OR ITS SUPPLIERS BE LIABLE FOR INDIRECT, INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION,
DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF
BUSINESS INFORMATION, OR ANY OTHER PECUNIARY LOSS) ARISING OUT OF THE
USE OR INABILITY TO USE THIS SOFTWARE, EVEN IF NET.GENESIS HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NET.GENESIS'S LIABILITY FOR
DAMAGES HEREUNDER SHALL IN NO EVENT EXCEED THE AMOUNT OF LICENSE FEES
PAID BY YOU UNDER THIS AGREEMENT.
7. INTELLECTUAL PROPERTY RIGHTS AND CONFIDENTIALITY
A. You acknowledge that the Software, including methods, processes or
techniques utilized therein, are proprietary to and valuable trade
secrets of net.Genesis and are protected by United States copyright law
and international treaties. You shall take no actions that impair or
infringe net.Genesis's intellectual property rights. You agree not to
use, copy, modify, transfer, download, merge, make any translation or
derivative work or otherwise deal with the Software except as expressly
provided in this Agreement. In no event shall you cause or permit the
disassembly, reverse compilation or other decoding of any Software. You
agree not to remove or destroy any copyright notices, other proprietary
markings or confidentiality legends placed upon or contained within the
Software.
B. During the term of this Agreement, each party may have access to the
other party's Confidential Information. "Confidential Information"
includes, without limitation, information pertaining to the parties'
respective businesses and includes, without limitation, methods, plans,
customers and/or projects and financial information. A party's
Confidential Information shall not include information that: (i) is or
becomes a part of the public domain through no act or omission of the
other party; (ii) was in the other party's lawful possession prior to
the disclosure and had not been obtained by the other party either
directly or indirectly from the disclosing party; (iii) is lawfully
disclosed to the other party by a third party without restriction on
disclosure; or (iv) is independently developed by the other party.
C. The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of two
(2) years after termination of this Agreement. The parties agree that,
unless required by law, they shall not make each other's Confidential
Information available in any form to any third party or to use each
other's Confidential Information for any purpose other than the
implementation of this Agreement. Each party agrees to take all
reasonable steps to ensure that Confidential Information is not
disclosed or distributed by its employees or agents in violation of the
terms of this Agreement. Furthermore, you agree not to use any
Confidential Information of net.Genesis to create any computer software
program or user documentation that is substantially similar to any
net.Genesis product.
8. TECHNICAL SUPPORT SERVICES
net.Genesis provides Technical Support Services (including product
maintenance and upgrades) only through separate Support Agreements.
Please contact net.Genesis if you want to obtain support through the
execution of such agreement.
9. TERM AND TERMINATION
A. Term. This Agreement shall remain in effect until terminated in
accordance with this Section 9. If not terminated as provided herein,
the license granted under this Agreement shall remain in effect
perpetually.
B. Termination by net.Genesis. net.Genesis may terminate this Agreement or
any license upon written notice if you have materially breached the
terms and conditions of this Agreement and fail to correct the breach
within thirty (30) days following written notice informing you of the
breach.
C. Termination by You. You may terminate any license or this Agreement at
any time; termination shall not, however, relieve you of the
obligations specified in Sections 9.D and 9.E below.
20
<PAGE> 21
D. Effect of Termination. Termination of this Agreement or any license
shall not prevent either party from pursuing other remedies available
to it, including injunctive relief, nor shall such termination relieve
your obligation to pay all fees that have accrued or are otherwise owed
by you under this Agreement.
E. Handling of Products upon Termination. If the license granted under
this Agreement expires or otherwise terminates, you shall: (a) cease
using the applicable Products, and (b) certify to net.Genesis within
thirty (30) days after expiration or termination that you have
destroyed or have returned to net.Genesis the Products and all copies
thereof and any Confidential Information in your possession or control;
provided, however, that in the event that only certain licenses granted
under this Agreement expire or are terminated, you may retain any
Confidential Information that relates to the licenses you continues to
hold. This requirement applies to copies in all forms, partial and
complete, in all types of media and computer memory, and whether or not
modified or merged into other materials.
10. INVOICING AND PAYMENT
All fees shall be calculated based upon net.Genesis's prices in effect
at the time of any quote or order, as applicable. All fees shall be
payable thirty (30) days from the date of invoice, and shall be deemed
overdue if they remain unpaid thereafter. Any amounts payable by you
hereunder which remain unpaid after the due date shall be subject to a
late charge equal to one and one-half percent (1.5%) per month or the
highest rate allowable by law, whichever is lower, from the due date
until such amount is paid. You agree to pay applicable shipping and
handling charges. If your procedures require you to issue a purchase
order, all purchase orders or ordering documents shall be governed by
the terms of this Agreement. In no event shall the terms of any
purchase order you issue to net.Genesis be given any force or effect.
11. GENERAL
A. Governing Law. This Agreement is governed by the laws of the
Commonwealth of Massachusetts, excluding the application of its
conflict of laws provisions. The federal and state courts of
Massachusetts shall have exclusive jurisdiction over any dispute
between the parties arising under this Agreement.
B. Notice. All notices, including notices of address change, required to
be sent under this Agreement shall be in writing and shall be deemed to
have been given when mailed by first class mail. Notices to you will be
sent to the address listed in your invoice or the address stated in any
applicable notice of change of address. Notices to net.Genesis will be
sent to net.Genesis Corporation, 150 CambridgePark Drive, Cambridge, MA
02140 or the address stated in any applicable notice of change of
address.
C. Waiver. To be enforceable, any waiver of this Agreement or any
provision thereof must be in writing and signed by the waiving party.
Should either party waive or excuse a breach by the other party, such
waiver shall not constitute a consent to, waiver of, or excuse of any
different or subsequent breach, whether or not of the same kind as the
original breach.
D. Severability. If for any reason a court if competent jurisdiction finds
any provision or portion of this Agreement to be unenforceable, that
provision will be enforced to the maximum extent permissible so as to
effect the intent of the parties, and the remainder of this Agreement
will continue in full force and effect.
E. Export Restrictions. The Software may be subject to the export controls
of the United States Departments of State and Commerce and you agree to
comply fully with all applicable U.S. regulations governing the export,
destination, ultimate end user and other restrictions relating to the
Software.
F. U.S. Government Restricted Rights. Software acquired with United States
Federal Government funds or intended for use within or for any United
States federal agency are provided with "LIMITED RIGHTS" and
"RESTRICTED RIGHTS" as defined in DFARS 252.227-7013 and/or FAR
52.227-19. Contractor/Manufacturer is net.Genesis Corporation, 150
CambridgePark Drive, Cambridge, MA 02140.
G. Relationship between the Parties. net.Genesis is an independent
contractor. Nothing in this Agreement shall be construed to create a
partnership, joint venture or agency relationship between the parties.
21
<PAGE> 22
H. Force Majeure. Neither party will be responsible for failure of
performance, other than for an obligation to pay money, due to causes
beyond its control, including, without limitation, acts of God or
nature; labor disputes; sovereign acts of any federal, state or foreign
governments; or shortage of materials.
I. Entire Agreement. This Agreement constitutes the entire understanding
between you and net.Genesis and supersedes any prior written or oral
Agreement concerning the Software. It shall not be modified except by
written agreement dated subsequent to the date of this Agreement and
signed by authorized representatives of each party hereto. Neither
party is bound by any provision of any purchase order, receipt,
acceptance, confirmation, correspondence, or otherwise, unless the
parties specifically agree to the provision in writing.
THE UNDERSIGNED AGREES TO THE FOREGOING TERMS AND CONDITIONS:
Signed:______________________________________
Printed Name:________________________________
Title:_______________________________________
Company:_____________________________________
Address:_____________________________________
_____________________________________
_____________________________________
22
<PAGE> 23
EXHIBIT C
MICROSTRATEGY PRODUCT AND
DEVELOPMENT SUPPORT TO NETGEN
[*]
MICROSTRATEGY DEVELOPMENT SUPPORT TO NETGEN:
For the first release of the MicroStrategy Product, Netgen will have
high-priority developer level support.
Development support shall include, without limitation, access to MicroStrategy's
knowledge base and resources such as test suites and performance criteria; as
well as a designated contact person to assist the Netgen development team during
the course of Netgen's integration work
* Confidential treatment requested pursuant to Rule 406
23
<PAGE> 24
EXHIBIT D
NETGEN PRODUCTS
The Netgen Products include, but are not limited to, the following components of
net.Analysis(TM):
- - net.Instrument
- - net.Stream
- - net.Reporter
- - net.Dashboard
- - ReportSite
- - HTML Reporter
- - Administrator Console
- - CartSmarts
24
<PAGE> 25
EXHIBIT E
INTEGRATED PRODUCT DESCRIPTION
The Integrated Product is composed of any of the following MicroStrategy
components in whole or in part (the "MicroStrategy Products"), including, but
not limited to:
- - [*]
The Integrated Product is composed of any of the following Netgen components in
whole or in part (the "Netgen Products"), including, but not limited to:
- - net.Analysis(TM)
- net.Instrument
- net.Stream
- net.Reporter
- net.Dashboard
- ReportSite
- Administrator Console
- HTML Reporter
- CartSmarts
The MicroStrategy Products, as embedded within the Netgen products, are
reporting tools for Netgen's data collection technology. The integration shall
be complete and seamless so that there are pre-defined filters, templates and
reports. End users will not be able to readily use the MicroStrategy Products
without the Netgen Products.
* Confidential treatment requested pursuant to Rule 406
25
<PAGE> 26
EXHIBIT F
DEMONSTRATION AND EVALUATION LICENSES
MicroStrategy shall provide Netgen with one (1) copy of each MicroStrategy
Product for use under its demonstration license, and Netgen shall be entitled to
make copies of the MicroStrategy Products as reasonable necessary to exercise
its rights under its demonstration license. MicroStrategy shall waive the
license fees for Netgen's demonstration license.
MicroStrategy shall provide Netgen with one (1) copy of each MicroStrategy
Product for use under its evaluation license, and Netgen shall be entitled to
make copies of the MicroStrategy Products as reasonable necessary to exercise
its rights under its evaluation license. MicroStrategy shall waive the license
fees for Netgen's evaluation license.
26
<PAGE> 27
EXHIBIT G
MICROSTRATEGY MAINTENANCE AND SUPPORT
MicroStrategy provides maintenance and support, and product updates. The primary
purpose of the MicroStrategy Standard Technical Support is to answer questions
with regard to the operation of the MicroStrategy software and troubleshoot
issues that may arise. Support services includes providing telephone help desk
support to a key contact between the hours of 9:00 am and 7:00 PM Monday through
Friday, excluding major US holidays. In addition to telephone support, Technical
Support includes e-mail support and access to MicroStrategy's proprietary
Knowledgebase. Support services do not include services which, in the usual
course of MicroStrategy's business, are provided to partners as consulting
services. Such consulting services include, but are not limited to, custom
application development, data warehouse design, requirements analysis, and
database design. MicroStrategy licensees are also entitled to product updates,
service packs and generally available upgrades for any software covered by
Technical Support.
27
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 16, 1999, except as to the information in Note 13, for which
the date is December 20, 1999, relating to the financial statements of
net.Genesis Corp., which appear in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 253,333
<SECURITIES> 962,291
<RECEIVABLES> 215,234
<ALLOWANCES> 101,600
<INVENTORY> 0
<CURRENT-ASSETS> 1,363,759
<PP&E> 531,612
<DEPRECIATION> 253,275
<TOTAL-ASSETS> 1,642,096
<CURRENT-LIABILITIES> 498,232
<BONDS> 0
5,855,780
1,716,857
<COMMON> 739
<OTHER-SE> (6,429,512)
<TOTAL-LIABILITY-AND-EQUITY> 1,642,096
<SALES> 844,983
<TOTAL-REVENUES> 1,008,704
<CGS> 90,924
<TOTAL-COSTS> 639,791
<OTHER-EXPENSES> 3,419,447
<LOSS-PROVISION> 3,992
<INTEREST-EXPENSE> 17,962
<INCOME-PRETAX> (3,110,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,110,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,110,313)
<EPS-BASIC> (6.08)
<EPS-DILUTED> (6.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,260,820
<SECURITIES> 0
<RECEIVABLES> 850,117
<ALLOWANCES> 143,800
<INVENTORY> 0
<CURRENT-ASSETS> 3,069,007
<PP&E> 1,307,167
<DEPRECIATION> 510,014
<TOTAL-ASSETS> 3,866,160
<CURRENT-LIABILITIES> 1,381,200
<BONDS> 0
13,566,336
1,716,857
<COMMON> 2,006
<OTHER-SE> (12,800,239)
<TOTAL-LIABILITY-AND-EQUITY> 3,866,160
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